2024/08/21

Court Elaborated Definition of Trademark Exhaustion due to Parallel Import

IPC Court Trademark

   Trademark exhaustion is one of the limitations to the enforceability of trademark rights in Taiwan.[1] Specifically, Taiwan adopts the principle of international exhaustion in its first-sale doctrine. Once a product bearing a registered trademark is sold in either the “domestic or foreign” market by the right holder or by another entity permitted by the right holder, the trademark right exhausts locally. It means that the right holder is no longer entitled to claim for infringement against a resale within Taiwan. Analytically, the exhaustion clause consists of three elements:

 

  1. The product sold for the first time in the market is a legal one bearing the registered trademark;

 

  2. The product is sold for the first time from a lawful source; and

 

  3. The first-time sale is made by the trademark owner or with the permission of the trademark owner.

 

  A number of precedent judgments decided that, for the third element, “permission” can be established not only through an explicit consent but also implicitly by the existence of a business relationship between the first-time seller and the Taiwanese trademark owner. This was affirmed in a recent Supreme Court case.

 

  Nefful International Holdings (“Nefful”), a Japan-originating multi-level marketing company incorporated in Singapore, owns Taiwanese trademark registration No. 01781681; this is a logo consisting of a globe shape formed of stars with the words “NEFFUL INTERNATIONAL” placed in the center of a globe-shape object (See Fig. 1). In 2015, Nefful received from its Taiwan branch office the transfers of a series of word marks in various fonts bearing the simple text “Nefful” (See Fig. 2).

 

  Nefful discovered an online store (the “defendant”)[2] at Shopee.tw displaying and offering for sale a large number of consumer goods all purchased and imported from Japan bearing logos or text related to “NEFFUL”(See Fig. 3). On its webpage, the defendant highlighted among other things messages which translated as “the full series of NEFFULJP products carried back straight from Japan" and “sharing good products brought from Japan”. These accused products bearing marks with the letters N-E-F-F-U-L in the same order—although not exactly identical, having different fonts and with the addition of wave motifs—were alleged to be highly similar to Nefful’s registered trademarks. Nefful complained that this second sale of the accused products constituted trademark infringement and thus filed a lawsuit for damages and injunctions.

 

  The defendant argued that the accused products had all been legally purchased from Japan’s Nefful company. The pictures of the accused products in the original packaging (See Fig. 3) show there to be a square mark with two wave motifs inside, with “NEFFUL” in much smaller text placed on the side; this is distinctly different visually from the logo in Fig.1. Furthermore, the marketing sentences and phrases, including the phrase “NEFFULJP products straight from Japan”, merely served the purpose of delivering information rather than being used as a trademark. There was no intention of identifying the source of products or free-riding the goodwill of another. Furthermore, from the evidence presented by the plaintiff Nefful, the same wave-motif logos were displayed at the company premises. The defendant’s purchased products were likewise sold by the plaintiff. Thus, the clause of parallel import applies.

 

  In 2022, the IPC Court, having heard both the trial and the appeal cases, ruled in favor of the defendant by finding no trademark infringement since—among other factors—the use of the same trademark was absent. The case was brought to the third instance. It was, however, remanded by the Supreme Court, who indicated that the lower court had erred by failing to carefully investigate the degree of similarity between the two disputing marks.

 

  At remand, the IPC Court reconsidered and firstly explained that the trademark right is exhausted when the same product bearing the same mark originates from the same right holder and is sold once within or outside Taiwan.

 

  On the issue of trademark use, the court further examined to find that the accused products’ packaging bag bore a horizontal bar on the top seal with "NEFFUL" written in white on the left side of the bar. There is a light-colored box on the left side of the bag; in the lower part of the box is the text "NEORON", which is decorated by a wave motif above the text with wavy arcs extending from upper left to lower right. The text "NEORON" and the wave motif were conspicuous. The accused products were apparel, socks, shawls and other items which were identical or similar to the goods which the asserted trademarks designate. Hence, there existed the likelihood of confusion as to the same or related source in business.

 

  As for the issue of parallel import, the court decisively sided with the defendant in determining that the asserted trademark was exhausted, as implied by the permission element. During the hearing, the court found that the Singaporean Nefful International had on its website confessed that Nefful Japan was founded in 1971 before subsequently branching out into several Asian markets including Taiwan and Singapore. This connection explained the economic and legal ties between the Singaporean and the Japanese entities and their use of the same "NEFFUL" and "NEORON" marks. Although the Taiwanese and Japanese trademarks are based in different territories and are ostensibly owned by different entities, the origin of their exclusive intellectual property rights is essentially the same. The Taiwanese trademark owner cannot prohibit the re-sale of a genuine product bearing the same mark sold for the first time in a foreign country.

 

  To briefly conclude, the accused products were purchased from a seller economically related to the Taiwanese trademark owner. Despite them bearing a mark identical or similar to the registered trademark in dispute, the re-sale of parallel imported genuine products does not constitute infringement locally.[3]

 

  Unwilling to back down, Nefful again appealed to the Supreme Court. In June 2024, the Supreme Court accepted all of the lower court’s analysis and affirmed the remanded decision.[4]

 

  As the Supreme Court emphasized, quoting In re Philip B[5], the permission element that leads to the exhaustion of a trademark right does not have to be explicitly made. When the trademark rights originate from the same root and there is a certain degree of commercial connection between the foreign trademark owner and the Taiwanese trademark owner (such as licensing, franchising, distribution, exclusive sales, shareholding, joint ventures, or even strategic alliances such as joint marketing on a global scale using a single trademark), these common economic ties or shared commercial strategies ensure the likely control of the quality of trademarked products and the course of trademark use from the upstream down. The good will of the Taiwanese trademark owner is therefore protected. The existence of such a relationship implies permission and thus the prohibiting of the domestic exercising of a trademark right.

 
 

  Fig. 1: Taiwan Trademark Registration No. 01781681 under several classes.

 
 

  Fig. 2: Taiwan Trademark Registration No. 01119883, under Class 25 for clothing.

 
 

  Fig. 3: A possibly similar packaging bag of the products discussed; not sourced from the parties in this case but screen-captured at https://sho.pe/6cphpa (This Figure herein which was publically released serves for explanatory purpose. Tsai, Lee & Chen does not own this particular work. All credits and privileges at law of this work attribute to its rightful owner.)

 

[1] Article 36 of Trademark Act

[2] https://shopee.tw/newfangna

[3] IPCC-112-CivilTrademarkAppealRemandOne-No.2 (02.01.2024)

[4] SPC-113-TaiwanAppeal-No.882 (06.27.2024)

[4] IPCC-105-CivilTrademarkAppeal-No.14 (01.24.2017)

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