In a recent decision, the Supreme People's Court of China ruled that the use of a trademarked sign on goods manufactured in China solely for export purposes does not constitute "use" of a trademark. Consequently, such use could not be considered an infringement of a trademark registered in China.

The decision was given in a case involving a trademark which was used on goods that were produced for export to Mexico. The Supreme People's Court ruled that the first and second instance courts erred in their finding of trademark infringement, because both courts had based their assessment of infringement on the sole fact that a sign identical or similar to a trademark, and in relation to identical goods, was used without authorization. However, in the eyes of the Supreme Court, the first and second instance courts had ignored an essential prerequisite – namely, that the alleged infringing act must constitute "trademark use in the sense of the trademark law."

The Supreme People's Court determined that the use of a China registered trademark on goods that were manufactured in China solely for export purposes does not amount to trademark "use". Consequently, there could be no finding of trademark infringement. The key element to note in this case was that the trade marked goods were not intended to enter the Chinese market. For this reason, the Chinese public could not have possibly been confused into thinking that the trademarked goods come from the same source or, at least, think that permission has been given to use the mark.

Takeaway Points

The decision resolves years of uncertainty about the position of Chinese courts, government and customs authorities on the so-called "OEM" (Original Equipment Manufacturing) principle. Although court decisions in China are non-binding authorities on future cases, judgments from the Supreme People's Court are strongly indicative of possible future trends. Still, whether or not OEM constitutes trademark infringement remains a somewhat complicated issue that has to be resolved on a case-by-case basis.

In view of this Supreme People's Court decision, foreign brand owners that have their marks registered in China will need to consider a potential defense of non-infringement available to local OEM manufacturers that deal with counterfeit trademark goods. Thorough and well-supported investigation can help ascertain whether the allegedly infringing goods were produced solely for export sales and whether the OEM manufacturers had knowledge (or should have had knowledge) of the foreign brand involved.

Originally published May 6, 2016

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