For a long time, there has been a debate over whether foreign-oriented OEM processing constitutes trademark use and/or trademark infringement in different cases. In a recent case from Shanghai, i.e. (2023) Hu 73 Min Zhong No. 475, the court held that foreign-related OEM processing did not constitute trademark infringement.
Case Background
Chongqing Senci Import & Export Trade co., Ltd. (hereinafter referred to as "SENCI") intended to export a model machine of gasoline generator to the United States. The trademark "PREDATOR" was used on the gasoline generator. However, Fuzhou Yama Electromechanical Co., Ltd. (hereinafter referred to as "Yama") had registered the trademark "PREDATOR" in respect of "generators of electricity; emergency power generators" in class 7 and recorded it with the Chinnese Customs. China Yangshan Customs issued a notification regarding the gasoline generator marked with "PREDATOR" to Yama and stopped the gasoline generator at the request of Yama.
"SENCI" explained to Yangshan Customs that the gasoline generator was produced and exported according to an order from Harbor Freight Tools USA, Inc. (hereinafter referred to as "Harbor"). Harbor had registered the trademark 'PREDATOR' No. 4,354,092 in class 7 in the United States. As Yangshan Customs was unable to confirm whether the goods infringed Yama' trademark right, Yama filed a civil lawsuit against SENCI.
Both the courts (first instance and second instance) held that the OEM processing in this case did not constitute trademark infringement because the gasoline generator involved was a model machine only and the possibility that the model machine was circled back to Chinese market is pretty slim and thus it would not harm the exclusive trademark right in China of Yama.
Case analysis
According to the judgment (second instance), the appellant (original plaintiff) i.e.Yama provided the court the Honda case (2019) as a reference in the first instance. In the second instance, Yama refuted the court's judgement (first instance) also with the Honda case (2019). Yama mentioned the Honda case with the court in both the first instance and second instance because, in Honda case, the court held that the OEM processing constituted trademark use and trademark infringement. Besides, the Honda case was selected as one of the 'Top Ten Intellectual Property Cases of Chinese Courts in 2019' and it has become a significant reference for similar cases in recent years.
Compared with the Honda case (2019), it is obvious that the judgment of the recent 'PREDATOR' case (2023) is different. It is the examination principle of "case-by-case" adopted and thus different judgments are made in these two foreign-related OEM processing cases. As was reasoned in the judgment (second instance) of 'PREDATOR' case (2023), "whether foreign-related OEM processing constitutes trademark infringement should be considered based on the basic framework of the Trademark Law on trademark infringement and different scenarios should be treated differently in order to better balance interests of all parties." Here are summarized the key differences of the Honda case (2019) and 'PREDATOR' case (2023):
First, in the Honda case, the OEM processing party used the 'HONDAKIT' trademark on the involved products, enlarging 'HONDA' part and reducing 'KIT' part, marking the H letter and the wing-like part in red. Thus, the used trademark by the OEM processing party was closely similar in appearance to the three trademarks registered by Honda. The OEM processing party highlighted the word 'HONDA' in the trademark 'HONDAKIT' and had the intention to cause confusion among consumers as to the original of goods. In contrast, in the 'PREDATOR' case, the trademark 'PREDATOR' used by the OEM processing party on the involved gasoline generator is the same as the registered trademark of the commissioning party in the United States. The OEM processing party was using foreign-registered mark normatively and the involved gasoline generator was exported to the United States.
Second, in the Honda case, the total value of the involved products was $118,360 (220 sets of goods involved, unit price $538 each set). In the 'PREDATOR' case (2023), only one model machine of gasoline generator at a unit price of $860.35 was involved. Compared with Honda case, the quantity and the total value of the involved goods in 'PREDATOR' case is much smaller.
Third, in the Honda case, the 'HONDA' trademarks enjoyed high reputation. The OEM processing party had the intention to take advantage of the HONDA's reputation and the used trademark on the involved products would easily cause confusion to relevant consumers. In the 'PREDATOR' case (2023), the 'PREDATOR' trademark had not yet formed a stable and continuous reputation in the market.
Comments:
The issue of trademark infringement involving foreign-related OEM processing has always been one of the hot topics in the field of trademarks. After the Honda case (2019), it seems that foreign-related OEM processing constitutes trademark infringement has been a mainstream view. Therefore, after the different judgment of the 'PREDATOR' case (2023) was made, it has attracted widespread attention. However, through the 'PREDATOR' case (2023), it can be seen that whether foreign-related OEM processing constitutes trademark infringement should be analyzed specifically by weighing various factors.
Recommendations:
In the 'PREDATOR' case (2023), the court (first instance) held that foreign-related OEM processing constituted trademark use while the court (second instance) avoided commenting on this issue. At present, the opinion that foreign-related OEM processing constitutes trademark use has been widely accepted in trademark cases before the CNIPA. This can also be confirmed from administrative proceedings of trademark cases for responding to non-use cancellation. Therefore, it is recommended that the OEM commissioning party actively make strategy and pursue trademark registration in mainland China to reduce the risk of trademark infringement. It is also recommended that the OEM processing party verifies the trademark registration status of the commissioning party and whether the Chinese registered mark has been recorded with the Chinese Customs to reduce the risk of exported goods being detained and the risk of trademark infringement. If the OEM commissioning party has already recorded its trademark rights with the Customs, the OEM processing party should request the commissioning party to add it to the whitelist of trademark right recorded with the Customs earlier.
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.
