How to judge trademark infringement related to OEM

A Chinese court’s different conclusions on two different cases offers some key insights for trademark owners, says Ling Zhao of the CCPIT Patent and Trademark Law Office.

In a recent decision by the Shanghai Intellectual Property Court on a trademark infringement lawsuit (Fuzhou Yama Electromechanical v Chongqing Shenchi Import and Export Trading, 2023), the accused infringer, the original equipment manufacturer (OEM) producer, was found not guilty of infringement of the Chinese trademark ‘Predator’.

Recall the Hondakit verdict made by the Supreme People’s Court of PRC (Honda Motor Co Ltd v Chongqing Hengsheng Group Company & Hengsheng Xintai Trading, 2019), where trademark infringement was found, and the court decided that the use of the alleged trademark constitutes use in the sense of trademark law and there was the likelihood of confusion.

The different outcomes result from different case facts and analysis of the specific transaction forms in the two cases. The courts hold consistent opinions on the essential elements to judge infringement arising from this special trade mode, OEM, namely original equipment manufacture, including the issues of trademark use on OEM products, likelihood of confusion, possible damage to the Chinese trademark right holder, etc. The courts made different conclusions on said elements in the two cases as below:

Trademark use in OEM

There have been constant debates on the issue if the use of a trademark on OEM products exclusively for export purposes counts for trademark use in the sense of trademark law. In defence of non-use cancellation, both the China National Intellectual Property Administration (CNIPA) and the courts would confirm that the use of a trademark for OEM exclusively for export is sufficient to maintain the registration, provided with sufficient evidence to show that the goods are manufactured within the territory of China and exported to other countries. It is also confirmed by the Supreme People’s Court in the Hondakit verdict.

In the Hondakit case, the Supreme People’s Court holds that if a trademark is used in the production, manufacturing or processing of products through labeling or other means, which has fulfilled the function of identifying the source of the goods, such use could be acknowledged as trademark use in the sense of trademark law.

It is noted that the relevant public can have access to the trademark in question, as said relevant public does not only include the end consumers, but also people involved in the production and/or the transportation of the goods. Thus, the trademark labeled on the OEM products has fulfilled the function of identifying the source of the goods, and such use should be regarded as trademark use in the sense of trademark law.

In the Predator case, the local courts of both instances hold the same opinion, finding that OEM production exclusively for export should be considered as trademark use in the sense of trademark law.

Infringement

In Predator , the court noted that the disputed product is a sample product sent to a laboratory in the US, not intended for the Chinese market. Considering the nature of the product, the Court believes that there is the minimal likelihood of the OEM goods re-entering the Chinese market. The plaintiff's registered trademark's recognition and differentiation function in the domestic market would not likely be affected. It is further commented in the verdict that, even though the alleged infringing trademark is the same as the mark claimed for protection and the goods are also identical, we would still need to take the special circumstances into consideration and judge about the likelihood of confusion. It is concluded that the OEM production in this case causes no consumer confusion, and it does not constitute trademark infringement.

However, in the Hondakit case, the court noted that the OEM goods may return to the Chinese market, and more and more Chinese people are travelling abroad who may have access to the OEM goods. Consequently, there is likelihood of confusion and possible damage to the legal right and interests of the trademark owner. Therefore, trademark infringement is found in this case.

The Supreme People’s Court ruled in the Hondakit verdict that OEM is an important trade mode. People's understanding and dispute resolution of trademark infringement issues arising from OEM are constantly changing and evolving. There is no exemption of infringement for trademark use in OEM.

In each case, the judgement of infringement should be based upon analysis of the specific period, specific market, and specific transaction form. It is also noted that for trademarks that have not been registered in China, even if registered abroad, they do not enjoy the exclusive right in China. Correspondingly, the so-called ‘trademark use authorisation’ of a foreign trademark right is not protected by the trademark law and cannot be used as a defence against infringement claim.

Ling Zhao works at the CCPIT Patent and Trademark Law Office