What constitutes ‘use’ of a trademark in China? – Analysing recent decisions

Original equipment manufacturer (OEM), in this article, refers to a business model in which a domestic manufacturer in China, under the commission of an overseas company, processes and manufactures products labeled with overseas trademarks. These trademarks are owned by the overseas company, while the domestic manufacturer delivers all the labeled products to the overseas commissioner through customs export. The overseas commissioner pays the domestic manufacturer a manufacturing fee and is solely responsible for selling the OEM products in foreign markets.

Unlike in the regular domestic business model, with OEM manufacturing, which is used exclusively for exporting products from China, none of the products enter the Chinese domestic market. In cases concerning trademark infringement disputes, the Supreme Court's determination of the use of trademarks involved has changed. This article attempts to further analyse, through recent court decisions, which trademark uses may be recognised as trademark use in China in the context of OEM trade practices. The implications on subsequent infringement determinations will also be considered.

Changing criteria

OEM is an important mode of export trade in China, in which the issue of trademark infringement has attracted much attention in domestically and abroad. There are many cases involving this issue in courts around China, with inconsistent results and reasons for judgments. The judiciary has undergone a marked change in its determination criteria.

In 2015, the Supreme People's Court of China (SPC) retried the ‘PRETUL Case’ (2014, Min Ti Zi No. 38 Civil Judgment). The court held that all the OEM products used with the relevant logo of the commissioner are exported, and the goods are not sold in the Chinese market. This means that the logo will not perform the identification function of a trademark in China and does not have the potential to confuse or mislead the relevant Chinese public about the origin of the goods to which the logo is attached. Secondly, attaching the commissioner's trademark to the OEM products is only a physical attachment and does not have the function of identifying the source of the goods in China. Therefore, the act of attaching a logo to an OEM product cannot be recognised as an act of use in the sense of a trademark.

In 2017, the SPC retried the ‘Dongfeng Case’ (2016, SPC Min Zai No. 339 Civil Judgment], reaffirming that commercial marks in OEM will not play the identification function of a trademark in the territory of China. The SPC further held they will not lead to confusion and misunderstanding among the relevant public and will not constitute trademark infringement. During this period, Chinese courts mainly held that the attachment of a trademark to OEM products did not constitute trademark use.

In the retrial of the ‘Honda case’ in 2019, the SPC clearly determined that the use of a trademark is an objective behaviour, which often comprises multiple steps, such as physical affixation, market circulation, and so on. Whether a behaviour constitutes the use of a trademark under the Trademark Law should be interpreted in a consistent manner in accordance with the Law, and should not be divided into several steps and then focus on one particular step. The whole behaviour should not be obstructed by a single step.

When applying the law, it is necessary to maintain the unity of the trademark legal system and follow the basic rules of trademark infringement judgments under the trademark law, rather than simply deeming OEM an exception to trademark infringement. At the same time, a trademark not registered in China, regardless of its foreign registration, does not have the exclusive right as a registered mark in China. Correspondingly, the so-called ‘trademark license’ obtained by civil subjects in China is not subject to protection under China's trademark law, and therefore cannot be used as a defence of non-infringement of trademark rights. After this case, Chinese courts adopted the view that the act of attaching a trademark to OEM products constitutes trademark use.

Use of trademarks currently determined by judicial authorities

The use of trademarks in the Trademark Law refers to the use of trademarks on commodities, commodity packages or containers, commodity transaction documents, advertising, exhibitions, and other commercial activities to identify the source of goods. To constitute the use of a trademark in the sense of the Trademark Law, the trademark must enable people to possibly or actually identify the source of the commodity. That is to say, as long as the use behaviour makes the trademark able to distinguish the source of goods, it belongs to the use of a trademark in the sense of the Trademark Law.

Combining the 2019 ‘Honda Case’ of the SPC and trademark use in typical business models in China, regarding the OEM manufacturing exclusively for export from China, the following trademark use behaviours allow the identification of the source of the product, and can be determined as the use of the trademark in China.

Attaching the commissioner's trademark to the OEM product

Two civil judgments from regional courts between 2021 and 2022 further emphasised the Supreme Court's viewpoint: namely, not supporting the defence that the OEM products did not enter the Chinese market and would not confuse consumers with the trademark. At the same time, it was further clarified that with the development of economic globalisation, even if the accused-infringing products are exported to foreign countries, they could return to the domestic market. With a large number of Chinese consumers traveling and shopping abroad, there is a possibility that they would be confused by the ‘OEM products’, which shows that the physically attached trademark continues to play a role in distinguishing the source of goods.

Therefore, attaching the commissioner's trademark to the OEM product, product packaging, container, or label, by means of direct attachment, engraving, branding, or weaving, classes as the use of trademarks in China.

Manuals and brochures

In the OEM trade, the act of physically attaching a trademark is only one of the links within the factory. From processing to delivery of OEM products, there are also many other links involved in the process. These include the printing and production of OEM product manuals and introduction brochures, as well as loading, unloading, transporting, and exporting declarations of OEM products.

Referring to the physical attachment behaviour in the processing link, to meet the export requirements, some of the OEM product packaging is accompanied by manuals, brochures, and similar documents. The production of OEM product manuals and brochures, and the loading, unloading and transportation of OEM products occur in China. Therefore the use of a trademark on these documents makes it possible for the identify the source of the goods, which also classes as the use of the trademark in China.

Import and export

Loading, unloading and transporting OEM products to customs for delivery is the last part of OEM trade. By reference to the physical attachment in the processing link, the use of trademarks on import and export inspection and quarantine certificates and customs declaration documents of OEM products also belongs to the use of trademarks in China. When checking whether the OEM products meet the export conditions, customs personnel will identify the origin of the goods through the trademark on the inspection and quarantine certificates, customs declaration documents, and other documents. Therefore, the use of the trademark on import and export inspection and quarantine certificates and customs declaration documents of the OEM products, also classes as the use of the trademark in China.

The 2019 ‘HONDAKIT’ dispute on the infringement of trademark rights is a typical case of the OEM trade in recent years. The judgment of the SPC for this case clarifies that the common physical attachment of a trademark in OEM trade is trademark use. Although the judgment does not list all the specific uses that may occur, it is clear that, when judging whether an act is classed as the use of trademarks in China, the courts cannot divide or only look at a single act. Such acts include physical attachment of the trademark in OEM. Instead, it is necessary to consider acts such as attaching the trademark and exporting the goods in a complete international circulation market, to further determine whether the trademark makes it possible to distinguish the source of goods.

The impact of trademark use on the determination of infringement
After the SPC’s ruling on the HONDAKIT dispute, subsequent judgments in similar cases have given a consistent interpretation of the use of trademarks under the Trademark Law, holding that trademark use exists under the OEM trade model. However, whether trademark infringement is established still needs to be analysed on a case-by-case basis.

Identical or similar trademarks are likely to cause confusion

After the use of a trademark has been established, whether confusion will be caused by the trademark becomes a usual condition for determining infringement. For example, in the cases of (2020) Zhe 02 Xing Chu No. 82, (2020) Zhe 02 Xing Zhong No. 1950, and (2021) Yue 07 Min Zhong No. 7189, the acts of the OEM enterprises constituted the use of trademarks. And the trademarks used by the OEM enterprises were similar to the registered Chinese trademarks and likely to cause confusion, and thus such acts constituted trademark infringement.

In the case of (2019) Zhe 0206 Min Chu No. 7747, the act of the OEM enterprise also constituted the use of trademarks. But the trademark used by the OEM enterprise was not similar to the registered Chinese trademark and was not likely to cause confusion, so such act did not constitute trademark infringement.

Reasonable duty of care

After the use of a trademark is confirmed, whether the OEM enterprise has fulfilled the reasonable duty of care becomes an important basis for the determination of infringement. For example, in the cases of (2020) Liao 02 Minchu No. 538, (2020) Hu 0115 Minchu No. 4339, (2020) Min 09 Minchu No. 437, and others, the act of the OEM enterprises constituted the use of trademarks, and the OEM enterprises did not fulfill the reasonable duty of care, and thus trademark infringement was established.

In the case of (2020) Hu 0115 Minchu No. 34561, the act of the OEM enterprise also constituted the use of the trademark, but the OEM enterprise fulfilled the reasonable duty of care, so it was determined that trademark infringement was not established.

Application of good faith

On whether the use of trademarks involved in OEM constitutes trademark infringement, whether the domestic trademark registrant abides by the principle of good faith has become an important factor for the court to judge. In the case of (2021 Zhe Min Shen 4890), the OEM enterprises used the trademark. But the domestic trademark registrant maliciously squatted the trademark while knowing the existence of the foreign commissioner's trademark and filed an infringement lawsuit based on its domestic registration. This was against the principle of good faith, so the court determined that trademark infringement was not established.

Summary

From the judgments of the courts in recent years, the controversy over the existence of trademark use and the possibility of confusion in the OEM trade is gradually decreasing. The judgment of the SPC has made the judicial practice on this issue become consistent. However, the existence of trademark use and the possibility of confusion does not mean that trademark infringement is definitely established.

Regarding whether trademark infringement is established, the basic rules on trademark infringement judgments in Chinese trademark law shall be followed, and the case shall be analysed according to the specific circumstances of each case.