SPC Overturned its Earlier Opinion on Whether OEM constitutes Trademark Infringement
Many foreign companies engage original equipment manufacturer (“OEM”) in Mainland China to manufacture their products exclusively for exports purpose only and do not distribute their products for the Chinese domestic markets. Hence, most of these foreign companies do not bother registering their trademarks in Mainland China and it is not uncommon for unrelated third parties to register these trademarks (or similar trademarks) there. There is a continuous debate as to whether OEM activities constitute trademark infringement in Mainland China. Protection afforded by trademark registration is territorial by nature. Therefore, it is unclear whether the OEMs can legally affix trademarks on the products merely for export purposes when the foreign companies only own valid trademark registration overseas but not in the Mainland China where the trademarks had been registered by others. Previously, following the decision of Supreme People’s Court (“SPC”) in Mainland China on the Pretul case (Focker Security Products international Limited v Pujiang Ya Huan Locks Co. Ltd – 2015) and the Dongfeng case (Shanghai Diesel Engine Co. Ltd. v Jiangsu Changjia Jinfeng Dynamic Machinery Co., Ltd – 2017), OEM activities supported by a valid oversea trademark registration and proper government authorizations generally would not be considered as trademark infringement. Over the past few years, SPC was of the view that since the OEM products were all exported to overseas countries instead of being used for domestic consumptions, the OEM model should be simply defined as “an act of affixing the trademark to a product”, thus it should not be considered as “use of a trademark” and would not constitute trademark infringements as the products will not be exposed to and confuse consumers in Mainland China. Notwithstanding the above, this mainstream opinion was overturned by SPC in the HONDAKIT case (Honda Motor Company Ltd and Chonqing Hengsheng Xintai Trading Co Ltd – 2019) where it was held that trademark infringement might be found in OEM activities in cases that a third party had obtained an identical or similar trademark registration in Mainland China. BackgroundThe Plaintiff HONDA has registered the trademarks , and on motorcycles, etc. in class 12 since 1988. Meihua Company Limited (“Meihua”) was a Burma company and owned the trademark registrations for the mark “HONDAKIT” in Burma. The two Defendants were authorized by Meihua to manufacture motorcycles bearing the “HONDAKIT” trademark in Mainland China and export the finished products to Burma. In 2016, a batch of “HONDAKIT” products were seized by the Kunming Customs (the provincial capital of Yunnan Province) on the ground of infringement of HONDA’s trademark registrations. As the Customs could not decide whether the OEM products constituted infringement, HONDA commenced litigation with the Intermediate Court of Dehong Dai and Jingpo Autonomous Prefecture against the two Defendants for trademark infringement. Court Decisions The first instance court made a ruling in favor of HONDA and ordered the 2 Defendants to pay RMB 3 million compensation, which was then overturned by the High Court of Yunnan Province in the second instance following SPC’s earlier opinion on OEM activities in the Pretul and Dongfeng cases. HONDA then appealed to SPC, which finally revoked the second instance judgement and upheld the first instance judgement. SPC held that the 2 Defendants had used the “HONDAKIT” mark on motorcycles with “HONDA” in bigger font than “KIT” and highlighted the letter “H” and a wing device in red, which were similar to HONDA’s registered trademarks in Mainland China and might cause confusion among the public, thereby damaging the trademark rights of HONDA. SPC further expressed in the judgement that:
- As long as the mark used in a product had the function of identifying the source of goods, it should be deemed as “use of a trademark” under the PRC Trademark Law;
- Even though the OEM products were not specifically manufactured for the domestic market, with the development of e-commerce, the products may circulate back to the domestic market and Chinese consumers may access and be confused by the products when traveling abroad; and
- The court may find trademark infringement as long as there was likelihood of confusion while actual access to the products and actual confusion were not required.