[Guest post] Shanghai courtroom: the doctrine of exhaustion doesn’t shield all unauthorized repackaging from commerce mark infringement claims


The IPKat has acquired the next remark from Rui Cao (LLM candidate at Shanghai Jiaotong College) on a latest commerce mark infringement case in Shanghai relating to Klüber’s specialty lubricants. 

Here is what Rui Cao writes:

Shanghai courtroom: the doctrine of exhaustion doesn’t shield all unauthorized repackaging from commerce mark infringement claims

by Rui Cao

As a basic rule of thumb, Chinese language courts comply with the doctrine of exhaustion. Particularly, a commerce mark proprietor has no proper to ban others from reselling or utilizing a product bearing the commerce mark proprietor’s mark, after the branded product is bought or transferred by the commerce mark proprietor or by others with the proprietor’s consent. In different phrases, as soon as a commerce mark proprietor has obtained an financial curiosity from the primary sale or inserting the branded product out there, the purchaser or transferee could use or eliminate the branded product with out additional restriction, supplied the commerce mark affixed to the product is just not altered. 

That mentioned, in a latest case earlier than the Shanghai Pudong New Space Court docket, the courtroom held that the doctrine of exhaustion is topic to additional restriction. Particularly, a distributor was discovered to have infringed on the opposite’s commerce mark proper by way of repackaging the branded merchandise with out authorization. The courtroom held that the repackaging had doubtlessly impaired commerce mark’s different performance to make sure product high quality, contemplating that the flawed repackaging course of was prone to contamination. 

‘Repackaging.’

Case details 

[Case reference: the first instance: (2020) Hu 0115 Min Chu 26507; the second instance: (2021) Hu Min Zhong 596 for the second-instance] 

The case was introduced by a commerce mark proprietor, Klüber, a maker of specialty lubricants. Klüber had been working in China for years by way of an official distributor. Unknown to Klüber, the distributor had begun buying real Klüber-branded lubricants by way of parallel channels and reselling them to prospects in China. These parallel import lubricants had been packaged in 25 kg containers. The distributor then repackaged the lubricants into 1 kg containers which are extra handy for patrons’ use and might be bought for a better unit worth. 

To repackage the lubricants, the distributor bought imitation 1 kg Klüber containers and repackaged the lubricants from the 25 kg containers into these smaller imitation containers. The distributor neither knowledgeable Klüber nor was licensed by Klüber because the commerce mark proprietor to repackage the Klüber product. That mentioned, the commerce marks affixed to the imitation 1 kg Klüber containers had been equivalent to the commerce marks affixed to real Klüber-branded lubricants. The worth of repackaged lubricants bought through the years was price thousands and thousands of renminbi. 

Court docket findings for additional restriction to the doctrine of exhaustion 

Klüber filed a lawsuit. Predictably, the distributor submitted proof of parallel imports and argued Klüber’s commerce mark proper had been exhausted when the 25 kg containers had been bought in the marketplace. For the reason that repackaged lubricants bore the identical Klüber commerce marks, prospects wouldn’t be misled concerning the supply of the lubricants. The distributor argued that it must be handled as an peculiar purchaser of branded merchandise and that its resale actions didn’t infringe Klüber’s commerce mark proper. 

The courtroom rejected the distributor’s exhaustion argument. It dominated that the doctrine of exhaustion ought to have an additional restriction, as not each resale or use is non-infringing. The courtroom set out two elements to find out whether or not there can be commerce mark infringement in such circumstances of repackaging: (1) the standard of the product; and (2) the goodwill of the commerce mark proprietor. If the resale or use will improve the commerce mark proprietor’s goodwill and thus assist enlarge the bottom of shoppers or potential shoppers, resulting in extra important potential income, the exercise must be permitted. Conversely, the place the resale or use impairs or in any other case damages the standard of the branded product or the goodwill of the commerce mark proprietor, in that case, the exercise must be deemed as commerce mark infringement and subsequently be prohibited.

The courtroom additional acknowledged {that a} commerce mark capabilities past simply figuring out the supply of products. It additionally has spinoff capabilities of guaranteeing product high quality and sustaining the commerce mark’s fame. Relating to whether or not product high quality had been affected, the courtroom evaluated the distributor’s repackaging course of and examined the repackaged product. The courtroom discovered that the standard of lubricants might have been impaired in the course of the distributor’s repackaging as a result of the unauthorized repackaging course of was not carried out underneath Klüber’s product high quality management to guarantee moisture or mud couldn’t enter the lubricants. 

Furthermore, the distributor’s repackaging actions had altered the Klüber lubricant containers’ high quality and design options that ensured product high quality. Due to this fact, the distributor’s unauthorized repackaging had triggered harm to the spinoff capabilities of Klüber’s commerce mark in guaranteeing product high quality and sustaining the commerce mark’s fame as prospects shopping for the repackaged merchandise may not obtain the identical high-quality lubricants. 

The primary occasion courtroom dominated that the distributor had infringed the Klüber’s commerce mark and awarded financial damages of roughly RMB 2 million. The Shanghai IP Court docket upheld the choice.

Take-away 

The China Nationwide Mental Property Administration (CNIPA) has additionally weighed in, in an official reply letter to the Shanghai Mental Property Administration, on whether or not the unauthorized repackaging and resale of one other’s merchandise whereas utilizing the identical commerce mark constitutes commerce mark infringement. The CNIPA letter submits that it does represent commerce mark infringement, indicating {that a} commerce mark ought to have the spinoff operate of guaranteeing the standard of the product and sustaining the goodwill of commerce mark proprietor, which must be protected independently of a commerce mark’s important operate to establish the product supply. 

The Klüber case and the CNIPA opinion letter present China’s authorities have accepted that the exhaustion of commerce mark rights is just not absolute. In impact, a commerce mark proprietor could preserve commerce mark rights even after the branded product is legally bought or transferred. Resellers who repackage merchandise should be protected by the doctrine of exhaustion provided that they make sure that each the commerce mark illustration and the product aren’t altered in the course of the repackaging course of. 

Whereas the stress between the commerce mark proprietor and the product proprietor must be additional examined, in order to correctly steadiness the pursuits of each, it’s advisable to remember that the resale or use of a legally obtained product should infringe the proprietor’s unique proper to make use of the commerce mark. The important thing, because the courtroom defined, lies with whether or not the resale or use will prejudice a commerce mark’s intrinsic worth, together with distinctiveness, to establish the product supply, and goodwill, to guard the commerce mark proprietor’s fame. 

Photograph: Shelly, Tian’s kitten. 



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