New Japanese Rules on Parallel Importation of Trademarked Goods

1. New Japanese Rules regarding Parallel Importation of Trademarked Goods(ATRIP, 5 August 2003, Session 4) Makoto Endo Attorney at Law (Admitted in Japan) Associate, Mori Hamada & Matsumoto makoto.endo@mhmjapan.com Makoto Endo ATRIP Session 4

2. K.K. Three-M v. Hit Union K.K. et al.(The “FRED PERRY” Case) • Sup. Ct., Feb. 27, 2003 (1817 Hanreijho 33, 1117 Hanrei Taimuzu 216 ) • The first Japanese Supreme Court decision on “Parallel Importation of Trademarked Goods” Makoto Endo ATRIP Session 4

3. Issues • When is importation of a product not a substantially illegal infringement of a trademark right? • Is the importation of a product that is subcontracted by the Licensee and manufactured outside the Agreement Territory without the consent of the trademark owner not substantially illegal? Makoto Endo ATRIP Session 4

4. Points of Law 1 • Importation of products is not substantially illegal if: (1) the trademark is legally licensed by a person who holds the trademark right, (2) the source of the trademark represents the same source as that of the registered trademark in Japan, and (3) the products are valued as having substantially the same quality as that guaranteed by the registered trademark. Makoto Endo ATRIP Session 4

5. Points of Law 2 • If the products are subcontracted by the Licensee and manufactured outside the Agreement Territory without the consent of the trademark owner, importation of products is substantially illegal. Makoto Endo ATRIP Session 4

6. Facts 1 • “FPS”, an English corporation, held the registered trademark rights of “FRED PERRY” for designated clothing and other goods in 110 countries • “FPH”, an English corporation and wholly-owned subsidiary of “Hit Union” succeeded to the trademark rights of all FRED PERRY trademarks held by FPS throughout the world, excluding Japan. Makoto Endo ATRIP Session 4

7. Facts 2 • In Japan, Hit Union held exclusive licenses to these trademarks and assumed the Trademark Rights from FPS, becoming the owner of the Trademark Rights in Japan. • Three-M imported Chinese-made polo shirts with into Japan marks that were the same as the Registered Trademarks and sold these Products in Japan. Makoto Endo ATRIP Session 4

8. Facts 3 • “Osia”, a Singapore corporation, had subcontracted the manufacture of the Products to a factory in China, and Three-M imported the Products into Japan. • Osia was authorized by FPS to use the same trademarks as the Registered Trademarks for three years. • The status of licensor under the Agreement was transferred from FPS to FPH. Makoto Endo ATRIP Session 4

9. Facts 4 The Agreement provided: • FPS shall permit Osia to manufacture, sell and distribute the Agreement Products in Singapore, Malaysia, Brunei and Indonesia. • Osia agrees not to enter into any agreement regarding subcontracting of the manufacture, finishing or packaging of the Agreement Products without the prior written consent of FPS. Makoto Endo ATRIP Session 4

10. Facts 5 • Osia breached the Agreement by subcontracting the manufacture of the Products to a factory in China, without the consent of FPS. • Hit Union claimed that the actions of Three-M infringed the Trademark Rights. • Three-M claimed that its imports were not illegal, on the grounds they were parallel imports of authentic products. Makoto Endo ATRIP Session 4

11. Rules 1 • “The importation of products with the same trademark as a trademark registered in Japan by a person other than a trademark owner, and without the permission of the trademark owner, shall be construed as infringing the trademark right”. Makoto Endo ATRIP Session 4

12. Rules 2 • “Such import may, however, be deemed a so-called parallel import of authentic products, which is not a substantially illegal infringement of the trademark right if the following three requirements are satisfied. Makoto Endo ATRIP Session 4

13. Requirement (1): Legality of the Licensed Trademark • “the trademark is legally licensed by either a person holding the trademark right in a country other than Japan or by a person who is licensed to use the trademark by the trademark owner”, Makoto Endo ATRIP Session 4

14. Requirement (2): Identity of Source • “the source of the trademark represents the same source of the registered trademark in Japan because the trademark owner in a country other than Japan is the same party as the trademark owner in Japan, or they have a relationship under which they are legally or economically regarded as the same party”, and Makoto Endo ATRIP Session 4

15. Requirement (3): Substantially Same Quality • “the products are valued as having substantially the same quality as products to which a trademark owner in Japan has granted the registered trademark, because such trademark owner in Japan is in a position to be able to directly or indirectly control the quality of the products”. Makoto Endo ATRIP Session 4

16. Reasons • The purpose of the Trademark Law • Parallel importation of authentic products does not impair the function of indicating the source and guaranteeing the quality of the product. • It does not damage the business reputation of trademark users or the interests of consumers. Makoto Endo ATRIP Session 4

17. Application 1 • The manufacture of the Products with the Marks was beyond the scope of licensing set forth in the Agreement, and therefore impaired the function of the trademarks to indicate the source. Makoto Endo ATRIP Session 4

18. Application 2 • The Products cannot undergo quality control by the trademark owner and so the quality of the Products may substantially differ from products on which Hit Union have printed the Registered Trademarks and which have been put into circulation. Therefore the trademark’s function of guaranteeing quality is in danger of being impaired. Makoto Endo ATRIP Session 4

19. Application 3 • Consumers trust parallel-imported goods to have the same source and quality as products on which the trademark owner has added its registered trademarks and put them into circulation. Makoto Endo ATRIP Session 4

20. Illegality of the Importation • The importation of the Products is not equivalent to parallel importation of authentic products and therefore such importation is substantially illegal. Makoto Endo ATRIP Session 4

21. Obligation of Importers When importing products: (i) with the same trademark as a registered trademark in Japan, (ii) and that trademark has been added by a person other than the trademark owner, who is not in Japan, and (iii) such person is permitted to use the trademark by the trademark owner, importers should only import the products after at least confirming that the licensee is licensed to manufacture the products in the country of manufacture and is also licensed by agreement to put the relevant trademark thereon. Makoto Endo ATRIP Session 4

22. Conclusion • The actions of Three-M to import and sell the Products infringes the Trademark Rights. Makoto Endo ATRIP Session 4

23. Analysis 1 • The court decision emphasizes the function of quality guarantee and quality control by the trademark owner. Further, importers will find it difficult to import the trademarked goods on a practical level for fear of infringing trademark rights, especially where a restriction in the license agreement means such importation will possibility violate anti-trust law or competition law. Makoto Endo ATRIP Session 4

24. Analysis 2 • Will an importer be liable if it imports the products with the required duty of care and afterwards the products are found to infringe provisions of a licensing agreement concerning the place of manufacture? • What if the products infringe provisions of a licensing agreement other than those concerning the place of manufacture or restrictions on subcontracts (e.g., infringement of licensed quantity restrictions)? Makoto Endo ATRIP Session 4