In April 2020, Taiwan’s IP Court rendered a decision recalibrating its position on trademark right exhaustion, in response to a Supreme Court edict issued three months ago demanding that a fresh rule be made for addressing the issue of parallel imports in the context of “divided trademark registration.” Ohwin Inc. v. Infinity Beauty Ltd., 106 Xing Zhi Shang Yi 11 (Taiwan’s IP Court, May 2020); 108 Tai Shang 397 (Taiwan’s Supreme Court, January 2020). The term “divided trademark registration,” coined by the writer, refers here to registrations existing in Taiwan and a foreign jurisdiction for the same mark and basically the same goods, with the registrants being different but commercially related entities, e.g. a foreign brand holder and a local distributor.
Divided trademark registrations lead to a peculiar issue when parallel imports are purchased abroad from the foreign registrant and resold in Taiwan’s market to compete with the local registrant’s branded goods. It long perplexes the local IP community and gives rise to divergent court opinions. While the principle of international exhaustion manifested in Article 36.2 of the Trademark Law allows parallel imports “put on a foreign market by the trademark registrant or with his/her consent,” it seems unreasonable to apply this rule unconditionally in a divided registration scenario, especially when the commercial context is considered and considered from the local registrant’s standpoint. For the majority of local registrants, they are simply irrelevant to first-sale transactions occurring abroad and controlled by foreign brand owners. More importantly, they do not receive any reward from the first-sales which however is widely believed to be the cornerstone of the principle of exhaustion. In short, it is strange to say that one has consented when he/she has no right to consent or dissent.
Basically for these reasons, the IP Court held in a previous decision in Ohwin v. Infinity Beauty that Infinity Beauty the parallel importer and reseller did not infringe the Taiwanese trademark rights of Ohwin which is the local registrant and distributor of the US brand owner “Philip B.” from which Infinity Beauty directly purchased the branded goods and resold them in Taiwan. Ohwin v. Infinity Beauty, 105 Min Shang 14 (Taiwan’s IP Court, 2017). However, as reported in the last issue of our Newsletter, this holding was questioned by a five-judge panel of the Supreme Court which demanded a new line of interpretation be considered.
In response, in the latest decision for the Ohwin v. Infinity Beauty dispute (which actually gives rise to a series of civil and criminal actions), the IP Court shifts toward a position arguably more in favor of parallel importers. The three-judge panel, presided by Division-Chief Judge Wei-Hsin LEE, held that parallel importers can be released from infringement liability by asserting the exhaustion defense provided in Article 36.2 even in a divided registration scenario, as long as, number one, “one of the two registrants [i.e. registrants of the domestic and foreign registrations of the same mark] is the other’s associated company, sales agent, distributor, contract manufacturer, or holds a similar legal or commercial relationship,” and, number two, “the branded goods are [perceived by consumers as coming] from the same source due to the trademark of concern” (italics added). When these two requirements are satisfied, the IP Court judges indicated, the two registrants “shall be deemed to be one and the same entity” in a trademark exhaustion dispute, hence a “registrant’s consent” to put the parallel imports onto Taiwan’s market.
Nevertheless, this decision should not be understood as henceforth utterly denying a local distributor’s right to exclude parallel imports based on Taiwanese trademark rights he or she legally obtains against the backdrop of divided registration, because the above-mentioned second requirement plays as a regulator. In a thoughtful obiter dictum, the IP Court panel reminded that:
|“A domestic registrant’s trademark rights are not therefore exhausted, if he or she, through relevant efforts, has established in the trademark of concern his/her independent good-will and fame enabling consumers to perceive that mark to be identifying solely his or her goods rather than goods sourced from the foreign registration holder with whom he or she holds a special relationship [as defined above]. Alternatively, the domestic registrant being a distributor or sales agent can exclude parallel imports based on his/her own good-will, if the goods he/she receives from the foreign brand owner are especially designed for use on the domestic market alone and hence distinguishable from goods bearing the same mark and circulated in other markets, and if such uniqueness has been so emphasized in the domestic registrant’s promotion activities that consumers are able to recognize the distinction between the goods of such different sources” (italics added).
For foreign brand owners, the IP Court’s new decision in Ohwin conveys a different message. Divided trademark registration used to be a useful tool for enhancing geographical market segmentation in Taiwan, since it enabled a local distributer to exclude parallel imports in face of an exhaustion defense – a result which could not be achieved if the Taiwanese trademark rights were owned by the foreign brand owner himself/herself. However, after Ohwin, divided trademark registration alone does not serve this purpose. It now takes more and probably also risks more to achieve the same degree of geographical segmentation as in the past, since in whichever of the two settings given by the IP Court the key element is the same: the local distributor needs more autonomy from the foreign brand owner.