Summary

In a recent landmark decision, the China Supreme People’s Court (“SPC”) overturned its previous views of the last decade and held that branded products produced through OEM may constitute trademark infringement if a third party owns the registered trademark in China.

In the previous Pretul case (2015) and Dongfeng case (2017), SPC held that OEM products do not constituted trademark infringement since the products were all exported abroad rather than entered into the Chinese market, thus it should not be considered as “use of a trademark” and would not cause confusion to consumers in China. This was the mainstream opinion of the last decade in China. However, in this recent judgment, the SPC overturned the previous opinion and concluded that OEM products might also cause confusion to the public since the consumers were able to get to the OEM products due to development of e-commerce, Internet and China’s economy.

The changed opinion of the SPC will provide possibilities to trademark rights owners in China to seize branded products “authorized” by pirated trademark owners in foreign countries. It also shows a firm attitude of the Chinese government in all-round protecting intellectual property rights.

Case Background

The claimant, Honda Motor Co., LTD (“Honda”), is the owner of trademarks, which have been registered on vehicles, motorcycles, etc. in class 12 goods since late 1980s.

The defendant is Chongqing Heng Sheng Group Limited (“Heng Sheng”). Heng Sheng contracted with a Burma company named Meihua Company Limited (“Meihua”) and was requested to produce 220 sets of motorcycle parts bearing “HONDAKIT” trademark. According to the contract, the produced motorcycle parts would be exported by Heng Sheng’s affiliate Chongqing Hengsheng Xintai Tradding Co., Ltd. (“Xin Tai”). To prove its trademark rights, Meihua provided “HONDAKIT” trademark registration on “vehicle” etc. class 12 goods, which is in the name of the managing director of MEIHUA.

In June 2016, Kunming (provincial capital of Kunming) customs seized these “HONDAKIT” products on the grounds of infringement on Honda’s trademarks. However, after realized that the seized motorcycle parts were OEM products, Customs expressed that they could not decide whether the products were infringing because of the SPC’s attitude on OEM products.

To get a clear answer, Honda filed a civil litigation against the OEM manufacturer Heng Sheng and exporter Xin Tai on the grounds of trademark infringement in September 2016. In the first instance, the intermediate court of Dehong Dai and Jingpo Autonomous Prefecture ruled that these OEM products constituted trademark infringement and the 2 defendants should pay RMB300k (USD42,681) to Honda. However, in the second instance the Yunnan Higher People’s Court overturned the first instance judgment by exactly following the SPC’s earlieropinion on OEM products.

Honda chose to keep fighting and filed a retrial application with the SPC. On September 23, 2019, the SPC issued the retrial judgment and made the aforesaid change. The SPC firstly demonstrated that, although Meihua owned the registered trademark for “HONDAKIT” in Burma, in this case the trademark in actual use was confusingly similar with Honda’s Chinese trademarks , because (1) “HONDA” was in bigger fonts than “KIT”, (2) “H” was in initial letter, and (3) there was also a wing device on the products. Obviously Meihua was using its trademark in bad faith. Secondly, the SPC emphasized that although it was OEM products and were not sold in China directly, they may still cause confusion to Chinese consumers, because with development of e-commerce, Internet and China’s economy, as well as frequent overseas travel, the Chinese consumers had accessed to these OEM products. As a conclusion, the SPC decided to reverse the second instance judgment and affirmthe first instance judgment.

Significance of the SPC’s Judgment

Obviously the SPC’s judgment is good news to owners of Chinese trademarks. China is no longer a hotbed for overseas pirated trademark owners. Rights owners of Chinese trademarks can enforce their rights against infringing products in processing in China rather than wait for the OEM products to be sold in other countries/ areas where the rights owners have registered trademarks too. Manufacturers in China will be more careful when accepting international orders, and as a result it will also reduce the occurrence of infringing OEM products.

In addition, the burden of proof of Chinese trademark holder is likely to be relieved because the SPC also specified in the judgment that (1) a mark used on the products should be considered as “use of a trademark”, as long as the mark has the function of identifying the source of products, (2) the “relevant public” should be defined as people related to OEM products, include manufacturers, exporters as well as consumers, (3) it is not necessary to prove that confusion actually happens.

It should also be noted that the SPC clarified in the judgment that the OEM case should be reviewed case by case, which means that the “HONDAKIT” is not likely to become a guide case at this moment.

However, it is still an example of China’s endeavor to protect intellectual property. In November 2019, the General Office of the CPC Central Committee and the General Office of the State Council jointly published “Opinions on Strengthening Protection on Intellectual Property” (“the Opinions”), and clearly put forward two goals (1) significantly reduce IP infringement by 2022, and (2) achieve higher level of social contentment on IP protection.. The opinions also clearly listed specific measures for achieving the goals, include improving damages, enforcing punitive damages systems, preventing bad faith trademark filings, establishing and publishing repeated infringers and intentional infringers etc. It is predictable that there will be more and more encouraging judicial results in the following several years in China.