International Exhaustion of Rights under Taiwan’s Trademark Act: Landmark Rulings and Key Developments
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| International Exhaustion of Rights under Taiwan’s Trademark Act: Landmark Rulings and Key Developments | ||||
| The exhaustion of trademark rights remains a critical issue in global intellectual property law, directly impacting the free flow of goods, parallel imports, and market competition. Since the 2011 amendment to the Trademark Act, Taiwan has explicitly adopted the principle of international exhaustion of rights. § 36II of the Act stipulates: “Where goods have been put on the domestic or foreign market under a registered trademark by the proprietor or with his/her consent, the proprietor is not entitled to claim trademark rights on such goods, unless such claim is to prevent the condition of the goods been changed, impaired, reprocessed or reformed by a third party after such goods have been put on the market or there exist other legitimate reasons.” Often referred to as the “First Sale Doctrine,” the Doctrine denotes that the economic benefits granted by trademark rights may only be exercised once. Once a trademarked product is lawfully sold in the market with the consent of the trademark holder, the trademark rights are considered exhausted with respect to that specific product. Subsequent circulation through unofficial or non-authorized channels—i.e., parallel imports—generally did not infringe trademark rights. A crucial issue in international exhaustion lies in defining the scope of “the trademark owner’s authorization/consent” under §36II. The most classic scenario is that: a U.S. brand owner holding an A-mark registration in both the U.S. and Taiwan, with a Taiwanese distributor formally appointed. In such cases, under the international exhaustion doctrine, the brand owner cannot invoke trademark rights to prevent others from importing genuine A-mark goods into Taiwan. More complex issues arise when a Taiwanese distributor, having received authorization from the U.S. trademark holder, registers the A-mark in Taiwan under their own name. Would international exhaustion still apply? On the face of the statutory language, the answer appears to be negative, as it does not meet the requirement of “distribution by the trademark owner or with their consent” since the Taiwan trademark owner does not distribute the goods globally. The rationale behind exhaustion is that once the trademark owner has gained financial benefit from the first sale, their economic benefits over that specific good are satisfied and thus extinguished. If the profits from sales abroad accrue to the foreign owner (e.g., the U.S. entity) rather than the domestic registrant, applying exhaustion against the latter does not align with the principle’s underlying justification. However, in the Supreme Court Judgment No. 397 (2019) in Taiwan, the Court clarified that §36II reflects an international exhaustion model, under which a trademark owner cannot assert rights over goods they have authorized for market distribution—regardless of whether the first sale occurred domestically or abroad—unless exceptions apply. The Court further held that where identical marks are registered in multiple jurisdictions by the same or affiliated entities, even if territorial rights are distinct under the principle of territoriality, the essence of exclusivity originates from the same source. If there exists a licensing or legal relationship between the parties, exhaustion should apply across jurisdictions. Thus, in the above scenario where the U.S. brand owner authorizes the Taiwanese distributor to register the A-mark in Taiwan, despite the separation of legal title, exhaustion can still occur due to the underlying licensing arrangement. Hence, the trademark rights are mutually exhausted across markets. The most contentious scenario is one in which the U.S. brand owner neither authorizes nor formally objects to the Taiwan distributor's registration of the A-mark in Taiwan, due to a lack of interest in the Taiwan market. In this case, there is no consent, authorization or objection, only silence. In IP Court Judgment No. 11 (2017) in Taiwan, the Court held that when a legal or economic relationship exists—such as a corporate affiliation, agency, or distributorship—and the trademark signifies a common source of goods, international exhaustion applies. Specifically, in the most contentious scenario, if the Taiwan distributor registers the A-mark yet continues to source goods from the U.S. brand owner, rather than manufacturing independently, the goods are deemed to originate from a single source. This interpretation means the domestic trademark owner bears the consequences of exhaustion without receiving any benefits of the first sale abroad. The Court acknowledged this tension, noting: “Although the complainant did not derive any revenue from the first sale, it had chosen this business model—registering the mark locally and sourcing from the foreign brand owner—they allowed the goods to signal a shared origin with the foreign brand owner’s products. As long as source-identifying functions are unaffected, the benefits of price competition and market liberalization outweigh the complainant’s private interests as a trademark holder.” Conclusion: The Trademark Act in Taiwan now expressly adopts the international exhaustion principle, and judicial practice has expanded its application. As long as the product's source is the same, and a legal or economic relationship exists between foreign and domestic trademark holders—such as a licensing arrangement, affiliated enterprise, agency, or distributorship—parallel imports into the Taiwan market do not constitute trademark infringement. Interpreting “authorized/ consented persons” under §36II to include “affiliated enterprises” or “licensees” is a reasonable reading of the statute. If a U.S. trademark holder consents to a Taiwan distributor registering the A-mark domestically, or if the two entities are affiliated and economically integrated, the distributor effectively shares in the benefit of the first sale. Even where the distributor registers the trademark under their own name based on authorization, they can factor in the expected exhaustion-related loss when negotiating licensing fees. If the distributor chooses to forgo compensation and assume the full risk, this aligns with the principle’s underlying justification. However, in Judgment No. 11 (2017), the IP Court held that once a domestic trademark holder chooses to register a foreign brand and import goods from the original manufacturer, exhaustion applies regardless of whether they negotiated or benefited from the first sale. This expansive interpretation arguably departs from textual meaning of the statute, raising concerns of overreach. If the U.S. trademark owner neither explicitly authorized nor objected to the Taiwanese registration—merely remaining silent—such silence does not automatically equate to implied consent. Supreme Court judgments No. 2521 (2023), 556 (2023), and 39 (2021) confirm this principle. Nevertheless, the IP court interpreted such silence as a tacit agreement to forgo first-sale profits, or as voluntarily accepting risk by the distributor. This interpretation exceeds the scope of § 36II, overlooking the domestic right holder’s opportunity to negotiate or benefit from the sale. The IP Court presumes the existence of consent, even though such a presumption lacks statutory support and may not, in fact, exist. Despite this, the broadened interpretation is now widely accepted in practice and warrants further attention. |
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