Unlike the position in Hong Kong, the major laws and regulations governing the protection of intellectual property rights in Mainland China do not explicitly set out restrictions on parallel importation. Although parallel imports affect many industries like cars, computers and cosmetics in the Mainland, most intellectual property laws eg Copyright Law and Trademark Law have not even covered this issue. Instead, the PRC government appears to prefer to deal with the question of parallel imports on a case-by-case basis by promulgating specific regulations with regards to specific industry.
Under the Notice on Strengthening and Improving the Management of the Import & Export of Audio-visual Products promulgated in 2004 by the Ministry of Culture, parallel importation of audio-visual recordings to Mainland China is prohibited. There is however no general prohibition for all copyright works.
By virtue of Article 11 of the PRC Patent Law, no entity or individual can import products made by a patented process directly without authorisation from the patent owner. That, however, does not follow that the concept of parallel import can be applied in Mainland China.
Significant uncertainty has been created by a decision of the Guangzhou Intermediate People's Court in 1999 regarding the parallel import of a trademarked product (Shanghai Unilever Co Ltd v Commercial Import and Export Trading Company of Guangzhou Economic Technology developing District, Hui Zhong Fa Zhi Chu Zi (1999)).
In that case, the parallel importer imported boxes of Lux soap from Thailand to Mainland China where the Plaintiff another Mainland distributor had the exclusive right of sale and had registered the Lux trademark with the China Trademark Office. Though the imported products were genuine, the Mainland distributor argued that the parallel importation infringed the exclusive right to use his registered trademark.
The parallel importer, in its defence, argued that Chinese law is silent on parallel import and it was not aware of the Plaintiff's intellectual property rights. The People's Court rejected the argument that since the soaps were not counterfeit, there could be no infringement. It also ruled that Plaintiff's trademark right had been widely published and therefore the parallel importer had breached Article 56 of the Trademark Law in failing to show that the product originated from the owner of the trademark or that such importation was approved by the trademark owner. The Court also seems to suggest that penalties for parallel import may include administrative and/or civil liabilities.
It is unclear whether the doctrine of "Exhaustion of Rights" was argued before the People's Court in the above case, and based on this decision, the doctrine appears to have been abrogated at least in Mainland China.
Though decisions made in one court have no binding effect on other courts in Mainland China, this case nevertheless highlights a possible approach adopted by the Mainland courts should a similar case arise.
Finally, one would also need to have regard to the other laws and regulations in force in the Mainland China. For example, under Article 9 of the Anti-Unfair Competition Law of the PRC, business operators are prohibited from making misleadingly or false representations regarding the quality, manufacturing components, functions, uses, manufacturers, period of validity, place of origin and other aspects of merchandise. Consequently, a parallel importer may be in breach if he makes a misrepresentation (such as the sale of his parallel imported goods is authorised by the original seller when they are not).
In view of the above, parties seeking to conduct a parallel import business in Mainland China should tread carefully. Legal advice is certainly recommended to negotiate the minefield of laws and regulations that may affect the conduct of such a business.
If you wish to know more about intellectual property registration and enforcement or have any query regarding how to commence or contest IP legal proceedings in Hong Kong or Mainland China, experienced lawyers in our Intellectual Property Department will be happy to assist you.
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