The doctrine of “exhaustion of trademark rights” is articulated in Article 36.2 of Taiwan’s Trademark Act reading: “[a] registered trademark is not infringed by the use of the trademark in relation to goods which have been put on the domestic or foreign market under that trademark by the proprietor or with his/her consent, unless the infringement claim is to prevent the condition of the goods from being changed or impaired after they have been put on the market or there exist other legitimate reasons.”
This stipulation does provide a legitimate basis for grey market trading. However, the question arises as to whether there is a provision that limits the scope of the doctrine of “exhaustion of trademark rights” and eventually confines the viability of parallel imports. On this issue, it is noted that the Supreme Court recently expressed its disagreement with the IP Court’s viewpoint in a Declaratory Judgment Action regarding the applicability of the doctrine of “exhaustion of trademark rights” when the same trademark is registered by different holders at home and abroad.
A Taiwan-based company purchased in the U.S. a batch of “PHILIP B” branded goods and had the goods imported to Taiwan. For fear that the holder of the “PHILIP B” trademark registered in Taiwan may claim infringement after the imported goods are placed on the local market, the company filed with the IP Court a Declaratory Judgment Action, seeking affirmation from the court that, based on the doctrine of “exhaustion of trademark rights”, the trademark holder can no longer exercise his right to the “PHILIP B” trademark registered in Taiwan.
The IP Court, in the first and second instances, dismissed the Action as groundless. Its finding is as follows:
| It is clear from Article 36.2 of the Trademark Law that Taiwan adopts the “international exhaustion” principle, under which the trademark rights are exhausted once the relevant trademarked goods have been sold by the trademark holder or by others with his consent in any part of the world. Nonetheless, since the “PHILIP B” trademark in question is owned by two different entities in the U.S. and Taiwan, respectively, and since the Taiwan holder did not gain any profit from the first sale of the trademarked goods, the right to the “PHILIP B” trademark registered in Taiwan is arguably not exhausted by said first sale. On this score, once the imported “PHILIP B” branded goods are placed on the local market, the plaintiff is likely to infringe upon the defendant’s right to the “PHILIP B” trademark. |
After the case was appealed to the Supreme Court, the Supreme Court thought otherwise and ruled in favor of the plaintiff. It held that:--
| The plaintiff’s act of reselling in Taiwan the “PHILIP B” branded goods legally purchased in the U.S. will not constitute an infringement of the “PHILIP B” trademark registered in Taiwan. The reasons are substantially as follows: |
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The rights to the “PHILIP B” trademark indeed belong to two different entities originating in the U.S. and Taiwan, respectively. However, given that the two trademark holders have close business relationship and the “PHILIP B” trademark was registered in Taiwan under the authorization of the U. S. holder, the trademark rights secured to the two holders actually derive from a root in common and are not severable or isolated. It is improper to overlook the legal or authorization relationship between the two holders and sweepingly deny the applicability of the “doctrine of “exhaustion of trademark rights” for the mere reason that the first sale of the trademarked goods was made by the U.S. holder, instead of the Taiwan holder. This case should thus be remanded to the IP Court for further investigation.
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It is no doubt that the Ruling rendered by the Supreme Court can serve as a valuable point of reference for any person or entity facing a trademark dispute relating to parallel imports. It is also worth keeping an eye on the courts’ further opinions on the issue.