Taiwan Supreme Court: Trademark Counterfeiting Report Should Specify Identification Method

1.  The resale market is going to be big

Trendy products often turn to the second-hand market when they are no longer fashionable, or become obsolete.  The development of environmental protection and circular economy trends in recent years is also leading to a preponderance of resale of luxury and/or fashion products, such as handbags, clothing and accessories.  The rapid rise of e-commerce has further accelerated the development of the global luxury resale market.  For example, The RealReal, Inc. which specializes in the sale of secondhand goods in the United States, has become a public company and has recently filed a strong counterclaim against Chanel, Inc. when the latter argued for the authenticity of its resale goods, claiming that Chanel had violated the competition law by attempting to squeeze out secondhand retailers (Chanel, Inc. v. RealReal, Inc. 449 F. Supp. 3d 422 (S.D.N.Y. 2020)).  However, not all secondhand goods are handled by professional teams, and even a luxury brand, if used frequently or over many years, can show poor condition by revealing worn, torn or stripped seams.  This makes it difficult to distinguish genuine goods from the fake with the naked eye.  How to identify fakes has also become a major issue in anti-counterfeit litigation.

2.  Developing resale market has influenced the counterfeit identification process in Taiwanese judicial practice

In the past, from the customs inspection of counterfeits to the court trial proceedings, the inspection of counterfeits was directly based on the report of trademark owners or their authorized representatives.  And trademark owners often report that the disputed products are counterfeit as they “never authorise the sale of the disputed products in that place, or the price difference is more than 10 times and the poor quality is so obvious to the naked eye” (see the IPC Court 2013 Zhi-Shang-yi-zi No. 11 Criminal Judgment), or based on other intuitive reasons.  There are even some judgments that only cite the conclusion of the identification report or statement issued by the trademark owner to determine the product in question is counterfeit and find criminal liability accordingly (see 2014 Xing-Zhi-Shang-Yi-Zi No. 59 and 2013 Xing- Zhi-Shang-Yi-Zi No. 83 Criminal Judgments of the IPC Court).  However, as mentioned above, with the development of e-commerce, counterfeit products have become ubiquitous.  And with advances in manufacturing techniques, counterfeits are of better quality, making it even more difficult to distinguish them from the genuine goods.  The attitude of Taiwan’s judiciary has also turned, becoming more cautious in distinguishing between the two during the criminal investigation process.  

3.  The Supreme Court’s latest criminal judgment clarifies the evidence investigation procedure to be followed when identifying trademark counterfeits (2022 Tai-sheng-zhi No.1271)

(1) Defendant A in this case advertised a genuine LV long leather wallet on a social networking site and sold it for a starting price of NT$1.  B bought it for NT$3,000 and found that the wallet to be inferior and thought it might be a fake, so he reported it to the police.  During the investigation proceeding, the prosecutor noted in his report that “the stitching is too thin and different from the thick stitching used in the genuine designer bags, and the upper right side of the wallet is skewed after the wallet is turned over and the stitching technique has caused the edge of the wallet to break, the stitching technique is obviously not in line with the genuine designer bags and the material is obviously inferior.”  The LV brand owner also produced an appraisal report which concluded that “the quality and workmanship of the canvas of the wallet in question does not meet the standard of the genuine LV product".  A was prosecuted for aggravated fraud.

(2) However, A insisted on denying that he had subjective knowledge that the wallet in the question was fake, arguing that the disputed wallet was purchased for NT$1,795 from Brandear Club, which specializes in second-hand boutiques and has the lowest rating on the Kimo Auction website in Japan.  Although the seller did not provide a certificate of authenticity, they did provide a product barcode, indicating that the product had been inspected by the seller.  The seller also explained that the wallet in question is old and damaged, which is why the selling price is relatively low.  A also claimed that the material of the LV wallet sold several decades ago was identical to that of the wallet in question.  Furthermore, A is a technician at the Chong-Shan Institute of Science & Technology, and specializes in surface treatment.  After purchasing the disputed wallet, he repaired the seam, corners and other parts of the wallet, and resold it at the starting price of NT$1.  

(3) Both the first and second instance courts held that A had subjective knowledge that the wallet in question was counterfeit but claimed that it was genuine and marketed to the public; therefore A was found guilty of aggravated fraud.  The courts of first and second instance based this mainly on the following grounds: the dilapidated appearance of the wallet in question; the seller who sold the wallet to A did not provide the certificate of purchase attached to the genuine product when it was first sold by the trademark owner, nor was it an authenticator of genuine product authorized by the trademark owner; A also admitted that he had repaired the wallet, which resulted in the stitching of the repaired wallet being different from the original factory’s thickness and workmanship. 

(4) The Supreme Court vacated the original judgment and remanded this case for retrial by elaborating the following:

(i) Article 206(1) of the Code of Criminal Procedure stipulates that the appraisal process and its result shall be reported orally or in writing.  The “appraisal process” means the appraisal procedure and steps, including the appraisal method, the data required for the appraisal and its content, as well as the basis and reasons for the appraisal opinion.  Said “appraisal result” means the assessments and evidence elaborations made for appraisal matters during the appraisal process, which are made by the appraiser based on his professional knowledge and experience.  The report on the identification of trademark counterfeits, which was prepared in the absence of the data necessary for the appraisal, its basis and reasoning process could not be verified by the scientific method, and therefore could not be used as an unfavorable ground against the defendant.  

(ii)Trademark Counterfeit Identification Report should specify how to distinguish the counterfeit from the used products, which may be depreciated and refurbished but still have the characteristics of genuine products

The Supreme Court pointed out that the trademark counterfeit identification report cited in the previous judgments only contained the conclusion of the appraiser’s opinion, but did not reveal his evaluation method, the relevant data and the process by which the appraiser arrived at his opinion.  In addition, although the prosecutor had prepared an investigation report, which stated that the wallet in question was defective in the following area: too fine stitches, clinging and breakage, A, however, repeatedly argued that the wallet in question was a genuine second-hand wallet and that it was damaged due to its age and usage.  As such, the Supreme Court pointed out that the following questions had not yet been solved: (1) whether it is true that the wallet in question is indeed, as the defendant claims, a genuine second-hand product sold by the trademark proprietor? (2) whether there are differences in the materials, specification, quality and workmanship of the inner canvas and the overall stitching between the wallet in question and the genuine one which made by the authorized manufacturer at the same age under the same wallet type? (3) how one can tell if the inner canvas of the product is broken due to its age and long term use or poor quality? (4) was the stitching on wallet in question really stitched by A? and (5) if there are unique features other than the aforementioned lining and stitching that can help identify counterfeits, such as leather, zip, quality of copper buckle, trademark graphics (including font), design and color, texture printing and production serial number and/or any other details?  As the above questions were not investigated by the previous courts nor explained in their judgments, the Supreme Court did not see any concrete basis for an unfavorable judgment against the defendant.  

4.  Trademark owners are advised to pay attention to the above changes in judicial practice and consider developing more accurate authentication techniques.  For example, some luxury boutiques had already entered the hot Metaverse area and are planning to use block chain, NFT to authenticate their product in line with the emerging high tech trend and secure their trademark rights.