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Trade Mark use in China

June 2018

Has the east wind finally brought certainty? The issue of Original Equipment Manufacture (‘OEM’) in China is of crucial importance to retailers. Although many retailers may not actively trade in the Chinese market, they will undoubtedly source numerous products from the ‘factory of the world’ and many of these sourced products will carry their brands.

Given ‘brand hijackers’ and the security of the supply chain being paramount, the issue of whether the manufacture of branded product in China solely for export (OEM trade mark usage) constitutes use for the purposes of trade mark infringement is an important topic.

The Supreme People’s Court (‘SPC’) in the landmark Pretul decision (Nov 2015) held that OEM usage was not use in China and thus did not constitute trade mark infringement, essentially meaning that the owner of a Chinese trade mark registration could not prevent the export of branded OEM product from China to a third-party nation. There has been some uncertainty over this issue, given inconsistency in decisions by the Chinese Courts. This may now seem to be at an end, with SPC, China’s highest court issuing a second decision in the Dongfeng case.

Certainty comes with Dongfeng

The factual situation around the Dongfeng case is not unlike that of Pretul. The trade mark registrant, Shanghai Diesel Engine Co. (‘SDEC’) was the owner of Chinese Trade Mark Registrations for a logo incorporating the word DONGFENG, which means ‘east wind’ in English, for diesel engines since the early nineteen eighties. The defendant PT Adi, an Indonesian company, had been the owner of an Indonesian trade mark registration for the identical mark since 1987 for identical goods. SDEC had failed in an opposition to the said Indonesian trade mark registration.

In 2013, PT Adi placed orders with the Chinese OEM manufacturer Changjia to manufacture and deliver diesel engines bearing the DONGFENG trade mark to Indonesia.  When these goods were ready for export, Chinese customs seized the branded goods, although ultimately these goods were released and sent for export, as customs were unsure whether the product was genuine or not. However, the story did not stop there as in January 2014, SDEC launched trade mark infringement proceedings against PT Adi for the infringement of its Chinese trade mark registrations.

In the first instance, the Changzhou People’s Court found for PT Adi holding there was no trade mark infringement as OEM usage had not meant the branded goods had been put on the market in China, and thus the use of DONGFENG by PT Adi and indeed Changjia did not function as a badge of trade origin in the domestic Chinese market. SDEC appealed this decision.

The Jiangsu Higher People’s Court then ruled in favour of SDEC, highlighting inconsistency in Chinese Court’s decisions. The Jiangsu Higher People’s Court attempted to distinguish this case from Pretul on the basis that Changjia knew that the DONGFENG trade mark was well known in China and associated with SDEC and it failed in its duty to check the validity of PT Adi’s trade mark rights and held that PT Adi have falsely registered the DONGFENG trade mark in Indonesia. PT Adi unsurprisingly appealed this decision, especially given the jurisdiction issue.

The SPC held in favour of PT Adi in the appeal. The SPC again followed the Pretul decision that OEM trade mark usage is not trade mark use in the Chinese market and thus does not constitute use which would infringe a Chinese trade mark registration and cannot cause confusion in the Chinese market. It also held that Changjia had fulfilled its duty of care as it knew PT Adi was the owner of an Indonesian trade mark registration for the mark concerned for the product covered and this was the end destination of the exported product.

This decision makes sense and should be welcomed by all retailers with large supply chains in China. It seems to finally bring some certainty to the question of OEM trade mark usage.

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