Putting aside some recent COVID-related bumps in the road, China remains the world’s largest manufacturer. A large portion of its manufacturing consists of original equipment manufacturing (OEM) under contract. OEM involves manufacturing goods intended for export only, and not for sale domestically in China. This business model has solidified China as a critical manufacturing hub for businesses globally.
Given that OEM involves goods intended for export only, it has been unclear whether the application of a trade mark or brand to a manufactured good in China by OEM manufacturers constitutes trade mark use for the purposes of Chinese trade mark infringement. There is no statutory law that clarifies this issue and there have been differing court decisions on this point. However, China’s Supreme People’s Court (SPC) has previously treated OEM products, solely for export, as products unavailable to Chinese consumers. As such, the SPC did not consider the application of certain trade marks for manufacturing purposes only as trade mark use, or consequently an infringing act under the Trademark Law of the People’s Republic of China.
On 23 September 2019, the SPC issued a retrial judgment on a trade mark dispute between Honda Motor Company Ltd and Chongqing Hengsheng Xintai Trading Co Ltd in which this issue was directly addressed: Honda Motor Co., Ltd. v. Chongqing Hengsheng Xintai Trading Co., Ltd. et [Min Gao Fa Zai No. 138/2019] (HONDAKIT).
The HONDAKIT case
In this case, the plaintiff, Honda Motor, owned a series of HONDA trade marks in class 12 in China. They claimed the defendants, Hengsheng Xintai and Hengsheng Group, infringed their trade marks by manufacturing and exporting 220 sets of motorcycle parts bearing a mark similar to Honda Motor’s HONDA marks.
The defendants argued that the Myanmar based company, Meihua Company Limited, that engaged them as a manufacturer, was the licensee of a registered Myanmar trade mark, HONDAKIT in class 12. Therefore, they (the defendants) were appropriately authorised by their client to use that trade mark on OEM products for export to Myanmar.
In the first instance, the court determined that the defendants infringed Honda Motor’s rights. However, on appeal this was overturned and the court applied the blanket OEM exception as the products were to be exported to, and sold in, Myanmar.
However, in the final decision, the SPC reversed the ruling and found that even in cases of OEM export trading, the defendant’s actions still constituted trade mark infringement of Honda Motors registered trade marks in China.
The key points made by the SPC are summarised below:
- Neither actual access to the exported products nor the occurrence of actual confusion is required to establish trade mark infringement in China. The required test is the possibility of confusion by the relevant public.
- When a trade mark is used to label a manufactured or processed product, as long as there is a possibility of distinguishing the source of the goods, it should be deemed to be use of the trade mark.
- In determining the confusion caused among the relevant public, what constitutes the “relevant public” should be interpreted broadly. This should include operators who are closely related to the marketing of the goods or the transportation of the goods.
- Further, OEM products can still be accessed by Chinese consumers and cause confusion because, as a result of the development of e-commerce and the Internet, there is a real possibility of the exported goods returning to the domestic market (allowing Chinese consumers to have access to these products). Chinese consumers travelling abroad may also have access to these products.
- Trade mark rights not registered in China, even if registered in other jurisdictions (in this case Myanmar), do not enjoy the right to use registered trade marks in China. Therefore, the trade mark licence or authorisation obtained for overseas rights cannot be used as a defence against trade mark infringement under Chinese Trademark Law, nor will those overseas rights be protected under Chinese Law.
Impact of the decision
As a result of the HONDAKIT decision, the Chinese courts may no longer presume that a blanket exception to trade mark infringement applies to OEM products.
What does this mean for your business if you use OEM in China? We strongly recommend implementing a trade mark protection strategy and registering your trade marks in China for the following reasons:
- To protect the purchaser and the manufacturers from a trade mark infringement action. Holders of a Chinese registered trade mark may now be more willing to take action against an OEM manufacturer if they discover they are manufacturing products with their Chinese trade mark, even if overseas trade mark rights have been granted to them.
- It will also ensure that the manufactured goods are not at risk of being held up by Chinese administration (customs, MSA or Police) as they may be less inclined to apply the previous OEM exception. Otherwise, overseas trade mark owners risk losing time and additional costs to get their products to the intended markets.
- You will have a clearer avenue to pursue legal action against counterfeit goods being manufactured and exported from China.
If you have any questions please contact one of our team.