If the Pretul decision was scary for the well-known brands, the DongFeng decision is really a nightmare. It might create a black hole in the IPR Protection System of the Chinese Customs. Indeed the owner of a registered trademark in a small country can authorize the purchase of fake goods from the biggest producer of counterfeits in the world. With a registered trademark - for example in a small country like Tonga – it is possible to skip the whole Chinese customs IPRs Protection system.
In December 2015 the SPC issued the milestone decision known as Pretul (Focker Security Products international Limited v Pujiang Ya Huan Locks Co. Ltd) on the controversial topic of the use of a trademark in China only on good to be exported. The decision establishes that the trademark shall serve as in indication of origin and the use of trademark only for export does not infringe a Chinese trademark since such use is not able to cause confusion among Chinese public.
Surprisingly one month after the Pretul decision Jiangsu High People’s Court issued a decision apparently contrary to the SPC jurisprudence in the case known as DongFeng (Shanghai Diesel Engine Co. Ltd. v Jiangsu Changjia Jinfeng Dynamic Machinery Co., Ltd).
DongFeng is a Chinese brand - also recognized as well-known trademark - for automotive engines and was filed and registered in Indonesia by someone not related to the Chinese entity. DongFeng tried to cancel/invalidate the Indonesian trademark but did not succeed.
In China the trademark “DongFeng” is registered with the Customs for obtaining protection against illegal cross-border commerce. And indeed it happened that the Chinese Customs detained a batch of goods bearing the trademark DongFeng in transit to Indonesia without the authorization of the trademark owner in China. Within the procedure initiated upon the Customs’ detention the exporter provided evidence to support the legitimacy of the trade especially in consideration that OEM use is not trademark use and that the consignee of the goods was authorized by the owner of the trademark DongFeng in Indonesia. The Customs then released the goods.
Unsatisfied with the decision, DonFeng – the trademark owner in China - sued the alleged infringer to the Court. In the second instance decision – issued just one month after Pretul Decision - the Jiangsu High People’s Court first acknowledges the principle set by the SPC with Pretul and then states that the case at issue shall be decided differently since the circumstances were different. While the second instance decision imposes the Customs to confirm the infringement reasoning that the exporter had missed to perform a duty to check whether the trademark was registered in China and the exportation was clearly an abuse of the trademark rights, the SPC decision states that the decision to release the goods because not infirng upon the Chinese trademark is correct (and reversed Jangsu Courts decisions).
DonfFeng SPC Case confirms that OEM does not constitute trademark infringement in China as long as
1. all the products are exported and
2. the exporter has absolved its duty of care in verifying the involved IP rights. In the case at issue the duty of care is considered fulfilled since the exporter had verified that the recipient of the goods has obtained the trademark in the country of destination.
This topic of the OEM jurisprudence is actually very practical and sensitive to many companies having highly counterfeited brands. After DongFeng it is clear that having a trademark in a country (even a small remote one) allows to export goods from China notwithstanding the presence of a registered trademark in China.