Would Those First Users Involved in OEM Constitute Trademark Infringement?

(By Albert Chen) The author once introduced readers to different judicial opinions adopted in the Shanghai and Guangzhou courts over whether trademark infringement could be caused by an OEM. According to a ruling handed down by the Fujian Higher People’s Court in 2012, which came to the attention of the author recently, the judge confirmed that an OEM could lead to trademark infringement, but decide at the same time that no liability shall be taken by the first user of the mark, for no confusion would be made. As for that point, the author certainly has a different opinion.

Case Summary

I. Schroeder KG (the “SKG”) is a German company, whom applied for the trademark “iska” in 1999 in the EU. SKG has been long licensing to companies in China the “iska” OEM, including the Guangxi Rui Ning Food Co., Ltd. (the “Rui Ning Company”).

In 2001, Ruining Company applied for the trademark “iska” in China, and obtained it in 2002. Subsequently, Rui Ning Company transferred the trademark to the Niannianhong Company (the “NC”). During the process of the trademark transfer, SKG discovered the trademark squatting, and demanded that NC return the trademark when its transaction with Rui Ning was completed. Mr. Su Yushi, the director of NC, issued a written statement to SKG expressing his promise to transfer the trademark, but did not stick to his word.

After that, SKG entrusted a China-admitted company to export a batch of goods marked “iska” to Russia, but they were detained by customs, an order for administrative punishment was made. At the same time, NC filed a lawsuit against SKG for trademark infringement.

In the first instance, the judge concluded the focus of the dispute to be: 1) whether the plaintiff had lawful right over the trademark; and 2) whether adoption of the trademark by the defendants was infringement. Accordingly, the court analysed the points above as follows:

First, the first instance court decided that Rui Ning’s application for the trademark “iska” was trademark squatting. For this reason, including SKG’s claims that the disputed trademark had not been used by NC for three years continuously, the court ruled that the trademark registration should be revoked and other trademark-related claims should not be considered protected until revocation.

But as to whether the defendant had the right to use the plaintiff’s trademark, the court in the first instance felt that:

  1. OEM is considered a type of trademark use

Pursuant to Article 3 of the Implementing Rules for the Trademark Law in China, the adoption of trademarks shall include using the trademark in business activities which include manufacturing and sales of the product; therefore, an OEM, as a method of product manufacturing, shall also be prohibited to use a trademark on the same or similar products as those that have been applied by others on the same or similar products.

(2) Subjects confusing the trademark include the manufacturer and logistic participants

The relevant public on one hand shall include the consumer of the product, and on the other hand include the product’s manufacturer and salesmen. For this reason, even a product coming from an OEM could not be sold in the Chinese market, because it would damage the recognition function of the trademark by leading to confusion among the manufacturing or logistics industries.

Basing on the above two points, the court judged that SKG’s entrusting of a domestic company for OEM shall be considered trademark infringement. However, on the other hand, it also confirmed that because SKG has been long entrusting Chinese companies in the OEM manufacturing, it “would cause no damage to the trademark right through its use of the mark.”

With the above opinions, the original court determined that NC should have the right of the trademark involved in the case, but that SKG’s use of the trademark could not be considered infringement. Thus it refused NC’s claims.

Dissatisfied with the ruling, NC appealed to the Fujian Higher People’s Court which confirmed the opinions of the original court that OEM is trademark infringement. But it also further stressed that Rui Ning’s trademark transfer and application being reasonably defected, and considering the OEM history of SKG in China, the targeted public would not confuse the trademarks. Based on these principles, the Fujian Higher People’s Court sustained the decision, and refused NC’s appeal.

Lawyer Comments

According to the opinions of the author, the Fujian court’s rulings are to be doubted for the following reasons:

1) The consumer’s confusion regarding the origin of the product shall be a requirement for a finding of trademark infringement

As provided in the Trademark Law: any unlicensed use of similar or identical trademarks on the same kind or similar product constitutes direct infringement against a trademark right. But that decision shall first meet the condition that the consumer would be confused between the product and the service.

Although both courts in Fujian Province have taken confusion as the essential condition to find infringement, they inappropriately extended to participants in manufacturing and logistics. Trademark ensures that a consumer can correctly associate the mark with the product or service, by excluding others from using the mark as an indicator for their own products or services. Manufacturers and transporters of a product should not be considered the “consumer” involved in the chain of consumption when deciding whether there has been infringement against trademarks.

2) OEM is not use in the trademark law

As confirmed by the second instance court: SKG’s trademark use does not infringe another’s right in the mark. The trademark “iska” only appeared during the OEM process, and had not been put into use in actual business operations; in addition, Chinese consumers would likely never come into contact with this mark. Based on these very clear facts, it is obvious that SKG’s use of the mark could not be considered “use” for the purpose of finding trademark infringement at all.

Considering these points, the Fujian courts ruled that SKG had not infringed the right of the disputed trademark for first use. However, even this finding can be put into question.

In conclusion, in the author’s opinion, the real reason SKG had not been found to infringe upon NC’s trademark rights has nothing to do with first use rights but because OEM itself is not even considered to be within a category of trademark infringement. Although the Fujian courts’ decisions came to the same finding, i.e., that SKG had not infringed the trademark right, the reasons provided are clearly in error.

In closing, the author would like to make a point that opinions adopted by courts throughout Chinese jurisdictions vary considerably; keeping that in mind, one may find in the process of bringing suit for infringement that their own experiences with courts will also differ.

We posted this article several months ago which might be too long to read it on. Our intern Mr. Le Duc helped us to abstract it again. You may click here for the detailed post, if you prefer to know more on the case.

Lawyer Contacts

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

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