"Can Refurbishment and Resale Be Defended on the Grounds of Trademark Exhaustion?"

In recent years, with the rapid development of the social economy and the continuous improvement of people's living standards, the renewal and replacement of daily consumer goods have accelerated. Taking electronic products as an example, data shows that in the past five years, China has generated more than 400 million discarded mobile phones annually. Building a waste recycling system is an important measure to implement a comprehensive conservation strategy, ensure national resource security, steadily advance carbon peaking and carbon neutrality goals, and accelerate the green transformation of development methods. Against this policy background, a massive industry of used goods recycling and refurbishment resale has emerged. Although refurbishment and resale of used goods meet the actual needs of the country’s vigorous promotion of green economy development, the intellectual property issues involved, particularly trademark infringement, must not be ignored.

I. Definition of Refurbishment of Used Goods and Infringement Disputes

Refurbishment of used goods is not a legal concept; in practice, it is generally understood as waste reuse. According to Article 2 of the Circular Economy Promotion Law, reuse refers to directly using waste as products or continuing to use waste as products after repair, refurbishment, or remanufacturing, or using all or part of the waste as components of other products. Still taking electronic products as an example, the industry generally defines refurbishment as: "A series of special processing procedures for genuine electronic products whose performance, condition, etc., have been worn due to consumer use, including polishing, repairing, replacing components, etc., to improve or restore the performance and condition of second-hand electronic products." This definition explains refurbishment through specific actions, distinguishes the "objects of refurbishment" from brand-new genuine products, and lists forms of refurbishment. Of course, in practice, the used goods involved in refurbishment cases are not limited to electronic products, and the refurbishment methods are not limited to polishing, repairing, or replacing parts. The above definition provides important reference for better understanding refurbishment of used goods.

The reason why refurbishment of used goods causes trademark infringement disputes lies not in refurbishment itself, but in resale. The fundamental difference between refurbishment and resale of used goods and general trademark infringement lies in the different sources of the products. Refurbishment targets genuine products bearing the trademark, while general infringement involves manufacturing entirely new products. Therefore, in trademark infringement lawsuits caused by refurbishment of used goods, trademark owners usually claim that the refurbishment behavior constitutes remanufacturing, and that using the trademark on remanufactured products without the trademark owner’s authorization constitutes trademark infringement. The accused infringers usually defend themselves by invoking trademark exhaustion.

II. Whether Refurbishment and Resale Can Be Defended by Trademark Exhaustion

The core of the dispute over whether refurbishment and resale constitute trademark infringement lies in whether the principle of trademark exhaustion can be applied as a defense. The principle of trademark exhaustion, also known as the exhaustion of trademark rights, means that after a product bearing a registered trademark is marketed with the consent of the trademark owner, the owner’s rights over that product are exhausted. The buyer may use or resell the product further, and the trademark owner may not interfere; thus, the buyer's behavior does not constitute trademark infringement. Although trademark exhaustion is designed to balance property rights and trademark rights, in practice, when the buyer resells or uses the product, the trademark still functions as an indication of the source of the goods, and its identifying function remains unchanged, so consumers will not be confused or misled about the source of the goods. Therefore, it is a legitimate reason to defend against trademark infringement.

However, there are two preconditions for the application of trademark exhaustion: The trademark symbol must not have changed; The condition of the goods must not have changed.

Article 40 of the Circular Economy Promotion Law stipulates that the state supports enterprises in remanufacturing products such as motor vehicle parts, construction machinery, and machine tools, and in retreading tires. The quality of remanufactured and retreaded products sold must comply with national standards and must be clearly marked as remanufactured or retreaded products. In the recycling and utilization market model, if the trademark function is not impaired, the trademark owner has no right to prohibit others from using or reselling the goods. Many acts of refurbishment and resale are determined to be infringing because they either cause changes to the trademark symbol or cause changes to the goods themselves.

III. Typological Analysis of Whether Refurbishment and Resale Constitute Infringement

In practice, situations of refurbishment and resale of used goods are diverse. Factors such as the degree of refurbishment, whether the original trademark is retained or replaced, whether consumers are truthfully informed about the refurbishment, and whether confusion among the relevant public may occur, are all considerations in determining trademark infringement. Whether refurbishment and resale constitute trademark infringement cannot be judged uniformly, but should be analyzed typologically based on the specific circumstances, in combination with legal provisions and the basic elements for determining trademark infringement.

The first type is the removal of the original trademark after refurbishment, and the attachment of the actor’s own trademark or another trademark. According to Item 5, Article 57 of the Trademark Law, without the consent of the trademark registrant, replacing its registered trademark and reintroducing the goods into the market constitutes trademark infringement. Accordingly, refurbishing another's goods and replacing the trademark clearly constitutes trademark infringement, which in academic theory is referred to as explicit reverse passing off.

The second type is the removal of the original trademark after refurbishment, without attaching another trademark. There is disagreement over whether this behavior constitutes trademark infringement. One view holds that it does not constitute infringement, mainly because without attaching another trademark, no consumer confusion or misunderstanding occurs, and the identifying function of the trademark is not undermined. This view fails to properly recognize the comprehensive attributes of trademarks. A trademark not only serves the basic function of identifying the source of goods or services but also serves derivative functions such as ensuring product or service quality and maintaining trademark reputation. The existence of these functions underpins the necessity of protecting trademarks. If an act impairs these functions sufficiently, it can be deemed trademark infringement regardless of actual consumer confusion. The act of removing the original trademark effectively severs the association between the refurbished product and the original trademark. Although this may not cause consumer confusion regarding the source, it interrupts the accumulation of goodwill through the product by the trademark owner. In the "Silver Pheasant" trademark infringement case announced in the Supreme People's Court Gazette, the Jiangsu Nantong Intermediate People's Court stated: "Product trademarks serve as a bond between trademark owners and product users. Only when attached to approved goods and circulated with them can trademarks enhance product visibility and competitiveness, allow product users to recognize the value of the manufacturer and its products, and increase market transaction opportunities, thus enabling trademark owners to achieve maximum economic benefit." Therefore, removing another's trademark after refurbishment should also be deemed to constitute trademark infringement. Compared to the aforementioned explicit reverse passing off, this behavior is termed latent reverse passing off in academic theory and can be regulated under the catch-all clause of Item 7, Article 57 of the Trademark Law.

The third type is the retention of the original trademark after refurbishment. There is also disagreement over whether this behavior constitutes infringement. One view holds that as long as the refurbishment and resale do not involve removal or replacement of the original trademark, there is no confusion regarding the source of the goods, thus no infringement occurs. This view also overlooks the quality assurance function of trademarks. Whether this type of refurbishment constitutes infringement hinges on whether it impairs the quality assurance function of the trademark.

In practice, this type of behavior falls into several categories:

The first is fundamental refurbishment. This refers to a situation where after repair and refurbishment, the structure of the product has been fundamentally altered, and the quality, parameters, specifications, and functions have changed, meaning the core components of the product have been substantially altered, and the product is no longer that of the trademark owner. This is considered remanufacturing. In this case, retaining the original trademark impairs the quality assurance function of the trademark, confuses consumers about the true origin, and can be deemed trademark infringement. Distinguishing ordinary repair from remanufacturing generally depends on whether core components have been replaced and the proportion of replacement parts relative to the whole product.

The second is ordinary refurbishment, but selling to consumers as new products. In this situation, refurbished products generally have inferior quality compared to brand-new products. The trademark's function of indicating product quality is affected, significantly impairing the trademark owner's control over product quality. Using the original trademark for sale will negatively impact the trademark's reputation due to inconsistent product quality, harming both the trademark owner’s goodwill and consumer interests, and ultimately jeopardizing the trademark’s survival. This should also be considered trademark infringement.

The third is ordinary refurbishment with the original trademark retained, but truthfully informing consumers that the products are refurbished. This is demonstrated through verbal disclosure during sale, prominent second-hand labeling, lower pricing, etc., with pricing being especially critical. Generally, the value of used goods is lower than that of new ones, and even after adding refurbishment costs, their price should be significantly lower than that of brand-new genuine products. In such cases, since consumers are truthfully informed and no confusion or misunderstanding about the product source arises, the identifying function of the trademark remains intact. Moreover, since the real information about the product is truthfully conveyed to consumers, the quality assurance and reputation-bearing functions of the trademark are not impaired. Thus, such refurbishment and resale should be considered legitimate and not constitute trademark infringement.

Developing a circular economy is a major strategy for China’s socio-economic development. Recycling and reusing discarded materials not only maximizes material value and meets diverse consumer needs but also aligns with the green economy philosophy of resource conservation and ecological protection promoted by the Civil Code. When balancing environmental and economic interests, encouraged by national policies, against the protection of original trademark owners’ interests in recycling practices, it is necessary to apply legal thinking, correctly grasp the core elements and adjudication principles of intellectual property protection, and properly handle trademark infringement litigation arising from refurbishment of used goods.