Court Decision Made Compensation to a Foreign Buyer against Products Infringement of the Manufacturer in China

hero pens(By Luo Yanjie) In our today’s post, when a foreign company ordered a number of Hero pens from a Chinese company, the Chinese company used the fake products to replace the authentic ones and then the fake products were found to be confiscated and punished by the Customs. Finally, the foreign company brought the Chinese company into the court and won the lawsuit, claiming that the Chinese company disobeyed the contract.

Hero pens are famous and have received well reputation for its good quality in the industry of pens in China.

Introduction to the Case:

Appellant (defendant at the first instance): Wuyi Xicheng Leisure Products Co., Ltd (the “Xicheng Products Co., Ltd”)

Respondent (plaintiff at the first instance): S.K.Impex

Court of first instance: Jinhua City Intermediate People’s Court  No.: (2013)浙金商外初字第10号民事判决

Court of second instance: Zhejiang Province Higher People’s Court  No.: (2013)浙商外终字第167号

In 2008, Xicheng Products Co., Ltd presented an invoice stating that S.K.Impex purchased a sum of 180000 Hero pens for total of 150 boxes from Xicheng Products Co., Ltd. After Xicheng Products Co., Ltd declared these pens to the Ningbo Customs, the Ningbo Customs issued a notice of administrative penalty decision on May 21, 2010, determining to confiscate the infringing pens and impose a fine of RMB 46,000, on the grounds that these pens constituted trademark infringement against the exclusive right holder, Shanghai Hero Pen Co., Ltd of the “Hero” trademark. As such, S. K. Impex did not receive the goods on schedule and thus are led the two parties into a dispute. Therefore, on March 15, 2013, S.K.Impex brought this dispute to the court.

After accepted and heard the case, the court of first instance decided that the contract between S.K.Impex and Xicheng Products Co., Ltd could be terminated and Xicheng Products Co., Ltd shall return the pens’ payment plus interests. Dissatisfied with the decision backed by the court of first instance, Xicheng Products Co., Ltd appealed. The court of second instance heard the case and determined in the following:

  1. Even though the two parties did not enter into an international trading contract, both the two parties acknowledged the invoice which Xicheng Products Co., Ltd, thus meaning that the invoice could be the basis of affirmation upon their rights and obligations.
  2. Article 97 of the Contract Law stipulates, “After the rescission, the part of the contract that has not yet been performed shall be terminated; in respect of the part that has been performed, a party to the contract may, in light of the status of the performance and the nature of the contract, request that the original position be restored or other remedial measures be taken.” Based on the analysis, S.K.Impex requesting to return the payment plus interests shall be tenable thus be in favor of.
  3. Article 129 of the Contract Law stipulates, “The time limit for bringing an action before the people’s court or for arbitration before an arbitration institution regarding disputes relating to contracts for international sales of goods and contracts for technology imports and exports shall be four years.” From the Article 129, S.K.Impex had instituted legal proceedings during the period of limitation of the action.

Therefore, the court of second instance determined to reject the appeal of Xicheng Products Co., Ltd and then affirmed the original judgment backed by the court of first instance.

Lawyer’s Comment:

1.  Whether did exporting the products made inside China constitute trademark infringement?

According to the Trademark Law, any using a trademark without the licensing of the trademark registrant shall constitute an infringement of the exclusive right to use a registered trademark. Literally, the behaviors of the appellant shall be conforming to trademark infringement as regulated in the Trademark Law.

However, a trademark is to distinguish the source of the goods or services. The attribute of trademark infringement is just to damage the function of distinguishing the source of the goods or services and thus is likely to lead the public into thinking that they are associated and cause confusion. In this case, the disputed pens are exported to the United States without selling in China, thus meaning that consumers in China were not access to these pens and had yet not fallen into thinking that they are associated and cause confusion. As such, exporting the products made inside China does not constitute trademark infringement, which is a generally recognized in practical inside China. For these, it is worthy discussion about the court’s decision that the behavior of the appellant constituted trademark infringement.

2.   Analysis about Guarantee obligations of intellectual property rights in the international trading contract.

According to the United Nations Convention on Contracts for the International Sale of Goods, in any international trade, the seller must deliver goods which are free from any right or claim of a third party such as intellectual property rights. This means, in the legal relation arising from the sales contract, the seller is under the obligation of warranty that the products the seller delivered shall be free from any right or claim of a third party on the grounds of intellectual property rights. Because if a third party would claim any right based on industrial property or other intellectual property, the buyer’s use or sales of these products will be caused into trouble.

From the above regulations, the seller Xicheng Products Co., Ltd must warrant that the products delivered are free from infringing any intellectual property rights of a third party inside China and the imported country. Then, under the fact that the Ningbo Customs confiscated the infringing pens by virtue of trademark infringement, the seller Xicheng Products Co., Ltd had not fulfilled its duty to prevent from infringing any right of a third party and thus shall be taken responsibility for breach of contract.

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