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Damages May Be Claimed Even Though Counterfeit Trademarked Products Have Not Been Available in the Market
The issue of whether a trademark owner or an exclusive licensee thereof can claim civil damages for counterfeit trademarked products that were seized before being available in the market has been an important dispute in practice, and the courts at all levels have had different opinions on this issue over the years. The Intellectual Property and Commercial Court's Civil Judgment 112-Min-Shang-Shang-Zi No. 2 adopts an affirmative view, and the judgment also discusses whether the unregistered exclusive licensee can file a civil lawsuit and seek damages, as well as how to distinguish genuine and counterfeit products.
I. Calculation methods for trademark infringement damages
Article 71-1 of the Trademark Act stipulates that "damages may be calculated according to any of the following: (1) The method provided in Article 216 of the Civil Code; the proprietor is entitled to demand damages based on the amount of the balance derived by subtracting the profit earned through using the trademark after infringement from the profit normally expected through using the same trademark, if no method of proof can be furnished to prove the damage suffered; (2) The profit earned by the infringer as a result of trademark infringement; if no proof on costs or necessary expenses can be furnished by the infringer, the total amount of income from selling the infringing products shall be presumed to be the amount of profit; (3) The amount not more than 1,500 times of the unit retail price of the infringing products; if over 1,500 pieces of infringing products were found, the amount of damages shall be a lump sum of the market value of the infringing products." Article 71-2 of the Trademark Act provides that "a court may, reduce the amount of damages referred to in the preceding paragraph if such amount is apparently unequal at its discretion."
The legislative purpose of Article 71-1 of the Trademark Act is to grant the trademark owners the liberty to choose the calculation methods in order to seek damages from the infringers. This comes after taking case details into account, considering the difficulty for a trademark owner to prove the actual loss, and the fact that the sale of counterfeit products is constantly different from regular transactions or sales.
Articles 71-1(1), 71-1(2) and 71-1(4) of the Trademark Act concern the calculation methods based on damage suffered by a trademark owner, benefit gained by an infringer and proposed trademark licensing revenue, respectively, which are based on the concept of the "principle of indemnity." Article 71-1(3) of the Trademark Act sets the upper limit of indemnity by multiplying the retail unit price of the infringed products by 1,500 times, and the court may determine the multiple of the retail price based on the specific circumstances of the case, which is based on the concept of "statutory damages."
II. Facts of the case and summary of the original judgment
The original judgment, the Intellectual Property and Commercial Court's Civil Judgment 111-Min-Shang-Su-Zi No.12, is summarized as follows:
1. The appellee (namely the defendant in the original trial) purchased 2,604 pieces of Pu'er tea cakes (hereinafter "the disputed products") bearing the trademark "大益設計圖" (hereinafter "the disputed trademark") and delegated a third party company to apply for customs import declaration at the Wugu Branch of Keelung Customs, the Customs Administrations, Ministry of Finance. The products bearing the disputed trademark were deemed questionable after being inspected by the branch, and thus the branch notified the trademark owner to conduct assessment. Subsequently, the trademark owner determined that the products bearing the disputed trademark were counterfeit products after assessment.
2. The original judgment held that the appellant (namely the plaintiff in the original trial) was the exclusive licensee of the disputed trademark and was entitled to file the lawsuit. The assessment report prepared by the trademark owner, which determined that the products bearing the disputed trademark were counterfeit products, was adopted by the court. Thus, the exhaustion doctrine shall not apply. The original judgment also held that since the products bearing the disputed trademark were not available in the market, it could not be proven that the appellant had suffered any damage or loss of benefits. Based on the principle of "no harm, no damages" principle, the original judgment deemed the appellant's claim for damages to be groundless, and thus dismissed the appellant's claims. The appellant then filed an appeal.
III. The Intellectual Property and Commercial Court's Judgment of this case
The Intellectual Property and Commercial Court's Civil Judgment 112-Min-Shang-Shang-Zi No. 2 dated June 27, 2024, determined the following regarding the appeal:
1. A unregistered exclusive licensee may assert its right for trademark infringement
The appellant, which was the exclusive licensee of the disputed trademark, was entitled to assert its exclusive right as the trademark owner and file a lawsuit in its own name based on Articles 39-5 and 39-6 of the Trademark Act. Although the appellant's licensing was registered was later than the timing of trademark infringement, the infringer was not the third party protected pursuant to Article 39-2 of the Trademark Act. Thus, the appellee was not entitled to assert the "registration antagonism." In other words, an unregistered exclusive licensee may still file a civil action in its own name to assert its rights related to trademark infringement.
2. How to identify counterfeit trademarked products
Based on the following facts, the products bearing the disputed trademark were determined to be counterfeit products by the court:
(1) The assessment report that thoroughly compared the genuine and counterfeit products prepared by the trademark owner (authenticity and counterfeit assessment report).
(2) Testimonies provided by two staff members from the tea factory as witnesses assigned by the trademark owner.
3. If the imported products bearing the disputed trademark are counterfeit, then the principle of exhaustion of rights shall not apply
The products bearing the disputed trademark were recognized as counterfeits by the trademark owner and were not the genuine products manufactured or distributed by the trademark owner or the party authorized thereof. With that, the principle of exhaustion of rights stipulated in the forepart of Article 36-2 of the Trademark Act shall not apply in this case.
4. The appellee was subjectively at fault for infringing the right of the disputed trademark
The Intellectual Property and Commercial Court held that the appellee imported a considerable number of 2,604 pieces of tea cakes. In addition, there was a significant price difference between the market price of the genuine tea cakes and what were reported on the import declaration form. The appellee was unable to provide the supporting documents to prove that the products bearing the disputed trademark were manufactured and distributed by the trademark owner or the licensee thereof. In addition, the appellee had previously been involved in the criminal case regarding importing 3,681 pieces of Pu'er tea cakes bearing counterfeit "易武正山" and "中茶" trademarks. The court held that the appellee failed to conduct proper verification and to exercise a reasonable degree of care, resulting in negligence in infringement.
5. Counterfeit products that have not been available in the market still hold the trademark infringer liable for damages
(1) The importation of counterfeit trademarks by the appellee without the consent of the appellant constituted trademark use as defined in Article 5 of the Trademark Act and constituted a trademark infringement provided in Article 68 of the Trademark Act. Thus, the appellant could choose one of the calculation methods to determine the damages to be claimed from the appellee in accordance with Article 69-3 and Article 71 of the Trademark Act.
(2) The Intellectual Property and Commercial Court revealed that although Article 71-3 of the Trademark Act established a statutory damages system, it did not exclude the principle of indemnity. If the damages calculated based on Article 71-1 of the Trademark Act is disproportionate to the actual damages, the court will have the liberty to adjust the amount of damages so that the right holder may not receive excessive compensation.
(3) The Intellectual Property and Commercial Court first acknowledged that even though counterfeit products had not been available in the market, the infringer was still held liable for damages resulting from the trademark infringement. After thorough evaluation by the Intellectual Property and Commercial Court, it was found that the tea products bearing the disputed trademark were tremendously favored by relevant consumers in the Taiwan market. The court aimed to prevent unscrupulous enterprises from importing a large number of counterfeit products into Taiwan for massive unjust profit. On top of that, the number of imported products bearing the disputed trademark reaching as many as 2,604 pieces would cause significant harm to market order and consumers' rights. Considering that the products labeling the disputed trademark had not been available in the market, these counterfeit products had not significantly damaged the trademark owner. Accordingly, it was deemed excessive to calculate the damages based on the market price of NT$12,170 per piece of tea cake as claimed by the appellant. The court therefore reduced the damages to NT$500 per piece and held that the appellant was entitled to claim the compensation of NT$1,302,000 (NT$500*2604=1,302,000). Any amount exceeding this range was considered excessive.
IV. Conclusion
The Intellectual Property and Commercial Court's Civil Judgment 112-Min-Shang-Shang-Zi No. 2 holds that an unregistered exclusive licensee is entitled to assert civil damages even though the counterfeit trademarked products are not available in the market and have not caused right holder to suffer damage or loss of benefits. A trademark owner or an exclusive licensee thereof can seek damages from the infringer based on the "statutory damages" provided in Article 71-1(3) of the Trademark Act. However, the Intellectual Property and Commercial Court also indicates that applicability of Article 71-1(3) is still limited by the principle of indemnity. In order to prevent a trademark owner or its exclusive licensee from obtaining excessive compensation for civil damages, the court may consider all circumstances of the case and reduce the amount of damages that a trademark owner or its exclusive licensee may claim in accordance with Article 71-2 of the Trademark Act.