▒  ORIGINAL DECISION (Seoul Central District Court - Case 2022GaHab513476)

One of the most interesting recent developments in Korea for brand owners was the 12 October 2023 decision by Seoul Central District Court dealing with the issue of whether “reforming” genuine goods into different goods constitutes an infringement of the brand owner’s trademark rights, and if the doctrine of exhaustion (AKA first sale doctrine) applies to such goods.

We previously wrote an article on this topic (see here), but in summary:

• The dispute involved a defendant who provided a service of altering branded bags (including those offered by the plaintiff) by using fabric and materials displaying the brand’s registered trademarks. Customers would submit original/genuine branded items, which the defendant would deconstruct and reassemble into modified products. The reformed items bore the original brand’s logo and design elements. See image below, taken from the first instance decision, showing how bags were transformed into wallets, card cases, smaller bags etc.:
• 
• The court addressed whether transforming genuine products into new forms, e.g., bags to wallets, infringes on trademark rights. While the first sale doctrine limits the original trademark owner's control post-sale, issues arise when altered products are resold.
• Plaintiff claimed the transformations constituted infringement of their trademark rights and harmed their brand’s distinctiveness.
• Defendant argued that the modifications were for the owner’s use only, not resale, and did not damage the identity of the original product, and that there would be no source confusion as products were only distributed to the customer who provided the original item.
• The court ruled the transformations went beyond the scope of simple processing/repair and constituted an act of production, damaging the original product’s identity, and also commented that while the recipient of the products would not be confused as to their source, general consumers could still be confused if the reformed products are viewed by or transferred to a third party.
• Ultimately, the court ruled that the brand owner’s trademark rights were not exhausted and awarded damages in favor of the plaintiff.

 ▒  APPEAL DECISION (IP High Court - Case 2023Na11283)

The original decision was appealed to the IP High Court, which handed down a ruling on 28 October 2024 upholding the decision of the first instance court. Damages of 15 million KRW (approx. $10,750 USD) were awarded, together with an injunction barring the appellant from using materials bearing Louis Vuitton’s trademarks in the production of bags and wallets. While largely affirming the lower court’s stance, the IP High Court offered clarifications on several points:

Commercial Value of Reformed Products:
In terms of trademark usage, a “product” refers to an item that, in itself, has exchange value and is capable of being an independent object of commercial transaction. Reformed products such as wallets and bags hold exchange value in themselves. Furthermore, given that the Louis Vuitton trademark is widely known as indicating the origin of the plaintiff’s bags or wallets, the reformed products carry considerable exchange value. Additionally, considering the active resale market for luxury products, reformed products are also likely to be circulated in the second-hand market.

Repair vs Reform: 
The owner of an item, when it becomes worn or damaged, may utilize a repair service to restore the item to its original appearance or function. For items that have undergone simple repairs, the trademark on the repaired item is not generally perceived as identifying the repair service provider, except in special cases. However, if an old or damaged item is used as a raw material to produce a new item different from the original, the trademark on the new item could be perceived as representing the manufacturer of the new product, rather than the original manufacturer.

Considering the products in question, it is reasonable to deduce that the defendant completely dismantled the original product, cut its parts, and recycled the parts as raw materials through processes involving physical/chemical treatment, stitching, attachment of components, and application of trademarks. In comparison to the original item, the reformed product differs significantly in terms of quantity (e.g., two or more new items manufactured from one original item), size, volume, shape, appearance, and function. Therefore, the reformed product is considered a new product, and can be distinguished from a repaired/decorated product where restoring to its former state is feasible.

Consumer Confusion & Brand Dilution: 
The court emphasized that even in cases where the reformed products are returned to the original owners rather than sold to third parties, the presence of the brand’s trademark on significantly altered items can still lead to consumer confusion. The court highlighted that even if the modifications are requested by the owners, reformed goods bearing the original trademark risk damaging the brand’s reputation by diluting its association with quality and consistency. This underscores that consumer perception remains a critical factor in determining infringement, focusing on the “general consumer” who may encounter the modified goods in secondary or social contexts, potentially mistaking them as authentic brand products.

Exhaustion Doctrine: 
The court also reiterated and clarified the limitations of the exhaustion doctrine. While brand owners cannot restrict the resale of their products post-purchase, the exhaustion doctrine does not apply when the modifications transform the product’s core characteristics. Given that the defendant’s alterations affected the products' structure and presentation — resulting in entirely new forms like wallets from handbags — the court found these alterations to exceed permissible "repair" and to encroach upon the brand owner’s rights.

The appellant criticized the ruling, stating that the legal judgement lacked common sense (Source: News1), and has further appealed the matter to the Supreme Court. 

 ▒  COMMENTS

We will keep a close eye on this issue and report any further updates if and when the case is heard by the Supreme Court. In the meantime, the IP High Court’s decision signals a strong stance against unauthorized brand modification, especially in cases where significant alterations may harm brand integrity or confuse consumers. 

Brand owners may find this ruling advantageous for enforcing their rights over products in secondary markets. The decision also serves as a warning to businesses engaged in reformation/upcycling services, indicating that they must consider the degree of alteration and the potential for consumer confusion when handling branded items.
 

Written by Jonathan MASTERS and Sang-eun SHIN