Can marks on OEM goods infringe domestic trademarks?

By David Lee, Chang Tsi & Partners
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Does the use of marks on original equipment manufacturer (OEM) goods made for foreign purchasing companies that are similar or identical to Chinese registered trademarks constitute trademark infringement?

Prior to the new Trademark Law taking effect on 1 May last year, this had been a controversial issue. This column discusses whether this issue still persists since the new law came into effect.

Confusion under prior law

Under the old law, article 52 formed the legal basis for determining whether an OEM’s use of a mark constituted trademark infringement. Article 52, clause 1 set out, “Using a mark that is similar to or identical with a registered trademark in respect of the similar or identical goods” without a licence from the trademark registrant is an infringement of the exclusive right to use a registered trademark. This clause was too simplistic and confusing, which resulted in an inconsistent interpretation by the courts.

David Lee Partner, Client Manager Chang Tsi & Partners
David Lee
Partner, Client Manager
Chang Tsi & Partners

First, it was unclear about defining the notion of “using a trademark”. An OEM factory would manufacture products using the purchasing company’s specified mark and then export them all.

Would branding these goods be tantamount to using a trademark? Courts held various arguments over the issue. Some courts argued that branding the OEM goods did not constitute using a trademark, stated that the mark was not used to identify or distinguish goods, as the OEM products would not engage sales in the domestic market. These courts recognized a prerequisite that the mark must to be used to identify a clause in order for it to “use a trademark”. Their interpretation was made on the basis of the confusion raised around trademarks.

Other courts did not recognize the above prerequisite. They interpreted “using a trademark” to simply refer to the application of a trademark on goods in China. The manufacturing in China of a branded OEM product whose mark resembled a registered trademark would thus constitute trademark infringement.

Second, the definition of “similar” marks and “identical” marks was unclear. Was confusion a prerequisite in determining the similarity of whether the marks were similar or identical? The old law offered no clarity. Courts have rendered completely different rulings in cases on this matter.

Some courts made confusion the foundation of the Trademark Law in full and found that it was the consumers who determined whether marks or goods were similar to registered trademarks. To be recognized as similar goods or trademarks, all branded goods produced by the OEM had to be confused with a registered trademark and the goods using that mark. As the OEM goods were not sold in China, they could not be evaluated by Chinese consumers, thus they would not be similar products or trademarks.

Other courts used the Nice Classification as their standard for determining similarity and used appearance to determine whether the mark used was similar to a registered trademark.

New law brings clarity

The new law remedies this conundrum. First, article 48 sets out a clear definition of using a trademark: “Using a trademark as set out in this law refers to using a trademark on goods, the packaging or containers of goods as well as goods transaction documents, or using a trademark in advertisements, exhibitions or other commercial activities for the purpose of identifying the goods’ source.”

Accordingly, to constitute “using a trademark”, the act must exhibit seven objective actions as prerequisites along with a subjective goal identifying the good’s source. Branding a good with a mark exhibits the objective prerequisite but lacks the subjective goal, thus the branding does not constitute using a trademark in China.

Further, article 57 makes it clear that confusion is a prerequisite indicating trademark infringement, which should prevent inconsistent interpretation by the courts. Article 57, clause 2 stipulates, “If confusion is likely to result from using a trademark that is similar to a registered trademark on the same type of goods, or using a trademark that is identical or similar to a registered trademark on similar goods, without first having obtained a licence from that trademark’s registrant”, then it is an infringement of the exclusive right to use a registered trademark.”

The new law clearly makes trademark confusion a prerequisite for determining whether similar marks or goods constitute trademark infringement. OEM products are not sold domestically; therefore they will create no confusion in China. As a result, using a mark that is similar to a registered trademark on the same kind of goods, using an identical mark on similar goods or using a similar mark on a similar product does not constitute infringement.

Article 57, clause 1 does not stipulate that confusion is a prerequisite where a mark that is identical to a registered trademark on the same type of good is used. This would generally be seen as infringement among non-OEM activities. As raised above, branding a good with a mark does not constitute using a trademark, thus it is not infringement.

In short, OEM branding is not using a trademark under the new Trademark Law, and it cannot constitute infringement of a trademark as explicitly stipulated by the law.

Former Supreme People’s Court (SPC) Intellectual Property Tribunal chief judge Kong Xiangjun gave a very precise perspective on this in an article published by People’s Court News on 25 June 2014. Kong said, “Branding is not used to identify a source of a product in China, and thus it is not using a trademark.”

Despite Kong’s statement, judges may still be far from reaching a consensus on this issue. There are some judges, including those at the SPC, who have come out giving contrasting views as to whether OEM branding constitutes infringement since the new Trademark took effect.

This is a rather critical issue. The new law was explicit in this matter, and all courts should strictly examine these cases in accordance with the updated rules. There should be no further judicial uncertainty as to whether OEM branding constitutes trademark infringement.

David Lee is a partner and a client manager of Chang Tsi & Partners

(Chang Tsi & Partners)

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