IP Court rules on exhaustion in trademarks

The IP Court has issued its judgment in the 107-Min-Sun-Su-30 Civil Decision of 16 October 2018, holding that the principle of exhaustion shall not apply if the domestic trademark holder is different from the foreign trademark holder.

According to the facts underlying the decision, the plaintiff owned a famous brand, which it used for energy and soft drink products. It applied for and obtained the trademark at issue in Taiwan. The defendant imported products bearing the plaintiff’s mark from Vietnam. The products were confiscated by Taiwan Customs because the plaintiff claimed that they had not originated from it and were thus counterfeits. The plaintiff then brought suit, seeking damages and a permanent injunction for trademark infringement.

The IP Court affirmed that the defendant had infringed the plaintiff’s trademark. With respect to the defendant’s argument that the principle of exhaustion applied, the court ruled as follows.

First, according to Article 36(2) of the Trademark Act: “Where goods have been put on the domestic or foreign market under a registered trademark by the proprietor or with his consent, the proprietor is not entitled to claim trademark rights on such goods”. Taiwan adopted the doctrine of international exhaustion when the Trademark Act was amended in 2001. Under this, the trademark owner receives a reward from the first sale of its product in the domestic or foreign market – it is subsequently deemed to have consented to the use of the registered trademark on the goods when these are sold to a retailer or directly to customers. The purpose of this doctrine is to entitle the trademark owner to monopolise the trademark, but not to benefit from double rewards. However, where the trademark right is domestic, the trademark may have a different owner in other countries. If this is the case, the domestic proprietor receives no reward from the imported goods and the principle of exhaustion is thus held not to apply – instead the consent of the domestic trademark owner is required to legally import the goods bearing the registered trademark.

It is clear that in this case the confiscated goods bore the trademark of the plaintiff (Company A). However, the defendant argued that the goods had been bought from another corporation (Company B), which owned the trademark at issue in Vietnam. This being the case, the principle of exhaustion still applied. 

The court elaborated that although the owner of the trademark at issue in Vietnam is Company B, Company A is still allowed to claim rights over the mark in Taiwan. Since the plaintiff, Company A, has no relationship with Company B, the principle of exhaustion applied only to Company B and should not restrict Company A’s right to the trademark in Taiwan.

According to this decision, it is clear that even though Taiwan has adopted the doctrine of international exhaustion in the Trademark Act, this will not be applied when the owner of the trademark is different from the owner of the same mark in another country. Therefore, parallel imports are not permitted into Taiwan if the trademark is owned by a different company to the Taiwanese rights holder.