Docket No.: 7361, second instance (终), civil case (民), (2020) Shenzhen Intermediate People's Court (粤03)

Lower Court Docket No.: 34027, first instance (初), civil case (民), (2018) Futian District People's Court of Shenzhen, Guangdong Province (粤0304)

SUMMARY OF THE ARGUMENT

The authorized distributor did not follow the right holder's formal purchase process and purchased the goods at a lower price from factories selling products collected from after-sales services. If the right holder identified that the products were not authorized by it, the distributor's defense of "legitimate source" could not be established and its above-mentioned behavior constituted trademark infringement.

Staging "fictitious sales" is a dishonest business behavior. The court should strictly review the evidence provided by the vendor. Only if the transaction records, payment vouchers, chat records and other evidence are sufficient to form a closed-loop chain and can corroborate each other, the relevant sales quantity could be excluded.

STATEMENT OF THE CASE AND FACTS

LUXOTTICA GROUP SPA

Plaintiff-Appellant

v.

SHENZHEN AISIMO TRADING CO., LTD.,

Defendant-Appellee

Luxottica Group SpA (“Luxottica”) (Chinese: 雷朋) is a world-renowned eyewear brand of Luxottica, a world-renowned designer, manufacturer and distributor of eyewear, holding the trademarks No. 5212742 “”, No. 20929421 “”, No.21733158 “”, and No. 1048316 “” in China. At the end of 2016, Luxottica found that the sales records of its authorized distributor Shenzhen Aisimo Trading Co., Ltd. (“Aisimo”) during the distribution period were seriously inconsistent with the purchase records who also uploaded false authorization letters to Alibaba’s intellectual property protection platform, so it filed a lawsuit with Futian District People’s Court of Shenzhen, Guangdong Province, claiming that Aisimo constituted trademark infringement and shall compensate for its economic losses and reasonable costs totaling RMB 3 million.

Aisimo argued that it purchased 4,279 pairs of “Ray.Ban” sunglasses from Luxottica (Shanghai) Trading Co., Ltd. during the authorized distribution period. Except for 773 pairs of sunglasses confirmed by the Plaintiff, the remaining 3,506 pairs were purchased from after-sales worker Hu Yuanyuan, and the sales record had a large number of “fictitious sales” data.

After trial, the court found that Luxottica (Shanghai) Trading Co., Ltd. authorized Aisimo to sell its eyeglasses in China (excluding Taiwan, Hong Kong and Macao) during the year of 2015, January 1 to March 31, 2016 and April 1 to June 30, 2017. During the above distribution periods, Aisimo purchased a total of 773 pairs of genuine “Ray Ban” eyeglasses totaled RMB 420,843.8, which were supported by the corresponding “delivery notes” and “proforma invoices”. But the 3,506 pairs of sunglasses aforementioned by Aisimo purchased from the after-sales worker Hu Yuanyuan were only supported by “delivery notes”. Luxottica confirmed that Hu Yuanyuan was an employee of its affiliated company Luxottica Commercial Service (Dongguan) Co., Ltd. However, because of the low position as an after-sales service worker, Hu Yuanyuan had no authority to make external sales, so the 3,506 pairs of sunglasses were not confirmed by the company. Aisimo operated a Taobao Shop named “Aisimo Genuine & Famous Brand Glasses”. During the period from October 1, 2015 to August 10, 2018, the successful transaction records of “RAYBAN/雷朋” in this shop were 6,257 items, with a total sales amount of RMB 3,457,208.76. Moreover, it also operated on JD Mall with the name “Aisimo Glasses Store”, and the successful transaction records were 9,583 items with a total sales amount of RMB 5,616,410.07. By comparing the bank transfer statements, WeChat transfer records, QQ chat records and other records submitted by Aisimo with the sales statements obtained from Taobao and JD, the court found that there were a total of 270 items of bank card records consistent with the orders, and the total amount was RMB 174,862.8. The inconsistent amounts were as follows: bank card records had 718 items with the notes “making up differences”, a total of 2,106 inconsistent items of WeChat transfer screenshots, a total of 282 inconsistent items of Tenpay, 246 inconsistent items of payments from others, a total of 22 inconsistent items of WeChat and Alipay payments, 12 inconsistent items of Alipay payments, 38 inconsistent records of bank transfer and WeChat transfer, and a total of 17 inconsistent records of WeChat and third-party cash payments. In the above records, there were 270 items of data in which the fictitious sales amount consistent with the orders, and such orders were from October 15, 2016 to July 4, 2017. During this period, there were 65 orders in the authorized distribution period from April 1 to June 30, 2017, and the total amount was RMB 44,974.8. During the trial, the court ordered Aisimo to submit the original authorization letters of 2017 and 2018, but it failed to provide such letters and did not give reasonable explanations. Moreover, it did not apply for the court to carry out investigation and evidence collection, nor did it submit evidence of continuous delivery by Luxottica (Shanghai) Trading Co., Ltd.

In the first instance, Futian District People’s Court held that in the authorized distribution period, the number of sunglasses purchased by Aisimo in the legal way was 773 pairs, and only 65 items of “fictitious sales” data could be confirmed by investigation, which was notably inconsistent with the sales volumes of Taobao platform and JD Mall. So it sufficiently demonstrated that the sunglasses being sued for infringement sold by Aisimo were not all from Luxottica (Shanghai) Trading Co., Ltd. As the authorized distributor of Luxottica, Aisimo was clear about its legal purchase process, but instead of legitimate purchase method, it purchased the sunglasses at a lower price from factories selling products collected from after-sales services. In the situation that Luxottica identified that it was not its authorized product, Aisimo’s “legal source” defense could not be established, constituting trademark infringement. Because the losses and benefits resulted from infringement could not be determined, based on comprehensive consideration given to the awareness of the trademark in dispute, the malicious infringement of Aisimo providing false authorization letters on Taobao and other acts, Aisimo’s operation scale and the quantity of infringing products sold, the large profit of infringing products, the reasonable expenditure for stopping infringement act by Luxottica and other factors, the court made the first instance judgment on November 28, 2019: (1) the Defendant Aisimo should immediately stop the infringement of the exclusive right to use registered trademark of the Plaintiff Luxottica with No.5212742 “”, No. 20929421 “”, No. 21733158 “”and No. 1048316 “”. In other words, it should stop selling and destroying the inventory of infringing goods; (2) the Defendant Aisimo should compensate the Plaintiff Luxottica for economic losses and reasonable expenses with a total amount of RMB 3 million.

Aisimo refused to accept the first instance judgment and appealed to the Shenzhen Intermediate People's Court. On September 8, 2020, Shenzhen Intermediate People's Court made judgment of the second instance. The court rejected the appeal and affirmed the original judgment. This case has taken legal effect on October 13, 2020.

ANALYSIS

The act of authorized distributor mixing the genuine and false goods has increased the difficulty for consumers to distinguish genuine goods, and also damaged the legal rights and interests of brand owners. As a part of the grey industry, making "fictitious sales" is a dishonest business behavior by damaging the trading statistics mechanism and credit rating mechanism of the platform. In this case, the court identified the infringement of authorized distributors for mixing the genuine and false goods, and strictly examined the "fictitious sales" data, so it has guided the market participants to regulate their operation, and developed a law-abiding and honest business environment. Moreover, we can see from this case that the judiciary system of China has provided strong protection for foreign trademark owners.