How to navigate substantive change and bad faith when it comes to refurbished goods in China

The first instalment in this two-part series examines how to identify infringement when it comes to refurbished goods and how to comply with the Shenzhen Procuratorate’s guidelines (see “How to draw a firm line between refurbishment and infringement in China”). Against this backdrop, it is crucial to delve into substantive change on refurbished products, as well as how to determine if a party has acted in bad faith. 

When it comes to refurbished product infringement cases, there are three key problems. 

First, if the ‘refurbisher’ only carries outsimple renovation of a product’s appearance – such as cleaning, polishing or spray painting – without changing the core components, then that would be deemed as not substantially changing the used product. Whether the original trademark is retained or replaced, this does not constitute infringement. 

In cases where the recycled goods are the authentic used goods of the rights holder – such as in Siemens v Xingyueda Company and Domino Printing Science v Guangzhou Dugao Precision Mechanical and Electrical – simple renovation does not constitute infringement. While it can be difficult to identify infringement, the non-substantive change of renovated used goods is rarely in the trademark owner’s interests. To allow this without authorisation would contradict China’s aim to build a strong IP rights protection landscape. 

Second, assuming that the refurbisher makes it clear that the products are second hand and refurbished, authorities will usually only investigate the trading parties and the locations where the refurbishment process was carried out. 

If the refurbisher and the consumer are both aware that the products are refurbished, the judicial authorities will likely rule that there is no bad faith and that the act of selling the refurbished goods is not a crime. However, in practice, conflicting opinions arise when determining what constitutes substantial change and subjective bad faith, and this can vary on a case-by-case basis. Thus, it is essential for trademark professionals and authorities to communicate and collect sufficient evidence based on the product’s characteristics.

Third, it can be difficult to understand the technical details of refurbished products, especially when it comes to industrial devices. Therefore, the trademark holder must maintain good communication with law enforcement and judicial personnel so that it can clarify product-specific details to bolster its evidence.

While this process is similar to that of patent disputes, trademark law enforcement and judicial personnel often do not have a technical background, so there is a greater burden of proof on the rights holder. For example, a small mechanical component (eg, a screw) might have a different function depending on whether it is part of a car seat, steering wheel or an aircraft engine. Therefore, it cannot be assumed that replacing a screw does not constitute substantive change merely because it is a small part of the core product. 

Another example is the replacement of the support feet on a compressor. Although the support body is a patented product, the material, structure, rigidity, fatigue resistance and other aspects of the support feet have special standards and strict performance requirements. This has an effect on the service life, safety, noise and other aspects of the compressor. While the support feet are a small part of the product, they are a core aspect of the compressor and their replacement may constitute substantive change. 

Determining what constitutes substantial change 

When it comes to understanding what kind of refurbishment constitutes substantial change, there is no fixed qualitative guidance in judicial practice. However, the type of change and use of the trademark can be roughly divided into the following four types, and these can be used to identify infringement. 

Core components

In Domino Printing Science v Guangzhou Dugao Precision Mechanical and Electrical, the court stated that: 

The ink system modified by Dugao Company, even if it is not an inseparable part in the physical level, it is the core component of the normal operation of the inkjet printer product. The modification has materially changed the commodity, and the quality of the commodity has been materially changed. 

Decorative components

Elsewhere, in Zhibao Manufacturing Company v Li Guangsheng, the court held that: 

The defendant conducted laser processing on the lighter with the logo at the bottom, and the processed lighter has the original genuine lighter without the original pattern and decoration...... has constituted a material change, constituting a trademark infringement.

Counterfeit parts 

In VIVO Mobile Communication v Wu Cong, Wu Can & Ors, the court opined that: 

The defendants used the plaintiff's registered trademark No. 15180323A "VIVO" on the same commodities without permission, which was enough to cause confusion and constitute trademark infringement. 

Replaced components

In Rugao Printing Machinery Factory and Rugao Yide Materials, the court held that: 

Yide Company first purchased the used "Silver Pheasant" brand old printing machine, removed the nameplate printed with the "Silver Pheasant" trademark on the equipment, replaced the damaged parts and repainted them, and then sold them to users in their own name. This behavior is not a simple repair, but a goods transaction behavior that sells the repaired "Silver Pheasant" brand old printing machine as the product of Yide Company....... It directly infringes the trademark right enjoyed by the trademark trademark holder and ultimately damages the economic interests of the trademark trademark holder.

Therefore, there is no unified definition or standard for substantive change. In practice, it is necessary to judge and prove substantive change on a case-by-case basis and there is some room for interpretation. 

Navigating subjective bad faith

Generally, consumers have limited specific knowledge of industrial products – such as automotive parts – which makes it difficult to establish what refurbished and/or counterfeit products might look like. The consumer cannot determine the authenticity of the parts. If the end user requires a repair or replacement, they will find a shop or service provider to do this directly. 

During this process, fake goods can be quietly sold to consumers as refurbished products, which is another reason why there is such a big market for refurbished industrial goods.

Although the producers and the sellers may know that they are selling second-hand refurbished products when they are trading, when these are sold to end users, they are often sold as new.

Therefore, clear communication about the product’s condition between the manufacturer and the seller can determine if a crime has taken place, and this notification cannot be used to deny the illegality of a bad actor’s behaviour. Therefore, trademark holders should carry out a thorough analysis and prepare sufficient evidence before taking action when it comes to refurbished goods in order to prevent obstacles in the identification of bad faith.

Key takeaways

Refurbished product cases can be relatively complicated, so rights holders should thoroughly analyse and prepare from the outset and collect evidence in advance, such as evidence related to subjective bad faith. It is also beneficial to choose a favourable jurisdiction and explore the courts’ past decisions in similar cases.

Maintaining close cooperation and communication with law enforcement throughout the process and providing legal advice and technical support when problems arise will streamline the process. It is also crucial to prepare for written petitions and materials – especially when it comes to the proof of substantive change – and to then seek support from technical departments in a timely manner if necessary.