Resolving differences of opinion on OEM trademark infringement

By David Lee, Chang Tsi & Partners
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OEM refers to original equipment manufacturing, namely the conduct whereby a foreign trademark rights holder, directly or indirectly, commissions a domestic manufacturer in China to make a product and affix the designated trademark to it, and then export all of the products back into a foreign market for sale. As China is the “world’s factory”, the OEM business model is widespread in China.

李够生 David Lee 铸成律师事务所 合伙人 Partner Chang Tsi & Partners
李够生
David Lee
铸成律师事务所
合伙人
Partner
Chang Tsi & Partners

When a foreign trademark rights holder has not registered the trademark attached to products in China (product trademark), and an unrelated third party has registered a trademark identical or similar to the product trademark (domestic trademark) in China – “identical or similar trademark” is determined with reference to the Nice International Classification – a question arises: does domestic OEM constitute a trademark infringement? The answer to this question is crucial. Uncertainty in the determination of infringement by OEM will have immense negative impacts on foreign trademark rights holders and domestic OEM manufacturers’ business activities.

The current mess

In practice, customs authorities generally do not directly render findings on whether OEM constitutes infringement. The problem will, instead, be deferred to the courts, and different courts render different findings on whether OEM constitutes infringement, with a whole host of explanations, giving people the impression that China’s judiciary lacks consistency.

Court judgments can be mutually contradictory – rather a mess. The courts of different provinces currently hold different stances, and even the stances of different courts in one province are also at variance at times. The Supreme People’s Court, too, has not expressly made clear its stance, allowing different judgments in similar OEM cases to stand. The Supreme People’s Court holds the position that in relatively major issues, where a consensus is elusive, trial and error can first be tried out in the judgments and rulings of individual cases, and once the conditions are ripe, the standards can then be unified.

That different courts will have different stances and give different explanations in the determination of OEM infringement, and render different and even mutually contradictory judgments, can be ascribed to the lack of clarity of item (1) of article 52 of the current Trademark Law. Pursuant to this provision, use of a trademark that is identical or similar to a registered trademark on the same or similar goods without the permission of the trademark registrant constitutes infringement of the exclusive right to use a registered trademark.

The meaning of “use” of a trademark in that clause is unclear. In an OEM case, is the conduct of affixing a trademark by the manufacturer “use of a trademark”? Some courts hold that this does not constitute “use of a trademark” for the purposes of trademark law because the products do not enter the domestic consumer market, therefore the trademark does not fulfil its function of differentiating and distinguishing the goods. On the other hand, other courts hold that the current Trademark Law does not expressly require confusion as a key factor of affirming trademark infringement; accordingly, so long as a trademark is affixed to products in the legal jurisdiction of China, it constitutes “use of a trademark” for the purposes of trademark law.

The meanings of “similar trademarks” and “similar goods” in that clause are not sufficiently clear, either. Some courts treat the “confusion doctrine” as the foundation of the entire Trademark Law and determine “similar goods” and “similar trademarks” based on consumers’ ability of differentiating and distinguishing goods. They hold that because OEM products are not sold domestically, there are no domestic consumers exercising cognition or making assessments, so there is no issue of “similar goods” or “similar trademarks”. On the other hand, other courts treat the Nice International Classification as the criterion for determining the “similarity” of goods.

Resolving the differences of opinion

The author leans toward judging cases strictly on the basis of clear statutes. The statutes include not only the laws formulated by the National People’s Congress, or the Standing Committee of the National People’s Congress, but also include judicial interpretations, etc. In fact, if the current Trademark Law and related judicial interpretations are comprehensively considered, the issue of the difference of opinion between different courts in respect of the determination of OEM infringement can be effectively resolved.

Although item (1) of article 52 of the Trademark Law does not expressly specify that confusion is a prerequisite for trademark infringement, the definitions of a “trademark is similar” and “similar goods” are clearly given in the Interpretations of the Supreme People’s Court of Several Issues Concerning the Application of the Law in the Trial of Civil Trademark Dispute Cases (2002) No. 32, which expressly require confusion (mistaking) as the prerequisite.

Article 9 of the above-mentioned judicial interpretations expressly provides that “similarity of trademarks” requires the mistaking of the source of the goods by the general public as a prerequisite. The consumers of OEM products and products bearing domestic trademarks are different, respectively being foreign and domestic consumers, and they will not mistake the source of the goods. Accordingly, use of similar representations in OEM does not constitute similarity of trademarks.

Article 11 of the above-mentioned judicial interpretations expressly provides that to determine “similar goods”, the creation of confusion must be a prerequisite. OEM products are not sold domestically – the sales channels and the target consumers are different – and so cannot be confused in the domestic market with products bearing domestic trademarks. Accordingly, OEM products are not similar goods.

In short, courts should be able to render accurate determinations: in OEM, the use of identical or similar trademarks on similar goods, as defined in the Nice International Classification, or the use of similar representations on identical goods does not constitute trademark infringement.

Item (2) of article 57 of the new Trademark Law, which is set to take effect on 1 May 2014, contains an express provision on the determination of OEM infringement. Once the new law enters into effect, we will be able to reach the foregoing conclusion without reference to the judicial interpretations.

Finally, nothing in the current Trademark Law, the new Trademark Law or the related judicial interpretations states that confusion (mistaking) should be the prerequisite of trademark infringement where identical trademarks are used on identical goods; therefore in OEM, strictly speaking, as long as an identical trademark is used on identical goods, trademark infringement is constituted.

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