The bitter and sweet of the "Mango" case:

OEM use of trademark and non-use cancellation

Many foreign companies have a registered trademark for China but are actually not selling products with their trademark on it in China. Usually these companies use an Original Equipment Manufacturer (OEM) to produce the desired products and to affix their own trademark on it. The belief in China was that this use of a trademark in OEM could protect the trademark in China from non-use cancellation.

However, the recent Sonneti case at the Beijing High Court takes down this belief as it ruled that OEM trademark use does not provide protection against non-use cancellation in China in case the goods are all exported to another country.

What happened in this case?

In the Sonneti-case, the "MANGO" (Registration number 634764) trademark was owned by Daya International Co, Ltd. (Daya) in China since 1992 for class 25 (clothing), and was transferred to Sonneti International S.A. (Sonnetti) in 2004. Before the transfer, Sonneti was a trademark licensee of Daya. Consolidated Artists B.V., (owner of the clothing company Mango) filed for non-use cancellation with the China Trade Mark Office (CTMO) in 2003 as Daya and Sonneti only used the trademark for OEM where all goods were exported to Panama. Consolidated Artists B.V. did not have the Mango trademark registered for China, but had used the trademark on clothing products in other countries since 1984, and had therefore an interest to invalidate the trademark and register the trademark for its own business purposes in China.

Sonetti held that the use of OEM with the affixed trademark on the product for export to Panama would constitute use of the trademark in China. During the cancellation procedures and the trials, Sonneti submitted evidence to prove that it or its licensees have authorised other parties to produce“MANGO” branded clothing and that all these goods have been exported to Panama during the required period.

After two rounds of trial and a total of seven different procedures (CTMO, TRAB, Beijing Intermediate People's Court and the Beijing High Court), the Mango trademark was cancelled on the ground of non-use. The bitter is that OEM use does not qualify in order to maintain the validity of a trademark. The sweet is that through this decision a squatter was defeated and the new owner of the MANGO trademark may start its business in China.

Reasoning of the Beijing High Court

The Beijing High Court held that according to the Chinese Trademark Law, the use of a trademark must be to distinguish the sources of goods or services in the field of commercial circulation. It reasons that the submitted evidence could prove the existence of commissioned processing behaviours. However, it reasons that the commodity trading behaviours between the trademark licensers and the licensees, or the commodity trading behaviours between the entrusting and the entrusted parties to produce the goods bearing the licensed trademark, do not qualify as such use under the Trademark Law as these behaviours occur between the specific market players for export of all goods to a foreign country and are not occurring based on identification of the sources of the trademark in Mainland China.

Legal situation of OEM trademark use in China

The two biggest questions that arise with OEM in China:

1. whether a company that does not have a China trademark, but does have a trademark for another country, can engage in OEM with affixed trademarks on the products in China for export to that foreign country?

2. whether a company that has a Chinese trademark but only uses this in the sense of OEM in China with affixed trademark for export to a foreign country, can claim that use as use of the trademark in China to protect against non-use cancellation?

The first question is recently dealt with by China's Supreme People's court in the Dongfeng decision (2018). In that decision the Supreme People's Court stated that there is no use of a trademark, thus no infringement, in case a company exports OEM goods with affixed trademarks to a country where the company owns that legitimate trademark, and the OEM has completed a minimal reasonable duty of care with regard to reviewing the status of the trademarks affixed to the OEM products.

The second question is dealt with by the Sonneti case, where the Beijing High Court states that OEM trademark use does not provide protection against non-use cancellation in China in case the goods are all exported to another country.

It is important to realise that this judgment is not rendered by the Supreme People's Court, but by a local court. Therefore, other courts may have a different interpretation with regard to OEM use regarding non-use cancelation. However, taking in the bigger picture, combined with the recent SPC judgment, it seems that if a company uses OEM for products with affixed trademark solely for export to a foreign country, this does not constitute use of the trademark in accordance with the Trademark Law in Mainland China.

How should companies amend their strategy?

Companies that engage in OEM products with affixed trademark in China, are warned. By only using the OEM products affixed with the trademark for exports, trademark use in China cannot be proven. As this will open the door for other companies to file non-use cancellations against the trademark, companies are advised to sell and market some of their OEM products with affixed trademark on the Chinese market. Alternatively, companies could have back-up trademark registrations ready in case a company expects that a competitor could file for non-use cancellation. Again, the Beijing High Court decision might not be guiding, but it is better to change the strategy of your company now, then to be sorry and lose your trademarks for China.