This article was first published on World Trademark Review

Dismantling and remodeling previously-owned luxury bags has become a booming business in China, but these businesses may risk infringing the IP rights of brand owners. We look at the types of services being offered, and factors that determine whether such activity constitutes trademark infringement.

Factors behind increasing customisation trend

Keyword searches of terms such as 'modification of big brand bags' on popular social media platforms (eg, Xiaohongshu or Douyin) yield hundreds of related videos and posts. Among this content are posts by business operators offering bag modification and customisation services, as well as blogs sharing experiences of upcycling previously-owned luxury bags. Both types of content attract a large audience and drive demand for these services and products.

Beyond the influence of social media, factors driving this trend include the following:

• Large potential customer base – as China's luxury market grows, an increasing number of customers own unused ‘old’ luxury bags, creating significant market potential.
• Growing environmental awareness – customers are becoming more conscious of the impact of their consumption habits, and upcycling old bags is one way to reduce waste and contribute to a more sustainable lifestyle.
• Desire for uniqueness – Chinese customers, particularly among the younger generation, are increasingly seeking products that reflect their individuality and personal style. Customisation allows them to create unique items.
• Appreciation for craftsmanship – upcycling and customisation often involve a creative process that resonates with traditional Chinese culture, which values craftsmanship.
• Supportive government policies – the Chinese government champions green consumption and actively encourages waste reduction through the implementation of the Circular Economy Promotion Law and related policies.

Hidden infringement risks

This trend seems appealing for both customers and business operators, but there are substantial potential risks. From the customer perspective, it is not uncommon to see complaints online about the poor quality of remodelled or upcycled bags.

As for business operators, trademark infringement is a real risk. Currently, there are two types of old bag remodelling or customisation services on offer.

• Customer provides product for customisation

The first type of customisation service sees the customer provide the bag that they own to the business operator for customisation services. Generally, such activity does not constitute trademark infringement.

• Customer does not provide product for customisation

The second type of service does not see the customer provide their bag to the business operator. Instead, operators own luxury bags, which they use as raw materials before selling the remodelled bags. Such activity is more complex and may constitute trademark infringement.

In December 2022, Chinese authorities arrested several individuals involved in selling remodelled bags and seized dozens of luxury bags, along with materials (eg, leather pads, hardware and tools). A customer had purchased two remodelled Louis Vuitton bags. On receiving the bags, the customer discovered that some of the leather components and hardware were poorly made. The issue was reported to the police.

Unlike typical counterfeiting, such activity uses parts from genuine products as raw materials. However, the business operator incorporates additional materials (eg, leather and hardware featuring logos of a luxury brand) into the remodelled bags, which constitutes trademark infringement. Even if no counterfeit materials are used, such action is considered trademark infringement. The public prosecutor handling the case in question noted: “[The conduct] altered the original form of the goods without the trademark owner's permission and created a new bag… that is no longer the original product. This infringes upon the market control and quality assurance functions of the registered trademark held by the right holder and does not conform to the conditions for applying the ‘principle of exhaustion of rights’. Consequently, it will be recognised as the crime of counterfeiting a registered trademark.”

Factors for determining trademark infringement

In light of the above case, three key factors determine whether bag remodelling constitutes trademark infringement – namely:

• whether the trademark of the original product is used on the remodelled bags;
• whether significant change has been made to the original product and thus a “new” product has been created; and
• whether the business operator advertises and sells remodelled products proactively by targeting a broad and unspecified customer base, or whether it provides remodelling services only to customers who provide their own bags for remodelling and their personal use.

Similar considerations have been applied in civil cases involving product remodelling, although luxury goods were not involved.

In Dugao Company v Domino ((2019) Zui Gao Fa Min Shen No 1241), Dugao Company modified the ink path system of Domino's printers while retaining the original trademark. The court held as follows:

• Dugao Company’s behaviour substantially changed the original quality of the goods.
• The continued use of the original trademark on the modified printers was likely to mislead consumers about the source of the goods or create a likelihood of confusion.

In contrast, in Warrior v an individual ((2023) E 1081 Min Chu No 900), the court determined that the business operator's behaviour was not infringing. The individual in question had purchased Warrior sneakers and provided a customisation service through his online store, whereby he would paint the sneakers according to the customer’s request and sell the painted shoes. The court held that the painting did not substantially affect the quality of the sneakers and did not change the nature of the goods. The individual had also clearly indicated in the marketing for his online store that the sneakers he sold were products of his secondary creation. Thus, the customers had fair notice, and the court held that the conduct did not constitute trademark infringement.

Courts in other jurisdictions (eg, South Korea, Sweden and Switzerland) have taken a similar approach when determining whether trademark infringement exists. In South Korea, a court ruled that redesigning luxury products without permission constituted trademark infringement and awarded Louis Vuitton Krw15 million in damages.

In January 2024, the Swiss Federal Supreme Court ruled that the business model of a watch customisation company did not constitute infringement, as customisation was carried out at the request of watch owners and for their personal use, without commercialising the modified products.

In March 2024, the Swedish Patent and Market Court ruled in favour of Tissot, against a watch customiser, which sold watches that were not pre-owned by customers. Thus, the customisation service offered was not private in nature and did not fall under the doctrine of exhaustion of trademark rights.

Effective legal mechanisms and proactive monitoring needed

The rise of the luxury product remodelling business is a global trend that presents challenges for brand owners in maintaining brand identity and preventing counterfeiting. Fortunately, courts in various jurisdictions have demonstrated similar positions when brand owners sue unauthorised remodelling operators for infringement. This indicates that unauthorised modifications and remodelling can be effectively addressed through legal means, which is encouraging for brand owners.

Brand owners should proactively monitor the market for unauthorised customisation or remodelling activity. They should also be prepared to enforce their rights through legal action to safeguard brand identity, creations and innovations, ensuring that they can continue to benefit from their IP assets in an increasingly competitive market.