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    07:18 PM Lim Ren Jun (Principal, Baker McKenzie Wong & Leow.) and Victor Looi (Practice Trainee, Baker McKenzie Wong & Leow.)

    Guidance on the Scope of the Parallel Importation Defence under the Trade Marks Act

        

    Introduction

    In the recent decision of Samsonite IP Holdings Sarl v An Sheng Trading Pte Ltd [2017] SGHC 18, the Singapore High Court shed light on an area of trade mark law that previously received scant attention before the local courts.

    The key statutory provision in question was section 29 of the Trade Marks Act (the "Act"), which sets out the parallel importation defence to trade mark infringement: "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, whether in Singapore, or outside Singapore, under that trade mark by the proprietor of the registered trade mark or with his express or implied consent (conditional or otherwise)". George Wei J helpfully elucidated what the expression "put on the market" meant, as well as what the term "market" referred to. As such, trade mark proprietors now have some guidance on their rights in situations where their authorised dealers go rogue and sell the trade-marked goods to unauthorised parties (which include parallel importers).

    Facts

    Samsonite IP Holdings Sarl (the "Plaintiff") is the registered proprietor of various trade marks in relation to the SAMSONITE brand across many countries, including Singapore and China.

    In July 2015, the Plaintiff's solicitors were notified that a shipment of backpacks (the "Detained Backpacks") bearing the Plaintiff's trade marks (the "Marks") was seized at the Singapore Customs. Upon inspection, the Plaintiff realised that the Detained Backpacks included two models of backpacks that originated from a co-branding agreement between its subsidiary, Samsonite International Trade (Ningbo) Co, Ltd ("Samsonite") and Lenovo PC HK Ltd ("Lenovo"). 

    These backpacks were manufactured and supplied exclusively by Samsonite to Lenovo, and were to be given away for free to purchasers of certain models of Lenovo laptops in China. However, they were not to be sold or otherwise disposed of, independently from the sale of the said laptops.

     

    Despite such a restriction, the Detained Backpacks, which were first passed by Samsonite to its authorised dealers, were subsequently sold, independently of the Lenovo laptops, to unauthorised dealers.  An Sheng Trading Pte Ltd (the  "Defendant"), which was a parallel importer, managed to obtain these Detained Backpacks from an unauthorised dealer, and later imported them into Singapore before they were seized.

    The Plaintiff sued the Defendant for trade mark infringement under s. 27(1) of the Act.

    In its defence, the Defendant countered that it did not infringe the Marks. Even if it did, the Defendant sought to rely on s. 29(1) of the Act. Additionally, the Defendant counterclaimed for damages against the Plaintiff.  

    Holding

    As a preliminary point, Wei J stated that there seemed to be a prima facie infringing use of the Marks in relation to the Detained Backpacks.

    On whether the Detained Backpacks had been "put on the market" such that the Plaintiff's rights were exhausted, Wei J first delved into the legislative history of the exhaustion of rights defence and juxtaposed s. 29(1) with its UK and EU equivalents (see [60]-[68]). While there were differences in the expressions across the three provisions, Wei J recognised that UK and EU case law could nevertheless provide some guidance on the interpretation of the expression "put on the market". This was especially so given the dearth of local case law in this regard.

    Next, Wei J examined the policy underpinning s. 29 (see [69]-[82]). It appeared that s. 29 was enacted to ensure that a proprietor, who had already reaped economic benefits from his trade-marked goods through the putting of goods on the market, should not be allowed to enjoy perpetual monopoly rights over the goods anymore.

    Subsequently, Wei J referred to UK and EU case law, before proffering his view on the issue (see [85]-[100]). According to His Honour, the expression "put on the market" referred to a situation where an independent third party would obtain the right of disposal of the goods bearing the trade mark, and the trade mark proprietor would simultaneously have been able to realise the commercial or economic value of the said goods. Such realisation of economic value was not limited to the sale of goods by the trade mark proprietor to third parties, but instead could also be achieved via other methods. Meanwhile, the definition of "market" depended on the factual circumstances of each case as well as the economic objectives that the trade mark proprietor had at the outset.

    In the case before the Court, the Plaintiff had intended to penetrate the Chinese consumer market, to create awareness of its brand, and to boost its reputation by bundling its backpacks with Lenovo laptops. However, because the Detained Backpacks were unbundled from the laptops, they could not have been associated by end-users with the Lenovo brand. Also, the Plaintiff did not receive any profits from the sale of the Detained Backpacks to the Defendant. Therefore, the Plaintiff was deprived from realising the economic value of its goods, and the Detained Backpacks consequently could not be said to have been "put on the market".

    Ancillary issues

    Given that the Detained Backpacks had not been "put on the market", Wei J was not obliged to decide on whether the Plaintiff had given consent in accordance with s. 29(1).

    Nevertheless, he proceeded with providing his opinion on what constituted "consent".

    First, Wei J identified the two different approaches that foreign courts had adopted regarding this matter (see [114]-[120]). The first approach, which was adopted by the English courts in Zino Davidoff SA v A & G Imports Ltd [2000] Ch 12, was where a plaintiff, who could have placed but did not place an effective restraint on the further sale and movements of goods, was considered to have consented to such sale and movements. The second approach—which was adopted by the Scottish courts in Zino Davidoff SA v M & S Toiletries Ltd (No 1) [2000] ETMR 622—was where a trade mark proprietor, who had taken all reasonable steps but was unable to effectively limit the sale and movements of goods, was not considered to have given consent.

    After stating the two approaches, Wei J seemed to identify with what the European Court of Justice stated in Zino Davidoff SA v A & G Imports Ltd [2001] ECR I-8731 (at [45]) about the second approach, viz, a trade mark proprietor who intended to renounce his exclusive rights would have to demonstrate such intention unequivocally, though this could be done either expressly or impliedly. However, Wei J declined to make a conclusive finding on consent.

    Also, Wei J dismissed the Defendant's argument that there was implied or deemed consent by the Plaintiff to sell the Detained Backpacks in Singapore (see [145]-[146]), based on the following grounds. First, the fact that the Plaintiff was not successful in restricting the unauthorised sales of the Detained Backpacks did not mean that the Plaintiff had impliedly given consent. This was especially since the Plaintiff was unaware, and therefore could not have objected to the sale of the Detained Backpacks. Also, there was no deemed consent because the Plaintiff had not granted any consent, conditional or not, to put the Detained Backpacks on the market.

    Finally, Wei J raised the issue of whether the Plaintiff could rely on s. 29(2), which states the exceptions to s. 29(1), to defeat the Defendant's defence in a hypothetical situation where the Defendant was able to satisfy the elements of s. 29(1) (the "Ancillary Issue") (see [149]). However, he declined to delve into it, given that it was not addressed in the Parties' submissions.

     

     

    Commentary

    There might be some who disagree that the expression "put on the market" in s. 29(1) should be construed in a way that allows the trade mark proprietor to realise the economic benefit of its trade-marked goods. As acknowledged in the decision, Tan Tee Jim had stated in his book, Law of Trade Marks and Passing Off, that the "trade mark proprietor's exclusive right of use does not depend on the use realising an economic value". Detractors might argue that what a proprietor's authorised dealer subsequently does with the trade-marked goods is regulated by the contract between the proprietor and his authorised retailer or distributor. If the latter makes an unauthorised sale of such goods, the former would be able to claim damages for a breach of contract accordingly. Therefore, it may be argued that there is no need for any additional protection for trade mark proprietors under s. 29(1) of the Act. Further, by dealing with retailers or distributors, trade mark proprietors have already implicitly chosen to assume business risks, which is an inevitable part of any commercial entity's operations.  

    In relation to such arguments by critics, it is submitted that the availability of contractual remedies to a trade mark proprietor should not preclude him from seeking legal recourse and additional protection under the Act. After all, the Act provides for a wider range of actions to enforce one's rights. First, under the Act, a proprietor may seek the assistance of border enforcement authorities to seize the allegedly infringing goods, and subsequently institute infringement proceedings against the infringer. Secondly, the proprietor may claim for statutory damages against the infringer (see s. 31(5)(c) of the Act). Thirdly, the Court may make an order requiring the delivery up of infringing goods to the proprietor (see s. 33 of the Act), and the subsequent disposal of these goods as the Court thinks fit (see s. 34 of the Act).  As much as Parliament seems to be in favour of parallel imports (see [76]), it is salient that the interests and economic objectives of trade mark proprietors be recognised and protected as well.

    Additionally, it is recognised that there are policy considerations to bear in mind which favour the interests of parallel importers in parallel importation situations. Some may argue that proprietors should not have a monopoly over the benefits arising from their trade-marked goods throughout the entire product life cycle, even after their products have been "put on the market". The principle of rights exhaustion ensures that there is healthy competition within a market, which is the hallmark of a free economy. Also, the healthy competition would translate to benefits for consumers in the form of lower prices and a wider range of options to choose from.

    While these considerations are not without merit,  there are countervailing policy considerations which should be given greater effect to. First, the international exhaustion approach that Singapore currently adopts in relation to trade marks already aligns significantly with the interests of parallel importers. This is juxtaposed against the International Trademark Association's position that the national or regional exhaustion approach be adopted for the parallel importation of trade-marked goods. Secondly, should the Singapore courts construe s. 29(1) widely such that a trade mark proprietor need not realise the economic benefit of his trade-marked goods before the goods can be "put on the market", the ambit of s. 27(1) would be significantly reduced. This would thereby compromise trade mark proprietors' ability to enforce their rights. This would not bode well for Singapore, which prides itself on being "a prominent business hub with a reputation for upholding intellectual property rights" (Ong Ah Tiong v Public Prosecutor [2004] SGHC 11 at [16]). Therefore, His Honour was right in being cautious against tipping the balance overly in favour of parallel importers.

    This is not to mention that in the present case, the Plaintiff had no opportunity to realise the economic benefit arising from his trade-marked goods at all. There was no exhaustion of rights to begin with, and thus the parallel importer's interests were moot. These interests would only have entered into the fray upon the putting of the trade-marked goods by the proprietor or with the proprietor's consent on the market.

    Wei J proposed (at [100]) a test for determining what "put on the market" refers to, viz, first, it is an act that must "[allow] the proprietor of the trade mark to realise the commercial or economic value of the trade-marked goods", and secondly, the act must simultaneously "[deprive] him of the right to control the subsequent exploitation of the goods". In addition, the exact "market" referred to in the phrase "put on the market" depends on the factual circumstances and the commercial goals of the proprietor in question.

    It is submitted that the first limb of Wei J's  test, as well as his statement on what the exact "market" refers to, rightly accords courts with flexibility in different factual scenarios. This is because of the broad scope of the phrase "realise the commercial or economic value", which can extend beyond just the sale of trade-marked goods. This flexibility leaves room to factor in the various countervailing policy considerations, and allows courts to arrive at outcomes that are fair in light of the factual circumstances yet are coherent with one another in the grander scheme of things. 

    However, the second limb of the test, with respect, appears to be more of an effect arising from a proprietor putting his trade-marked goods on the market, than a requirement before a good is said to be "put on the market". Hence, it is submitted that the first limb of the test per se would provide a platform for a balanced assessment of what "put on the market" means.

    On a separate note, in relation to the Ancillary Issue, it is submitted that the outcome of the Court's decision would have been very different had the Defendant been able to establish the elements of s. 29(1). In other words, the Plaintiff would likely not be able to rely on s. 29(2) in defeating the Defendant's defence under s. 29(1).

    Under s. 29(2), the s. 29(1) defence does not apply where "(a) the condition of the goods has been changed or impaired after they have been put on the market; and (b) the use of the registered trade mark in relation to those goods has caused dilution in an unfair manner of the distinctive character of the registered trade mark". In the context of co-branded bundled goods, it might be argued that the term "goods" in s. 29(2) refer to the Detained Backpacks together with the Lenovo laptops (the "1st Interpretation"). In other words, the Detained Backpacks and the laptops should not be viewed as separable from each other, just like how the charger of a Lenovo laptop, for instance, should be considered together with the laptop itself as a singular good. An alternative interpretation of "goods" is that the Detained Backpacks themselves constituted goods, which were independent of the Lenovo laptops notwithstanding the bundling arrangement (the "2nd Interpretation").

    On whether bundling resulted in a change or impairment of the condition of the goods, it is submitted that based on the 1st Interpretation, the unbundling of laptops from the Detained Backpacks constituted a physical change since the components within each good were separated from each other.  Meanwhile, based on the 2nd Interpretation, while there was no physical change to the Detained Backpacks themselves, there arguably was a mental change in their condition. As seen in Zino Davidoff SA v  A & G Imports Ltd [2000] Ch 12, the change or impairment in condition of goods referred to in the EU equivalent of s. 29(2)(b)  includes changes not just to the "physical" condition, but also the "mental" condition of goods. Changes to the "mental" condition of goods include modifications to the packaging or methods of promotion that depart from the image that the trade mark proprietor has created around his trade mark. In this case, the Plaintiff allowed Samsonite to produce the Detained Backpacks for the exclusive purpose of being bundled together with Lenovo laptops. Such a bundling was presumably marketed in China to end-users such that they might associate Samsonite's products with Lenovo laptops. Assuming this presumption to be true, any unbundling of goods might result in end-users not making such a mental association between the two brands, as intended by the Plaintiff. Therefore, there arguably was a change in the condition of the Detained Backpacks.

    While it might initially seem that the Plaintiff can rely on s. 29(2), any attempt to defeat the Defendant's defence would fall short at the last hurdle, viz, the requirement that the use of the Marks in relation to the Detained Backpacks caused dilution in an unfair manner of the distinctive character of the Marks. In this regard, it is hard to conceive how the Plaintiff would be able to prove the lessening in capacity of the trade mark in identifying and distinguishing Samsonite's products (see s. 2(1) of the Act). While the unbundling might have changed the condition of the goods, it did not affect the distinctiveness of the Samsonite trade marks, regardless of whether the 1st Interpretation or 2nd Interpretation of "goods" was adopted. This is because the Detained Backpacks were after all genuine Samsonite products (albeit parallel imports), and were not of an inferior quality. Also, the Marks were not used indiscriminately such that they would become generic. Therefore, in the hypothetical scenario where the Defendant was able to rely on the s. 29(1) defence, the Plaintiff would be unlikely to succeed in an infringement claim under s. 27(1).

    Finally, the implications of this case could extend beyond trade mark law. It is submitted that the Court's interpretation of "put on the market" in s. 29(1) could similarly apply in future cases to the expression "placed on the market" in s. 30(7) of the Registered Designs Act. This is because the courts are likely to apply common principles in both contexts, viz, the importance of protecting the rights of intellectual property right holders by allowing them to realise their economic objectives in relation to their rights.

    Conclusion

    The High Court's decision is likely to be well received by trade mark proprietors, given that they can now initiate legal action against infringers so as to realise the economic benefit from their trade-marked goods. Additionally, it is likely to put parallel importers that purchase such goods from unauthorised dealers on alert. Going forward, whether this decision will have far-reaching impact will hinge on subsequent courts' (especially the Court of Appeal) treatment of the decision. However, for now, there is reason for trade mark proprietors to be cautiously optimistic about the courts' protection of intellectual property rights.

    * This blog entry may be cited as Lim Ren Jun and Victor Looi, “Guidance on the Scope of the Parallel Importation Defence Under the Trade Marks Act”  (4 April 2017) (http://www.singaporelawblog.sg/blog/article/180)

    ** A PDF version of this blog entry may be downloaded here

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