Falsification of the Concept of "Offering for Sale" in Trademark Infringement Cases

 

Published in Shanghai Journal of Law, 2018 (1)

(Author: Fan Jingbo)

 

I. Divergence of Views

In recent years, the number of trademark infringement cases involving the identification of "offering for sale" of the seller has been on the rise. Usually in such cases, the trademark owner does not actually purchasethe product accused of infringement, so the trademark owner claims that the seller's act constitutes trademark infringement on the grounds of the seller's use of the registered trademark in advertisements and exhibitions. For such cases, the courts are divided on the application of law. Let's illustrate it with two typical examples:

Case 1: "ASAK" case. [1] Aerospace Kaiser Company is the owner of the "ASAK" trademark. However, Changyuan Company, without authorization, used the "ASAK" trademark in the picture of itsproduct "aluminum alloy lined plastic composite pipe" displayed on its official website, and the product introduction below the picture containedthe following words: "ASAK-pipe system illustrative diagram". Aerospace Kaiser Company filed a lawsuit against Changyuan Company for the infringement of its right to the exclusive use of the registered trademark. Changyuan Company argued that, as a seller of a variety of pipes, it always displayed the goods for sale during the sale process, butit did not usethe involved trademark of Aerospace Kaiser Company for other goods. After trial, the court of first instance held that the unauthorized use of the involved trademark by Changyuan Company in the advertising campaigns forthe goods displayed on its website constituted the trademark use of identifying the source of goods, and the defendant was convicted of trademark infringement in accordance with the provisions of Article 57 (1) of the Trademark Law. The court of second instance held that, according to the plaintiff's claim, the defendant had not been engaged in the manufacturing of the goods involved, so the plaintiff's allegation of the defendant's production of the infringing goods was groundless, and the defendant did not violate the provisions of Article 57 (1) of the Trademark Law. The prerequisite for the sale of goods that infringes on the right to the exclusive use of a registered trademark is that the goods sold have infringed on the right of the owner to the exclusive use of the registered trademark. In this case, the defendant only conductedthe act of offering for sale without actually selling the relevant goods. Regarding offering for sale, there should be two situations: one is to sell the plaintiff's goods or authorized goods, which obviously does not constitute the infringement of the trademark right of the plaintiff; the other is to sell goods that counterfeit the registered trademark of the plaintiff produced by those other than the plaintiff. Under such circumstances, the plaintiff shall prove that the goods sold are unauthorized infringing goods. However, since the act of sale has not actually occurred and the plaintiff is unable to present evidence, it cannot be concluded that the defendant's offering for sale of goods on its website infringes the plaintiff's right to the exclusive use of the registered trademark. Naturally, the defendant's act does not constitute infringement as stipulated in Article 57 (3) of the Trademark Law. Accordingly, the judgment of first instance was abrogated by the court of second instance, and the plaintiff's claim was rejected entirely.

Case 2: "LEMO" case. [2] The plaintiff, LEMO Company, is the exclusive licensee of the two trademarks of "LEMO" and "雷莫", and the approved use scope of the two trademarks includes type 9 junction box, electrical connector, optical fiber connector, electrical plug, electrical connector, etc. The defendant, F1 Technology, listed the connectors with the brand name of "Lemo" for sale in its online store on Made-in-Chinacom, a third-party platform. In addition, the web page also stated the following: "Chinese manufacturer/supplier of Lemo connector and ODU connector, Lemo/ODU connector equipped with oxygen saturation probe..." LEMO Company contended that the defendant's use of the "LEMO" trademark in the online store to sell goods not produced by the plaintiff constituted trademark infringement and brought a lawsuit to the court. In this case, LEMO Company did not buy the products that F1 Technology sold on the third-party platform. The court of first instance held that the use of the "LEMO" trademark by F1 Technology in the sale of products not produced by LEMO Company would mislead the relevant public about the source of the goods, and the defendant was convicted of trademark infringement in accordance with the provisions of Article 57 (1) of theTrademark Law. The court of second instance held that the plaintiff had not actually purchased the product accused of infringement, and to determine whether the defendant's use of the trademark involved in advertisements constituted infringement, it was necessary to firstlyconfirmwhether the products sold weregenuine "Lemo" products. According to the documentary evidence, the F1 Technology claimed to be the Chinese manufacturer and supplier of Lemo connectors on the third-party platform, and the Lemo connectors sold were manufactured and supplied by itself. In this regard, F1 Technology neither provided evidence to prove it was authorized by LEMO Company to use the involved trademark "Lemo" on the connectors it manufactured and supplied, nor provide any other evidence to prove that the products it sold were genuine products of the "Lemo" brand. The evidence provided by LEMO Company was sufficient to prove that the goods sold by F1 Technology were infringing goods based on the probability criterion of proof of civil action. The appeal wasrejected, and the original judgment wasupheld.

The author believes that although the final judgment results of the two cases are correct, the two cases are different when it comes tothe application of the law. In the "ASAK" case, the court of second instance applied the provisions of Article 57 (3) of the Trademark Law to decide that the seller's use of trademark in website publicity constitutedsale of infringing goods. However, in the "LEMO" case, the court made a judgment in accordance with the provisions of Article 57 (1) of the Trademark Law, namely using an identical trademark on thesame merchandise. Determining the nature ofthe seller's act of using others' trademark in advertisements entailsdeep understanding and application of a series of theories such as "offering for sale", "use of trademarks", "exhaustion of trademark rights" and "fair use".

 

II. Whether the act of "offering for sale" is an independent trademark infringement

The concept of "offering for sale" can be found in the Patent Law in China's legislation. According to the provisions of Article 11 of the Patent Law,after the grant of the patent right for an invention or utility model, no unit or individual may, except as provided for in this Law, exploit the patent without the authorization of the patentee, that is, no unit or individual may manufacture, use, offer for sale, sell and import the patented product, or use the patented process for production or business purposes, or use, offer for sale, sell and import the products manufactured by using the patented process.The concept of "offering for sale" in the Patent Law is derived from the provisions of Article 28 of the TRIPs agreement concerning "offering for sale".As stipulated in Article 24 of Several Provisions of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Cases on Patent Disputes, the term "offering for sale" referred to in Articles 11 and 63 of the Patent Law means the expression of intention to sell goods by advertisement and display in a shop window or at a trade show. Why does the Patent Law stipulate the offering for sale while the trademark law does not? Is this a loophole in the law or a deliberate act by the legislator? In the "ASAK" case, the court of second instance held that the seller's use of the trademark in advertisements was not an act of "trademark use",thus excluding the application of Article 57 (1) of the Trademark Law. However, since there are no specific provisions on the act of "offering for sale" in China's Trademark Law, the act of "offering for sale" was definedas an act of "sale", and the judgment was made according to the provisions of Article 57 (3) of the Trademark Law. Apparently, in this case, the court of second instance believed the existence of a legal loophole in the provisions of "offering for sale" in the Trademark Law, and madeextensiveinterpretation on the application of the law.

Theold version of the Trademark Law did not include provisions on "trademark use". When the WTO reviewed China's legislation on the implementation of TRIPs in December 1992, the EU put forward that: "it seems that the new law does not provide for the 'offering for sale', and the term 'commercial activity' (Article 16 of TRIPs) is generally considered to include 'offering for sale'. The question was brought to the representative of China for clarification. The Chinese representative pointed out that: "This is not the case. The reason why the trademark law does not stipulate "offering for sale" as in the patent law is that the act of "offering for sale" can be settled pursuant to the relevant provisions of the Trademark Law and its implementation regulations. With regarding to "offering for sale", if a party illegally uses another party's trademark (even if the trademark is not used on the goods) in commercial activities, it will constitute the act of trademark infringement as stipulated in Article 52 of the Trademark Law and shall be punished accordingly." [3] So, it’s not that the legislators are not aware of the opinions about the offering for sale involvingtrademark, but that they believe the existing provisions of the Trademark Law can regulate related acts.

The reason why the Trademark Law does not stipulate the offering for sale is that trademark and patent are essentiallydifferent in terms of protection content. According to the provisions of the Patent Law, bothinvention andutility model belong to new technical scheme, and appearance design belongs to new design, meaning that the protection of patent is, in essence, the protection of technical scheme or design. The offering for sale of patented products does not actually use patented technical schemes or designs, so the act of offering for sale can neitherbe incorporated into the act of manufacturing and using patented products, nor be incorporatedinto the act of actual sale of patented products. Instead, it is an independent type of infringement. Unlike patent, trademark is a symbol. If a seller uses a trademark of others for identifying the source of goods in advertisements, such act is a kind of "trademark use" and has been covered by the provisions of Article 57 (1) and (2) of the Trademark Law. The reasons are as follows: as prescribed in Article 48 of the Trademark Law, the “use”of trademarks refers to the affixation of trademarks to commodities, commodity packaging or containers, as well as commodity exchange documents or the use of trademarks in advertisements, exhibitions, and for other commercial activities, in order to identify the source of the goods. Thus, it can be concluded that the use of a trademark on the same or similar goods includes not only the act of attaching a trademark to the goods or the packaging, but also the act of using the trademark in advertisements, exhibitions and other commercial activities. The law does not distinguish the trademark use bythe trademark owner from that ofthe infringer. The use of trademark by the trademark owner in advertisements is an act of trademark use, and the same is true for the infringer's use of others’ trademark in advertisements. This explanation is consistent with the definition of the scope of the trademark owner's use of trademark. When determiningwhether the trademark owner uses the trademark on a certain type of goods, the use of trademark in advertisements of such goods is also included. Meanwhile, the law also does not distinguish the use of others' trademark bythe manufacturer from that of the seller of infringing products. The Trademark Lawalso does not include specific provisions on the use of trademark by the seller in product advertisements, so logicallythe provisions of Article 57 (1) and (2) of the Trademark Law shall apply. In the "ASASK" case, the court of second instance held that the defendant did not violate the provisions of Article 57 (1) of the Trademark Law on the ground that the defendant was not the manufacturer of the infringing goods.

Besides, in a trademark infringement case, if the seller's act of so-called "offering for sale" is incorporated into the act of "sale", the use of others' trademark in advertisements will not constitute infringement as long as the seller can prove that the products it sells are produced by the trademark owner or the company legally authorized. Obviously, one thing has been neglected here, that is, the seller's use of others' trademark forselling products may also constitute trademark infringement if it isbeyond a certain boundary, which will befurther discussed below.

 

III. To determine whether the seller's use of others' trademark in advertisements constitutestrademark infringement

To determinewhether the seller's use of a trademark in advertisements constitutes infringement, the first thing to do is to determine whether the products it sells are those produced by the trademark owner or the companieslegally authorized, which are generallyreferred to as "genuine products". If the products sold are "genuineproducts", the seller's act of sale does not constitute trademark infringement based on the principle of exhaustion of trademark right. To indicate the products for sale in advertisements, the use of trademark by the seller in good faith and under reasonable circumstance constitutes the indicative use of trademark rather than trademark infringement. In the "ASASK" case, although the court of first instance did the right thing by handling the case in accordance with Article 57 (1) of the Trademark Law, it overlookedthe issue of fair use of the trademark and failed to investigate whether the products sold by the defendant were "genuine products", resulting in a wrong judgment.

However, it is not to say that the seller's use of trademark whenselling "genuine products" never constitutes infringement. If the seller uses the trademark beyond the reasonable scope, and misleadthe related public aboutthe relationship between the seller and the trademark owner, it may still constitute trademark infringement. For instance, in the "Fendi" case [4], the court held that the seller's use of the registered trademark on its signboardwould misleadpeople to believe that the store operator was the trademark owner or was authorized by the trademark ownerto use the trademark, leading to misunderstanding by the related public  about the relationship between the two. Therefore, the seller was convicted of trademark infringement.

For most of the trademark infringement cases involvingthe so-called "offering for sale", the trademark owner usually fails to provide physical evidence of the infringing product, whilethe seller claimsthat the product it sells is "genuine". The allocation of the burden of proof is a divisive issue. Some people believethat if the trademark owner already provides evidence to prove that the seller has used the trademark involved in the sales process, the seller shall bear the burden of proof to provethe product sold is genuine. The author believes that under such circumstance, the burden of proof is still on the trademark owner and it shall provide evidence to prove that the product sold by the seller is the infringing product, and, in principle, the standard of evidenceshouldnot be lowered. First of all, the distribution of burden of proof shall be clearly stipulated by the substantive law. In the cases involving intellectual property infringement, except those involving patents ofnew productsand methods, the burden of proof for the legislative facts of infringement shall be borneby the plaintiff, and this should remain the samein judicial practices. Secondly, if the trademark owner can neither submit the physical evidence of theinfringing product nor provide evidence to prove the product sold by the seller is the infringing product, the advertisement information of the involved product does not suffice to prove that the product sold by the seller is the infringing product, and there is no groundfor transferringthe burden of proof. Thirdly, for the products for open sale, the trademark owner usually has no difficulty inpurchasingthe infringing products except forsome special circumstances. In reality, it is not necessary to require the seller to provethat the products sold are "genuine".

However, it is worth mentioning that the failure of the trademark owner to provide the physical evidence of theinfringing product does not necessarily mean that itis bound to lose the lawsuit. Whether the products sold by the seller are genuine remains to be determined according to the probability criterion of proof of civil action. In the "LEMO" case, the plaintiff did not provide the physical evidence of the infringing product, but the defendant introduced itself as the manufacturer and supplier of the plaintiff's product and declared to provide the products involved on itsonline store. Theintroductionstated that the involved products sold were manufactured with the authorization of the plaintiff or were supplied by the plaintiff, but the defendant failed to provide any evidence to prove the same. Therefore, in this case, it can be provedthat the products sold by the defendant were highly likely to be infringing products, and the defendant was finally convicted of trademark infringement. In the event of no such introduction bythe defendant, the plaintiff shall provide further evidence to prove whether the products sold by the defendant are infringing products.

 

 

 


[1] (2016) J. 73 M. Z. No. 934 Civil Judgment

[2] (2017) H. 73 M. Z. No. 244 Civil Judgment

[3] Nuno Pires de Carvalho, The TRIPs Regime of Trademarks and Designs, Kluwer Law International, PP. 260-261. Kong Xiangjun, Principles and Cases of Trademark and Unfair Competition Law, Law Press, July 2009, first edition, p 176.

[4] (2017) H. 73 M. Z. No. 23 Civil Judgment

 

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