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2022.02.15 Patent

Approach to “Parallel Import” in Japan: Learning from Court Precedent

1. Introduction

In this edition, we introduce court precedents (Tokyo District Court 2018 (Wa) 35053 (First Instance); IP High Court 2020 (Ne) 10062 (Appeal Hearing)) on trademark infringement concerning a parallel import of a genuine product. Parallel import is an act of importing and selling a product in Japan that is manufactured and sold in a foreign country outside of an official route through an authorized agency.

 
[First Requirement] the trademark is lawfully used by a right holder in a foreign country or by a person who is given a license to use the trademark by the right holder.
[Second Requirement] the trademark indicates the same origin as the trademark registered in Japan because of a fact that the right holder in the foreign country and the right holder in Japan are the same, or have a relationship by which they are legally and economically identified as the same.
[Third Requirement] the parallel import product and the product marked with the registered trademark by the right holder in Japan are evaluated as having substantially the same quality that is guaranteed by the registered trademark, because of a fact that the right holder in Japan is in a position that allows it to directly or indirectly control the quality of the parallel import product.

Applicability of each of these three requirements was argued in the court precedent we are going to discuss in this edition, and the decision was made based on specific circumstances of the case, which is interesting and worth sharing.

 

2. Case Outline

Right holders, plaintiffs, and appellants: Harris Williams Design Inc. (hereinafter referred to as Harris), Eye In The Sky Co., Ltd. (hereinafter referred to as Sky).
Defendant, appellee: Bright Co., Ltd. (hereinafter referred to as Bright.
Harris is a corporation in Canada and has rights to the trademark “2UNDR” in Canada and in Japan.
Sky is a company granted an exclusive license to use the trademark “2UNDR” in Japan.
The right holders demanded the defendant suspension of transfer etc. of the men’s underwear (hereinafter referred to as the subject product) marked with a mark (hereinafter referred to as the subject mark) that is identical or similar to the registered trademark (Registered No. 5696029) of “2UNDR” and sought damages claiming that an act of the defendant to import etc. of the subject product had infringed their trademark rights. In response to this, the defendant argued that their act of import etc. satisfied all of the three requirement for parallel import of a genuine product, claiming that their act lacks illegality as a trademark infringement.

 

3. Facts

As mentioned above, Harris, the right holder, is a corporation in Canada, and had an agency agreement in Canada with a Canadian company A, the timeline of the case is as follows.
· Around January 2015
Company A concluded an agency agreement with a Singaporean corporation Y for the sale in Singapore.
· Around February to June 2015
Company A sold the subject product to Corporation Y in accordance with the agency agreement.
· Around May 2016
Company A considered that Corporation Y was not operating as their agency and terminated the agency agreement.
· From May 27 to October 7, 2016
Bright purchased the subject product from Corporation Y and imported the subject product to Japan.
· From around August 2016 to December 15, 2017
Bright sold the subject product, purchased from Corporation Y and wrapped with a genuine package for the authorized sales by Company A, in Japan.

 

4. Point in Dispute

The Plaintiffs (Harris etc.) argued in the first instance that the act of the defendant should not fall under the parallel import of a genuine product based on the following grounds.
(1)   It was after the agency agreement between Company A and Corporation Y was terminated when Bright purchased the subject product.
(2)   The agency agreement included a restrictive provision to limit the venue of sales within Singapore.
(3)   Bright included a phrase of “imperfect product/ package damaged” in their advertisement; the subject product had its package damaged with a peel-off mark of a seal; and the subject product was sold at a price remarkably inexpensive.
(4)   Upon the termination of the agency agreement, consumers who purchased the subject product could no longer receive a guarantee from Harris etc. even if the subject product had defects etc.
 
Harris etc. also argued in the appeal hearing as below with respect to the first and the third requirements of parallel import of a genuine product.
(5)   he first requirements of parallel import of a genuine product requires not only the legitimacy of using the trademark, but also that the product with the trademark is “distributed” by the will of the right holder.
The reason why the court decision of Fred Perry Case did not require the product to be “distributed” was that, the product imported by a parallel import company was manufactured against the restrictive provision to limit the venue of manufacture included in an agreement between the right holder and the licensee, and it was impossible, at the time of manufacture, to evaluate that the mark used on the product was “legitimately used”; and therefore, it was only unnecessary to further impose the requirement of “distribution”. Such circumstance is different from the present case. Each requirement of parallel import of a genuine product should be construed from a view point whether a source designating function and a quality assurance function were compromised. It should not be construed that the factor of “distribution” is unnecessary only because the first requirement does not include the word “distribution”.
(6)   Concerning the third requirement, violation of the restrictive provision to limit the venue of sales, which is for controlling the quality until the sales to the end-consumer, and the advertising phrase of “imperfect product/ package damaged” compromised the quality assurance function.

 

5. Courts’ Decision

In the first instance and in the appeal hearing, the courts determined that the act of Bright satisfied all of the first to the third requirements of the parallel import of a genuine product, and thus did not fall under infringement of trademark.
In the first instance, the Tokyo District Court determined that the first and the second requirements were satisfied for the reason that the mark used on the subject product was lawfully used by Harris etc., or Company A, who was licensed by Harris etc., and that the right holder in foreign countries such as Canada and the right holder in Japan are both Harris etc., and thus the subject mark indicates the same origin.
The Tokyo District Court also determined that the third requirement was satisfied for the reason that the subject product was sold to Corporate Y by Company A based on their agency agreement which allowed Harris etc. to control the quality of the subject product directly or through Company A, and therefore, the quality of the subject product sold by Bright was not substantially different from the genuine product as far as the registered trademark guarantees.
Meanwhile, the court determined that the act of Bright to purchase the subject product from Corporate Y after the termination of the agency agreement between Company A and Corporate Y should not have compromised the quality assurance function of the trademark of the plaintiff in light of the control performance by Company A.
The court determined that the quality assurance function of the trademark of the plaintiff had not been compromised by the restriction of the venue of sales within Singapore for the following reasons.
·    It is not acknowledged that the subject product sold in Japan had a remarkably high quality etc. compared with the subject product sold in other countries.
·    It is also not acknowledged that the restriction of the venue of sales by Corporate Y was related to maintenance and control of the quality of the subject product.
·    As the subject product was men’s underwear, the quality of which should not be immediately degraded during transport.
In the appeal hearing, the IP High Court determined in response to the argument of Harris etc., “the first requirements of parallel import of a genuine product requires not only the legitimacy of using the trademark, but also that the product with the trademark is “distributed” by the will of the right holder”, that , since Corporate Y purchased the subject product from Company A through a rightful route, it was clear that the subject product was “legitimately distributed” at the time of this purchase.
The IP High Court also determined that the third requirement was satisfied for the following reasons.
·    As in the present case, when the right holder itself manufactured the product, the quality of the product was guaranteed by the fact that the right holder itself was the manufacturer; the quality assurance function after manufacture should not be compromised as long as the quality was maintained.
· Since the subject product was a men’s underwear, it would not age and degrade during distribution in a reasonable timeframe, and if an effort (package of the product etc.) made by the right holder itself for the quality control was maintained as it was, the product per se would not be stained or damaged.
·    In a case, such as the present case, where the right holder itself manufactured the product, and due to the nature of the product itself, there were no risk of compromising the quality assurance function of the trademark, such as aging and the like, without a particular care in the quality control, it was reasonable to understand that the right holder was directly or indirectly controlling the quality if an effort (package of the product etc.) made by the right holder itself for the quality control was maintained as it was.

 

6. Consideration

Corporate Y was selling the subject product to Bright against the agency agreement with Company A. However, since this act per se did not compromise the source designating function and the quality assurance function of the plaintiff’s trademark, it was determined that the act of Bright satisfied the first to third requirements of the parallel import of a genuine product. Since the subject product was a men’s underwear, the quality control seemed easy as it did not age during distribution or require complicated maintenance. Nevertheless, it is very intriguing to presume how the courts had determined if the subject product was something difficult to control the quality.
The plaintiff made a final appeal and filed a petition for acceptance of the final appeal before the Supreme Court; however, the rejection and nonacceptance were issued on December 7, 2021.

 
Edited by Makoto Kumazaki

名古屋国際特許業務法人

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