The latest Chinese trade mark twist in OEM manufacturing

Following a recent decision from The Supreme People’s Court of the People’s Republic of China (SPC), for individuals or companies who utilise Original Equipment Manufacturing (OEM) in China to produce their products purely for export purposes and who do not currently hold any trade mark rights in China, it is essential that you review your IP portfolios and put relevant trade mark protection in place in China. If you do not, you run the risk that a third party will register your trade mark in China and make a claim of trade mark infringement in respect of your own use of the mark in China, which in turn could prevent the exportation of your finished goods. Similarly, if you currently have an OEM in China but a third party owns registered rights in your trade mark then an urgent review needs to be undertaken to develop an IP strategy to obtain this mark back to ensure that your own OEM use can continue.

In July 2018, Barker Brettell reported on the SPC decision issued in the case of Shanghai Diesel Engine Co. v Changjia (‘DONG FENG’) which, following on from the earlier ‘PRETUL’ decision, confirmed that OEM use of a trade mark on goods made solely in China for export purposes, is not an act of trade mark infringement.

In contrast however, the Beijing IP Court and Beijing High Court indicated in the case of Distinct Seasons Sd. Bhd v Trademark Review and Adjudication Board that OEM use will constitute genuine use of a trade mark in order to defend a non-use cancellation action.

In a further twist to this ongoing tale, in September 2019 the SPC handed down its latest judgment on whether OEM may constitute trade mark infringement and has overruled its earlier decisions in the PRETUL and DONG FENG cases in the case of ‘HONDA’1, holding that OEM manufacturing can constitute trade mark infringement.

In the HONDA case, Honda Motors (owners of the trade mark HONDA in Class 12 in China), sued the defendants – Hengsheng Xintai and Hengsheng Group – for trade mark infringement for having accepted an OEM order from a purchaser in Myanmar to manufacture 220 sets of Motorcycle parts and export them to Myanmar bearing a mark similar to the HONDA marks in China. The purchaser was the licensee of a registered Myanmar trade mark hondakit in Class 12. However, the parts that were manufactured in China bore the trademark HONDAKit, whereby only the word ‘HONDA’ was highlighted and displayed in a distinctive manner, unlike the simple wordmark ‘hondakit’ in Myanmar. Furthermore, given that trade mark rights are territorial, the fact that the purchaser owned a registered trade mark for hondakit in Myanmar was no defence in China.

Honda won the case in the first instance and then lost on appeal. Honda subsequently applied to the SPC for a retrial which was successful.

In its judgement the SPC held that if a trade mark is affixed to goods in order to distinguish the source of a product then this constitutes trade mark use. Of course in order to be successful in an OEM infringement case, the rights holder must then still prove that the OEM use of the trade mark is infringing use which can cause confusion amongst the relevant Chinese public.

In determining the relevant public the SPC held that as well as consumers, it can also include operators of businesses related to the products, such as distributors and transportation companies.

The SPC also confirmed that likelihood of confusion is the test. Actual confusion or actual access to products is not required.  In this regard, the SPC rejected the argument that because the goods are not sold in China there can be no likelihood of confusion in China. This was on the basis that in today’s market international e-commerce products involved in an OEM arrangement can still be accessed by the relevant Chinese public either online or when travelling abroad. As such, it is reasonably possible that exported OEM products may end up back in China.

Time will tell whether the Chinese Courts will continue to follow the decision issued by the SPC in the HONDA case. However, for the time being and in light of this latest twist, for those individuals or companies that do hold registered trade mark rights in China, this most recent decision from the SPC can be seen as good news as there is now an opportunity to stop the OEM from exporting these products if a likelihood of confusion can be found. However for those individuals or companies who do not hold any trade mark rights in China, now would be an appropriate time to conduct a review.

Should you have any questions regarding this article please do not hesitate to contact the author or your usual trade mark attorney at Barker Brettell LLP.

1. ‘HONDA’: Honda Motor Co., Ltd. v. Chongqing Hengsheng Xintai Trading Co., Ltd. et Chongqing Hengsheng Group Co., Ltd. [Min Gao Fa Zai No. 138/2019]