Patent Infringement Problems Related to OEM

In practice, more and more cases on the infringement of patent, which are taken action by the third party against OEM separately or both OEM and the purchasing company to the court. OEM manufactures products based on the commission processing contract, if the products infringe the third party’s patent right, besides the tort liabilities undertaken by the purchasing company, whether OEM shall undertake such liabilities?

Generally speaking, there is no dispute on the tort liabilities undertaken by the purchasing company. Therefore, there is a view that, since the manufacturer is the purchasing company, OEM only engages in producing products in accordance with the requirements of the purchasing company by obtaining processing commission, and OEM has no idea on whether there is patent infringement related to the products, so OEM does not have intent on the infringement, it would be unfair for OEM to undertake such tort liabilities.

However, the law has a specific provision on this kind of case.

According to Article 11 of Patent Law, “After the grant of the patent right for an invention or utility model, except where otherwise provided for in this Law, no entity or individual may, without the authorization of the patentee, exploit the patent, that is, make, use, offer to sell, sell or import the patented product, or use the patented process, and use, offer to sell, sell or import the product directly obtained by the patented process, for production or business purposes. After the grant of the patent for a design, no entity or individual may, without the authorization of the patentee, exploit the patent, that is, make, offer to sell, sell or import the product incorporating its or his patented design, for production or business purposes.” For anyone, to obtain the authorization of the patentee shall be the precondition, when implement (including manufacture, use, etc.) others patent. Moreover, the object under Article 69 and Article 70 of Patent Law is who, for production and business purpose, uses, offers to sell or sells a patent infringement product, without knowing that it was made and sold without the authorization of the patentee, shall not be liable to compensate for the damage of the patentee if he can prove that he obtains the product from a legitimate channel. And the object does not include the manufacturer whom without knowing such infringement. So if the products entrusted by the purchasing company have infringed other’s patent right, OEM still has the risk to undertake such tort liabilities.

Since there is risk, how to avoid such risk, or reduce the possible losses?

Firstly, prior to the execution of a commission processing contract, OEM shall strictly and comprehensively check the status of patent right related to the products. If the purchasing company is the patentee, then OEM shall require it to provide the patent documents; if the purchasing company is not the patentee, then according to Article 12 of Patent Law, “Any entity or individual exploiting the patent of another shall conclude with the patentee a license contract for exploitation and pay the patentee a fee for the exploitation of the patent. The licensee has no right to authorize any entity or individual, other than that referred to in the contract, to exploit the patent.” OEM shall confirm whether the purchasing company has validly obtained the authorization of such patent.

Secondly, to stipulate the possible tort liability for the patent infringement related to the products in the commission processing contract. OEM shall requires the purchasing company to guarantee that the products have not infringed other’s patent right, and the purchasing company shall bear the losses, which have been undertaken by OEM to the third party.

Finally, in order to protect company’s interests as much as possible, OEM shall make an agreement on the patent right and other IP rights invented during the processing procedure. If both parties agree that the IP right belongs to OEM, in order to prevent others to apply for such IP right or even be taken action by the other parties on such IP right, OEM shall handle the application procedures to the relevant IP rights in a timely manner.