Case Commentary: An Analysis of the International Exhaustion Doctrine in Taiwan
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| Case Commentary: An Analysis of the International Exhaustion Doctrine in Taiwan (Trademark Act via a Judgment of the Taiwan Intellectual Property and Commercial Court) | ||||
| 1. | Litigation Background | |||
| A. | The Claims and Defenses: | |||
| The Plaintiff, Taiwan Botanicus Co., Ltd., owns the trademark "BOTANICUS" in Taiwan. The Defendant imported goods bearing the "BOTANICUS" trademark from the Czech Republic. Consequently, the Plaintiff initiated an action against the Defendant for trademark infringement in the Taiwan Intellectual Property and Commercial Court (“the Court”). In defense, the Defendant argued that the goods sold were acquired directly from the Czech BOTANICUS company and were affixed with labels distinguishing them from Plaintiff's products. The Defendant invoked the " International Exhaustion Doctrine" as stipulated in §36 II of the Taiwan Trademark Act, asserting that the Plaintiff is precluded from exercising trademark rights against said goods. | ||||
| B. | The Commercial Relationship: | |||
| The Czech company was the original user of the "BOTANICUS" trademark. The Plaintiff originally served as the Czech company’s distributor; however, in 2002, the Plaintiff registered the "BOTANICUS" trademark in Taiwan, established a factory to manufacture "BOTANICUS" products independently, and ceased importing goods from the Czech company after 2020. | ||||
| 2. | The Court’s Reasoning | |||
| A. | Application of the International Exhaustion Doctrine: | |||
| The doctrine of international exhaustion states that once a trademark owner or their authorized licensee introduces trademarked goods (genuine goods) into the market, the trademark rights regarding those specific goods are deemed "exhausted." Consequently, the trademark owner cannot assert rights over those goods in subsequent trading once they have been sold. The doctrine is also called First Sale Doctrine. The theoretical basis is that the value of the trademark rights is realized upon the first sale, preventing the rights holder from double-dipping in subsequent parallel import transactions. | ||||
| B. | Precedent and the "Legal Relationship" Nexus: | |||
| In this case, the "BOTANICUS" trademark is held by different legal entities in the Czech Republic and Taiwan. The Supreme Court, in Tai Shang Zi No. 397, 2019, affirmed that §36 II adopts the principle of international exhaustion. Thus, a trademark owner cannot assert rights against goods circulated with their consent, regardless of whether the initial market entry occurred domestically or abroad. Furthermore, although trademarks are territorially distinct rights, if a trademark owner registers the same mark in different jurisdictions—either personally or through authorized parties—and the marks share the same essential design and originate from the same source of exclusivity, the exhaustion effect applies. As long as there is a licensing or legal relationship (e.g., distributor) between the foreign and domestic trademark holders, the domestic holder is subject to the exhaustion of rights. | ||||
| C. | The Determination of "Genuine Goods": | |||
| The Court held that the Czech company is the prior user of the "BOTANICUS" trademark and noted the Plaintiff’s long history of importing said goods as a distributor, thereby establishing the Czech goods as "genuine." The Defendant’s acquisition of goods from the Czech BOTANICUS company constitutes "parallel importation of genuine goods." Despite the territorial separation of legal entities, the Court found the source of the trademark rights to be essentially identical, thereby triggering the exhaustion doctrine. Although the Plaintiff argued that it had established its own manufacturing facility, ceased imports from the Czech company, and built independent goodwill in Taiwan, the Court rejected this argument. The Court reasoned that the exhaustion doctrine protects the free trade of genuine goods. Consumers may consider "BOTANICUS" brand belonging to the Czech company, and such a perception will not change regardless of who the manufacturer is. Consequently, the Plaintiff failed to prove that its goodwill was sufficiently distinct to override the source identification of the original goods, rendering the exhaustion defense valid. |
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| D. | Holding | |||
| In summary, applying the principle of trademark exhaustion, the Court determined that the Defendant was selling genuine goods from the Czech company and, as a matter of law, did not infringe upon the Plaintiff's trademark rights. | ||||
| 3. | Conduct of Trademark Use and Product Alteration | |||
| The Defendant had utilized stickers to cover parts of the original trademark to mitigate disputes. Upon examining the evidence, the Court found that such stickers were not irremovable and did not constitute "unauthorized processing or modification" that would alter the essence of the goods. Therefore, this conduct did not preclude the application of the exhaustion doctrine. | ||||
| 4. | Conclusion and Legal Implications | |||
| A. | The "Once a Distributor, Always a Distributor " Dilemma: | |||
| Despite the Plaintiff manufacturing the goods independently since 2002 and ceasing imports from the Czech company in 2020, the Court, as of 2025, effectively ruled that the Plaintiff had not established independent goodwill. The Court’s logic suggests that even if the manufacturer changes, the "genuine" nature of the Czech goods remains unaffected, thus sustaining the applicability of parallel importation rules. By expanding the textual scope of "parallel importation of genuine goods" based on the Supreme Court's interpretation, the Court has effectively developed a doctrine of "Once a distributor, Always a distributor." This interpretation makes it exceedingly difficult for domestic trademark holders—particularly former distributors—to secure protection. One must question whether such an interpretation aligns with the strict text of the statute and the original legislative intent. | ||||
| B. | Critique of Judicial Expansion and the Territoriality Principle: | |||
| Supreme Court Judgment 108 Tai Shang Zi No. 397 states that if foreign and domestic trademark holders possess a licensing or legal relationship, the domestic holder is subject to rights exhaustion. This interpretation arguably expands the scope of §36 II, which reads: "Where goods have been put on the domestic or foreign market under a registered trademark by the proprietor or with its consent, the proprietor is not entitled to claim trademark rights on such goods." | ||||
| Based on the principle of territoriality of law, precedents always held that terms within the Trademark Act refer to domestic subjects (e.g., "relevant consumers" refers to consumers in Taiwan). By this logic, "proprietor" in §36 II should refer to the trademark owner who registers the trademark in Taiwan, not a foreign counterpart. The text of the statute does not support the reading that "goods circulated with the consent of a foreign trademark owner trigger exhaustion." While the Supreme Court’s above opinion is widely adopted by the Court, its legal reasoning rests on shaky ground and remains open to challenge regarding its adherence to statutory construction and territorial sovereignty. | ||||