[edit] Supreme Court Decision 99Da42322 delivered on September 24, 2002 [Cessation of Use of Marks, Etc.]

【Main Issues】

[1] Scope of the fair use of a trademark by a parallel importer pursuant to the Trademark Act

[2] If the trademark used by the parallel importer serves as a mark indicating business operations (the operation mark), whether such use falls within the category of acts causing public confusion concerning the owner of the trademark as set forth under the Unfair Competition Prevention and Trade Secret Protection Act (hereinafter referred to as 'the UCPA') and thus, shall not be permitted

【Summary of Decision】

[1] Since parallel importing itself is a fair and legal act that does not constitute an infringement upon any trademark right of a holder thereof, a parallel importer's sales of products bearing the holder's trademark shall be permitted. According to Article 1 of the Trademark Act, the purpose of the Trademark Act is to contribute to industry development and to protect consumer interests by maintaining, through the protection of trademarks, the business credit of those persons using the trademarks. Also, as outlined in the Trademark Act, two basic functions of trademark are to indicate the source of the products bearing the trademark and to help customers trust the quality of the products. In light of the foregoing, even though the parallel importer's use of such trademark extends beyond the above scope of passive use, if he conducts promotion and advertisement activities by actively using the trademark, and if such active use does not threaten to affect the above functions and does not cause domestic customers to mistake the source or the quality of the products bearing the trademark, such active use may not be deemed to constitute an infringement upon the Trademark Act. In this regard, it is reasonable to conclude that the holder of trademark rights is not entitled to require the parallel importer to stop infringing upon the trademark right or destroy the products allegedly infringing upon the trademark right.

[2] Even though the parallel importer's active use of the trademark for the purpose of promotion and advertisement is deemed to be legal and fair and thus does not constitute an infringement upon the holder's trademark right, if the trademark used by the parallel importer serves as the operation mark in light of the circumstances of the usage, it may cause customers to mistake the parallel importer as an authorized sales agent of the foreign company. In such a case, the parallel importer's use falls within a category of acts causing public confusion concerning the owner of the trademark as set forth in Subparagraph (b) of Item 1 of Article 2 of the UCPA and thus shall not be permitted.

【Reference Provisions】 [1] Article 1, Article 2 Paragraph 1 Item 6, and Article 65 of the Trademark Act / [2] Article 2 Item 1 Subparagraph (b) and Article 4 of the UCPA

Article 1 of the Trademark Act (Purpose) The purpose of this Act is to contribute to industry development and to protect consumer interests by maintaining the business credit of those persons using the trademarks through the protection of trademarks.

Article 2 of the Trademark Act (definition) (1) The definition of terms used in this law is as follows.

1.~5. <omitted>

6. The term "use of a trademark" means an act falling under any of the following items:

(a) An act of indicating a trademark on goods or packages of goods

(b) An act of transferring or delivering goods or packages of goods on which a trademark is indicated, or act of displaying, exporting or importing them for such purpose

(c) An act of indicating a trademark on advertisements on goods, price lists, transaction documents, signboards or labels, or act of displaying or distributing it.

(2), (3) <omitted>

Article 65 of the Trademark Act (Right to Request for Prohibition of Infringement) (1) An owner of a trademark right or exclusive licensee may request the person who has infringed or might infringe his right to prohibit or prevent such infringement.

(2) Where an owner of a trademark right or exclusive licensee makes a request under paragraph (1), he may request the disuse of things by which the infringement is caused, removal of equipment offered for the infringement, and other acts necessary for the prevention of infringement.

Article 2 of the Unfair Competition Prevention and Trade Secret Protection Act (definition) The definition of terms used in this law is as follows.

1. The term "act of unfair competition" means an act falling under any of the following items regardless of its purpose.

(a) <omitted>

(b) Act causing confusion with another person's business facilities or activities by using an identical or similar mark to another person's name, trade name, emblem or other mark indicating that it is another person's business which is known to the public in Korea.

(c)~(g) <omitted>

Article 4 of the Unfair Competition Prevention and Trade Secret Protection Act (Claim for Prohibition of Unfair Competitive Act) (1) Any person who deems that his business profit is or might be infringed by any unfair competitive act, may file a claim before the court for its prohibition or prevention against a person committing or attempting to do it.

(2) The person as referred to in paragraph (1) may, in filing a claim as prescribed in paragraph (1), additionally make a claim for the disuse of any thing causing an unfair competitive act, removal of facilities offered for such act, or any measure required for its prohibition or prevention.

【Plaintiff, Appellant and Appellee】 Burberry Limited (formerly known as Burberrys Limited) and 1 other (Attorneys Ju Seong-min and 8 others, Counsel for plaintiff-appellant-appellee)

【Defendant, Appellee and Appellant】 EMEC, Inc. (Law Firm Yoolchon, Attorneys Kang Hee-cheol and 1 other, Counsel for defendant-appellee- appellant)

【Court of First Instance】 Seoul District Court Judgment 97Gahap32678 delivered on May 29, 1988

【Court of Second Instance】 Seoul High Court Judgment 98Na35466 delivered on June 22, 1999

【Disposition】 The part of the judgment of the court below against the defendant with regard to external signboards and business cards alleged to infringe upon the trademark right of the plaintiff, Burberry Limited, shall be reversed and the corresponding part of this case shall be remanded to the Seoul High Court. The appeal filed by the plaintiff, Euro Trade, Inc. and the appeal filed by the defendant against the plaintiff Euro Trade, Inc. shall be dismissed. Each cost of the dismissed appeals are assessed against each relevant party.

【Reasoning】The grounds for appeal are examined as follows (supplementary grounds submitted after the legal due date by the plaintiffs and the defendant are examined only to the extent that they concern grounds for appeal submitted within the due date)

1. The judgment of the court below

The court below acknowledged the following facts based on the adopted evidence:

I) The plaintiff, Burberry Limited based in the UK ('the plaintiff Burberry'), has grown up, and registered and used the trademark of BURBERRYS and the marks indicated in the Schedules attached to the original decision (collectively referred to as 'the Marks') at home and abroad.

ii) The plaintiff, Euro Trade, Inc. ('the plaintiff Euro Trade'), executed an agency agreement with plaintiff Burberry, whereby plaintiff Euro Trade shall have the exclusive right to import and sell the products manufactured by plaintiff Burberry (the Products). In addition, plaintiff Euro Trade actively conducted promotion and advertisement activities regarding to the Products in Korea and thanks to such efforts, customers came to recognize the Product as a top-brand product.

iii) The defendant imported (parallel importation) the Products (so called the Genuine Products) and provided them to domestic customers. In addition, rather than being satisfied with only sales of the Products, the defendant and the persons who executed the agency agreement with the defendant attached or used the marks almost identical to the marks 1 through 6 out of the Marks to or on the signboards of their business places or stores. On the walls of the insides of the stores, they also attached the above marks, as well as posters and leaflets bearing such marks. Further, the marks were used as an insertion to their packing paper, shopping bags, and employee business cards, and even the advertisement bearing the above marks was inserted into clothing magazines.

Based on such acknowledgment, the court below assumed that parallel importing itself is a fair and legal act that did not constitute an infringement upon any trademark right of a holder thereof. With regard to limiting trademark use by the parallel importer, the court below held that i) if such use is closely related to sales of Genuine Products by the parallel importer, the use of the trademark should be allowed to the minimum extent that the trademark is necessary for the importer's business operation; and ii) if the parallel importer's use of such trademark extends beyond the above scope, such use may make the holder of the trademark right lose his credit and customers, or threaten to cause an exclusive authorized sales agent in Korea to confuse the parallel importer with the holder of the trademark right. If so, the parallel importer should not be allowed to use the trademark, and the measures to prevent such use may be helpful for reasonably maintaining the balance of benefits between the interested parties regarding the parallel import. Thus, the court below rendered the following decisions:

A. Plaintiffs' choses in action

The Marks are not only trademarks of plaintiff Burberry but also the operation marks of plaintiff Burberry's authorized sales agent, and have been widely known to the public in Korea. If the defendant uses the Marks for its signboards and advertisement beyond the fair scope described above, such use is deemed to constitute an infringement upon the trademark right of plaintiff Burberry, and falls within the category of acts deemed unfair competition, which causes confusion among ordinary consumers that defendant were the official agent, plaintiff Euro Trade. (The Marks also serve as the operation marks of plaintiff Burberry. Therefore, we can conclude that the defendant's use of the Marks constitutes a breach of the UCPA. However, since the defendant is deemed to have violated the Trademark Act as discussed above in this case, the UCPA shall not be applied as set forth in Paragraph 1 of Article 15 of the same Act.)

B. Specific Scope of Prevented Usage That Can Be Requested by the plaintiffs

(1) First, the defendant installed the signboards bearing the enlarged marks identical with plaintiff Burberry's trademarks at the entrance and outside of its shops, or attached the marks to the exterior walls thereof. Such acts extend beyond the fair scope of promotion and advertisement activities of parallel importers and it is evident that the defendant used the trademarks to cause confusion among customers that defendant possessed an individual operation mark. Further, the defendant's use of the trademarks threatens to make customers mistake the parallel importer for an authorized sales agent of plaintiff Burberry. In this regard, the defendant should not be allowed to use the trademarks in such a way.

(2) In addition, judging from the identical design with the Marks, which were inserted into the business cards of the defendant's representative or employees, the defendant is not deemed to have used the trademarks as marks to simply indicate the products. Rather, it would be more reasonable to say that the trademarks served as operation marks of the defendant. Thus, it is natural for a third party who receives their business cards to mistake that they are employees of plaintiff Burberry or its agents. In this regard, the defendant should not be allowed to use the trademarks in such a way.

(3) On the other hand, unlike the above external signboards, the signboards or marks installed in the interior of the defendant's shops rarely function as individual operation marks. Instead, they help customers to easily locate the products displayed in the seller's shops and thus allow the seller to promote sales growth. In this regard, unless there is any special circumstance, such acts of using the trademarks in this manner are deemed to be necessary for the parallel importer's sales of genuine products and thus should be permitted.

(4) Since packing paper and shopping bags are the goods provided free of charge by the parallel importer to its customers who buy the Genuine Products, the marks, identical or similar to plaintiff Burberry's trademarks and inserted into the packing paper and shopping bags, cannot be deemed to be the operation marks of the parallel importer or threaten to cause ordinary customers to mistake the parallel importer with the authorized sales agent of plaintiff Burberry. In this regard, such acts of using the trademarks in this manner are deemed to be legal acts necessary for the parallel importer's sales of Genuine Products.

(5) Given that advertisement is an effective means to promote sales growth in today's business environment, the parallel importer should be allowed to advertise and promote the Genuine Products by attaching or putting leaflets regarding the products on shop walls or in various magazines. The trademarks of the Genuine Products advertised in the leaflets clearly indicate the products for sale and efficiently highlight the names of the products. Further, the Marks are not deemed to have been advertised in the leaflets in such a way that may cause confusion among customers as if the parallel importer were an authorized sales agent of plaintiff Burberry.

C. In conclusion, the defendant should not be allowed to use the Marks for external signboards of its offices, business places, shops, and employee business cards, and has the obligation to discard the external signboards and business cards bearing the Marks.

2. The judgment of this Court

A. On the Issue 1 of the Grounds for Appeal alleged by plaintiff Burberry and Issue 2 of the Grounds for Appeal alleged by the defendant (Against plaintiff Burberry)

(1) As shown in the judgement of the court below, since parallel importing itself is a fair and legal act that does not constitute an infringement upon any trademark right of a holder thereof, a parallel importer's sales of products bearing the holder's trademark shall be permitted. According to Article 1 of the Trademark Act, the purpose of the Trademark Act is to contribute to industry development and to protect consumer interests by maintaining, through the protection of trademarks, the business credit of those persons using the trademarks. Also, as outlined in the Trademark Act, the two basic functions of trademark are to indicate the source of the products bearing the trademark and to help customers trust the quality of the products. In light of the foregoing, even though the parallel importer's use of such trademark extends beyond the above scope of passive use, if he conducts promotion and advertisement activities by actively using the trademark, and if such active use does not threaten to affect the above functions and does not cause domestic customers to mistake the source or the quality of the products bearing the trademark, such active use may not be deemed to constitute an infringement upon the Trademark Act. In this regard, it is reasonable to conclude that the holder of trademark rights is not entitled to require the parallel importer to stop infringing upon the trademark right or destroy the products allegedly infringing upon the trademark right.

(2) In this Case, the Marks (to be more specific, the marks used by the defendant are absolutely identical or almost the same as the concerned Marks and therefore, it is reasonable to consider them the same as the Marks.) that the defendant, a parallel importer, attached to or indicated on the leaflets, business cards, packing paper, shopping bags, and signboards installed in the inside and outside of its shops are identical or almost similar to plaintiff Burberry's registered trademarks. (Trademark registration numbers are 50439, 66446 and 163562.) However, the Marks do not threaten to cause customer confusion with regard to the source of the Products. In addition, since the products imported by the defendant are Genuine Products manufactured by plaintiff Burberry, the products sold by the defendant are not deemed to have been different from those imported and provided by the plaintiff Euro Trade, an exclusive authorized sales agent of plaintiff Burberry in terms of quality. Against such backdrop, in light of the purpose of the Trademark Act and the functions of the trademarks, the defendant's acts of using the Marks for the leaflets, business cards and external signboards, etc. cannot be deemed to have been unlawful acts of breaching the trademark right of plaintiff Burberry.

(3) In light of the foregoing reasons, the judgement of the court below properly acknowledged that the defendant's use of the Marks for the leaflets, packing paper, shopping bags and internal signboards did not infringe upon the trademark right of plaintiff Burberry. However, the court below rendered an unacceptable decision that the defendant's use of the Marks for external signboards and business cards infringed upon the trademark right of plaintiff Burberry, by misunderstanding the Trademark Act and the legal principles regarding the parallel import. Therefore, we find the relevant point of Issue 2 in the defendant's grounds for appeal acceptable while Issue 1 in plaintiff Burberry's grounds for Appeal is unacceptable.

(4) In conclusion, the judgement of the court below that the defendant's use of the Marks for external signboards and business cards infringed upon the trademark right of plaintiff Burberry is unreasonable and thus should be reversed.

B. On the plaintiff Euro Trade's grounds for appeal and Issues 1 and 2 of the defendant's grounds for appeal (against plaintiff Euro Trade)

As indicated above, even though the parallel importer's active use of the trademark for the purpose of promotion and advertisement is deemed to be legal and fair and thus does not constitute an infringement upon the holder's trademark right, if the trademark used by the parallel importer serves as the operation mark in light of the status of the usage, it may cause customers to mistake the parallel importer as an authorized sales agent of the foreign company. In such a case, the parallel importer's use falls within a category of acts causing public confusion concerning the owner of the trademark as set forth in Subparagraph (b) of Item 1 of Article 2 of the UCPA and thus shall not be permitted.

Although the court below did not present sufficient reasons for its decision, it rendered the following reasonable judgment in light of the above legal principles: The defendant shall be allowed to use the Marks for signboards installed in the interior of the defendant's shops, packing paper, shopping bags and leaflets because they cannot be deemed to serve as operation marks or to cause confusion among customers as if the defendant were an authorized sales agent of plaintiff Burberry. On the contrary, the defendant shall not be allowed to use the Marks for external boards for its offices, business places and shops, and business cards since they function as operation marks of the defendant. In this regard, the court below ordered the defendant to cease to use the Marks for the external signboards and business cards and discard the signboard and business cards bearing such Marks. Such original judgment did not err by misunderstanding the legal principles or providing contradictory grounds, as asserted in the Reasons for Appeal. Therefore, we find the relevant points of plaintiff Euro Trade's grounds for appeal and Issues 1 and 2 of the defendant's grounds for appeal (against plaintiff Euro Trade) unacceptable.

3. Based on the foregoing reasons, we conclude that it is unnecessary to consider the remaining grounds for appeal presented by plaintiff Burberry, and the defendant against plaintiff Burberry, and the part of the judgment of the court below against the defendant with regard to external signboards and business cards alleged to infringe upon the trademark right of the plaintiff, Burberry Limited, shall be reversed and the case shall be remanded to the court below for retrial and determination. The appeal filed by the plaintiff, Euro Trade, Inc. and the appeal filed by the defendant against the plaintiff, Euro Trade, Inc. shall be respectively dismissed and the cost of appeal from the parts of the dismissed appeals shall be assessed against each relevant party. This decision is delivered with the assent of all Justices who reviewed the appeal.

Justices Suh Sung (Presiding Justice)

Lee Yong-woo

Bae Ki-won (Justice in charge)

Park Jae-yoon

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