CHANG TSI
Insights
Original Equipment Manufacturing (OEM) related trademark disputes have long been a hot topic in China. It has been discussed for over a decade on whether OEM behavior constitutes “trademark use” under Chinese trademark law and whether the act infringes on the trademark rights of domestic owners, yet there remains no consensus.
In 2019, when retrying the “Honda case”, the Supreme People’s Court of China (SPC for short) determined that OEM behavior constitutes “trademark use” and further constitutes trademark infringement. SPC also clearly stated that OEM behavior should not be simply considered as non-infringement. The judicial opinion in this case has provided directional guidance for future similar cases, and subsequently, the majority of Chinese courts have followed SPC's judicial opinion, deeming OEM behavior as trademark infringement.
While, a new judgment recently issued by Shanghai Intellectual Property Court (Shanghai IP Court for short) has attracted widespread attention, as it held that involved OEM behavior does not constitute infringement.
On June 11, 2024, in the second instance of the trademark dispute between Fuzhou Yama Electromechanical Co., Ltd. (Yama Company for short) and Chongqing Shenchi Import and Export Trade Co., Ltd. (Shenchi Company for short), Shanghai IP Court affirmed the original first-instance judgment made by Shanghai Pudong New Area People's Court (Shanghai Pudong Court for short). Both courts deemed that Shenchi Company, as an OEM manufacturer, producing and exporting one model machine bearing the same trademark as Yama Company, does not constitute trademark infringement. This judgment is contrary to the SPC opinion in the Honda case.
Case No.: (2023) Hu 73 Min Zhong No. 475
The Plaintiff/Appellant, Yama Company, is the owner of the registered trademark “PREDATOR” Reg. No. 10886272. This trademark is approved for use on products “generators of electricity, emergency power generators” in Class 7. Its registration validity is from September 14, 2013 to September 13, 2023.
The Defendant/Appellee, Shenchi Company, declared for the exportation of a gasoline generator to the USA on March 20, 2021. The exported generator was marked with the “predator” logo, and the overseas recipient of this product was Harbor Company. Harbor Company is the owner of the “PREDATOR” trademark registered in the USA, and the USA “PREDATOR” mark was registered in Class 7 covering goods like gas operated power generators. Shenchi Company was commissioned by Harbor Company to manufacture the involved generator, and Harbor Company also explicitly instructed that the involved generator bearing the “PREDATOR” trademark could only be sold to Harbor Company.
Shanghai Yangshan Customs detained this generator, and then issued a notification to Yama Company, requesting them to confirm whether the product is infringing goods. After receiving Yangshan Customs’ notification, Yama Company requested the Customs to seize the goods. In the following procedures, based on the claims and evidence presented by both parties, the Customs could not determine whether the goods infringed on Yama Company's trademark rights. Thus, Yama Company filed a lawsuit on this matter with Shanghai Pudong Court.
Shanghai IP court dismissed the appeal and affirmed the original judgment of Shanghai Pudong Court on non-infringement, for the following reasons:
1. The Court did not comment and determine whether the accused act is “trademark use”.
According to the court, whether the involved OEM use constitutes “trademark use” is only one of the elements in determining infringement. If there is evidence demonstrating that the accused act does not satisfy the other necessary elements of trademark infringement, it can be concluded that the Appellee’s act does not constitute trademark infringement. Consequently, there is no need to further comment and determine whether the accused act qualifies as “trademark use”.
2. The accused foreign-oriented OEM behavior did not cause any damage to the Appellant's registered trademark rights.
The court first held that damage to the registered trademark rights is a necessary element of trademark infringement. Whether the use of the identical trademark on the same goods constitutes trademark infringement should be analyzed and judged from two aspects: 1) whether it damages the recognition function of other’s trademark and 2) whether it damages the inherent right to prohibit others from using the trademark. In the foreign-oriented OEM activities, since all manufactured goods are exported abroad, they will not cause confusion among the domestic relevant public, nor will they impair the recognition function of the domestic trademark. Meanwhile, considering the same reason, the OEM products will not prevent the registered trademarks that haven’t been used in commerce from effectively performing its recognition function in future use (no damage to the prohibition right). Therefore, the court held that the OEM behavior would not cause any damage to the domestic registered trademark rights in principle.
3. The possibility of the goods returning to the domestic market in this case is extremely low, consequently, the OEM behavior does not constitute trademark infringement.
The court held that the possibility of different goods returning to the domestic market should be determined on a case-by-case basis. In this case, the involved product is one model machine, and there is no evidence showing Shenchi Company had sold this product domestically. And the possibility of the model machine returning to the domestic market is barely existent. Thus, the involved product would not damage Yama Company's trademark rights. And therefore, the accused act does not constitute trademark infringement.
Although the judgments of the two courts differ from “Honda Case”, they do not violate the spirit of SPC on OEM cases. Specifically, when dealing with trademark disputes involving OEM issues, instead of adopting a rigid mindset, the courts should follow the case-by-case principle. Meanwhile, the courts shall fully consider the economic development situation at that time, and it is also necessary to properly balance the interests between domestic trademark rights holders and OEM manufacturers. Additionally, it should be noted that for the issue of whether OEM behavior constitutes “trademark use” under the Chinese trademark law, there are different holdings in SPC's multiple prior judgments and it is still a controversy. Therefore, Shanghai IP Court has somewhat avoided making comments on it in this case.
Compared to the “Honda case” and other similar cases, the aforementioned case has its peculiarities. In this case, the extremely limited quantity of the product is involved, only 1 generator, and the nature of the product is a model machine. Combining these factors with the foreign brand owner’s business model (targeting overseas markets only), and the fact that the Defendant/Appellee has not sold the product domestically, it can be concluded that the likelihood of the model machine causing confusion in the Chinese market is extremely low. Furthermore, there was no evidence showing the Defendant/Appellee attempting to free ride on the Plaintiff/ Appellant’s reputation. Thus, we believe that the court's non-infringement conclusion was made after considering these specific factors. We will sustain attention on whether there are retrial procedural and related comments on this case.
Since the “Honda case” is not a Guiding Case and has been highly controversial, it is still possible that in future judicial practice, the determination of OEM behavior may trend back towards non-infringement. Additionally, Chinese courts in different provinces currently also have varying opinions on OEM issue. Thus, despite the aforementioned judgment, we still advise OEM business operators shall be highly cautious. In China, it would be better for operators to establish a trademark strategy in China before starting OEM business, and in such business, standardizing the use of trademarks also is essential to minimize the risk of trademark infringement. Should shipments be detained by Customs or if Chinese trademark owners raise claims, OEM operators must proactively respond and develop a strategy based on their rights.
