Under normal circumstances, OEM refers to the situation where a Chinese manufacturer enters into an entrustment contract with an overseas company that owns the trademark(s), sometimes in China but in most cases, in other jurisdictions. The Chinese manufacturers are required to produce or process products according to the requirements of this overseas company, attach its trademark(s), and deliver all products to another country designated by this overseas company with no sales in China. Things become complicated when the overseas’ company’s trademarks registered outside China are registered by a third party which has no relation with the overseas company at all in China.

According to the current statutory law in China, there is no clear provision regarding whether or not the aforesaid scenario constitutes trademark infringement by the OEM manufacturer or the overseas company against the owner of the registered trademarks in China. The question can be at least considered at two tiers: firstly, whether the use of a mark in OEM activities is the use of a trademark as defined under the PRC Trademark Law; and if yes, then secondly, whether said uses constitute trademark infringement. The Supreme People’s Court of the PRC (“SPC”) answered in the affirmative at both tiers in its latest judgement delivered in a trademark infringement case[1]. A brief summary of the case is:

1. Factual Background

Company H enjoys registered trademark rights over the mark “HONDA” on vehicles in Class 12. A Chinese company manufactured vehicle parts for motorcycle under the engagement of a Burmese company who has registered trademark rights over the mark “HONDAKIT” in Burma. The Chinese manufacturer used the mark “HONDAKIT” on the vehicle parts in a way distinctively displaying “HONDA” alone and exported all the products to Burma. Company H then brought a trademark infringement lawsuit against the Chinese manufacturer.

2. The Court’s Judgement

The Courts of two instances drew contrary conclusions as the first instance court believed that the Chinese manufacturer’s activities constituted trademark infringement while the court of second instance revoked its judgment. The SPC re-tried this case and sustained the first instance judgment in final.

3. The SPC’s Reasoning

(1) The Chinese manufacturer’s alleged infringing activities shall be recognized as OEM.

(2) The Chinese manufacturer’s OEM activities shall be considered as use of a trademark. Use of a trademark refers to the activities of using a trademark to identify source of origin, which involve physical attachment of the mark as well as market circulation of the same, etc.,. All these factors shall be considered when deciding whether an activity shall be “use of a trademark” or not. Neither the product/service provider’s intent nor consumer’s conception of the role of the mark shall make the judgment alone. In this regard, as long as the mark is labelled or in some other way, used on the products and that such mark is possible to play the role of identifying source of origin, it should be viewed as “use of a trademark”.

(3) With regard to the relevant public, apart from consumers, operators in the process of transporting the products also have the possibility of accessing the alleged infringing products. In addition, with the development of e-commerce, exported products may also find its way back to China and Chinese consumers are likely to get in touch with such products and become confused when traveling abroad too. As such, the Chinese manufacturer’s argument that the alleged infringing products were not sold in China and therefore the mark cannot be accessed by the relevant public in China, let alone serving as a source identifier was not tenable. Therefore, the Chinese manufacturer’s use of the mark shall be deemed as “use of a trademark” as contemplated by the PRC Trademark Law.

(4) The alleged infringer’s subjective intent is irrelevant to establishment of trademark infringement. As long as there is a likelihood of consumer confusion, there could be trademark infringement. Neither consumer’s actual access of the alleged infringing products nor the occurrence of actual confusion is a requisite for establishing trademark infringement.

(5) In conclusion, the Chinese manufacturer’s use of “HONDAKIT” should be deemed as “use of a trademark”. Considering that the mark is similar to Company H’s registered trademark and the goods it designated are also similar to that of Company H’s, consumer confusion is likely to occur. Therefore, the Chinese manufacturer’s activities constituted trademark infringement.

At last, the SPC particularly pointed out that it is inappropriate to simply classify OEM as an exception of trademark infringement and the Court shall keep the uniformity of the application of law. The SPC also expressed that the Court, when deciding foreign-related OEM trademark infringement cases, shall fully consider the domestic and international economic development situation, make specific analysis on and apply the law appropriately to the cases occurred in specific period, in specific market and/or through specific trade form.

In fact, the SPC has been vacillating in its opinions on said issues in several other previous OEM related cases, either administrative or civil, from 2012 to 2018, which include:

  • On June 29th, 2012, the SPC retried and decided in the MUJI case[2], an administrative case regarding review of trademark opposition, that the use of a mark in OEM activities was not the use of a mark under the PRC Trademark Law. It reasoned that the essential role of a trademark is to identify the source of origin of different goods or services. A trademark may function as a source identifier only in the process of market circulation of the goods. The overseas entrusting party entrusted manufacturers in mainland China to produce and process goods classified in Class 24 for export only, and the promotions were all made outside mainland China. Therefore, the mark it used shall not be recognized as “a trademark in prior use and with certain influence” as provided in Article 31 of the PRC Trademark Law.
  • On November 26th, 2015, in the “PRETUL” trademark infringement case[3], the SPC further confirmed its opinion that there was no trademark use in the OEM and as a result, no trademark infringement should be established. Specifically, the SPC pointed out that the padlocks were not sold in the Chinese market, that is to say, the logo will not serve as a source identifier in China. There was no way that the relevant public in China may confuse and mistakenly believe that the said padlocks bearing the “PRETUL” logo were produced by the domestic trademark owner. As a source identifier of goods or services, a trademark’s basic function lied in its ability to distinguish. The use by the Chinese manufacturer of the “PRETUL” logo on padlocks it produced under the OEM authorization can only be interpreted as physical attachment. The logo it used can neither identify source of origin, nor realize its function as a source identifier. Therefore, the logo that the Chinese manufacturer used did not endow the property of a trademark, and the simple attachment of the logo did not constitute the use of a trademark.
  • On December 28th, 2017, the SPC reiterated its position in the “Dong Feng” trademark infringement case[4]. Again, the SPC concluded that the use of trademarks that did not serve to identify source of origin will not mislead or cause confusion. Therefore, the function of the trademark was not damaged and infringement shall not be established in the context of PRC Trademark Law. The SPC further contemplated that during the process of processing and exportation, the use of the mark by the domestic OEM manufacturer will not affect the function of trademark owner’s registered trademark in China, as the mark being used all indicated the overseas entrusting party, and no consumer confusion will be caused. Considering that OEM is a common and legitimate form of international trade, unless contrary evidence showed that the domestic OEM manufacturer accepted the commission without reasonable duty of care and that its OEM activities had caused substantial damages to the trademark rights owner, trademark infringement shall not be asserted under normal circumstances.
  • On December 20th, 2018, the SPC softened its position in the “USAPRO” case[5], which was regarding review of a trademark cancellation for non-use for three consecutive years, that the use of a mark in the course of OEM was not a trademark use by the manufacturer but is the use by the entrusting party. In SPC’s opinion, the domestic OEM manufacturer only physically attached the marks at issue to the relevant products in China and exported said products for the purpose of the overseas entrusting party’s sale of the products outside China. As for the overseas entrusting party, it performed production and sale of said products through the physical processing activity of the domestic OEM manufacturer. As far as the relevant public is concerned, the manufacturer and exporter of the products is the domestic OEM manufacturer but they sourced from the overseas entrusting party, the trademark rights owner who benefits from the trademark right and bear liability accordingly, if any. Therefore, the domestic OEM manufacturer was only the party that actually performed the activities of production and exportation. From the perspective of the PRC Trademark Law, the party who actually used the trademark, however, was the entrusting party.

As indicated in the above SPC’s previous decisions, SPC has swung between conclusions on whether the use of a mark in OEM activities was a trademark use and whether such use constituted trademark infringement. Therefore, its latest decision in the HONDA case has given rise to heated discussions in the IP field in China. Some consider it as SPC’s definite answer to those issues discussed above but others think otherwise. By perusing the judgment, it may be inferred that the answers would still be drawn on a case-by-case basis. Nevertheless, there is no doubt that this latest decision will to a large extent hold sway over the decisions of the courts at lower levels in the future.