China's Supreme People's Court (SPC) recently held that
an original equipment manufacturer (OEM) may not be held liable for
trademark infringement for exporting products bearing a trademark
that is registered outside China. The SPC ruled that the trademarks
used on exported OEM products are not intended to serve as an
indication of origin to Chinese consumers; therefore, there is no
likelihood of confusion and such use does not constitute trademark
use under the Trademark Law.
The decision is the latest in a series of court rulings on
OEM-related trademark issues. Back in 2004, Nike prevailed in a
case in which the Shenzhen court confirmed that the export of goods
bearing unauthorized marks constitutes infringement. But in recent
years, courts in various locations have decided in favour of OEMs,
especially in the context of border protection seizures. Chinese
courts and Customs have discussed these issues regularly with
industry players, but no consensus has been reached.
This case was being closely watched by the trademark community
because of the potential implications. The issues were whether the
defendant's manufacturing infringed the plaintiff's
exclusive trademark rights and constituted trademark use under the
The suit was filed by Chinese company Focker Security Products
International Limited, owner of the China- registered trademark
PRETUL and device mark. Defendant Zhejiang Pujiang Yahuan Locks Co,
Ltd. was an OEM which exported goods to Mexican company TRUPER SA,
which owned a registration for the PRETUL trademark and device mark
Focker was said to have been a distributor for the Mexican
company for some time previously.
Focker sued Yahuan for trademark infringement in the Zhejiang
Ningbo Intermediate People's Court, which ruled in favour of
the plaintiff, awarding damages of Rmb50, 000. Both parties
appealed to the Zhejiang High People's Court, which affirmed
the decision and increased the damages to Rmb80, 000. Yahuan
applied for a retrial to the SPC as the last resort.
The SPC stated that under the Trademark Law, 'trademark
use' refers to the use of a trademark on goods, packaging or
containers and similar, or in advertisements, exhibitions and other
commercial activities, in order to indicate the origin of the
products. The SPC further explained that as in this case the
products were all exported to Mexico and would not be sold on the
Chinese market, the mark did not serve to distinguish their origin
in China, as a trademark normally does. The relevant public in
China thus would not confuse these products with those of the
The SPC further observed that as the mark did not serve as an
indication of origin, it was not necessary to compare the
similarity of the marks at issue and the respective goods they
covered. The SPC overturned the entire decision.
Brand owners may have ambivalent feelings about this result. To
some extent, the exemption for OEMs - at least in certain
circumstances - helps companies which have fallen victim to
bad-faith registrations in China, allowing their OEM partners to
export their products without hindrance. This may be particularly
helpful for medium-sized brand owners that primarily source their
goods from China, but have somehow failed to register their marks
in China. The SPC decision allows these companies to continue their
But many brand owners are also concerned that a broad reading of
the SPC ruling could open up a big loophole for counterfeiters.
What if counterfeiters or infringers managed to register a
well-known trademark somewhere in the world and then came to China
to order OEM' goods? At a deeper level, the decision even
undermines the legal foundations of the IP border protection
regime. Chinese Customs has been stopping significant numbers of
exports of counterfeit goods. If the court really means that
export-only goods are not infringing, exporters will be able to
challenge every customs seizure order in the courts. Predictably,
the Supreme Court may have to either figure out a way to deal with
these problems or clarify the scope of the decision in some form in
the near future.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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