The dispute regarding the use of a trade mark concentrates on OEM manufacturing exclusively for export from China. What constitutes ‘use’ of a trade mark in China? This is the definition of the use of trade mark according to Article 48 of Chinese Trade Mark Law:” The use of trademarks as stipulated in this Law refers to the affixation of trademarks to commodities, commodity packaging or containers, as well as commodity exchange documents or the use of trademarks in advertisements, exhibitions, and for other commercial activities, in order to identify the source of the goods.” But OEM is not a legal concept, which is a form of international processing trade. OEM generally refers to the behavior that the domestic production and processing enterprises directly receive the entrustment from the overseas ordering agent, and all the OEM products produced and processed are delivered to the designated agent and sold abroad instead of sold in China. The issue of trade mark infringement involved in OEM is whether the act of domestic production and processing enterprises attaching the same or similar trademark to the owner of the exclusive right to use a Chinese registered trademark on the same or similar goods shall be deemed to constitute trade mark.

    The new case of “HONDA” issued by the Supreme People’s Court in Octoerber, 2019 filed by HondaMotorCo.,LTD Vs. Hengsheng Xintai Co.,LTD & Hengsheng Group Co.,LTD (Hereinafter referred to as case of HONDA ) brought the issue back on public discussion. For the view held in the case of HONDA by the Supreme People’s Court is different from the cases of “PRETUL” in 2015 and “东风” in 2017, issued by the Supreme People’s Court. The new perspective held in case of HONDA deems the use of trade mark in OEM manufacturing exclusively for export as infringement, while the previous views considered that the such use did not treat as the use of trade mark in the context of Chinese trade mark law and therefore did not constitute trade mark infringement.

    Before the publication of the case of HONDA, our law firm has received a favorable judgment regarding OEM manufacturing exclusively for export issued by Shanghai New District People’s Court in September, 2018. We file two cases, one is to confirm of non-infringement and the other is to ask for compensation on behalf of our client before the court, for our client’s products regarding OEM detained by the Customs with the application from the owner of registered trade mark in Chine. The customs urged the owner of registered trade mark to take further actions but the latter failed to respond. We won the case of confirmation of non-infringement. The judge of the case held that our client’s action involved in OEM did not constitute trade mark infringement, which bought us to an advantage position in the case of compensation and exerted great pressure on the defendant. We finally settled with the defendant agree to transfer the trade mark to our client in the case of compensation. The view toward to OEM held by the judge in the case with regarding confirmation of non-infringement we handled is the same as the cases of “PRETUL” and “东风”.

    Regarding the case of “PRETUL” in 2015, The Supreme People’s Court held that The TRUPER Company is the owner of “PRETUL” trade mark in Mexico. The Yahuan Company was entrusted by TRUPER Company to produce rocks bearing the “PRETUL” logo in China and all the products would be exported to Mexico, which would not be sold in China. That meant the logo bearing on the products did not work to identify the source of the goods in our country, with no possibility to cause the relevant public’s confusion with Focker Company’s products, the owner of registered trade mark in China. The trade mark serves as to distinguish the source of goods or services, and its basic function is to identification. The action of Yahuan Company to use “PRETUL” with the authorization by TRUPER Company is only a physical attachment, which provides necessary technical conditions for the use of the trade mark in Mexico, where TRUPER Company has the exclusive right to use the trade mark. Such action does not have the function to identify the source of the goods in China. Therefore, the logo bearing on the products produced by Yahuan with authorization did not serve as identification and the action of attach the logo could not consider as the use of trade mark in the context of trade mark law.  

    With respect to the case of “东风” in 2017,the Supreme People’s Court held that the Changjia Company was commissioned to produce diesel engines and its components for the PTADI company, the owner of “东风”trade mark in Indonesia. And all the products bearing “东风” logo would be exported to Indonesia. The logo on the goods identified with the PTADI Company during the processing and exporting, which did not affect the Chinese registered trade mark’s normal function of identification and would not lead to confusion and misidentification by the relevant public in the domestic market. Considering OEM is a common and legal form of international trade, unless there is contrary evidence to prove ChangJia Company has not performed its duty of reasonable care by accepting the commission, and caused substantial damage to Chinese registered trade mark’s rights, such actions in general should not be deemed as trade mark infringement.

    It can be seen in the case of "东风", The Supreme People's Court kept the view the same as the case of "PRETUL", that is the marks on products regarding OEM connected to the trade mark owners overseas who entrusted to produce the goods. And such use of trade mark would not affect the normal recognition and differentiation function of the registered trademark in the domestic market. Furthermore, the judges of the “东风” case also held that it should be put into consideration whether the trustee in the OEM has fulfilled a reasonable duty of care, and whether substantial damage has been caused to the domestic trade mark owner.

    With above two cases issued by the Supreme People’s Court for a referent, and considering that OEM processing is an important component of China foreign-related processing trade, foreign OEM processing behavior are not regarded as trade mark infringement in general, thought the court will hear the case based on its own situation.

    However, the trend regarding the OEM manufacturing may be changed as the case of “HONDA” released last year, which the Supreme People’s Court held the opinion that foreign OEM processing behavior tended to treat it as trade mark infringement. Here are the main reasons held by The Supreme People’s Court in that case:

    The Court considered that the use of trade mark is an objective behavior, usually including many links, such as physical attachment, market circulation and so on. Whether it constitutes the 'use of trade mark' in the sense of trade mark law should be explained in a consistent way according to the trade mark law. An act should not be separated and only a link should be seen. The use of trade mark means a trade mark is applied to the good, which may or may not conform to the common intention if the good provider and the trade mark owner. The combinations of the trade mark and the good as a whole are to serve as identify the source of the good for consumers. Maybe some enable consumers to correctly identify the commodity source, but also may allow consumers to misidentify the goods’ source. These phenomena are complicated, but this kind of use should be recognized as the use of trade mark and governed by trade mark law. Therefore, the use of a trade mark on a manufactured or processed product shall be deemed to be 'the use of a trade mark' in the sense of trademark law, as long as there is the possibility of distinguishing the source of the commodity.

    The court also thought that the relevant public should include the operators closely related to the marketing in addition to the consumers of the infringing products. It is possible for the operators of the links such as the transportation of infringing goods have an access to the infringing products. Moreover, with the development of e-commerce and the Internet, even if the goods accused of infringement are exported to foreign countries, it is possible to return to the domestic market. At the same time, with the continuous development of China's economy, a large number of Chinese consumers go abroad for travel and consumption, and there is also the possibility of contact and confusion for goods regarding to OEM.

    Although China is not a country of case law, and the supreme people's court's cases have no absolute effect, it is still actively exploring and gradually establishing a case guidance system to avoid similar cases with contrary outcomes. Therefore, the "HONDA" case may play a guiding role in the judicial practice and customs enforcement of similar cases all over the country in the future. However, due to the differences in the local economy, judicial environment and special factors of each case, The actual situation may be a little different, which should protect honest operators by directly going through the superficial form and grasping the nature of trademark use.