‘Grey market’ IP issues on trademarks back in limelight

The huge price differential of certain branded goods on the overseas and domestic markets, the enhancement of the consumption capacity of Chinese people, and the lack of confidence in domestic products have spawned new cross-border merchandise trading models, such as overseas purchase for domestic principals and direct purchase on foreign websites. The trading model has shifted from traditional import-export, purchase for another when travelling and personal purchase for another to dedicated cross-border e-commerce. Policies relating to parallel imports, such as the 2016 Several Opinions on the Pilot Project for Promoting the Parallel Import of Motor Vehicles and the Interim Administrative Measures for the Pilot Project for the Parallel Import of Motor Vehicles, issued in succession by the Shanghai and Tianjin pilot zones, have again drawn attention to the intellectual property (IP) issue of “parallel imports” that is intimately connected with cross-border transactions.

Parallel import of trademarked goods again draws attention. The Patent Law contains express provisions that permit parallel import. The term “parallel import of trademarked goods”, also termed the “grey market”, generally refers to a situation where, in international trade, an importer, without a licence from the domestic trademark registrant, imports from abroad through lawful channels authorized products of the trademark rights holder or a licensee, with such products covered by trademark rights in China.

Cross-border e-commerce for the most part takes the form of a platform model or self-operation model. The platform model only provides a trading platform for buyers and sellers (like Yangmatou). Whether acts by a platform constitute parallel import is an issue that is still being debated. However, the operator of e-commerce that takes the form of the self-operation model will itself make the arrangements for an overseas source of genuine products and use bonded warehouses or other such means to provide sales, logistics, after-sales and other such services to customers, usually without a licence from the exclusive agent for the brand in China, constituting a typical act of parallel import. Such parallel importation has a substantive impact on the market share and economic performance of the exclusive agent in China. Although the products brought in through parallel import are genuine, they are not licensed by the domestic trademark registrant or licensor, making it worth exploring whether such an act constitutes trademark infringement.