The question of whether trademark owners or their exclusive licensees can claim civil damages for counterfeit goods confiscated before entering the market has long been a contentious issue in judicial practice. Even after trademark infringement is established, the calculation of damages varies depending on the circumstances of each case. While Taiwan’s Trademark Act specifies the calculation of damages, courts reserve the discretion to reduce the awarded amount if it is deemed disproportionate to the actual harm.[1] A recent judgment by the Intellectual Property and Commercial Court (IPC Court) clarified this issue. It affirmed that damages can still be awarded for counterfeit goods, even when the goods have not been sold on the market. The awarded amount, however, was reduced to align with the potential harm.

  In this case, tea merchant TRANQUIL HALL (the “respondent”) purchased and imported 2,604 Pu’er tea bricks bearing the “Dayi Design Logo” trademark (see Fig. 1). Customs labeled the goods as counterfeit, a conclusion later confirmed by the trademark owner. At the time, Taiwan Dayitea Cultural & Creative (the “appellant”) held an exclusive license for the disputed trademark, but did not register it until after the counterfeit goods had been confiscated. Following the trademark owner’s confirmation, the appellant filed an infringement lawsuit with the court. However, the court of first instance dismissed the claim for damages, citing the principle of “no compensation if no damages” because the counterfeit goods had not been sold on the market.[2] Dissatisfied with the result, the appellant lodged an appeal.

  The IPC Court addressed both the trial and appellate proceedings, summarized the facts and then set forth the key issues. The court’s ruling on damages is particularly significant; damages were awarded taking into account the unavailability of the counterfeit goods on the market. Considering the popularity of the disputed goods, the large quantity of importation, and the harm caused to market order and to the consumer’s interests, the infringer remained liable for damages even though the counterfeit goods were only stockpiled. However, the court ruled to reduce the claimed damages from NT$12,170 to NT$500 per tea brick on the grounds that none of the counterfeit goods were actually sold. A total of NT$1,302,000 (500 × 2,604 = 1,302,000) was therefore awarded as compensation.[3]

  Before reaching this conclusion, the court first established the counterfeit nature of the goods. The appellant submitted an assessment report prepared by the trademark owner, containing an exhaustive analysis of the differences between genuine and counterfeit tea bricks. Testimonies from two employees of the trademark owner’s tea factory—who were themselves highly knowledgeable tea experts—further supported this conclusion.

  In addition, the court also affirmed the licensee’s right to sue. As the exclusive licensee of the disputed trademark, the appellant was entitled to file a lawsuit in their own name for trademark infringement. The appellee argued that pursuant to Article 39-2 of the Trademark Act, a licensee has no locus standi against any third party unless the license is recorded with the Taiwan IP Office. Since the appellant’s license registration occurred after the alleged infringement, the appellant’s right to sue was questionable. The IPC Count however opined that the exclusive licensee (appellant) still bore the legitimate right to sue because a lawsuit was brought against the alleged infringer. The third party stipulated in Article 39 refers to the counter party who should be protected by law when doing business in good faith. Obviously an infringer is not a third party meant to be protected by the trademark law. [4]

  The respondent’s negligence was another critical factor in the court’s findings. The court determined that the respondent had failed to exercise the duty of care expected of a prudent manager. By failing to carry out due diligence, the respondent displayed negligent conduct in the infringement. Specifically, the respondent imported a substantial quantity of 2,604 counterfeit goods at significantly low prices without any proof of their authenticity. This negligence was aggravated by the respondent’s prior involvement in importing 3,681 counterfeit Pu’er tea bricks bearing the “Yiwuzhengshan” and “Zhongcha” trademarks.

  The judgment highlights that in Taiwan statutory damages may be sought even in the absence of actual harm. However, it would be an excessive liability to the accused infringer to bear an amount exceeding the harm caused to public order in the case where no actual harm has as yet been caused to the trademark owner. In this instance, the courts would use their discretion to adjust the amount of damages in order to align with the principle of fair compensation and avoid excessive damages being awarded.

Fig. 1