China has long been a major supplier and manufacturer of OEM goods. With the increase of intellectual property (IP) awareness, the regulation and punishment for trademark violation have become more stringently enforced. The Chinese OEM companies should exercise more caution when taking the foreign orders, and scrutinize the validity and legality of the requests addressed in the purchase order.
In December of 2014 at Beijing Capital International Airport, 2,700 pieces of winter menswear manufactured by Mawei Trade Company (“Mawei”) that were to be exported to Mexico were detained by Beijing Customs. Mawei, the manufacturer, was authorized to use a Mexico-registered trademark on the garments in accordance with the purchase order issued by a third party, and ship the garments to Mexico when finished. Lauren Company sued against Mawei for trademark infringement. Lauren Company, whose registered trademarks are still valid and effective in China, claimed that the “HPCPOLO and device of polo sport figure” trademark Mawei used on the detained garments was substantially similar to their registered trademarks. Lauren Company brought the case to Shanghai Xuhui District People’s Court, and requested the court to order Mawei to cease any practice of trademark infringement in addition to a compensation of RMB$350,000.
Mawei, however, argued that it should not be liable for infringement because the “HPCPOLO and device of polo sport figure” is a registered trademark in Mexico, and Mawei was authorized to use the mark in manufacturing the garments. Mawei further claimed that since the detained garments were to be exported to Mexico instead of selling in China, the trademark at issue will not cause confusion among Chinese customers, and consequently, no infringement to the trademark of Lauren Company.
The court ruled that Mawei is responsible for infringing Lauren Company’s trademark. According to Paragraph 1 of Article 52 of the Trademark Law of the People’s Republic of China, using a trademark that is identical with or similar a registered trademark in respect of the same or similar goods without the trademark registrant's consent constitutes trademark infringement. The court deemed that Mawei took apart the authorized trademark and applied parts of the trademark separately and independently on the garments, which is not the authorized use of the trademark licensed to Mawei. Since the applied mark does not align with that in the purchase order, the court ruled against Mawei for its failure in its duty of reasonable care.
OEM has long been an issue in China, where many big named corporations are questioning Chinese OEM to be a convenient platform for some of the companies to sell infringing goods outside of the jurisdiction. In order to avoid trademark infringement, the OEM factories will need to verify the client’s legality in practice, be careful in utilizing the provided trademarks that OEM companies are licensed to, and fulfill its duty of reasonable care.
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