Author | Zhuang Zhe
Tiantong Law Firm
Inscription:
Bonded maintenance business is a state-encouraged, pilot promotion of technical services export business, rapid development in the world, but also give full play to the advantages of the mainland's manufacturing industry system innovation. However, due to the multiple regulations involving domestic and foreign laws, intellectual property law, export control and other laws and regulations, the opinions of local judicial and law enforcement agencies have not yet been unified, and enterprises face the risk of civil, administrative and criminal liability for trademark infringement.
After research and analysis, the author believes that as to whether a bonded repairer with "two ends outside" constitutes trademark infringement, it is necessary to consider what kind of necessary duty of care the repairer needs to perform, focusing on whether the repairer participates in the sales of back-end refurbished products, and whether there is an act of replacing the old with the new and shoddy.
If the repairer is only engaged in bonded maintenance, and none of the repaired products have entered the Chinese market for circulation, it should not constitute trademark infringement and should not be excessively liable to it.
01. Basic facts of the case
Company C carries out the repair business of well-known brand mobile phones (including replacement parts, accessories, repair and refurbishment, etc.) in the bonded maintenance area, and the repair products are mainly Company A's mobile phones, and the mobile phones carry the registered trademark set by Company A. Company A holds registered trademarks in China and many countries and regions around the world, and has been recognized as a well-known trademark for many times. Company A reported the bonded maintenance activities of Company C in the bonded zone, arguing that the repairer dismantled the machine and replaced the parts without permission, and the parts replaced during the maintenance were not the accessories licensed by the trademark owner, and were suspected of producing trademark-infringing products. Company C's repaired goods were then seized by Customs on the grounds of trademark infringement. Company C believed that there was no trademark infringement and sued the case to the court.
02. Trademark infringement risk and exhaustion defense in maintenance and renovation
The refurbishment of electronic products is in line with the country's major strategy to encourage the development of circular economy, which is conducive to improving the efficiency of resource utilization and protecting and improving the environment. However, due to the lack of specific laws and regulations and a large number of problems such as new sales in the industry, industrial development and intellectual property infringement coexist, and the friction and conflict between the original manufacturers of electronic products and industry practitioners have intensified. For example, in cases such as (2020) Hu 0104 Xing Chu No. 836 and (2021) Hu 0107 Min Chu No. 26461, the defendants were found to have infringed trademarks for selling repaired and refurbished mobile phones.
The exhaustion of trademark rights is the main basis for industrial practitioners to claim "legal" maintenance and renovation. However, some judicial and law enforcement agencies believe that trademark rights are different from patent rights and copyrights, and the core of their rights lies in identifying the source of goods. If the repaired or refurbished product still retains the original trademark of the original trademark owner, but the core components have been replaced with products not authorized by the trademark owner (such as motherboards, batteries, etc.), the quality of the product may change significantly, and the repaired or refurbished product is put into circulation without logo, which may lead to confusion among consumers and infringe on the interests of the original trademark owner.
For example, the Shenzhen Municipal Procuratorate pointed out in the Guidelines for the Compliance of the Electronic Product Refurbishment Industry (for Trial Implementation) that after the goods are put on the market, although the trademark owner cannot intervene in the further circulation of the goods, such as distribution and resale, the further circulation of the goods marked with the trademark cannot affect the realization of the core function of the trademark, that is, the performance of the identification function. Although the refurbished electronic product retains the original trademark, the "production" link is completed by the refurbishment practitioner and is no longer the original brand new product. The source of the product to which the trademark refers is inconsistent with the actual source of the product. If the "producer" and seller of the refurbishment industry do not clearly explain the facts of refurbishment, it is easy to lead to confusion among consumers about the source of the product, and then infringe the trademark rights and interests of the trademark owner. Therefore, practitioners in the refurbishment industry of electronic products should take the standard of not affecting the function of trademark identification, fully respect the trademark rights and interests of trademark owners, attach importance to compliance management, and take effective measures when engaging in refurbishment and related sales behaviors, so as to ensure that consumers who purchase refurbished electronic products will not misidentify the source of refurbished electronic products and avoid damage to the function of trademark identification of the source under the premise of following certain method requirements.
03. New forms of bonded maintenance
(1) Definition of business form
Bonded maintenance business is a maintenance service export business piloted by the state in comprehensive bonded zones in recent years. According to the Announcement No. 16 of 2020 of the Ministry of Commerce, the Ministry of Ecology and Environment of the Ministry of Commerce and the General Administration of Customs on Supporting Enterprises in Comprehensive Bonded Zones to Carry out Maintenance Business, "bonded maintenance" refers to the bonded transfer of goods with problems such as component damage, functional failure, quality defects and other problems (hereinafter collectively referred to as "goods to be repaired") under the bonded maintenance mode of comprehensive bonded zones (hereinafter referred to as "CBZs") ) is transported into the CBZ from outside the overseas or domestic zone for maintenance, and then re-shipped to the overseas or domestic zone according to its source.
According to the relevant documents, the following four methods are applicable to the bonded maintenance of enterprises in the zone:
(1) Maintenance of overseas goods
The goods to be repaired are from overseas and will be re-shipped out of the country after the completion of repairs (Announcement No. 16 [2020]).
(2) Maintenance of goods outside the domestic area
The goods to be repaired come from outside the domestic zone and are re-transported to the domestic zone after the repair is completed (Announcement No. 16 [2020])
(3) Maintenance of equipment and goods used by enterprises in the zone
The goods in the self-use equipment and maintenance catalogue of enterprises in the zone can be sent to the maintenance enterprises in the region or other comprehensive bonded zones for maintenance with reference to the bonded maintenance method, and returned according to the original route after repair (Announcement No. 45 [2021]).
(4) Maintenance of the Group's self-produced goods
Enterprises in the Comprehensive Bonded Zone in the Pilot Free Trade Zone are not subject to the restrictions of the catalogue of repaired products when they carry out the maintenance of the Group's domestically produced products. (G.N. 45 of 2021).
In addition, according to the regulations of the General Administration of Customs, in the process of carrying out maintenance business, due to some process restrictions and other reasons, enterprises in the zone can send the goods to be repaired outside the zone for part of the process maintenance in accordance with the relevant regulations.
(2) Business characteristics: Imported goods and maintenance materials are not allowed to be sold domestically
In principle, all leftovers, old parts, and damaged parts generated or replaced in the process of inbound maintenance should be re-shipped out of the country (Announcement No. 16 [2020]). When the materials and parts are returned, the supervision method is declared as the return of incoming leftovers (0864) or the return of incoming leftovers (0865). If it is indeed impossible to re-export the country, it shall not be sold domestically and shall be destroyed and disposed of in accordance with relevant provisions (Announcement No. 16 [2020]).
At present, enterprises can dispose of goods in accordance with the Announcement of the General Administration of Customs on Issues Concerning the Destruction and Disposal of Processing Trade Goods (Announcement No. 33 [2014]) and other relevant regulations.
(3) Policy support for bonded maintenance
As a necessary link in the complete industrial chain, the maintenance business is not only an extension of manufacturing, but also provides an updated impetus for R&D and design. The Ministry of Commerce pointed out at the policy meeting of the Information Office of the State Council[1]: "Bonded maintenance, at first glance, sounds like a very specific business, why the pilot free trade zone is still more concerned about it. As you know, there are some capital goods in international trade, such as computers, aircraft, ships, and medical equipment, and the added value of these products is very high, and the amount of international trade is very large. There are also some mobile goods that are not capital goods, but consumer goods, such as mobile phones, and if a mobile phone that costs tens of thousands or thousands of dollars is broken, the quality is defective, and the function fails, what should we do? If it is completely scrapped, it will be too wasteful. Therefore, in international trade, these capital goods and some consumer goods with relatively high added value are transported from abroad to China, but there is no need to pay import tax, it is bonded, and then it is tested and repaired in the country, and then it goes out after repairing, which is the so-called "two-ended" bonded maintenance business, which is now developing very rapidly in the world.
The benefits to this business will be obvious.
First, it will help us expand our exports. As you know, China's imports and exports are the first in the world, and China's computer exports are the first in the world. If you can't repair the computer you export, people won't buy yours, and if you can repair it, it's good for your export. China is also the world's largest exporter of ships, as are medical devices. In terms of imports, such as aircraft, we also import a lot, and the international trade of the global aircraft industry is also very large, and the business volume brought by this maintenance is also very large. Bonded maintenance is not only conducive to the export of these mobile phones, computers, medical equipment, transportation equipment, etc., but also to the export of the service industry. For example, the maintenance of aircraft engines is to indirectly export the services provided by our technicians, so it can drive our exports.
Second, it also helps us attract foreign investment. For example, there is a company that manufactures medical devices in China, and the manufacturing of medical devices not only meets the domestic market, but may also be exported. If you produce it yourself in China, you can repair it in China. If the export, you are not convenient for bonded repair, no one will want your product. Therefore, it is also conducive to the use of foreign capital.
Third, and more importantly, it is conducive to the development of market players. In the past, market entities carried out bonded maintenance, which could only be carried out in a specific small special customs supervision area, but now they can be carried out directly in the pilot free trade zone, and the business space and development potential will be large, so that the market players can gather together, which will contribute to the agglomeration and development of related industries, which is very beneficial to the development of the industry we just talked about in the pilot free trade zone.
Fourth, it also has the benefit of contributing to our green manufacturing. If these high-value capital goods and high-value consumer goods are not guaranteed by maintenance, its function is lost, the quality is defective, and it is scrapped, not a circular economy, not suitable for green development, we provide such bonded maintenance services, for the reuse of waste and old things, for saving resources and reducing emissions, it is also very beneficial. But as I mentioned just now, this bonded maintenance involves regulatory issues, so in the next step, in order to make its effect better, we will strengthen the guidance of the local government, because the power has been delegated to the local government. ”
04. Risk of trademark infringement in bonded maintenance
The act of carrying out bonded maintenance of overseas products in the free trade zone and returning the products overseas is essentially a maintenance act of repairing and refurbishing the faulty machine and restoring its factory function through the replacement of product parts and technical processing. In essence, bonded maintenance is similar to the domestic old machine repair and refurbishment business, providing maintenance services, but from the perspective of the consumer market to which the repaired products flow, one is in Chinese mainland and the other is outside Chinese mainland.
According to the current policy, the state only encourages the "maintenance" behavior in the "bonded maintenance", which does not include the recycling of faulty machines at the front end and the sales of refurbished machines at the back end, and the core encourages the development of the maintenance service industry.
There are few disputes over trademark infringement in the two types of businesses such as the maintenance of equipment and goods for the self-use of enterprises in the zone and the maintenance of goods produced by the Group in the Group, so this article only analyzes and discusses with peers the trademark infringement disputes that may be involved in the maintenance of overseas goods and the maintenance of goods outside the domestic zone that are more controversial in practice.
(1) Maintenance of overseas goods
1. If all the products under bonded maintenance are shipped out of the Chinese market after repair and are not sold in the Chinese market, the trademark logo on the repaired products does not produce trademark use to identify the source of the goods in China, and generally does not constitute trademark infringement
In the 2015 case of LESER Anti-theft Products International Co., Ltd. v. Pujiang Yahuan Lock Industry Co., Ltd. for infringement of the 'PRETUL' trademark (PRETUL case), the Supreme People's Court retried and changed the judgment to point out:
In this case, according to the facts ascertained by the court of first instance, Chubo Company was the owner of the registered trademark "PRETUL" or "PRETUL and Elliptical Graphics" in Mexico (Classes 6 and 8). Yahuan Company was entrusted by Chubo Company to produce padlocks in accordance with its requirements, and used the relevant mark of "PRETUL" on the padlocks and exported all of them to Mexico, and the padlocks were not sold in the Chinese market, that is, the logo would not play the identification function of the trademark in the mainland field, and there was no possibility that the relevant public in the mainland would confuse and misidentify the source of the goods with the mark and the goods produced by RICE Company. As a sign to distinguish the source of goods or services, the basic function of the trademark lies in the identification of the trademark, and the above-mentioned use of the relevant "PRETUL" mark by Yahuan Company is only a physical attachment act in China, which provides the necessary technical conditions for the use of the trademark by Chubo Company in Mexico, where it has the exclusive right to use the trademark, and does not have the function of identifying the source of the goods in China. Therefore, the sign affixed to the products processed by Yahuan Company does not have the significance of distinguishing the source of the processed goods, nor can it achieve the function of identifying the source of the goods, so the signs affixed to it do not have the attributes of trademarks, and the act of affixing the signs to the products cannot be recognized as the use of trademarks.
The basic function of trademark law is to protect the distinctiveness of trademarks. The premise of determining whether the use of the same trademark on the same goods, or the use of a similar trademark on the same goods, or the use of the same or similar trademark on similar goods is likely to cause confusion, is premised on the trademark playing or likely to perform a distinguishing function. In other words, whether the identification function of the trademark is destroyed is the basis for judging whether the trademark infringement is constituted. In the case where a trademark does not play a role in identification and is not a trademark use within the meaning of the Trademark Law, it is of practical significance to determine whether to use the same trademark on the same goods, or to judge whether a similar trademark is used on the same goods, or whether the use of the same or similar trademark on similar goods is likely to cause confusion. ”
2. If the repairer fails to fulfill the duty of reasonable care, and its maintenance and renovation behavior has caused substantial damage to the trademark owner, the repairer and processor shall not be excluded from the need to bear the liability for trademark infringement based on the principle of good faith
In the 2017 case of "Trademark Infringement Dispute between Jiangsu Changjia Jinfeng Power Machinery Co., Ltd. and Shanghai Diesel Engine Co., Ltd." (Dongfeng case), the court of second instance held that: If a foreign enterprise or individual violates the principle of good faith and is suspected of maliciously preemptively registering a trademark with a certain influence in the mainland, especially a well-known trademark, abroad, and entrusts a domestic processing enterprise to process and produce it on an OEM basis, it shall be deemed that the overseas client's conduct is not justified and substantially harms the legitimate interests of the mainland trademark owner. If a domestic processing enterprise knows or should know that the domestic trademark has a certain influence or is a well-known trademark, but the overseas client is suspected of malicious preemptive registration but still accepts the entrustment, it shall be deemed that the domestic processing enterprise is at fault and shall bear the corresponding civil liability. Similarly, if a domestic trademark owner violates the principle of good faith and is suspected of maliciously preemptively registering a foreign trademark, and there is evidence that the domestic processing enterprise has fulfilled the necessary review or reasonable care obligations to the overseas commission, and all the OEM processing products are exported, the domestic trademark owner cannot prevent the domestic processing enterprise from engaging in foreign-related OEM business based on the principle of good faith. ”
The Supreme People's Court also pointed out in the retrial judgment: "Considering that OEM is a common and legal form of international trade, unless there is evidence to the contrary that the defendant failed to exercise reasonable care in accepting the entrustment, and its entrusted processing behavior caused substantial damage to the plaintiff's trademark right, it should not be determined that foreign-related OEM infringes the plaintiff's trademark right under normal circumstances." ”
(2) Maintenance of goods outside the domestic area
Since the repaired goods eventually flow into China, it is necessary to determine whether trademark infringement is constituted based on whether the repaired product involves substantial changes to the product and whether the repairer has taken necessary measures to avoid confusion.
1. If the repair does not involve substantial changes to the product, it should not be determined as trademark infringement
For key accessories that have not been replaced, and are only repaired or refurbished by polishing, slight wiping, etc., they should be classified as general repairs without substantial changes to electronic products. Since the product has not changed substantially before and after the repair, even if it is put into circulation in the domestic market after the repair, there is no confusion to the relevant public, and generally should not be deemed to constitute trademark infringement.
2. If the maintenance involves substantial changes to the product, the maintenance may constitute a re-"production" of the product involved in the case, and it is necessary to assess whether the repairer has fulfilled the necessary review obligations before the maintenance, or whether it has taken necessary measures to avoid confusion among the relevant parties.
The performance of electronic products is not only related to the performance of components, but also highly related to the whole machining process; product maintenance needs to understand the experience and skills of the original process, non-professional and technical personnel start maintenance, the machine may be repaired worse and worse, or the motherboard may be repaired and the battery is damaged. Taking the electronic products made in China for export back to China for maintenance can achieve the best maintenance results, which is also one of the original intentions of the bonded maintenance system.
If the performance of the product has changed substantially after repair (such as replacing the original motherboard, mobile phone display, etc.), the manufacturer of the product includes both the original manufacturer and the repairer, and the source of the trademark indication on the outer packaging of the original product can no longer fully reflect the change in the nature of the product. In this case, the repairer should add its own repair logo to avoid confusion among consumers, unless the repairer is legally authorized by the original trademark owner of the product to carry out maintenance.
In the foregoing case, if the repairer does not take the necessary steps to prevent confusion, it may face the risk of trademark infringement. According to statistics, since 2019, the Shenzhen procuratorate has accepted a total of 1,418 cases of trademark infringement and 2,707 people, including 347 cases involving the repair and refurbishment of electronic products and 640 people, accounting for about 24.5% and 23.65% of the cases and the number of people involved respectively.
05. Conclusion
As an emerging business type that gives full play to the advantages of mainland manufacturing, bonded maintenance is faced with domestic and foreign dual legal supervision, and there are many legal requirements such as intellectual property rights and export control, and there is still a lot of room for exploration in its compliance requirements and regulatory rules.
In the author's opinion, as long as the repairer does not deliberately participate in the intellectual property infringement or counterfeiting industry that passes off the fake as real or the old as the new, the enterprise should be given appropriate space for exploration, help the enterprise develop in the process of exploration, comply with the law in the process of development, and provide development support for the export of technical services and the participation in international competition in the mainland.
exegesis
[1] "Vice Minister of Commerce Wang Shouwen: What is Bonded Maintenance, and Why Should Development Be Encouraged?", Information Office of the State Council, September 3, 2021
Source: Tiantong Litigation Circle
Editor: Sharon