Table Of Contents

1. Early Approach

In the early 2000s, China's approach to trademark infringement in the context of original equipment manufacturing (OEM) activities followed a stricter interpretation of the law, characterized by the following key points:

Territorial Principle: Trademark rights were considered territorial, meaning a trademark registered in China only offered protection within China. However, this principle was applied rigidly, regardless of the intended destination of the goods.

Strict Liability: Using a trademark without the owner's consent, even for export purposes, was generally considered an act of infringement. This strict liability approach meant that the intention or purpose behind the use was not a major factor in determining infringement.

Leading Cases:

  • NIKE v Spanish Side (2001): A licensee of a Spanish-registered "NIKE" trademark authorized a Chinese manufacturer to produce and export men's ski jackets with the mark. Despite being solely for export, the Chinese court found infringement against both the licensee and the manufacturer.
  • Guangzhou Hong Xin Co, Ltd v Guangzhou Customs (2005): This case further solidified the strict approach, where using a registered trademark on exported goods was deemed infringing, even if the trademark owner did not have a registration in China.

Criticisms and Inconsistencies:

  • This early approach faced criticism for being overly rigid and failing to consider the specific context of OEM activities, where goods were not intended for sale in China.
  • Inconsistencies arose as some courts began acknowledging the distinction between domestic and export markets, suggesting that confusion among Chinese consumers was less likely for solely exported goods.

 

2. Shifting Landscape

Around 2015, a significant shift occurred in China's approach to trademark infringement in the context of OEM activities. This shift involved a more nuanced and balanced perspective, taking into account various factors beyond the strict territorial principle. Here's a breakdown of the key elements:

Evolving Judicial Interpretations:

  • Courts began moving away from the rigid application of territoriality and strict liability, acknowledging the specific context of OEM activities.
  • Factors like the intended destination of the goods, potential for confusion among relevant parties, and duty of care exercised by the involved parties gained greater consideration.

Landmark Cases:

  • Jolida v Shanghai Shenda (2009): This case highlighted the potential for exported goods not to cause confusion in China, potentially negating infringement if solely intended for a foreign market.
  • Focker Security Products International Limited v Pujiang Yahuan Lock Co, Ltd (Pretul case) (2013): While initially upholding the strict approach, the Supreme People's Court in 2015 reversed the decision, stating that trademark use not intended for source identification in China might not constitute infringement. This marked a significant shift towards a more contextual analysis.

Key Considerations in the Shifting Landscape:

  • Exportation: If goods were demonstrably solely for export and not intended for distribution in China, the likelihood of confusion among Chinese consumers was deemed significantly lower.
  • Duty of Care: OEM manufacturers were expected to exercise reasonable care, such as checking for potential trademark conflicts in the destination country before production. This helped mitigate potential infringement claims.
  • Balancing Interests: Courts began balancing the interests of trademark owners with the legitimate business activities of OEM manufacturers, aiming for a more fair and practical approach.

Impact on OEM Activities:

  • This shift offered greater flexibility and predictability for OEM manufacturers, allowing them to operate with a clearer understanding of potential legal risks.
  • However, it's crucial to note that the landscape remains complex and evolving, with lower courts sometimes issuing rulings that deviate from the established precedents.

 

3. Supreme People's Court Rulings

The Supreme People's Court (SPC) of China has played a crucial role in shaping the legal landscape surrounding trademark infringement in the context of OEM activities. While the courts' interpretations have evolved over time, two significant rulings stand out for their impact:

1. Pretul Case (2015):

  • Background: This case involved an OEM manufacturer using the "PRETUL" trademark on products solely for export to Mexico. The trademark owner in China sued for infringement.
  • Initial Ruling: Lower courts found infringement, adhering to the traditional strict liability approach.
  • SPC Decision: The SPC overturned the lower court ruling, establishing a landmark precedent. It held that if the trademark use doesn't function as a source identifier in China due to sole exportation, it might not constitute infringement. This decision introduced a more contextual approach, considering the intended purpose of trademark use beyond just territoriality.

Impact:

  • The Pretul case offered greater flexibility for OEM manufacturers, suggesting that exporting goods with another's trademark might not always be infringing.
  • However, it also introduced uncertainty as the specific criteria for determining "non-infringing" use remained unclear.

2. Honda Case (2019):

  • Background: This case involved motorcycles manufactured in China with the "HONDAKIT" trademark for export to Myanmar. The Chinese trademark owner of "HONDA" sued for infringement.
  • SPC Decision: The SPC, in a surprising reversal from the Pretul case, found infringement. It emphasized that even exported goods could potentially indicate source and cause confusion among relevant parties beyond just consumers, including those involved in logistics or traveling abroad.
  • Rationale: The SPC argued that:
    • Trademark use should be assessed as a whole, considering the potential for source identification regardless of location.
    • Foreign trademark ownership in the destination country doesn't necessarily provide a defense against infringement claims in China.

Impact:

  • The Honda case created confusion and uncertainty as it seemingly contradicted the established precedent set by the Pretul case.
  • It highlighted the complexity and evolving nature of the legal landscape, suggesting that even exported goods can face infringement challenges.

Overall, the Supreme People's Court rulings have significantly impacted the understanding of trademark infringement in China's OEM context. While the Pretul case offered a more nuanced approach, the Honda case introduced ambiguity. This underscores the need for careful consideration of specific circumstances and seeking legal guidance when navigating this complex legal terrain.

 

4. Recent Developments

Following the landmark Supreme People's Court (SPC) rulings in the Pretul and Honda cases, the legal landscape surrounding trademark infringement in China's OEM activities continues to evolve. Here's a breakdown of recent developments:

Divergent Interpretations by Lower Courts:

  • While the SPC rulings set precedents, lower courts haven't always followed them uniformly.
  • Some courts have adopted a stricter approach, aligning more closely with the Honda case, emphasizing the potential for confusion even with exported goods.
  • Others have shown a more balanced approach, considering factors like the trademark's fame, potential for re-entry into the Chinese market, and the good faith of the involved parties.

Examples of Divergent Interpretations:

  • VONEC case (2021): The court dismissed the infringement claim against an OEM manufacturer, focusing on the plaintiff's potentially bad faith registration and lack of evidence of confusion.
  • STAHLWERK case (2021): The court emphasized balancing the interests of trademark owners and legitimate OEM activities, ultimately dismissing the claim based on the plaintiff's perceived bad faith.
  • CATA case (2021): This case followed the Honda precedent, finding infringement based on potential confusion even for exported goods.

Impact of Recent Developments:

  • The lack of uniform interpretation by lower courts creates uncertainty and unpredictability for businesses engaged in OEM activities.
  • It highlights the importance of considering specific circumstances and potential risks associated with using another's trademark on exported goods.

Additional Considerations:

  • Foreign Trademark Ownership: Owning the trademark in the destination country might not guarantee protection against infringement claims in China.
  • Bad Faith: Trademark filings made in bad faith might not be enforceable, offering potential defense options in specific cases.

 

5. Conclusion

China's approach to trademark infringement in the context of OEM activities has undergone significant transformations, moving from a strict territorial and liability-based approach to a more nuanced and contextual one. While landmark Supreme People's Court rulings like the Pretul case offered greater flexibility for OEM manufacturers, the subsequent Honda case introduced ambiguity and highlighted the ongoing evolution of the legal landscape.

Recent developments further demonstrate the complexity of this area, with lower courts exhibiting various interpretations, creating uncertainty for businesses. It's crucial to remember that exporting goods with another's trademark still carries potential risks, and careful consideration of factors like intended destination, potential for confusion, and relevant legal precedents is essential. Seeking professional legal guidance remains highly recommended for navigating this complex and ever-changing legal terrain.

By understanding the evolving landscape and its various nuances, businesses engaged in OEM activities can make informed decisions, mitigate potential legal risks, and ensure smooth operations in the Chinese market. If you need further explanation on this subject, please don't hesitate to contact us through email at lienhe@luatminhkhue.vn or phone at: +84986 386 648. Lawyer To Thi Phuong Dzung

 

6. Additional Consideration

While the main body of the article focused on the key developments within China, there are two additional considerations that are crucial for businesses operating in this complex legal environment:

1. Foreign Trademark Ownership:

  • Owning the trademark in the destination country where the exported goods are intended for sale may not necessarily provide a defense against infringement claims in China.
  • This is because Chinese courts primarily focus on the potential for confusion within China, even if the trademark owner doesn't have a registered presence in the country.
  • Therefore, simply owning the trademark elsewhere doesn't guarantee protection against infringement claims arising from activities conducted in China.

Example:

  • A company owns the "ABC" trademark in the United States and contracts with a Chinese manufacturer to produce goods bearing the same mark for export to the US. However, another company in China might still file for the "ABC" trademark and potentially sue the US company for infringement based on potential confusion within China, even though the US company owns the mark in its intended market.

2. Bad Faith:

  • The concept of bad faith plays a role in trademark infringement cases, offering a potential defense option in specific situations.
  • If a trademark owner can demonstrate that the alleged infringer acted in bad faith when adopting or using the trademark, it can strengthen their defense against infringement claims.

Examples of Bad Faith:

  • Filing a trademark application for the sole purpose of harassing or extorting the rightful owner.
  • Adopting a trademark that is intentionally similar to a well-known existing mark to capitalize on its reputation and goodwill.

Impact of Bad Faith:

  • Courts in China are increasingly considering the good faith of the parties involved when making infringement decisions.
  • Demonstrating good faith efforts, such as conducting proper trademark searches and avoiding intentionally deceptive practices, can strengthen the position of the accused infringer.