Trade Advice
Non-Chinese companies that engage original equipment manufacturers (“OEMs”) in the People’s Republic of China (the “PRC”) may be unaware that they or the OEMs are infringing on the PRC-based exclusive trademark rights of third parties. Given varied interpretations of existing PRC trademark legislation, non-Chinese companies should carefully analyze the scope of their trademark rights in the PRC prior to engaging an OEM.
The right to the exclusive use of a trademark that is recognized in one country is not automatically recognized in another country; for example, the right to exclusive use in Greece will not necessarily exist in the PRC. As such, multiple parties may have the rights to exclusive use of the same trademark but in different countries; for example, Nike may have the right to exclusive use of the “swoosh” trademark in the United States, but Uniqlo may have the right to exclusive use of the same trademark in Japan.
A non-Chinese company will often engage PRC-based OEMs to manufacture goods bearing a trademark that the non-Chinese company has the right to exclusively use in a country other than the PRC. In these circumstances, the non–Chinese company and the China-based OEM may be deemed to be infringing on the right to exclusive use of a third party in the PRC. Such a decision may result in the confiscation and destruction of trademarked products, and/or the obligation on the part of the non-Chinese company and the China-based OEM to pay fines and damages to the PRC trademark owner.
Non-Chinese companies may mitigate the risk of such trademark infringement through strategic registration, affixation, or licensing.
Trademark Infringement in the PRC
Trademark infringement in the PRC may occur by using a trademark (e.g. selling a product bearing a trademark or reproducing a trademark) that is similar or identical to a trademark registered by another party in the PRC.
Importantly, PRC law currently does not squarely answer whether the PRC-based manufacture of trademark-bearing products for exclusive export from the PRC infringes on the exclusive use rights of the party that has registered the trademark in the PRC.
A number of PRC courts give an affirmative answer: the PRC-based manufacture of products that bear a PRC-registered trademark, by an entity that is neither the registered owner nor the duly licensed user in the PRC, is an infringement of the exclusive use rights of the party that has registered the trademark in the PRC, regardless of whether or not the products are bound for exclusive export.
Nike v. CIDE Sports Ltd. (2001)1
This court found that the PRC-based manufacture of branded products that are reserved solely for export to a foreign trademark-holder constitutes an infringement of the PRC trademark owner’s rights, perhaps recognizing the difficulty of being certain that the products would be solely exported.
Nike and CIDE Sports Ltd. (“CIDE”) owned the exclusive use rights to the Nike “swoosh” trademark in the PRC and Spain, respectively. CIDE authorized PRC-based Yinxing Clothing (“Yinxing”) to produce clothing bearing the “swoosh” trademark for exclusive export to Spain.
Nike, the PRC trademark owner, alleged that CIDE’s authorization to Yinxing to produce clothing bearing the “swoosh” trademark infringed on Nike’s exclusive use rights, even though the products would be exported to Spain. The PRC court ordered CIDE and Yinxing to halt production, destroy all branded products, and compensate Nike.2
Courts made similar rulings in Ruibao v. Yongsheng (2005)3 and Hongxin v. Guangzhou Custom (2006)4
Shenda Shanghai Ltd. v. Jiuli Shanghai Ltd. (2008, 2009)
Distinct from the previous illustrative cases, the ruling in Shenda Shanghai Ltd. (“Shenda”) v. Jiuli Shanghai Ltd. (“Jiuli”) focused on whether a foreign trademark owner’s use of the PRC trademark in an export-focused OEM structure could confuse PRC consumers.
Shenda and Jiuli owned the exclusive use rights to the “Jolida” trademark in the PRC and the United States, respectively. Jiuli engaged a PRC-based OEM to manufacture equipment bearing the “Jolida” trademark, with the intention that such equipment would be solely exported to and sold in the United States. Shenda, the PRC trademark owner, argued that Jiuli infringed on Shenda’s exclusive use rights merely by manufacturing in the PRC. The court ruled in favor of Jiuli, recognizing that the exclusive export to and sale in the United States and would not confuse PRC-based consumers as to the brand they were purchasing nor the level of quality that they could expect from their purchase.5 The ruling withstood appeal.
Mitigating Risks
Given the divergent interpretations of the PRC’s trademark law in the above-described set of circumstances, economic actors involved in the OEM structure should consider certain steps to mitigate the risk of being found in infringement of a third party’s exclusive use rights to a PRC-registered trademark.
Trademark Registration
A company intending to engage a PRC-based OEM should confirm whether the relevant trademark has already been registered by another party in the PRC. If not, the company should consider doing so.
Trademark Affixation
Where trademark registration is not feasible, the company intending to engage an OEM should consider the feasibility of affixing the trademark in a location where it avoids risk of trademark infringement. This location could be the country where the company has registered the trademark, or even a jurisdiction in China where the courts do not consider export-focused manufacture to be an infringement.
Obtain License
The company intending to engage a PRC-based OEM (or perhaps the OEM itself) can attempt to obtain a trademark license from the relevant owner of the exclusive use rights.
Prepared by Nestor Gounaris, Lena Skandera, and Cheryl Yang. This article was kindly supplied by China Solutions. For further details please contact Nestor Gounaris[at] ngounaris@chinasolutionsllc.com, or visit China Solutions at www.chinasolutionsllc.com.
Footnotes
- Nike v. CIDE Sports Ltd. Yinxing Clothing, Chuchan Import & Export Ltd (2001).
- (2001) Shenzhen- Civil- No.55
- (2005) Zhejiang Province- Civil- No.284
- (2006) Guangdong Province- Admin- N0.22
- (2009) Shanghai- Civil- No,65
Jan 30, 2012