If products bearing your trademark are manufactured and branded in China, it is now more important than ever that you register your trademark there.
Most South African buyers of OEM products consider it sufficient to register their trademarks in South Africa, as this is where the products are advertised and sold to end-consumers. But problems can arise when trademarks are applied to OEM products made in China, particularly if that trademark (or a similar trademark) is registered by a different company in China.
China and OEMs
China has long been popular among South African buyers as a source of Original Equipment Manufacturer” (OEM) products. To clarify, an OEM is a manufacturer that produces products or parts for its buyers, which on-sell those products to end-customers under their own trademarks.
Generally, an OEM not only manufactures products, but also brands and packages the products with trademarks prescribed by the buyer. The finished products are then collected by the buyer and shipped to the destination country for sale through the buyer’s retail and distribution channels.
Conflicting decisions
There have been some conflicting decisions by courts in China regarding OEM products and whether the trademarks applied to those products are ‘used’ in China.
The view for many years was that OEM manufacturing might constitute ‘use’ of a trademark, but as long as the use did not lead to a likelihood of confusion, there was no trademark infringement. This view was expressed in the decisions by the Supreme People’s Court (‘SPC’) in Pujiang Tahuan Lock Co Ltd v Focker Security Products International Limited (2015) (‘PRETUL case’) and Jiangsu Chang Jia Jin Feng Power Machinery Co Ltd v Shanghai Diesel Engine Co Ltd (2017) (‘DONGFENG case’). It appeared from these decisions that the act of affixing trademarks in the course of OEM was “use”, but on assessing the likelihood of confusion in relation to the OEM-manufactured goods, there might not be confusion and therefore, no trademark infringement.
Things changed in 2019 with Honda Motor Co Ltd v Chongqing Hengsheng Xintai Trading Co Ltd ((2019) Zui Gao Fa Min Zai No 138) or HONDAKIT. In its judgment, the SPC held that there was no special exemption for OEM for export activities. In particular, it defined “relevant public”, for the purpose of determining a likelihood of confusion, to include all business operators and consumers that may have access to the “infringing goods” (OEM-manufactured goods) for export.
The SPC made a number of key findings that affect OEM and trademark use, namely:
* It found that there was a possibility of contact with the businesses in transportation and that, given e-commerce and the Internet, even if the OEM goods were exported, it remained possible for the goods to return to China. Therefore, there exists a possibility that the trademark on the OEM goods functions to distinguish the source of the goods for the relevant public.
* It found that trademarks enjoy territorial protection and, accordingly, a buyer cannot rely on their trademark rights in a foreign country (like South Africa) to grant an OEM authorisation to use a trademark. Therefore, authorised use by a foreign buyer cannot be used as a defence against trademark infringement proceedings in China.
As a result, the affixing in China of a trademark registered in South Africa to goods meant only for export to SA can amount to infringement of an identical or similar trademark registered in China.
Recent developments
The HONDAKIT case, although not necessarily binding on all courts, has become an important reference for courts when dealing with OEM and trademark use. Several recent decisions by Chinese courts have followed the SPC’s example and held that OEM can lead to trademark infringement in China.
In addition, and perhaps of more immediate concern to buyers, China Customs has also changed its stance. OEM products that are suspected of having infringed a Chinese trademark are detained and/or seized at the border, even in circumstances where evidence proves that the goods are for export only. If you have ever had your products detained or seized by Customs, you know the admin hassles, costs and loss of sales that can accompany such an unfortunate situation.
Uncertainty on this issue remains, but there is consensus on one point: that the most effective way to avoid issues with OEM products is to register, in China, any trademarks to be applied to them.
Advice for buyers
If you are a buyer of OEM products and you are concerned about the effects that this issue may have on your business, begin by instructing your trademark attorneys to conduct a search to see whether there are any prior identical or confusingly similar trademarks already registered in China.
While you are at it, instruct a search in the General Administration Custom of China (GACC) database, to determine whether any prior identical or confusingly similar trademarks, copyright and/or patents (as the case may be) have been recorded with Customs. If so, the risk of detention of your OEM products by Customs is higher.
If your trademark is available for registration, file a trademark application as soon as possible, because the registration process takes approximately a year to complete, and you want your trademark registered as soon as possible.
The good news is this: if your trademark is used on OEM products that are for export only, the application of the trademark to the OEM products in China amounts to ‘use’ of the trademark in China for the purposes of defending a non-use claim. Thus, if you register your trademark in China and only use it in OEM, your trademark will not be vulnerable to cancellation based on non-use.
By John Foster, Spoor & Fisher
Enquiries: www.spoor.com
