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Under what circumstances will selling genuine goods be treated as trade mark infringement?

2021-10-29

Under what circumstances will selling genuine goods be treated as trade mark infringement?


Introduction


In Mary Kay Inc & Ors v 浙江天猫网络有限公司 (Zhejiang Tmall Network Co Ltd) & Ors [2021] HKCFI 1403, the defendants sourced genuine goods from the plaintiffs and sold such goods to third parties. However, the defendants removed the production codes on the packaging before selling the goods. The Court of First Instance held that the defendants were not liable for trade mark infringement. This article explains the reason for the finding above and discusses the relevant intellectual property issues raised in this case.



Facts


The plaintiffs carried on business in the marketing of skin care and cosmetics products. The 1st to 3rd defendants operated e-commerce platforms including “Taobao” and “Tmall China” on which traders could operate online shops and trade. The 4th to 5th defendants operated such online shops on the e-commerce platforms of the 1st to 3rd defendants and sold genuine products originated from the plaintiffs. The plaintiffs’ claims were for trade mark infringement and passing-off based on four trap orders placed by their solicitors in Hong Kong..



Trade mark infringement


The first issue is whether there was any trade mark infringement committed by the defendants. As a starting point, a person infringes a registered trade mark if he commits the acts prescribed under section 18 of the Trade Marks Ordinance (Cap 559) (“TMO”).


Section 20 of the TMO provides a defence to trade mark infringement generally known as “Exhaustion of Rights”. Section 20 reads:


20. Exhaustion of rights conferred by registered trade mark


(1) Notwithstanding section 18 (infringement of registered trade mark), a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market anywhere in the world under that trade mark by the owner or with his consent (whether express or implied or conditional or unconditional).


(2) Subsection (1) does not apply where the condition of the goods has been changed or impaired after they have been put on the market, and the use of the registered trade mark in relation to those goods is detrimental to the distinctive character or repute of the trade mark.


As regards section 20(1), since the products in question were genuine products originated from plaintiffs, they were goods which had been put on the market by the plaintiffs or with their consent.


Concerning section 20(2), not all changes to the physical condition of goods give the proprietor a legitimate excuse to rely on his trade mark to prevent further commercialisation of his goods. It is only if the condition of the product inside the packaging is adversely affected that the proprietor can rely on his trade mark rights. The damage must be substantial for the restriction to apply.


In the present case, the Court found that there was no change in the condition of the products themselves. The removal of the production codes on the packaging could not by any imagination affect the condition of the products inside. Further, there was no evidence that the use of the marks in relation to those products was detrimental to the distinctive character or repute of the mark. The Court therefore concluded that the exception in section 20(2) did not apply, the defendants could rely on the Exhaustion of Rights defence under section 20(1), and the plaintiffs’ case on trade mark infringement was doomed to fail.



Passing-off


The second issue is whether there was any passing-off committed by the 4th to 5th defendants. The plaintiffs suggested that the e-commerce platforms were set up and intended to mislead the public in Hong Kong and that the sale of the products in question by the 4th to 5th defendants were authorised by and/or related to the plaintiffs.


Passing-off occurs when a trader misrepresents that the goods are those of another trader by pretending to be an agent of another trader and imitating the trade mark or brand name of another trader. In order to succeed in passing-off claims, the plaintiff has to show that: (i) he has goodwill/reputation in his goods; (ii) the defendant has made a misrepresentation leading the public to believe that the goods are those of the plaintiff; and (iii) the plaintiff has suffered damage as a result of the defendant’s misrepresentation.


The Court found that there is no deception as the goods in question are genuine goods originated from the plaintiffs. Furthermore, selling a company’s products on e-commerce platforms is not indicating that the sale was authorised by or is related to that company. More importantly, the e-commerce platforms of the 4th to 5th defendants were targeted at the public in the Mainland and therefore there is no evidence suggesting that the public in Hong Kong would be deceived.



Trade mark rights were territorial in nature


E-commerce platforms such as “Taobao” and “Tmall China” are online marketplaces which are accessible worldwide and facilitates the purchase of goods from various sources. Given that trade mark rights are territorial in nature and they are limited to the country where they have been granted or used and trade mark registration does not give the owner worldwide trade mark protection, the fundamental question here is whether an average customer of the goods in Hong Kong would regard the website as being aimed and directed at him.


The Court established that all material circumstances including (i) the nature of the goods; (ii) the appearance of the website; (iii) whether it is possible for the average customer to buy goods from the website; (iv) whether or not the advertiser has sold goods to Hong Kong through the website; and (v) the intention of the advertiser shall be taken into account. In the present case, the advertisements posted on the alleged e-commerce platforms are all in simplified Chinese with prices printed in Renminbi and there is no doubt that the advertisements were not targeted at the public in Hong Kong. Despite the fact that the plaintiffs presented the current case as an anti-counterfeiting action targeting online traders who are selling goods to Hong Kong via e-commerce platforms, it is not recognised under Hong Kong law, in particular the trade mark infringement aspect.



Conclusion


This case serves as another reminder to e-commerce platform operators that the territorial nature and limitation of intellectual property rights in Hong Kong shall be observed. In addition, the decision also clarifies the application of the Exhaustion of Rights defence in Hong Kong.




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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021


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