The Supreme Court broadened the scope of the trademark exhaustion principle to include the same historical origin as published on the website

The Decision

1.      According to Article 36, Paragraph 2 of the Trademark Law, as amended on June 29, 2011, “goods bearing a registered trademark that are traded in domestic and foreign markets by the trademark owner or by a person with the owner's consent shall not be subject to trademark rights claims. However, this does not apply in order to prevent the goods from deterioration or damage after being circulated in the market, or from being processed or transformed by others without authorization, or for other legitimate reasons.” Based on the legislative intent, Taiwan has adopted the principle of international exhaustion. This means that the trademark owner may no longer assert rights over goods that have been circulated in the market with their consent, without a proviso to the same article, regardless of whether the goods were first placed on the market domestically or abroad. This also expressly acknowledges the legitimacy of parallel imports of genuine goods.

2.      Furthermore, the term "consent" in this article is not limited to the express consent of the trademark owner. Although trademarks registered in different countries possess varying rights under the principle of territoriality, if the exclusive rights essentially arise from the same right holders who have licensing or distribution agreements with each other, or if they belong to the same related enterprise or group, holding and subsidiary companies, the use of a single global trademark for marketing purposes, or the adoption of a unified trademark marketing strategy, can easily lead to consumer confusion. The trademark owner should be aware of this potential confusion and still choose to proceed, and it is possible to maintain control over the quality of legitimate trademarked goods and the status of trademark use. This ensures the integrity of trademark usage and protects the reputation of the national trademark owner in the importing country, which also falls within the scope of Article 36, Paragraph 2 of the Trademark Law.

3.      A review of the appellant's website and its headquarters revealed that it originated from the Japanese Nefful Company established in Japan in 1973. All parties utilized the disputed trademark for marketing purposes and to identify the source of the goods, a fact established during the original trial. The appellant has acknowledged that the goods from the Japan Nefful Company, the Singapore Nefful Company, and the appellant are related (see page 186 of the first instance volume). Consequently, the original trial concluded that the disputed trademark and the trademark associated with the disputed goods belong to different trademark owners due to the principle of territoriality. However, the exclusive rights fundamentally arise from the same owner, and the disputed goods are those that the trademark owner has consented to be traded and circulated in foreign markets, qualifying as parallel imports of genuine goods under Article 36, Paragraph 2 of the Trademark Law. Therefore, the appellant cannot exercise trademark rights against the appellee, and there is no violation of the law.

Ching Lu’s comment

1.      In the past years, it has been considered in practice that foreign trademark owners must be the same person before the trademark exhaustion principle can be applied. However, Supreme Court case 108 Taishon No. 397 held in 2020 that the foreign trademark owners do not need to be the same person as long as the exclusive rights essentially originate from the same right holder for the trademark exhaustion principle to apply. Trademark owners in different countries, as long as they have authorization or legal relationships with each other, the trademark right of the owner authorized to register will also be exhausted. That is to say, the requirements of the exhaustion principle are relaxed, including situations where foreign trademark owners are not the same person but have authorization or legal relationship with each other. (Please refer to our previous article at https://www.avail.com.tw/post/the-impact-of-the-exhaustion-principle-still-applies-to-different-domestic-trademark-owners)

2.      In the above-mentioned case, the Taiwanese trademark owner is a distributor of the American original manufacturer. The Taiwanese and American trademarks belong to different persons. However, the distributor’s Taiwan-registered trademark was registered with the consent of the American original manufacturer. Therefore, the Supreme Court ultimately held that the two essentially exclusive rights originate from the same owner. Importers that parallel import goods from American original manufacturers can also claim exhaustion against the Taiwanese trademark owner.

3.      However, in the NEFFUL trademark infringement case, the registration of the Taiwan NEFFUL trademark was not based on the consent of the Japanese NEFFUL trademark owner. Throughout the litigation, the appellant consistently asserted that there was no legal relationship between the Taiwanese and Japanese trademark owners. The IP court relied solely on the historical relationship between the appellant and its Singapore head office, as recorded on its website, noting that both entities were established by Nefful Company in Japan in 1973 under its first president. Ultimately, the IP court concluded that both exclusive rights originated from the same owner and the exhaustion principle applied. The Supreme Court has upheld this interpretation.

4.      In this case, the Supreme Court has further broadened the application of the exhaustion principle. Even if the marketing strategies of domestic and foreign trademark owners are likely to confuse consumers and raise concerns about quality control, the exhaustion principle may still be applicable.

5.      Based on the Supreme Court's opinion, multinational companies seeking to enter the Taiwanese market and claim trademark infringement must exercise extreme caution. If their marketing strategy confuses consumers about the source of the products, and the trademark owner has the ability to control quality, it may be determined that their trademark rights have been exhausted, making it challenging to assert trademark infringement in Taiwan. Furthermore, when assessing the relationship between domestic and foreign trademark owners, the court does not require a cooperation agreement or evidence of a parent-subsidiary relationship. Simply relying on information available on a multinational enterprise's website may lead to the conclusion that the rights share the same origin. This underscores the importance of multinational companies paying careful attention to the content presented on their web pages.