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Cases Review
Though there haven’t been laws, regulations or judicial interpretations specifically regulating the issue of trademarked parallel imports in China, inevitably, the court encountered and was challenged by such cases. The author believes that the difficulty and uncertainty for the court to judge on these parallel imports cases will continue, as long as laws on this issue are not articulate. The high-profile cases in China’s judicial practices are the “Lux soap” case and the “AN'' GE” case.
The “Lux soap” case, [FN7] a classic parallel importation in character, is interpreted as being decided purely on its particular factual matrix, because its decision was decided mainly on the fact that the defendant failed to show that the soaps at issue were genuine goods manufactured in Thailand with authorization from the foreign trademark owner. The question of whether parallel importation is allowed if the parallel importer is able to produce the requisite evidence is not yet settled. [FN8] However, this case perhaps could be regarded as a prelude of parallel imports cases in China, and it indeed raised some thought-provoking questions to be discussed. For instance, if the defendant was able to prove the goods were legally authorized from the trademark owner? In this case, should the court adopt the “first sale doctrine” to permit such parallel imports or adopt the territoriality principle to prohibit? What should be noted is, unlike the Patent Law, the Trademark Law did not mention whether "exclusive right" included the right to import. [FN9]
Compared with the “Lux Soap” case, the following “AN'' GE” case，to some extent, reflected much more deeply on the court’s attitudes and comprehension on China’s parallel importation issues. In the “AN'' GE” case, [FN10] the plaintiff argued that the two defendants infringed his exclusive right as a sole licensee to sell the products, and violated business principle of honesty and credit. Thus, the plaintiff advocated it was a kind of unfair competition which should be stopped immediately. The plaintiff claimed compensation for economic losses and apologies. On the part of the defendants, both of them denied the plaintiff’s claims above. The parallel importer (one of the two defendants) insisted that his activity was legal because the parallel imports followed the formal import procedures.
This case went through two trials. At the first trial, the judge ruled that the parallel importer’s behavior was legal business operations. The rationale behind the decision was that though the business licensing agreement concluded between the licensor and the licensee was authorizing the licensee the exclusive right. However, it is legally permissible for the third party’s resale activity, because contractual rights cannot directly be asserted as a defense against a third party’s resale. No statutory restrictions stipulated that the buyers who bought the products must be direct consumers or users. Thus there was a possibility that the products were sold for the second time by the third party. The judgement finally denied the plaintiff’s claims. The plaintiff appealed to a higher people''s court. The appeal court maintained the decision of the lower court that the defendant’s behavior was legal and there was no unfair competition involved. The court pronounced against the plaintiff’s appeal in the end.
In brief, this case typically characterized the general picture of parallel importation in China. There seemed to be an indication that the court in this case preferred to adopt the international exhaustion principle. It is known that the decisions or judgements from the local People’s Court in China are not binding on subsequent cases, because “stare decisis” is not established in Chinese legal system as opposed to common law legal system, nonetheless, the “AN'' GE” case significantly provides a number of valuable references in the court’s judicial practice.
In substance, the fundamental theories embedded in parallel importation ascribe to “exhaustion of rights” (“first-sale doctrine”) and “territoriality principle”. The former is a concept in intellectual property law whereby an intellectual property owner will lose or "exhaust" certain rights after the first use of the subject matter which is the subject of intellectual property rights. For example, the ability of a trademark owner to control further sales of a product bearing its mark are generally "exhausted" following the sale of that product. [FN11] The concept typically arises in the context of parallel imports. Under this principle, trademark owners lose control over their trademarked goods once the goods are released into the stream of commerce. Neither he, nor anyone deriving trademark rights from him, will be entitled to stop the further use or distribution of the product. [FN12] While regarding to the concept of “territoriality principle”, [FN13] it means that intellectual property rights do not extend beyond the territory of sovereign which has granted the rights in the first place. An intellectual property law passed by one country did not apply in the second country. In this sense, the unauthorized importation and sale of the goods in foreign markets, i.e. parallel importation, is infringing on the rights of the trademark owner. [FN14]
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