2025 (6) TMI 34 - HC - Customs

Infringement of registered trademark u/s 29(6) of the Trade Marks Act 1999 - importation of second-hand or refurbished goods bearing the plaintiffs registered trademarks by the defendant - causing injury to the consumers in India who were led to believe that they were purchasing an authorized Samsung product in India sold with the permission of Samsung - HELD THAT - From a reading of the Division Bench judgment in Kapil Wadhwa 2012 (10) TMI 1246 - DELHI HIGH COURT the position which emerges is that import and resale of goods bearing the trademark of the registered proprietor is permissible as long as the condition of said goods is not changed or impaired. Kapil Wadhwa 2012 (10) TMI 1246 - DELHI HIGH COURT was not a case where the defendants were refurbishing the imported goods. In the said case the imported goods were sold on an as is basis. In Daichi 2024 (5) TMI 1573 - DELHI HIGH COURT the Coordinate Bench extended the reasoning and rationale adopted in Kapil Wadhwa to cases involving refurbishment of imported products (HDDs). The legal position that emerges from reading of the judgment of the Division Bench in Kapil Wadhwa and the Coordinate Bench in Daichi is that there is no statutory bar against the import of end-of-life goods in India. Any person in India has the right to legally import goods from abroad bearing the trademarks of an entity and sell the same in India. The principle of international exhaustion is duly recognized under Section 30 (3) and 30 (4) of the Trade Marks Act. The only caveat which the aforesaid judgments seek to place on such importers is that there should be a complete disclosure as to the facts that the goods are second hand goods and are not covered by the original manufacturer s warranty. In terms of Daichi even refurbished goods can be sold with proper disclosure. Applying the aforesaid legal position in the facts of the present case it is an undisputed position that the defendant herein was an importer of second-hand goods from abroad purchased from OEMs of the plaintiffs. It is not the case of the plaintiffs that the goods imported by the defendant were not genuine goods. Before the imported goods could be released to the defendant the present proceedings were initiated by the plaintiffs which resulted in the goods being seized at the customs clearance stage. The goods were taken into custody and have ever since been lying at the customs warehouse - Since the imported goods never reached the defendant it cannot be ascertained as to whether the aforesaid imports were made by the defendant for the purposes of reselling directly or indirectly or the intention of the defendant was to refurbish the goods and sell the same further. Therefore it cannot be said that the defendant has made any misrepresentation to the public at large or the consumers with regard to the status of the goods. Insofar as the goods already imported by defendant are concerned it is an admitted position that they are still lying in a customs warehouse since the time of their import. This Court while passing an ex-parte interim order dated 21st October 2019 has specifically provided that the demurrage or other charges payable to Custom Authority shall be paid by the defendant. Conclusion - The goods seized by the Local Commissioner and now lying with the Custom Authority are permitted to be released to the defendant subject to the defendant filing an undertaking that the said goods shall be sold only as scrap after removing all marks of the plaintiffs. The defendant shall be free to pursue his remedies that may be available in law with regard to demurrage charges payable to the customs. Application disposed off.

Summary

The core legal questions considered in this judgment revolve around the scope and application of trademark law in the context of importation and resale of goods bearing registered trademarks, specifically:

1. Whether the importation of second-hand or refurbished goods bearing the plaintiffs' registered trademarks by the defendant amounts to trademark infringement under Section 29(6) of the Trade Marks Act, 1999.

2. The applicability of the principle of international exhaustion of trademark rights under Sections 30(3) and 30(4) of the Trade Marks Act to the import and resale of such goods.

3. The extent to which the defendant can lawfully import and deal in genuine goods bearing the plaintiffs' trademarks without the plaintiffs' authorization, particularly in light of the Customs Rules and relevant circulars.

4. Whether the judgment in a Coordinate Bench decision (referred to as Daichi) is applicable to the present case involving importation, and how it interacts with earlier precedent (Kapil Wadhwa).

5. The conditions under which refurbished or second-hand goods bearing registered trademarks may be sold without constituting infringement, including the requirements for "full disclosure" to consumers.

6. The treatment of goods seized at customs and the rights of the importer regarding such goods, including demurrage charges and disposal.

Issue-wise Detailed Analysis

1. Trademark Infringement by Importation of Second-Hand Goods

Legal Framework and Precedents: Section 29(6) of the Trade Marks Act prohibits unauthorized use of a registered trademark in relation to importation. However, Sections 30(3) and 30(4) provide exceptions under the principle of international exhaustion, allowing lawful import and resale of goods bearing the trademark if certain conditions are met. The Division Bench judgment in Kapil Wadhwa and the Coordinate Bench judgment in Daichi provide authoritative guidance on these issues.

Court's Interpretation and Reasoning: The Court recognized that while Section 29(6) prohibits unauthorized use, the defense under Section 30(3) applies if the goods were lawfully acquired bearing the registered trademark. The Court emphasized that India adopts the principle of international exhaustion, meaning once goods are sold legitimately abroad, the trademark owner's rights over those goods are exhausted internationally.

Key Evidence and Findings: The plaintiffs admitted the goods imported were originally manufactured by them and purchased from their OEMs abroad. There was no evidence of any agreement preventing OEMs from selling these goods or prohibiting their import into India. The plaintiffs failed to show any statutory prohibition against import of second-hand or refurbished goods.

Application of Law to Facts: Since the defendant lawfully imported genuine goods from OEMs, the importation itself did not constitute infringement, subject to compliance with disclosure requirements and non-impairment of the goods' condition.

Treatment of Competing Arguments: The plaintiffs argued that the goods were second-hand and not lawfully acquired, relying on Section 29(6) and alleging consumer deception. The defendant relied on the Customs Circular permitting parallel imports and the principle of international exhaustion. The Court found the defendant's position consistent with the law and rejected the plaintiffs' argument that Daichi was inapplicable due to importation, noting that the Daichi judgment explicitly involved importers.

Conclusion: Importation of genuine second-hand goods bearing the plaintiffs' trademarks from abroad does not amount to infringement if the goods are lawfully acquired and not materially altered or impaired.

2. Applicability and Scope of the Principle of International Exhaustion (Sections 30(3) and 30(4))

Legal Framework and Precedents: Section 30(3) protects lawful purchasers of trademarked goods from infringement claims if the goods were put on the market by the trademark owner or with their consent. Section 30(4) excludes goods whose condition has been changed or impaired after market entry. Kapil Wadhwa held that India adopts international exhaustion, and Daichi extended this to refurbished goods.

Court's Interpretation and Reasoning: The Court reiterated that the principle of international exhaustion applies, permitting import and resale of genuine goods bearing registered trademarks. The exception under Section 30(4) applies if the goods are materially altered or impaired, which could mislead consumers or harm the trademark owner's goodwill.

Key Evidence and Findings: The plaintiffs did not prove that the imported goods had been altered or impaired. The technical report showed some drives were non-functional, but the defendant had not taken possession or sold them, so no misrepresentation to consumers was established.

Application of Law to Facts: The defendant's import of second-hand goods falls within the protection of Section 30(3), as the goods were lawfully acquired and not materially altered by the defendant. The defendant had not yet sold or represented the goods to consumers, so no infringement arose at this stage.

Treatment of Competing Arguments: Plaintiffs contended that the goods were not "lawfully acquired" and that the defendant's import and potential resale would cause consumer deception. The Court found no evidence of such deception or impairment and noted that full disclosure requirements mitigate consumer confusion.

Conclusion: The principle of international exhaustion protects lawful importers of genuine goods, including second-hand and refurbished goods, provided the goods are not materially altered or misrepresented.

3. Importation of Refurbished Goods and Disclosure Requirements

Legal Framework and Precedents: Daichi judgment specifically addressed the import and sale of refurbished HDDs, permitting such sales subject to stringent disclosure requirements to avoid consumer deception. The Court also referred to Xerox Corporation v. Shailesh Patel, where disclosure norms for second-hand imported goods were laid down.

Court's Interpretation and Reasoning: The Court endorsed the directions in Daichi requiring that refurbished goods' packaging and promotional materials clearly identify the goods as refurbished, specify absence of manufacturer's warranty, and avoid use of logos likely to deceive consumers. The defendant's willingness to comply with such norms was noted.

Key Evidence and Findings: The plaintiffs' engineer's report showed some imported drives were non-functional, supporting the need for clear disclosure. The defendant had not yet sold the goods, so no consumer confusion was demonstrated.

Application of Law to Facts: If the defendant refurbishes and sells the imported goods, compliance with the Daichi disclosure norms is mandatory to avoid infringement. If the goods are sold as-is without refurbishment, Xerox disclosure norms apply.

Treatment of Competing Arguments: Plaintiffs argued that the Daichi directions permitting use of word marks and promotional references were contrary to the Trade Marks Act. The Court found these directions consistent with the law's intent to balance trademark rights with legitimate secondary markets.

Conclusion: Refurbished goods bearing registered trademarks may be imported and sold subject to full disclosure and compliance with packaging and promotional norms to prevent consumer deception and protect trademark goodwill.

4. Seizure and Custody of Imported Goods at Customs

Legal Framework and Precedents: The Court's interim order restrained the defendant from dealing with the goods and placed them in notional custody of a Local Commissioner at the customs warehouse. The defendant is liable for demurrage charges.

Court's Interpretation and Reasoning: Since the goods remain in customs custody and have not been released to the defendant, no infringement or misrepresentation has occurred. The Court permitted release of the goods to the defendant on condition that they be sold only as scrap after removal of plaintiffs' marks.

Key Evidence and Findings: The goods seized are genuine but second-hand and lying in customs warehouse. The defendant has not taken possession or sold them.

Application of Law to Facts: The Court balanced the parties' interests by allowing release subject to conditions preventing trademark infringement and consumer deception. The defendant may pursue remedies for demurrage charges separately.

Treatment of Competing Arguments: Plaintiffs sought continued restraint to prevent infringement. The Court found that conditional release with undertakings protects their rights while allowing defendant to mitigate losses.

Conclusion: Goods seized at customs may be released to the importer subject to conditions ensuring no trademark infringement or consumer deception.

Significant Holdings

"This is also an indication of India adopting the Principle of International Exhaustion of Rights in the field of the Trade Mark Law."

"Import and resale of goods bearing the trademark of the registered proprietor is permissible as long as the condition of said goods is not changed or impaired."

"Section 30 provisions are essentially prescribing a limitation on the rights of a registered trademark proprietor... Section 30(4) is an exception to Section 30(3), and excludes its applicability in a situation where the condition of the goods has been changed or impaired, after they are put in the market."

"Refurbished, second-hand, pre-owned goods exist in most countries of the world since it caters to a different market... The only caveat is in Section 30(4) where, if the marks are removed from the original product or it is disfigured or changed... the manufacturer's right kicks in to prevent the same."

"The defendants will be permitted to sell the refurbished HDDs, provided they comply with the following: (i) Packaging to identify the source of the product... (iii) Packaging must specify that there is no original manufacturer's warranty... (iv) Packaging must specify that the product is 'Used and Refurbished'... (vii) All of the above should also be complied with by the defendants on promotional literature, website, e-commerce listings, brochures and manuals."

"The goods seized by the Local Commissioner and now lying with the Custom Authority are permitted to be released to the defendant, subject to the defendant filing an undertaking that the said goods shall be sold only as scrap after removing all marks of the plaintiffs."

The Court's final determinations are that the defendant's importation of second-hand goods bearing the plaintiffs' trademarks does not constitute trademark infringement under Section 29(6), subject to the principle of international exhaustion under Sections 30(3) and 30(4). The defendant is entitled to import and deal in such goods with appropriate disclosures to avoid consumer deception, following the norms laid down in Daichi and Xerox. The seized goods may be released to the defendant on condition they are sold only as scrap after removal of trademark marks, safeguarding the plaintiffs' rights. The judgment clarifies that the principle of international exhaustion and the legal framework permit lawful parallel imports and resale of genuine goods, including refurbished products, balancing trademark protection with legitimate commercial practices.