Many foreign companies which do business in China have found themselves in an unclear position in potential infringements of their trademarks or instances of unfair competition: It has been noted in a number of cases that Chinese traders who are active in retail of the foreign companies’ authentic products advertise them on their websites and in their promotional materials using these foreign companies’ registered trademarks. In some cases, it has also been observed that Chinese traders falsely claimed that they have been exclusively authorised as the foreign companies’ distributors in China.
The case of Pierre Fabre Dermo-Cosmétique (“Pierre Fabre”) vs. Changsha Huiji E-Commerce Co., Ltd.(“Huiji”), which was handled by the Changsha Intermediate People’s Court (“Court”) was faced with the above issues.
1. Pierre Fabre is the owner of the registered trademarks “Avene” and “雅漾” (the Chinese version of “Avene”) (collectively “Avene Trademarks”) on cosmetics in China. On its company website and in its media reports, Pierre Fabre claims that the products bearing the Avene Trademarks are sold from special counters only. Huiji, a Chinese seller, distributed genuine Avene products in China. Without Pierre Fabre’s authorisation, Huiji used Avene Trademarks on its company website. Further, Huiji placed false advertisements (“False Advertisements”) such as “the Chinese official website of Avene – Avene – experts for sensitive skin” and “Avene – China Shop” as well as pictures introducing products bearing the Avene Trademarks (“Avene Pictures”) on its own company website. Pierre Fabre considered that Huiji’s acts constitute unfair competition and trademark infringement against Pierre Fabre and, consequently, Pierre Fabre initiated a lawsuit against Huiji.
The Court ruled that Huiji did not infringe Pierre Fabre’s exclusive rights to use the Avene Trademarks because Pierre Fabre’s exclusive rights to these trademarks have been exhausted after the products carrying the Avene Trademarks have been sold by Pierre Fabre.
However, the Court held that the False Advertisements and the prominent use of the Avene Trademarks and Avene Pictures on Huiji’s own company website may have mislead visitors of the website to think that the website was either operated by Pierre Fabre or that Huiji was the authorised licensee of Pierre Fabre, thereby leading to Huiji’s unfair competitive advantages over others. The Court found that Huiji had ill intentions to confuse the relevant public regarding the business relationship between Huiji and Pierre Fabre. Huiji’s acts were, according to the Court, committed against the principle of good faith. The Court therefore upheld the unfair competition claims of Pierre Fabre.
2. Cases in which Chinese traders use foreign brands in business promotion, aiming to catch the consumers’ attention, are not rare occurrences. The use of other companies’ registered trademarks in order to sell authentic products is not specifically addressed by PRC trademark laws and regulations as trademark infringement. The key problem is whether the alleged acts fall within the scope of “fair use” of the registered trademarks.
a) In the case discussed, the Court rendered a judgment on the basis of the exhaustion doctrine. The exhaustion doctrine in intellectual property law limits the rights of a trademark owner to control the disposition over a product after the product has been sold by or under the authority of the intellectual property owner. The unauthorised use of another’s trademark is therefore permitted under the exhaustion doctrine. Under this doctrine, a distributor that sells genuine products bearing a true trademark cannot be held liable for trademark infringement, even if the distributor had not been authorised to these acts by the actual trademark owner. From this follows that after the products carrying Avene Trademarks had been sold, Pierre Fabre’s trademark infringement claims against Huiji were not justified because the use of the Avene Trademarks by Huiji fell within the scope of “fair use” of the registered trademarks according to the exhaustion doctrine.
b) However, if the use of trademarks implies sponsorship or endorsement by the trademark owner, such use is deemed in excess of the scope of “fair use” of the trademarks. Therefore, the acts of Huiji mislead the relevant public as to the relationship between Huiji and Pierre Fabre, hereby constituting unfair competition against Pierre Fabre.
The ruling of this case provides guidance regarding the issue whether Chinese traders’ “unauthorised” use of other companies’ registered trademarks for retail of authentic products constitutes a trademark infringement. According to the ruling the use of a registered trademark is permissible (1) only to the extent that the trademark is used as is reasonably necessary in order to identify the products and (2) use of the trademark does not suggest sponsorship or endorsement by the trademark owner. Otherwise, the owner of the trademarks may raise unfair competition claims against the use of the trademark exceeding the scope of fair use. Therefore, before initiating legal proceedings, trademark owners should consider whether the use of registered trademarks by Chinese traders lies beyond the boundaries of “fair use”.