Global trade is currently a clear focus between nations around the world, and we are seeing trade agreement negotiations effecting world economies in an increasingly direct fashion. As IP specialists, we are always alive to the legal developments that fall out of these negotiations, particularly how they impact domestic laws in relation to balancing the competing interests between protecting IP rights with facilitating free trade.
One area where this has been a concern for businesses has been the position in relation to goods manufactured and branded in China, for export and sale elsewhere. This is a form of original equipment manufacturing or OEM. A purchaser orders its products from a manufacturer who brands the products with the purchaser’s nominated trade mark. Putting aside trade tariff concerns, China has long been a major and important source of OEM manufacture for businesses all over the world.
Previously, it has been unclear whether the application of a brand to a manufactured good in China (that good being intended for export only and not for sale in China) by the manufacturer constituted trade mark use for the purposes of trade mark infringement. This meant that it was unclear whether:
- a manufacturer (or indeed the brand who orders the goods) could be found liable for trade mark infringement in China, for the mere manufacture (but not sale) of goods in China; and
- the application of a trade mark to the goods by a manufacturer in China could be used as evidence of trade mark use to defeat any attacks on the brand owners trade mark registrations in China for non-use.
In December 2019 the Chinese Supreme People’s Court confirmed that the mere manufacture of goods in China, involving the application of a trade mark to those goods, does constitute trade mark use. The court’s founding were that:
- when a trade mark is used to distinguish the source of a product, it constitutes trade mark use;
- it is irrelevant whether the manufacturer (or purchaser) had subjective intent to use the trade mark in China;
- a theoretical likelihood of consumer confusion is sufficient;
- the traditional argument that OEM products for export are not commercialised in China should be rejected;
- the existence of a registered trade mark in the country to which the goods were intended for export was irrelevant to the question of whether any trade mark use occurred in China.
The importance of international trade and China’s desire to be considered an IP stronghold are reflected in this decision.
3 key takeaways
There are repercussions from this decision. Including the following 3 key takeaway points:
- Get trade mark protection in China: Purchasers ordering their manufactured goods from China cannot rely on their overseas trade mark rights to grant them sufficient right to have their brands applied to their goods in China. To ensure both they and their manufacturers are not at risk from a trade mark infringement action, brand owners manufacturing (even when they are not selling) in China need to ensure they have a defensive Chinese trade mark protection strategy in place. This will also ensure that the manufactured goods are not at risk of being held up by Chinese customs, but will no doubt further increase the already substantial load at the Chinese Trade Marks Office.
- Attack counterfeits at the manufacturing source: Trade mark owners attempting to stop counterfeit goods being manufactured and exported from China will have a clearer avenue for legal action, assuming of course they have secured their trade mark rights in China.
- Chinese manufacturer authorisation letters: Businesses having their branded goods manufactured in China are already seeing an increase in requests for brand use authorisation letters from their manufacturers. These letters often require the brand owner to warrant their rights in the trade mark and brand being used. This further increases the need for those trade marks to be protected in China, but will have the side benefit of smoothing the goods path to export.
We would like to acknowledge the contribution of Nila Norbu in preparing this article.
If you have any questions please contact one of our team.