(By Albert Chen) Whether original equipment manufacturing (OEM) can lead to trademark infringement has been long argued. The opinions on it may vary among the judicial organs in various regions and between the judicial department and various administrative departments. A Shanghai court once confirmed that a processing party should not assume infringement liability in the case Shenda vs. Jolida. Following this decision, some began to advocate the idea that OEMs could be considered a safe harbor in the seas of trademark infringement. Can that point of view reasonably be established in China? In today’s post, we would like to introduce you to Chinese cases and popular opinions in judicial circles concerning OEMs and trademark infringement.

I. Opinions for non-infringement

A decision handed down by the Shanghai No.1 Intermediate People’s Court (the “Shanghai Intermediate Court”) and Shanghai High People’s Court (the “Shanghai High Court”) in Shenda vs. Jolida represents the opinions of those who claim no infringement can be found in dealing with OEMs.

Case background: Jolida Inc. (hereinafter “Jolida”), a United States registered company, owns the trademark “Jolida” in America, and set up its subsidiary company, Shenda Co. (hereinafter “Shenda”) in China in 1996. The Chinese company was sold to a third party only one year after its establishment. In the meantime, Jolida set up another subsidiary, Jiulide Co., (hereinafter “Jiulide”) in China. After the transfer, Shenda got the trademark “Jolida” in China in 1998 and thereafter registered the names with the customs board. In 2008, Shenda was sent a notice from the Shanghai Customs, which indicated Jiulide was exporting goods marked with Jolida. Shenda alleged Jiulide had infringed its trademark rights, and thereafter filed suit.

After two instances, the Shanghai courts confirmed that Jiulide had made no infringement in its OEM, and argued that OEMs would not necessarily lead to trademark infringement, reasoning that the main function of the mark is to distinguish the origin of products and services. Any infringement against the trademark shall be assessed according to the damage to the distinctiveness of the marks in essence, and the confusion or mistake thereby arising among the consumers with respect to the origin of the product. In the case of an OEM, the domestic processing party seems to add trademark to the products it manufactures, but in fact, the real user of the trademark is the principal party operating overseas. For this reason, the marks added in the products involved in the Shenda case could only be judged distinctive when used overseas, and could not play the same role in the domestic market. Therefore, OEMs in general shall not be deemed to have infringed any trademark.

Furthermore, as explained by the court, the following conditions shall be met when a party claims a product to be an OEM:

(1) The processing party has fully met its due diligence obligation over the trademark ownership by the principal;

(2) The processing party manufactures the product on the entrustment from the right owner;

(3) The processing party delivers all the products it produces to the principal and conducts no sale on its own thereafter.

III. Opinions of infringement

Unlike what Shanghai courts have held, Guangdong courts put forward a totally different opinion in an OEM dispute between Nike and ENHANVOL, and ruled that the processing party shall be liable for trademark infringement.

To take a brief look at the Nike case: CIDESPORT, a company registered in Spain (hereinafter “Spain Company”) owns the “Nike” trademark in its motherland. In 2000, the Spanish company entrusted two Chinese companies (hereinafter “China Company”) to manufacture Nike brand men’s parkas, and accordingly provided them the raw material and the trademark tags. But afterwards, when the Chinese Company applied for permission to export the product in Shenzhen Customs, Nike appealed to the authorities for confiscation and detainment of the product, and at the same time intitiated a lawsuit against all the Chinese companies involved in the case, and demanded the infringement cease as well as compensation for any losses and damages.

In the lawsuit, the Spanish Company claimed itself the trademark owner of the Nike trademark in Spain, and stated that all the clothing marked with the Nike mark would not be sold in China. But on the other hand, the Chinese Company also claimed it had investigated the ownership rights of the Spanish Company, and also reiterated that the products were intended for export only, and not for the domestic Chinese market.

After two hearings, Guangdong courts affirmed the Spanish Company’s exclusive ownership of the rights of the trademark in Spain, but due to the regional limits of the trademark, Nike’s trademark right in China was still to be strictly protected, and no infringement of those rights could occur under any circumstances. What the Spanish Company and the Chinese Company had done was considered “[…] us(ing) a trademark that is identical with or similar to a registered trademark in respect of the identical or similar goods without the authorization from the trademark registrant.” Therefore, the judge decided that the defendants take joint liability for the infringement.

In the trademark dispute of “ENHANVOL,” decided by the Guangdong People’s High Court, the above opinions were restated and emphasized again. But, we also noticed the difference is that the decision only allowed for fair and reasonable fees spent to enforce protection of the right due to no actual circulation of the marked and protected products.

In addition to Guangdong courts, China’s Industry and Commerce Department and customs bureau also tend to support the idea that OEMs may lead to trademark infringement. As stated by Deputy Director General of the State Administration of Industry and Commerce, Mr. Lü Zhihua: “the Trademark Law does not take into consideration the subjective intent of the user”, and it does not take into account “the actual losses that may be incurred by another’s use of the trademark.” Moreover, the Administration of Industry and Commerce would not consider whether the infringer is aware of or actually caused the damages in the trademark infringement investigation. Furthermore, the decision regarding infringement could be made only once an unlicensed use of the mark has been determined. In addition, Mr. Li Qunying, the Section Chief of the State Customs House, has stated that the customs house adopts the same standards as the Industry and Commerce Department in regard to enforcement of the law.

Although those supporting infringement argument do not provide a clear answer, and even avoid the issue of “confusion made by OEM,” which is essentially the core issue in this aspect of trademark infringement, they cannot deny that their understanding of the law has influenced judicial decisions and administrative acts.

Basing on the above analysis, it can be easily seen that, in terms of interpretation of various theories, OEMs, in general, are not capable of infringing a trademark. However, in considering the various interpretations offered by the courts in different regions and some administrations, it has been decided by some of them that OEMs do carry an element of risk of infringement. However, I have noticed that there are calls out there for a more uniform and clear understanding on the issue, such as statements made by Mr. Gao Yilong, the Chief Judge of the IPR Court of the Zhejiang People’s High Court, explaining that the OEM issues not only affects the laws surrounding trademarks in relation to OEMS, but the economy as well. .

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You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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