Non-Genuine Parallel Import in China
Parallel import refers to the act of an importer in one country importing products that have been legally placed on the market in another country or region by the rights holder or with the rights holder's consent, without authorisation from the rights holder in the importing country. Non-genuine parallel imports are situations the chain of evidence is broken so it is hard for the court to tell whether the products are manufacturer or sold with authorisation. The most common cases of non-genuine parallel imports often occur in cross-border e-commerce. For example, a brand from Country A holds a trademark through Company B, which authorizes Company C to handle all manufacturing and sales operations in its country. If in Country A the brand collaborates with Company D, and individuals or small businesses purchase discounted products directly from Country D without declaring them to customs or partially declaring them, and then sell them on e-commerce platforms in Company C's country, the key question is whether Company C can claim that individuals or small businesses have infringed on its trademark rights.
Non-Genuine Parallel Imports under Tort Law
The difficulties in proving this type of case generally lie in two aspects:
(1) Whether complete evidence can be provided for the source of the goods. For example, in the case of Fila Sports Co., Ltd. v. Lü Yan on Trademark Infringement, the defendant could only provide purchase receipts for five pairs of shoes to prove they were genuine products, but the actual sales data displayed on the defendant's website showed 426 transactions. The court held that the defendant should bear liability for infringement for the remaining 426 transactions.
(2) Whether it is possible to argue that the plaintiff's trademark rights have been exhausted by proving that the "source company" and the plaintiff company are actually affiliated companies and that the "source company" is "effectively controlled" by the plaintiff company. In the case of Fila Sports Co., Ltd. v. Lü Yan on Trademark Infringement, since ANTA Sports Products Limited, which participated in the equity acquisition transaction, is a Hong Kong-listed company, the defendant was able to provide a relatively complete corporate equity structure and agreement arrangements. The defendant attempted to argue that the trademark rights of the plaintiff had been exhausted by explaining the relationship between Fila Korea Limited and the Chinese trademark-holding company (Full Prospect Sports Limited). However, the judge pointed out that there was no substantive relationship of equity control between ANTA Sports Products Limited and Fila Korea Limited. The Chinese trademark-holding company (Full Prospect Sports Limited) was actually controlled by ANTA Sports Products Limited, not by Fila Korea Limited. Furthermore, ANTA Sports Products Limited's public announcements as a listed company also stated that Fila Korea Limited, Fila Luxembourg Sarl, and their ultimate beneficial owners were independent of ANTA or its affiliates, further demonstrating that ANTA Sports Products Limited and Fila Korea Limited did not have an equity relationship or any substantive control relationship, and that the two parties were independent entities with separate interests.
As a result, the court determined that the trademark interests of the plaintiff in China and those of its affiliates in Korea belong to different entities. The defendant's argument that the trademarks in question were registered under different company names as part of a global business arrangement by the same rights holder was not upheld. Products bearing the Fila trademark that were introduced into the Chinese market by Fila Korea Limited based on its rights in Korea do not constitute exhaustion of the trademark rights of Full Prospect (IP) Pte Ltd. or the plaintiff in the case, and do not fall under parallel imports.
Non-Genuine Parallel Imports under Contract Law
Assume that if Company A (the company at the brand's place of origin) and the trademark-holding company do not have a wholly-owned relationship, can Company A claim that products manufactured in Country C are infringing when the cooperation between A and B breaks down? Or would it be considered infringement if Company A directly sells to D within Country C?
The author is currently dealing with a case of this nature. The brand owner breached the contract, and arbitration regarding the brand authorization is being conducted in the United States. At the same time, the brand owner initiated an infringement lawsuit against the new authorized entity of the brand owner. The court of retrial held that whether the defendant is infringing depends on whether Company A, the brand's place of origin, has terminated the agreement with the trademark-holding entity. Since the arbitration outcome was still unclear at the time of the retrial court's judgment, the court did not support the brand owner's claims. Interestingly, the newly authorized party has now achieved a preliminary victory in arbitration, determining that the entity directly authorized by the brand owner is infringing, and has initiated a second round of infringement lawsuits against downstream entities. How the court will rule in this situation remains to be seen.
