China Supreme Court Issued A New Typical Trademark Infringement Case of OEM

1(By You Yunting) As a big manufacturing country, China deals with a lot of products categorized as original equipment manufacturing (the “OEM”). With regard to whether OEM constitutes trademark infringement, where local courts had handed out different decisions and infringing standards for this problem, the Supreme People’s Court has not yet expressed a clear standard for determining. Recently, China’s Supreme People’s Court has published the 2012 Top 50 typical trademark cases, and, among them, there is a case concerning OEM trademark infringement, where the manufacturer of an OEM won an infringement claim against it by the trademark holder. From the SPC’s decision in this case, we find rather clear evidence of the court’s attitude toward this particular issue.

Introduction to the Case:

A well-known Hong Kong-based company, Crocodile Garments Ltd. (the “Crocodile Garments”) registered the “CROCODILE” trademark (the “disputed trademark”) in Mainland China in the 1980s under class 25 for shirts, pants and similar types of clothing, and owned the exclusive right to the use of the disputed trademark. In 2008, Crocodile Garments applied for the archival filing of the “CROCODILE” trademark with the General Customs. Subsequently, Crocodile Garments found through the Qingdao Customs that the Qingdao-based Ruitian Clothing Company (the “Ruitian Clothing”) exported 1760 male coats (the “blocked products”) in January 2011 marked with the “CROCODILE” trademark. Based on this discovery, Crocodile Garments brought a lawsuit against Tianrui Clothing, alleging infringement of its trademark and RMB 500,000 Yuan for its losses as a result of the infringement.

The Ruitian Clothing, in its defense, argued that it was a legal OEM manufacturer in accordance with orders from the Korean Espoir Co., Ltd. Legally, Espoir Co., Ltd obtained authorization from YAMATO INTERNATIONAL, who owned the “CROCODILE” trademark in Japan under class 25 for clothing and coats.

The blocked products were exported to Japan and not sold in Mainland China. Ruitian Clothing’s products were referred to as OEM and its use of the disputed trademark received legal authorization, without any subjective intention to infringe and without fault for trademark infringement. For these reasons, this kind of manufacturing of products did not result in any significant damage to Crocodile Garments, and there were no substantial losses. Therefore, based on the court’s findings, Ruitian Clothing did not infringe Crocodile Garment’s exclusive right to use of the “CROCODILE” trademark.

The court heard the case and determined that the key point in the dispute was whether Ruitian Clothing’s use of the “CROCODILE” trademark on the tag and label of the blocked products infringed the exclusive right of the “CROCODILE” trademark.

The principle of trademark regionalism dictates that a trademark registered within a jurisdiction shall be protected within that jurisdiction. In other words, because Crocodile Garments registered its “CROCODILE” trademark in Mainland China, its ownership of that trademark shall receive legislative protection within China’s territory and jurisdiction.

In this case, where the labels and tags on the blocked products were provided by the commissioned party, the Korean Espoir Co., Ltd, and where the blocked products were all exported outside China and not sold on the Chinese market, Ruitian Clothing’s manufacturing of the blocked products shall be determined to be an “OEM”. This is a reasonable finding, because the allegedly infringing products were all destined for the export market. Due to this, within China’s jurisdiction, and within the scope of Crocodile Garment’s exclusive trademark right, the labels and tags attached to the OEM products manufactured by Ruitian Clothing were incapable of functioning as the source of the goods in question, and consumer confusion within the Chinese market was not a possibility.

The manufacturing party put said labels and tags on the manufactured products in accordance with the requests of the commissioning party. From the perspective of legal attribution, such action constitutes an act of manufacturing rather than a use of a trademark pursuant to the Trademark Law. Ruitian Clothing received a commission from an overseas company to manufacture goods, and used due diligence in ensuring the source of the tags and labels were in accordance with the OEM requirements of the overseas company. What’s more, subjectively, Ruitian Clothing never subjectively infringed Crocodile Garments’ trademark of Crocodile.

Therefore, the court held that Ruitian Clothing’s actions in attaching the labels and tags to the blocked products was not considered a commercial use of the trademark; because there was no commercial circulation of goods with these tags and labels in China, there was no violation of Crocodile Garment’s trademark rights pursuant to the Trademark Law. In accordance with the principle of trademark regionalism, Crocodile Garments obtained the ownership and the exclusive right of using “CROCODILE” trademark merely in China, and had no right to exclude Ruitian Clothing in using the “CROCODILE” trademark in the manufacturing of OEM products – thus its claims in regard to trademark infringement had no legal justification. Hence, the court rejected all Crocodile Garments’ claims.

Lawyers’ Comments:

As for local courts’ varying attitudes as to whether an OEM constitutes trademark infringement, we previously introduced the following: Is OEM the Safe Harbor for Trademark Infringement in China and Would Those First Users Involved in OEM Constitute Trademark Infringement?. The Supreme People’s Court decided to publish this judgment handed down by the Higher People’s Court of Shandong Province on its list of the top 50 typical trademark cases, with the purpose of ending some long-standing debates over whether OEMs constitute trademark infringement.

There are two key points in the judgment, as follows:

1. Using a trademark in OEM is not considered a type of trademark use in the sense of the Trademark Law. Because of trademark regionalism, the rights of a trademark registered in China shall be limited to China’s territory. OEM products exported outside of China are sold in overseas markets. Therefore, the trademarks used on OEM products do not function as an indicator of source. Furthermore, the manufacturing party in an OEM operation places a trademark on its products, but does not use the trademark in the same sense that other businesses within China do.

2. The use of similar trademarks on OEMs is not considered a type of trademark similarity in the legal sense. Pursuant to Article 9 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in Hearing Civil Cases Related to the Trademark Disputes (the “Interpretation”), a “similar trademark” stipulated in Item 1 of Article 52 of the Trademark Law is where two trademarks are similar to such a degree that the relevant public are likely to mistake the original source of the goods for which the marks are applied, and think the source of the goods has a certain association with the goods for which the trademark’s owner mark is used.

In this case, although there were certainly similarities between the disputed trademark and the mark on the blocked products, this use does not conform to that use described in the Trademark Law, because the relevant public is unlikely to be mistaken in regard to the original source of the goods or services. As provided in the Article 8 of the Supreme People’s Court’s Interpretation, for the purposes of the Trademark Law, the term “the relevant public” refers to consumers related to the goods or service for which the trademark is used and other traders who have a close relationship with the aforesaid goods or service. In accordance with said Article 8, in a trademark case regarding an OEM, those two relevant publics are unlikely to mistake the source of goods.

Lawyer Contacts

You Yunting86-21-52134918 youyunting@debund.com/yytbest@gmail.com

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