New Trends in the Determination of Use and Infringement of Trademarks in Foreign-related OEM

Company B is a large-scale multinational motorcycles enterprise, which has registered several trademarks with English characters “HONDA” and relevant graphics, in the 12^th trademark category in China in 1988 and 1998. An overseas Company M commissioned a domestic Company H to manufacture motorcycle parts marked with “HONDAKIT”, and those parts would be exported to Myanmar. To be noted that Company M required Company H to highlight HONDA, and narrow down the size of KIT. Because Company B had filed the above mentioned trademarks with the customs for IP protection, the customs detained the parts marked with “HONDAKIT”. Company B filed a lawsuit against Company H on the infringement of the exclusive right to use a registered trademark, and requested Company H to stop the infringement and compensate the loss amount to 3 million.

The case has been held for the first trial, the second trial, the retrial, and the judgment if different trials are differently. Finally, in September 2019, in the retrial, the Supreme People’s Court determined that the foreign-related OEMer Company H had constituted a trademark infringement (See (2019) Zui Gao Fa Min Zai No.138).

For a long time, in judicial practice, the main opinion is that using a registered trademark in foreign-related OEM goods shall not be deemed as a trademark infringement, because such goods will not be sold in mainland China, such marks will not lead any confusion on the source of goods in the Chinese market, or in the manufacturers’ factories. The typical cases include the case (2018) Hu 0115 Min Chu No.37682, in which the plaintiff Puma Europe failed in the trademark infringement lawsuit. In the “HONDA” case in the beginning of this article, the courts of the first instance and second instance held the same opinion. (Noted: The court of the first instance determined that Company H constituted a trademark infringement. Because the court held that Company H failed to prove it had obtained the authorization of Company M, so Company H was manufacturing the relevant goods for selling instead of OEMing.)

However, the retrial judgment on “HONDA” case holds a totally different opinion. In fact, the Supreme People’s Court has set new rules on hearing similar cases. The first rule is that if it has the possibility to identify the source of goods by using the relevant marks, such usage shall be determined as using a trademark as defined in the “Trademark Law”. The Supreme People’s Court points out that, “To use a trademark, …… usually includes many sections, such as attaching a trademark on goods, selling or exchanging the goods labeled with a trademark in the market and etc.. The court shall analyze the whole sections, instead of each individual section, ……where the defendant has marked a trademark or use other methods to use a trademark during the manufacture process or on the goods, if it has the possibility to identify the source of goods, such behavior shall be deemed as using a trademark as defined in the “Trademark Law”.” The second rule is that the “relevant public” has been extended from the users to the operators in the section of transportation and etc.. Article 8 of the “Interpretation of the Supreme People’s Court on Certain Issues Concerning the Application of Law to Adjudication of Civil Cases of Trademark Disputes” has stipulated the definition of the “relevant public”, and the Supreme People’s Court points out that, “in addition to the consumers of the alleged infringing goods, the relevant public shall also include the operators closing related to the marketing of the alleged infringing goods, such as the operators in the section of transportation and etc.; in consideration of the development of e-commerce and internet, it has the possibility that the goods which have been exported aboard will be sold back to the domestic market, so the domestic consumers may be confused by the source of the OEM goods.” The third rule is that the courts shall be flexible on the determination of a trademark infringement related to the trading model. The Supreme People’s Court points out that, “no certain trading model (such as the foreign-related OEM) shall be set as an exception of trademark infringement; otherwise, such determination would violate the basic rules on the determination of trademark infringement.”

We have searched the similar cases after the retrial judgment on the “HONDA” case has been released, and many local courts have applied the above new rules in the recent cases, such as the case (2020) Su Min Zhong No.54 in Jiangsu province, (2019) Yu 01 Zhi Min Zhong No.31 in Henan province, (2019) Zhe 03 Min Zhong No.721 and (2018) Zhe 02 Xing Chu No.91 in Zhejiang province, (2020) Liao 02 Min Zhong No.538 in Liaoning province, and etc.. It can be seen that the similar cases would be handled by applying the new rules in the future.

Those OEM enterprises engaged in foreign-related OEM shall pay special attention to this new trend. From the perspective of risk control, such enterprises shall not only obtain the legal authorization (the client has the legal trademark rights in other countries), but also check whether the client has the legal trademark rights in mainland China, or whether such trademark may infringe other parties’ trademark rights. If OEM enterprises have been sued, it is recommended to defend from the perspective of the first and third rules.