In the international trade that gradually emphasizes the division of labor, the mode of OEM is extremely common. There are also a considerable number of enterprises in China that have been engaged in this business for a long time. For foreign-related OEM enterprises, it is of great value to pay attention to taking effective preventive measures in their operations to avoid trademark infringement and to prevent risks in advance.
OEM, also known as "fixed brand processing", refers to the business model in which the processing party processes the goods with a specific trademark or brand for the client according to the contract, delivers the goods to the client, and the client pays the processing fee according to the contract. In particular, the foreign processing refers to that the entrusting party is a foreign company and all goods are sold abroad. In other words, the domestic processing party is only responsible for the production of goods and the goods will not enter the Chinese market for sales. In the international trade that gradually emphasizes the division of labor, the OEM mode is very common, and there are also a considerable number of enterprises in China engaged in this business for a long time.
However, since the production and processing inevitably involve trademark affixing, and trademarks play a special and important role in economic and trade identification, disputes arising from this have occurred from time to time, and there have been differences in judicial practice. Different courts have made completely different determinations. Until the Supreme Court has made a series of decisions not to identify infringement in recent years, the trend of unified standards has emerged. For foreign-related OEM enterprises, it is of great value to take effective preventive measures in operation to avoid trademark infringement and prevent risks in advance.
A Summary of Cases of Trademark Infringement Caused by OEM
By studying the relevant judgments made by Chinese courts in recent years, it can be found that when the courts analyze whether the act of OEM constitutes an infringement of the exclusive right to use domestic registered trademarks, they mainly evaluate it from the following three points: first, whether the domestic manufacturers and foreign registered trademark holders are strictly "OEM" contracts; Second, whether the trademark affixing behavior in the OEM process can be understood as "trademark use" in the sense of China's trademark law; Third, whether the establishment of trademark infringement must be based on causing confusion among the relevant public.
The court that supports the act of OEM to constitute trademark infringement usually finds that the act of trademark affixing constitutes trademark use. These courts hold that the act of trademark affixing is an objective act in the production process. The purpose of affixing a trademark to a commodity is to distinguish the function of identifying and distinguishing the source of the commodity.
For example, typical cases include the "Dongfeng" case judgment issued by Jiangsu Provincial High Court. Although this judgment was finally overturned by the Supreme Court, However, the interpretation of trademark use is representative: "Trademark use behavior is an objective behavior. As long as the trademark is used on the products manufactured or processed in the way of marking or other ways, it can achieve the purpose of distinguishing the source of goods, and should be recognized as trademark use behavior in the sense of trademark law. Changjia Company's use of the same trademark on the same kind of goods is a typical trademark use behavior. Changjia Company's diesel engine products are not in China Whether market sales will cause confusion and misunderstanding among the relevant Chinese public is not a constituent element of trademark use in the sense of trademark law. "
For another example, the Zhejiang Provincial High Court put forward in the "Second Instance Civil Judgment on Trademark Infringement Disputes between Spidu Holding Co., Ltd. and Wenzhou Luga Trading Co., Ltd., Konason Optical Products Trading and Agency Co., Ltd." that: "The trademark use behavior is an objective behavior, which should not be evaluated differently because of different users or different production and circulation links. In the process of foreign OEM, the OEM behavior as a production link is a typical behavior of using trademarks on goods, which belongs to the trademark use behavior."
Based on this, we can conclude the following main points in support of trademark infringement caused by OEM: First, when evaluating trademark use, we should distinguish it from causing confusion among the relevant public, and only evaluate trademark attachment; Secondly, the function of trademark identification does not depend on its putting on the market; Finally, the act of affixing the trademark to the goods in the fixed brand processing itself is "the act used to identify the source of the goods", because the trademark affixing in industrial production is not for aesthetic or other decorative purposes, not to play a role in substantially affecting the quality of the goods, but to identify the source of the goods.
Summary of cases where OEM does not constitute infringement
The court holding a different opinion from the above court held that the trademark affixing behavior in the OEM process has a significant particularity, that is, all goods are exported to foreign countries, so in the Chinese market, it cannot play the most basic identification function of the trademark, cannot be called trademark use, and therefore does not constitute trademark infringement.
Compared with the court decisions that support OEM as trademark infringement, the majority of court decisions that hold opposing views, and the three judgments or rulings of the Supreme Court on typical foreign-related fixed license processing cases all believe that simple OEM does not constitute trademark use in the sense of China's trademark law.
In the case of "Lais Anti theft Products International Co., Ltd. v. Pujiang Yahuan Lock Industry Co., Ltd. Infringing the" PRETUL "Trademark" decided in January 2014, The Supreme Court held that: "It is of no practical significance to judge whether to use the same trademark on the same goods, or to judge whether to use similar trademarks on the same goods, or to judge whether to use the same or similar trademarks on similar goods is likely to lead to confusion, when trademarks do not play a role of identification and are not used in the sense of trademark law."
In July of the same year, the Supreme Court agreed with the judgment and reasoning of the court of second instance in "Yu Dexin, Jiangsu Jiahong International Trade Co., Ltd., Shuyang Zhongyuan Import and Export Co., Ltd., and Shuyang Fenjin Brush Factory applied for retrial of a dispute over trademark infringement", They believed that "the basic function of the trademark law to protect trademarks is to protect their identifiability. To judge whether the use of the same trademark on the same goods, or the use of similar trademarks on the same goods, or whether the use of the same or similar trademarks on similar goods is likely to cause confusion, the premise is that the trademark will play or may play the identification function."
In similar cases, the Supreme Court also issued the "Civil Judgment of Pujiang Yahuan Lock Co., Ltd., Lais Anti theft Products International Co., Ltd., Pujiang Yahuan Lock Co., Ltd. and Lais Anti theft Products International Co., Ltd. for Retrial of Trademark Infringement Dispute" in November 2015, which also involved the "PRETUL" trademark. The Supreme Court also maintained a consistent position, believing that OEM enterprises did not constitute trademark infringement.
To sum up, the main reason why OEM does not constitute trademark infringement is that, on the one hand, the ultimate purpose of trademark use is to enable the relevant public to distinguish the source of goods or services. If it is impossible to trigger this function within the scope of China, then the legal sanctions for this behavior will have no practical significance; On the other hand, trademarks are regional in nature. In reality, different countries do have different subjects holding the same or similar trademarks. It is unfair to assume that fixed brand processing constitutes trademark use and thus determines that fixed brand processing constitutes trademark infringement.
Trend Analysis and Enterprise Countermeasures
The judgment of the Supreme Court on the "PRETUL" case, which is called "one country", will have a far-reaching impact on the identification of foreign OEM in the future. In the numerous foreign OEM cases that have been adjudicated since then, the courts are more inclined to identify the trademark attachment of domestic OEM manufacturers as physical attachment, that is, they do not consider the act as trademark use in the sense of trademark law.
However, the premise for the court to make such a decision is that the above trademark affixing act is recognized as an act in the OEM contract rather than a sales contract. Reviewing the judgment of relevant cases, it is not difficult to find that once the act of the OEM is recognized as a sales act, the trademark attachment will no longer be recognized as a purely physical attachment, but will be recognized as a trademark use. Therefore, when accepting similar orders, domestic OEM manufacturers must find out their own position and make it clear that their work is to complete the contract of contracted processing rather than selling the goods that have been affixed with the trademark as goods to relevant foreign enterprises.
At present, the focus of the dispute on whether foreign OEM constitutes trademark infringement is still how to explain the concept of "trademark use". On the other hand, in the trial practice, the court has discussed whether the sanctions on the processing behavior of domestic producers are of practical significance from the previous purely research on trademark pasting behavior to the current policy perspective. From the previous emphasis on legal analysis to the current emphasis on practical discussion, it actually reflects the further change of the concept and value orientation of court adjudication.
With the further improvement of China's opening up to the outside world, the trade form of foreign-related OEM has become the main way of profit for many domestic OEM factories. In recent years, a series of classic judgments made by the Supreme Court have relieved most domestic OEM factories. However, in the face of increasingly strengthened intellectual property protection, domestic OEM factories still cannot blindly accept foreign enterprises' trademark attachment orders. Only by maintaining a rigorous attitude and taking comprehensive preventive measures can we protect our own interests to the greatest extent.
Domestic OEM manufacturers should pay attention to the following points in their operations: first, carefully review the trademark qualification of foreign enterprises before accepting business, and strictly review the certificates and legal documents issued by them in form; Second, when concluding a contract, first, it should be clear that the contract is a processing contract rather than a sales contract, second, it should be clear about the specific place of sale of this batch of goods, and again confirm that foreign enterprises have the qualification to use relevant trademarks in the corresponding place of sale; Third, after completing the task of labeling, ensure that all goods are sold to the country or region specified in the contract, and properly retain relevant documents and instruments. Only by establishing thorough preventive measures can the risk of trademark infringement be eliminated.
Source: China Trade News
Author: Liu Xiaochun, Zhang Zeyu, University of Law, Chinese Academy of Social Sciences