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13 Nov 2019
On 23 September 2019, the Supreme People’s Court (“SPC”) rendered a judgment for Honda Motor Co., LTD. (“Plaintiff”) in its trademark infringement case against two original equipment manufacturers (“OEMs”), Chongqing Hengsheng Xintai Trading Co., Ltd. and Chongqing Hengsheng Group Co., Ltd. (“Defendants”), who were affixing the Plaintiff’s logo on goods exported to a third party without authorization from the Plaintiff. The judgment indicates that OEMs’ affixing of trademarks without authorization from the owner of the trademark in China will constitute trademark infringement, which is an about-face from the SPC’s previous position. While subsequent cases are needed to confirm this latest position, it may have far-reaching impact on the OEM and possibly other industries in China, including empowering trademark owners to cut off the source of unauthorized OEM products manufactured in China. This Newsletter reviews the judgment in context.
Background on OEMs
Commonly in international trade, an enterprise in one country will manufacture or otherwise process goods at the behest of an enterprise in another country, including by affixing logos, symbols or other trademarks on the goods, and then export the goods. The goods are not put on the market in the country of manufacture/processing—at least not directly. Issues arise, however, when the enterprise engaging the OEM does not have rights over the mark in the country of the OEM and only licenses its rights from other jurisdictions (e.g., of the destination of the exported goods) while another party does have rights over the mark (or a similar mark) in China.
SPC’s Previous Position: OEM Does Not Infringe Trademarks
Over the years, at least some trademark owners have sued Chinese OEMs for trademark infringement, claiming that the OEMs used, on goods they manufactured/processed, the trademark owners’ logos or symbols without due authorization. The PRC courts have as a rule rejected such claims. The main rationale of the OEMs, adopted by the courts, is that they are only “affixing” trademarks on goods, which, moreover, are all exported and do not enter the Chinese market. Thus, first, the OEMs are not “using” the trademarks in the relevant sense under the PRC Trademark Law, and second, the conduct of the OEMs cannot cause confusion on the Chinese market as required for an infringement under the same. The SPC, in the two previous cases it heard on point, supported these stances and held there was no trademark infringement:
SPC’s New Position: OEM Might Infringe Trademarks
In the case decided on 23 September 2019, the SPC not only held that an OEM infringed a trademark but also did so (i) in the face of facts essentially identical to those of previous cases and (ii) with a rationale that diametrically disagreed with the previously prevailing rationale.
In this case, Meihua Company, which is the registered trademark owner of “HONDAKIT” in Myanmar, engaged the Defendants to produce certain motorcycle parts, affix the “HONDAKIT” trademark on them and export them to Myanmar. The Plaintiff owns the trademark “HONDA” in China and sued the Defendants for trademark infringement. In holding that the Defendants’ conduct infringed the Plaintiff’s trademark, the SPC reasoned as follows:
The SPC’s judgment is startling, at least in light of its and lower courts’ previous decisions on such facts and issues, and should be viewed prudently. Trademark owners may be able, by initiating trademark infringement litigation following the rationale in the SPC’s latest judgment, to extend the scope of their trademark protection and prevent authorized OEM goods from being manufactured in China and exported to other countries. However, the SPC left a lot of leeway on the issue by emphasizing that its judgment was strictly specific to the facts of the case before it, so even if the case represents the SPC’s general position on trademark infringement by OEMs from now on, it may be some time until the position takes root throughout the lower levels of the PRC judiciary.