Recessive Reverse Passing Off in Trademark Infringements

Author: Zhong Yi, Katherine Liu  [ Shanghai Runhe Law Firm ]

1.    Case Summary

Court: Intermediate People's Court of One City;  Plaintiff: Company A (Proprietor of Trademark Y);  Defendant: Company B (Infringer)

Plaintiff alleged: Defendant, Company B, purchased several old mechines of Trademark Y manufactured by Plaintiff, repaired them and sold them without attaching any mark after removing the brands, which impeded the popularity of Plaintiff's trademark from being enlarged, impacted its market shares and infringed its exclusive right of use to Trademark Y. Plaintiff pleaded the Court to adjudicate that Defendant should immediately cease its infringing acts upon Plaintiff's trademark and compensate Plaintiff relevant losses, lawyer fees, expenses for the collection of evidences, case acceptance fee and other litigation costs.

Defendant argued: it was engaged by the clients to repair the old machines of Trademark Y manufactured by Plaintiff and charged the repair fees accordingly. There was no sales relationship between the Clients and Defendant. The repair only refered to the act of providing labor services, which did not change the ownership of the subject matter. And it was lawful and within its business scope to repair old machines of Trademark Y, which did not infringe upon Plaintiff's trademark rights. Defendant pleaded to the Court to reject Plaintiff's claims.

Upon hearing the Case, the Court verified that Plaintiff, Company A, legally owned Trademark Y, with which Plaintiff made a nameplate fixed on the machines. Defendant had purchased the old machines of Trademark Y for several times, removing the nameplate (Trademark Y), repairing and repainting the machines and then sold them without attaching any mark. Company B admitted that it had sold 3 machines of Trademark Y in above said way, and the buyers of these 3 machines were not aware that the original manufacturer was Plaintiff, Company A. It was further verified that during the litigation, Plaintiff paid some lawyer fees and expenses for investigation and collection of evidences.

The Court held that Plaintiff, Company A, enjoys the ownership and right of use to Trademark Y in accordance with the laws and the right to prohibit others from using the trademark inappropriately as well.  Regarding the registered trademark, the commodity trademark and the commodities share some inseparable attributes. The removal of the original trademark during the commodity circulation obviously cuts off the connection between the trademark proprietor and the commodity users. This act will not only make the commodity users unable to know the actual commodity manufacturer, thus deprived them of the general public’s right to cognize the commodity manufacturer and the commodity trademark, but also ended the commodities’ nature of market extension, thus directly infringed upon the trademark proprietor’s right to the exclusive use of the trademark, and finally damaged the trademark proprietor’s economic benefits. Company B's act in this Case was not merely repair but a trading act of selling the repaired old machines of Trademark Y as its own products to others. Since both Parties are located within the same area, Company B’s selling the repaired old machines at a low price would impact the use market of the machines. Therefore it should be ascertained that Company A suffered from certain economic losses due to this fact.

As a whole, the Court rendered the judgment that Defendant shall stop infringing upon Plaintiff's exclusive right of use of the registered trademark immediately and compensate most of Plaintiff's losses and reasonable expenditures.

2.    Case Review

In our view, the focus of the Case is whether the acts of Defendant, Company B, that Defendant purchased old machines of Trademark Y and sold them without any mark after repair and removal of the trademark constitutes the recessive reverse passing off on Plaintiff's registered trademark.

Reverse passing off on trademark may be classified into dominant and recessive reverse passing off on trademark. Dominant reverse passing off on trademark generally indicates selling the commodity on which the registered trademark is changed without authorisation of the trademark proprietor, which has been regulated under Article 52(4) of the Trademark Law of PRC. And the representative case is the famous "Maple Leaf" vs. "Crocodile". Recessive reverse passing off on trademark generally means selling the commodity without any mark after removal of its trademark without authorisation of the trademark proprietor. There're no specific laws and regulations to regulate such infringing acts so far. This Case may be the one we can only find which was defined as the recessive reverse passing off on trademark in legal practice. The Court held Defendant's acts constituted the above-said infringing acts according to Article 52(5) of the Trademark Law of PRC, ie. " to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark".

In this Case, Defendant pleaded that repairing machines of Trademark Y shall not be regarded as acts of sale, which missed the shot. It is disputable both in legal practice and theoretical circles on whether recessive reverse passing off on trademark constitutes infringement. The reason is that the Trademark Law fails to provide specific provisions concerning the limitation on the trademark rights, which incures difficulty of legal professionals to make definite anticipation judgment on such acts. Protestors mainly held the theory of the exhaustion of trademark rights to defend the trademark proprietor from continuously use of trademark exclusive rights after the commodity is sold. In our opinion, generally speaking, after the commodity is legally sold or transferred, the trademark proprietor is not entitled to prohibit others from reselling such commodity in the market or making use of the same directly. However, before the commodity reaches the end-user, the trademark proprietor shall enjoy relevant rights on the trademark attached to the commodity. In this Case, Defendant, Company B, wasn't the end-user, and the commercial transaction wasn't finished. Sale of the machines without any mark after removal of the original registered trademark constituted recessive reverse passing off on trademark. I.e., the theory of the exhaustion of trademark rights shall only be applied between the trademark proprietor and the end-user so as to better protect interests of the former.

In the event that such opinion has ground, the ubiquitous domestic sales of commodity originally produced for exports whose trademarks are cut all comply with the constitutive requirements of the above-said recessive reverse passing off on trademark. There's no definite criterion recently on who is right or wrong. The key is the value orientation of the legislators for the future.

In one word, due to the gradual amelioration of our country's protection system on the intellectual property rights, technology involved in the passing off escalates accordingly. For example, other's commodity is assembled into the infringer's own product ("component") after the registered trademark is removed. The infringer's own trademark is symbolized on the final commodity after assembling and then the final commodity is sold. Whether such acts constitute trademark infringement? I agree to the judgment of this Case which explains and clarifies recessive reverse passing off on trademark. I hope relevant issues may be further clarified during the future revision of the Trademark Law.