Brand protection under the ODM model

By Kevin Cheng, Dentons
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Original design manufacturer (ODM) is normally a company that designs and manufactures a product that is eventually rebranded by another company for sale. As the e-commerce market prospers, the ODM model gradually attracts attention from the public as the so-called “most lucrative sector following e-commerce” in the next one or two years. Many well-known self-operated stores on e-commerce platforms have entered this sector.

In order to attract attention of consumers, e-commerce platforms supporting the ODM model often highlight themselves, in advertisements on their promotion pages, as providers of products directly supplied from factories to consumers without price premium attributable to brands. In their product introductions, they may even hold the products out as, for example, “made by a Coach manufacturer” or “made by an Armani manufacturer”, while profiting from selling them at prices much lower than normal sales prices charged by brand owners for the same models.

To stop these malpractices, it is reported that some brand owners have repeatedly sent attorney’s letters to e-commerce platforms requesting the removal of their brand names from the webpages – only to find that the letters produce very little effect. However, to our knowledge, there have not been any cases of brand owners filing infringement lawsuits against e-commerce platforms as of the date hereof. So, do promotional materials holding products out as being “made by XXX manufacturer” possibly involve infringements?

程强-KEVIN CHENG-大成律师事务所-合伙人-Partner-Dentons
Kevin Cheng
Partner
Dentons

Trademark infringement vs. reasonable use. According to Article 57 of the Trademark Law, using a trademark that is identical with a registered trademark in respect of the identical goods without the authorization from the trademark registrant and thus causing any other damage to the exclusive right to use the registered trademark shall be an infringement of the exclusive right to use the registered trademark. However, using trademarks in some special circumstances – for example in comparative advertising or for illustrative purpose – is necessary for engaging in fair competition, promoting consumer interests or exercising the right to freedom of expression. That is why reasonable uses of trademarks are not deemed trademark infringement under the Trademark Law. In the light of prevailing judicial practices, reasonable uses of trademarks are allowed for narrative, indicative and illustrative purposes.

Many argue that the above-mentioned promotional activities of e-commerce platforms supporting the ODM model can be considered reasonable use of trademarks for indicative purpose. They cite reasons as follows: (1) the expression “made by a XXX manufacturer” is used to reveal objective facts with the purpose of identifying the source of the goods; (2) the use by e-commerce platforms is limited; and (3) the use will not cause confusion so that consumers misunderstand that the goods available on the e-commerce platforms somehow relate to the registered trademark owners.

That said, we hold different views. With reference to prevailing judicial practices, normally reasonable use for indicative purpose should meet the following qualifiers: (1) necessity of the use – it would be impossible to describe a specific good or service if the trademark is not used; (2) reasonableness of the use – the trademark is used reasonably and only to the extent necessary for the specific good or service; (3) use of the trademark should not cause consumer misunderstanding that the use is initiated and endorsed by the trademark owner; and (4) the use is in good faith.

Not being necessary, use of trademarks by e-commerce platforms should not be considered reasonable use for indicative purpose, as it does not meet the qualifier concerning “necessity”. Moreover, obviously intending to profit from name brands by associating them with goods of their own, e-commerce platforms do not use these trademarks in good faith. Therefore, the use has gone beyond the extent reasonable.

To sum up, if an e-commerce platform uses the description “made by a XXX manufacturer” without permission from the trademark owner, and if there is evidence that any significant deviation exists between what is offered by the e-commerce platform and the brand owner in terms of product quality, after-sales service, etc., that has resulted in a bad impression of goods from the platform among consumers, then the trademark owner may try to file a trademark infringement lawsuit by citing the general provisions under Article 57 of the Trademark Law which states that “… causing any other damage to the exclusive right to use the registered trademark shall be an infringement …”

Untruthful publicity? Article 8 of the Anti-Unfair Competition Law (2018 amended) stipulates that “a business shall not conduct any false or misleading commercial publicity in respect of the performance, functions, quality, sales, user reviews, and honors received for its commodities, in order to defraud or mislead consumers”.
It should be noted that “false publicity” under this law does not mean a complete misrepresentation; publicity that fails to provide sufficient disclosure or contains any ambiguous expression is also likely to be considered “false”.

The author believes that e-commerce platforms’ publicity containing unsubstantiated expressions to the effect of “made by a XXX manufacturer” (i.e., the producer of the relevant goods has never provided or is not providing ODM services for the mentioned brand) may involve “false publicity”, because such content may mislead consumers about the source of the goods. In such cases, the brand owner may also elect to file a suit against the e-commerce platform on the ground of unfair competition.

In general, as an emerging e-commerce model, the ODM model is prospering with various hidden risks. Undoubtedly, malpractices such as false advertising or conducting marketing by taking advantage of other brands adversely affect the image of brand owners, resulting in damage to the goodwill to which the trademark is related. Brand owners may safeguard their legitimate rights and interests by taking legal action against some transgressions.

As e-commerce platforms are concerned, it is more important that they respect originality and carry out marketing lawfully. Otherwise it will be difficult to gain recognition from consumers in the long run.

Kevin Cheng is a partner at Dentons

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