Recently, China’s Supreme People’s Court (SPC) judged no infringement in a retried case (2014 Civil Retrial No. 48) on the issue whether the use of trademark on original equipment manufacture (OEM) products constitutes trademark infringement.
Brief Introduction of the case
TRUPER HERRAMIENTAS S. A. DE C.V. (“TRUPER”) is the owner of the trademarks PRETUL and PRETUL & Device in Mexico. TRUPER entrusted Pujiang Yahuan Lock Co., Ltd. (“Pujiang Yahuan”), a Chinese OEM producer, with the manufacture of locks branded with PRETUL and PRETUL & Device. The products were exported to Mexico directly without any sale in China.
Focker Security Products International Limited (“Focker”), the owner of the registered Chinese mark PRETUL & Device, filed a lawsuit with Ningbo Intermediate Court accusing Pujiang Yahuan of trademark infringement. The Court confirmed the infringement in favor of the plaintiff. The case was appealed to Zhejiang Provincial Higher Court and the infringement was finally reaffirmed.
Pujiang Yahuan requested the SPC for a retrial and the request was accepted. On November 26, 2015, the SPC ruled that as all of the OEM products are exported without any local sale, the trademark attached thereto will not function to indicate the source of the goods, and consequently, there is no possibility of confusion among local consumers.
Significance
- For many years, it has been a controversial issue whether the OEM products constitutes IP infringement or valid use of the IP rights. Different courts hold different views and made contradictory rulings. This is the first time for the SPC to clarify this issue through a retrial overruling the Higher Court’s “final” ruling. Although China is not a case law country, the lower courts usually take the higher courts’ precedents very seriously. We have reason to believe that the Chinese courts are quite likely to follow suit in the future.
- Now that the use of trademark on OEM products has been officially deemed invalid trademark use, OEM evidence alone might be insufficient to defend a mark against non-use cancellation.
Further Thoughts
- The SPC’s retrial ruling supported the infringement based on actual harm rather than possible harm, whereas possible harm might also be considered infringement under the Chinese civil legal system. In our opinion, though in many courts’ rulings where OEM production is deemed as not constituting infringement, there exists the probability that the contrary point of view will become more acceptable to the courts in the future. According to the Chinese civil law, damages are available to compensate for actual harm. However, if no actual harm happens but potential harm is likely to happen, the potential victim remains entitled to require the potential infringer to remove the potential harm or to prevent the potential harm from happening. For example, where a flower pot is placed on a balcony over a road, the passers-by are entitled to require the balcony owner or tenant to remove the flower pot. Likewise, the OEM factory’s products, when shipped from the factories to the harbor or airport and then to a different country, are also likely to be misappropriated somewhere on the way to the harbor or airport. If and when the possibility of such misappropriation cannot be ruled out, the trademark (or other intellectual property rights) owners should be entitled to keep the factories liable for potential harm. In other words, OEM products should actually be considered to infringe intellectual property rights, including trademarks, whether or not there is a showing of actual harm.
- Although judicial ruling can significantly influence the lower courts, it might not be immediately binding on such administrative organs as the Customs and the Administrations for Industry and Commerce (AIC). In other words, it remains probable for the Customs to stop OEM products, particularly if the registered IPR owners recorded their IPRs at the Customs or request for the Customs’ detainment or seizure. The local AICs also remains empowered to take corresponding actions, ex officio or at the request of the owners or any reporters.
Source: www.chinaiplawyer.com
