Original equipment manufacture(OEM) has several meanings.Technically, it designates a com-pany that makes a part, or a sub-system, that is used in another

company’s end product. By extension, it also des-ignates a company that makes end products thatbear the brand of another company and are mar-keted by the other company. In China, the termOEM is generally used in an export context,where the production is shipped out of China to aforeign purchaser.

The OEM practice has revealed some prob-lems, as this article will show, when the foreignbrand is not registered in China by its foreignowner. What if another person filed an applicationto register this trade mark, or has registered thistrade mark? Could they oppose such application?Would they be considered as infringers and besued by the owner of the registered trade mark?

China has revised its Trade Mark Law for thethird time, in 2013. Both the definitions of trademark use and trade mark infringement have beenupdated, which influences the answer to theabove questions. Before the law was revised, Chi- 2

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Is OEM usetrade markinfringement?In the light of the third revision of China’sTrademark Law, Hui Huang and Paul Ranjardof Wan Hui Da look at the issues surroundinginfringement by original equipmentmanufacturing

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nese courts had already handledseveral cases where these ques-tions were raised. And their an-swers were not always the same.

Evolution of case lawChinese Courts in different re-gions and in different periodshave demonstrated differing un-derstandings of the issue.

In the first years of the cen-tury, decisions were strictly im-plementing the generalprinciple of trade mark protec-tion: that the use of a trademark without the consent of theowner is an act of infringement.And, whether such use is forthe manufacture of goods thatare to be sold in China or ex-ported (in the context of OEM)makes no difference. For exam-ple, in NIKE v Spanish Side(2001 Shenzhen IntermediateCourt Civil Judgment 55) andin Guangzhou Hong Xin vGuangzhou Customs (2005Guangzhou Intermediate CourtAdministrative Judgment 10and 2006 Guangdong HighCourt Administrative Judgment22), the Guangdong High Courtdeclared that using a trademark registered by another per-son, even when the productsare exported (such as in anOEM context), is infringment. Jiang Zhipei, for-mer head of the Supreme People’s Court (SPC)IP Tribunal, expressed his opinion that ‘the le-gality of OEM use of mark cannot be supportedwithout reason; Chinese judicial authority can-not make exceptions without legal basis’ (LegalRisk of OEM, China Trade Mark Magazine Issue12 2008)

This opinion was not shared by all the courts.In fact, the Beijing High Court issued an Answerto Several Issues Concerning Trial on Trade MarkCivil Disputes on February 18 2004, which stipu-lates in its article 13 that ‘OEM is based on the en-trustment of the trade mark owner. The productsmade by OEM are not to be distributed in China

so as not to cause confusion andmisunderstanding among con-sumers, thus shall not be foundinfringing’.

Chinese courts graduallychanged their attitude. On No-vember 2 2009, the ShanghaiNumber 1 Intermediate Courtand Shanghai High Court held,in Jolida v Shanghai Shenda(2008 Shanghai IntermediateCourt Judgment 317 and 2009Shanghai High Court Judgment65) that because the OEM prod-ucts are exclusively exported tothe US market without distribu-tion in the Chinese market, Chi-nese consumers will not beconfused with regard to the ori-gins of the goods. Therefore, thejudges considered that, since theprimary function of the mark isto indicate the origin of thegoods in order to avoid confu-sion, if the goods are not mar-keted in China, the mark doesnot fulfill such primary functionin China. In other words, wherethere is no confusion in China,there is no infringement. Thisreasoning has been followed byGuangdong and Shandong HighCourts. However, there are stillsome dissenting opinions in oth-ers courts, for example in Zhe-jiang Province.

More recently, on February 19 2013, the Zhe-jiang High Court in Focker Security Products Inter-national v Pujiang Yahuan Lock Co (2012Zhejiang High Court Judgment 285, the Pretulcase), held that:

Firstly, Article 52.1 (of the Trade Mark Law)provides the requirement to constitute a trademark infringement. As long as the acts meetthe requirement, the trade mark infringementshall be found. According to current laws, reg-ulations and judicial interpretations, we seeno exception that relates to the current case;Secondly, although Yahuan (the Defendant)argues that the accused goods are solely forexportation to Mexico without domestic dis-tribution in China which will not cause con-fusion and misunderstanding among Chineseconsumers as well as cause no harm to trademark rights of the plaintiff…this argument isnot tenable. The defendant’s acts infringedupon the trade mark right of plaintiff. This case is under re-trial by the SPC and has

attracted huge attention. It is expected that theSPC will clarify the terms of the debate.

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Hui HuangHui Huang has been a senior partner ofWan Hui Da since 2002, and is the firstdoctor in trade mark law in China. Beforepractising in the private sector, he servedfor 12 years at China’s State Administrationfor Industry and Commerce, where hegained a profound understanding of thelifecycle of trade mark proceedings both intheory and in practice. He is now an activeattorney representing clients before vari-ous courts in China in a wide variety of IPlitigation, some of which have becomelandmark decisions in the industry.

In 2012, Huang entered the first list ofthe National Intellectual Property LeadingIndividuals released by SIPO. In 2013, hewas elected chair of INTA’s TOPC ChinaTrademark Office sub-committee for the2014/15 term. He has also been listed as anOutstanding Individual by World Trade-mark Review since 2011 and a Recom-mended IP Lawyer by The Asia PacificLegal 500 in 2015.

Chinese Courts in differentregions and in differentperiods have demonstrateddiffering understandings ofthe issue

In a different use of article32, the SPC delivered an opinionconcerning the effect of OEM.On June 29 2012, the SPC in Ry-ohinkeikaku Co v TRAB (2012Xing Ti Zi case 2, known as thethe Muji case) rejected the plain-tiff’s plea to recover its mark byadducing evidence of use of itsmark in the context of OEM pro-duction. The SPC held that evi-dence of such OEM use is notsufficient to show that a markhas been used and achieved acertain amount of influence inChina as stipulated in article 31(now article 32) of the PRCTrade Mark Law.

The 2013 Trade MarkLaw: a new legalframeworkThe revised law introduces: (a)a more precise definition of theact of infringement; and, (b) amore precise definition of whatconstitutes trade mark use.

Trade mark infringementAccording to article 16 of TRIPs,likelihood of confusion is a re-quirement of infringement. Thisgeneral principle was alreadyimplemented in article 52(1) ofthe Trade Mark Law, which de-fines what is an act of infringe-ment: to use an identical or similar trade markon identical or similar goods, without authorisa-tion. There was no reference to the likelihood ofconfusion. When China acceded to the WorldTrade Oraganisation in 2001, the law was revisedbut article 52(1) remained unchanged.

In its 2013 revision, article 52 was modified(and re-numbered 57). It is now split in two parts:57 (1) which concerns the use of an identical trademark on identical products, and 57 (2) which con-cerns the use of a similar trade mark on identicalproducts, or the use of an identical trade mark onsimilar products, or the use of a similar trademark on similar products. In this second part, therequirement ‘where such use is likely to causeconfusion’ is added.

It can be inferred from this change that the re-quirement of likelihood of confusion only applieswhen similarity is involved. When trade marksand goods are identical (double identity), the in-fringement is necessarily established.

Meanwhile, the Trade Mark Law adds thenew 57 (6) which qualifies as infringement the actof providing convenience to the infringementwhen it is committed knowingly.

Definition of trade mark useIn order to emphasise the func-tion of trade mark, article 48 ofthe revised Trade Mark Law in-corporates into law article 3 ofthe Implementing Regulations,which stipulates that the use oftrade marks consists in ‘affixingtrade mark on goods, packagesor containers etc…’ and adds thefollowing words ‘…to distinguishthe origin of the commodities’.

The questions raised by theOEM system need to be exam-ined in this new legal frameworkwhich now has a revised defini-tion of infringement and a reviseddefinition of trade mark use.

Can OEM be aninfringement withoutlikelihood of confusion?The courts who rule against thequalification of infringement be-lieve that if the goods bearing atrade mark are not put into themarketplace, the trade mark willnot be seen by consumers, andsince the consumers do not seethe goods and the trade mark, noconfusion is possible, hence noinfringement.

This reasoning seems logi-cal, but only on the surface. Itoverlooks the fact that whentrade marks are identical and

used on the same goods, the likelihood of confu-sion is not a requirement. Under the new legalframework created by the revised Trade MarkLaw, the answer to the question is clear: using anidentical trade mark on identical goods withoutauthorisation from the trade mark owner is an actof infringement regardless of whether the goodsare sold in China or exported.

Does OEM constitute trade mark use? The courts who consider that OEM cannot be aninfringement, put forward another argument:since the goods are not sold in China, they havenot entered the course of trade. Therefore, thetrade mark does not fulfill its function of identify-ing the origins of goods required in the new article48 of the Trade Mark Law, hence no actual use ofthe trade mark.

This is very much arguable. The courts appar-ently confuse the general concept of trade with themore precise notion of circulation of goods. Tradehas a much broader meaning than circulation. Inthe course of trade includes not only circulationbut also other acts related to commercial transac-tions such as preparation, storage, transportation,5

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Paul RanjardPaul Ranjard is a French lawyer, and hasbeen based in China since 1997. He hasbeen representing the French associationUnion des Fabricants (Unifab) in its pro-tection of intellectual property, and sincethe creation of the European Chamber ofCommerce, he has co-chaired the IP Work-ing Group. In this capacity, he has been in-volved in the drafting of all the EUCCC IPposition papers and all the comments sub-mitted by the Chamber concerning draftsof IP legislation. In addition, Paul is ofcounsel to Wan Hui Da Law Firm & Intel-lectual Property Agency.

and even manufacture of goods as long as they arerelated to business and transaction.

There is no doubt, therefore, that the act of af-fixing a trade mark on goods (in China) is an actof use of such trade mark, regardless of where thegoods are to be traded.

However, the abovementioned Muji casewhere the SPC ruled that OEM cannot be consid-ered as use in the context of article 32 of theTrade Mark Law, seems to bring an element ofdoubt to the minds of some commentators. Theyconsider that the SPC has definitely ruled thatOEM (export) is not equivalent to use of the trademark in China, and therefore, cannot be an in-fringement. This is obviously wrong: in the Mujicase, the real problem was not whether the plain-tiff has used the trade mark in China, butwhether they had acquired through such use, a‘certain influence’ in China. If all the goods areexported, the trade mark cannot acquire any rep-utation in China, even if the mark is applied tothe goods in China. The decision in the Muji casedoes not mean that the SPC has fixed its positionon the infringement committed by the exportation of counterfeiting goods.

How about exempt the innocentmanufacturer but determinate OEMas infringement? On February 13 2006, the Beijing High Court pub-lished an opinion stipulating that:

A person (the entrustee) who is entrusted byanother person (the entrustor) to manufac-ture products bearing a registered mark shallverify whether the entrustor enjoys the rightto use the trade mark. The entrustee who failsto perform such verification and commits anact of infringement, will bear the joint liabilitywith the entrustee.

In 2009, the SPC added that:(Courts) should properly handle the trademark infringement disputes concerningOEM. With regard to the cases where the in-fringement is established, the Court shouldproperly decide legal liabilities by taking intoconsideration whether the entrustee has per-formed its obligation of verification.

Interestingly, the European Court of Justicehas resolved the famous Red Bull case (C-119/10)in a very similar way. The defendant was a serv-ice provider who filled the packaging supplied toit by another person who, in advance, had affixedthe Red Bull sign protected as a trade mark. Inthis case, the ECJ considered that the serviceprovider did not itself make use of the sign andwas not an infringer. However, the third partywho placed the order was found to be infringingthe trade mark.

In the new legal frame (article 57.6), the man-ufacturer’s role is more similar to a facilitator,who, if found innocent (not acting knowlingly),should not be liable for the infringement. But thegoods should still be seized by Customs.

We hope that the abovementioned Pretul caseunder SPC review will clarify the debate, onceand for all. If the SPC confirms the latest decisions,and rules that export OEM can be an infringe-ment, this will be good news for the rights ownerswho wish to stop the export of infringing productsfrom China.

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Where there is no confusionin China, there is noinfringement