(By Albert Chen) The author once introduced readers to different judicial opinions adopted in the Shanghai and Guangzhou courts over whether trademark infringement could be caused by an OEM. According to a ruling handed down by the Fujian Higher People’s Court in 2012, which came to the attention of the author recently, the judge confirmed that an OEM could lead to trademark infringement, but at the same time, the court also decided that no liability shall be taken by the first user of the mark, for no confusion would be made. As for that point, the author certainly has a different opinion.

Case Summary

I. Schroeder KG (the “SKG”) is a German company, whom applied for the trademark “iska” in 1999 in the EU. SKG has been long licensing to companies in China the “iska” OEM, including the Guangxi Rui Ning Food Co., Ltd. (the “Rui Ning Company”).

In 2001, Ruining Company applied for the trademark “iska” in China, and the application approved one year later in 2002. Due to concerns that its trademark squatting would be discovered by SKG, the registered trademark had long remained unused. Subsequently, Rui Ning Company transferred the trademark to the Niannianhong Company (the “NC”). During the process of the trademark transfer, SKG discovered the trademark squatting, and demanded that Niannianhong transfer the trademark to it when its transaction with Rui Ning was completed. Mr. Su Yushi, the director of NC, issued a written statement to SKG expressing his promise to transfer the trademark, and yet no actual transfer had been made following NC’s acquisition of the “iska” trademark.

After that, SKG entrusted a China-admitted company to export a batch of goods marked “iska” to Russia, but they were detained by the Xiamen customs house, and an order for administrative punishment was made. At the same time, NC also filed a lawsuit against SKG for trademark infringement.

In the first instance of the case, the judge concluded the focus of the dispute to be: 1) whether the plaintiff had lawful right over the trademark; and 2) whether adoption of the trademark by the defendants was infringement. Accordingly, the court analyzed the points above as follows:

First, as for the lawful acquisition of the trademark right, the first instance court decided that Rui Ning’s application for the trademark “iska” was trademark squatting, but that the procedure of the trademark registration was lawful and in accordance with legal requirements . For this reason, including SKG’s claims that the disputed trademark had not been used by NC for three years continuously, the court thereby ruled that the trademark registration should be revoked and other  trademark-related claims should not be considered protected until revocation by the appropriate administration.

But as to whether the defendant had the right to use the plaintiff’s trademark, the court in the first instance felt that:

(1)   OEM is considered a type of trademark use

Pursuant to Article 3 of the Implementing Rules for the Trademark Law in China, the adoption of trademarks shall include using the trademark on the product, product cover or the container and the documents for the transaction, or use of the mark to publicize the product either in an exhibition or other business activities. Business activities include manufacturing and sales of the product; therefore, an OEM, as a method of product manufacturing, shall also be prohibited to use a trademark on the same or similar products as those that have been applied by others on the same or similar products.

(2) Subjects confusing the trademark include the manufacturer and logistic participants

The relevant public on one hand shall include the consumer of the product, and on the other hand include the product’s manufacturer and salesmen. For this reason, even a product coming from an OEM could not be sold in the Chinese market, because it would also lead to confusion among the manufacturing or logistics industries, and thereafter the recognition function of the trademark would be damaged.

Basing on the above two points, the court judged that SKG’s entrusting of a domestic company for OEM shall be considered trademark infringement. However, on the other hand, it also confirmed that: “to judge it from the recognition function of the trademark, the defendant SKG has been long entrusting Chinese companies in the OEM manufacturing of canned foods marked “iska,” and therefore even if the plaintiff’s trademark was not revoked, the defendant SKG would cause no damage to the trademark right through its use of the mark.”

With the above opinions, the original court determined that NC should have the right of the trademark involved in the case, but that SKG’s use of the trademark could not be considered infringement. Thus it refused NC’s claims.

Dissatisfied with the ruling, NC appealed to a higher court after the first instance. In the second instance, the Fujian Higher People’s Court confirmed that the opinions adopted by the original court that OEM is trademark infringement. But it also further stressed that the trademark application shall follow the Empire Provision in Civil Law under “the good faith principle,” and considering Rui Ning’s trademark transfer and application being reasonably defected, and in also considering the OEM history of SKG in China, the targeted public would not confuse the trademarks. Based on these principles, the Fujian Higher People’s Court sustained the decision, and refused NC’s appeal.

Lawyer Comments

According to the opinions of the author, the Fujian court’s rulings are to be doubted for the following reasons:

1) The consumer’s confusion regarding the origin of the product shall be a requirement for a finding of trademark infringement

As provided in the Trademark Law: any unlicensed use of similar or identical trademarks on the same kind or similar product constitutes direct infringement against a trademark right. But that decision shall first meet the condition that the consumer would be confused between the product and the service.

Although both courts in Fujian Province have taken confusion as the essential condition to find infringement, it has inappropriately extended the subjection involved in the confusion analysis to participants in manufacturing and logistics. And by the basic theory of Trademark Law, it ensures that a consumer can correctly associate the mark with the product or service, by excluding others from using or misappropriating the mark as an indicator for their own products or services. But manufacturers and transporters of a product should not be considered the “consumer” involved in the chain of consumption, and therefore both of them should not be considered in regard to their confusion when deciding whether there has been infringement against trademarks.

2) OEM is not use in the trademark law

As confirmed by the second instance court: SKG’s trademark use does not infringe another’s right in the mark. But in fact, in this case, whether SKG actually used the mark is a more important inquiry. On one hand, the trademark “iska” only appeared during the OEM process, and had not been put into use in actual business operations; in addition, Chinese consumers would likely never come into contact with this mark. Based on these very clear facts, it is obvious that SKG’s use of the mark could not be considered “use” for the purpose of finding trademark infringement at all.

Considering these points, the Fujian courts ruled that SKG had not infringed the right of the disputed trademark for first use. However, even this finding can be put into question.

In conclusion, in the author’s opinion, the real reason SKG had not been found to infringe upon NC’s trademark rights has nothing to do with first use rights to the mark, thus not finding confusion, but because OEM itself is not even considered to be within a category of trademark infringement. Although the Fujian courts’ decisions came to the same finding, i.e., that SKG had not infringed the trademark right, the reasons they provided for coming to that decision are clearly in error.

In closing, the author would like to make a point that opinions adopted by courts throughout Chinese jurisdictions vary considerably; keeping that in mind, one may find in the process of bringing suit for infringement that their own experiences with courts will also differ.

Lawyer Contacts

You Yunting：86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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