The Wild East? Protecting trade marks in China

Made in China 2025

Although China is becoming an increasingly important consumer market, it still has the reputation of being a cheap (counterfeit) production country, with Original Equipment Manufacturers (OEMs) being the motor of the Chinese economy.

With its Government campaign Made in China 2025, China is now trying to lose its image of (counterfeit) factory of the world and aims to put its own trade marks in the spotlights.

Counterfeit production by OEMs

OEM simply means that a manufacturer is commissioned to manufacture products and attach the commissioner’s trade mark to same. Often these products do not enter the Chinese marketplace and are exported abroad.

Obviously, China’s OEMs have been and are being used by honest trade mark owners around the world. They, however, also play an important role in the production of counterfeit goods.

Stopping counterfeit production is a difficult task. Although a registered (foreign) trade mark is required in order to be able to commission an OEM, it is not the OEM’s job to assess whether such trade mark is obtained in good faith. As such, bad faith registrations (either Chinese or foreign) form a basis for justifying counterfeit production. On top of that, the Supreme Court ruled that OEM should not be regarded as infringing the legitimate rights of the owner of the Chinese trade mark, when such goods are not made available in the Chinese marketplace, but exported to other countries. In other words: use by an OEM was not considered to infringe Chinese trade marks.

It, however, now looks as if things are going to change because of the Made in China 2025 campaign – China is finally prepared to battle bad faith and counterfeits.

Amended Trade Mark Laws

Since 1st November 2019, the Trade Mark Law has been amended.

Important amendments include:
• Bad faith filings without a genuine intention to use shall be rejected
• Bad faith can serve as basis for opposition/revocation
• It is illegal for trade mark agencies to represent bad faith filers
• There are increased filing fees and penalties/compensation to put off bad faith filers
• There are penalties for bad faith trade mark infringement claims

Blocking bad faith filers will be of enormous assistance in fighting counterfeit production.

Honda case

In the important HONDA case of September 2019, the Supreme Court decided that OEMs should no longer be seen as an exception to trade mark infringement.

Background

Honda owns a Chinese trade mark HONDA for vehicles in class 12. A Chinese OEM manufactured vehicle parts commissioned by a company who owned a Myanmar trade mark HONDAkit. On the vehicle parts the wording HONDA was prominently displayed. All goods were exported out of China. Honda brought a trade mark infringement lawsuit against the Chinese OEM, who justified production on the basis of the Myanmar trade mark and the fact that OEM use does not constitute trade mark use.

Decision

The Supreme Court decided that – contrary to previous decisions – the OEM as a defence was not sufficient: a foreigntrade mark should not be able to serve as defence against a trade mark infringement claim based on a valid Chinese trade mark.

It concluded that it is not necessary to make the goods available to Chinese consumers (end users) to ascertain use of the trade mark, as the relevant public can also consist of third parties who are labelling, transporting and distributing the trade marked products. In addition it mentioned that Chinese consumers could also encounter these products when travelling abroad.

Good news

The decision stretches the concept of the relevant public and trade mark use. This, however, is in favour of legitimate trade mark owners who can now tackle counterfeit production on the basis of their Chinese trade marks.

There is also another advantage of OEM use. OEM use will likely now be more than sufficient to meet the Chinese use requirements (provided that sufficient evidence is collated). That means that even if you do not sell your products in China, your Chinese trade mark will not become vulnerable to non-use actions, and could even assist in tackling counterfeit production as mentioned above.

Risks

However, there are also risks involved. If you are currently producing in China without having a registered Chinese trade mark in place, an OEM may potentially require you to obtain such registration, which could be difficult. Not having a Chinese trade mark in place includes the risk that an owner of an identical/similar Chinese trade mark could claim that your OEM use infringes their trade mark.

What to take away

• Take active action to combat bad-faith trade marks
• Collate sufficient evidence of your own OEM use to be able to prove genuine use of your trade mark in China (in the form of licence agreements, purchase orders, delivery notes, customs declarations and dated product photos).
• Act first and do not wait to register your trade mark if you intend to use or produce in China.

This article was prepared by HGF Partner Lee Curtis and Senior Trade Mark Attorney Susanne Bilderbeek. If you would like further advice on this or any other matter, please contact Lee or Susanne.  Alternatively, you can contact your usual HGF representative or visit our Contact page to get in touch with your nearest HGF office.