The Determination on Whether the Original Equipment Manufacturer (OEM) Performed the Duty of Due Care in An Export Trade (II)

— Dispute over Trademark Right Infringement between China Ningbo International Cooperation Co., Ltd. and Pinghu Huayang Tourism Products Co., Ltd.

[Judgment]

Upon the trial, Shanghai Pudong New Area People’s Court found that, GCI started to use the involved trademark in 2000 and obtained the trademark rights by using the same under relevant laws of America. The Plaintiff accepted orders from GCI and manufactured products and exported for GCI from 2002. The Plaintiff violated the principle of good faith by registering the trademark upon termination of the cooperation. As the Defendant was legal authorized by GCI to use the trademark containing the words “GCI OUTDOOR” to manufacture outdoor chairs and export the chairs to America, the behavior of the Defendant shall not constitute an infringement upon the Plaintiff’s trademark rights. The Plaintiff’s claim that the Defendant infringed its trademark lacked factual and legal basis, so all claims of the Plaintiff were rejected.

After the judgment, as neither party lodged an appeal, the judgment came into force. In addition, the Plaintiff’s behavior of fabricating contracts violated the principle of good faith specified by the civil procedure law and disrupted the normal trial. Therefore, the court imposed a fine on the Plaintiff. Upon receipt of the judgment, the Plaintiff actively paid the fine.

[Case Study]

I. Judicial policies applicable to the determination of trademark infringement by OEMs.

OEM refers to a manufacturer entrusted by a foreign client to manufacture products marked with the trademark provided by the client and then deliver all the products to the foreign client for sale. The foreign client will pay the manufacture the manufacturing fees. Whether OEMs infringe the trademark registered in China remains a controversial issue both in the theory field and judicial practice. For this reason, with respect to the use of trademark by OEMs, the Opinions of the Supreme People’s Court on Several Issues Concerning the Overall Situation of Trial Services for Intellectual Properties Under Current Economic Conditions (FF [2009] No. 23) issued on April 21, 2009 specifies that, the frequent disputes over trademark infringement by “OEMs” in a foreign trade shall be properly handled; in case the behavior of an OEM constitutes an infringement upon trademark rights, in determining the liability for infringement, it shall be made clear whether the manufacture has performed the duty of due care.

In the Forum on Trial of Cases involving Intellectual Property by the Court throughout the Country and the Promotion Meeting on the Trial of Civil, Criminal and Administrative (“Three- in- one”) Cases involving Intellectual Property by the Court throughout the Country held on July 8, 2016, Song Xiaoming, presiding judge of the IPR Tribunal of the Supreme People’s Court, with respect to legal issues regarding OEM, pointed out in his closing speech that, the legal issues regarding OEM shall be handled based on the values and interests involved and not just based on legal logic. In dealing with issues regarding OEM, the court shall take the following circumstances into account: the enterprises of China are weak in making innovations and are at the mid-low end of the global economic and trade value chain; the foreign processing trade holds a large proportion; it is necessary to help China get to the high-end from the low-end of the global economic and trade value chain and help China transform from a manufacturing country to an innovative country. Moreover, such issues shall also be properly handled according to specific circumstances. Meanwhile, the handling of issues regarding OEM also involves the combination of civil procedures and administrative procedures and requires the coordination between them. Based on the existing cases, the courts have reached a consensus to some extent over the issues regarding OEM. It is agreed that, in case the foreign client has legal trademark rights in the destination country and all products are exported to the destination country, if the manufacturer located in China has performed the duty of due care, in principle, it shall be recognized that the manufacture by the manufacturer does not constitute an infringement upon trademark rights; if the manufacture by the manufacturer constitutes an infringement upon trademark rights, the manufacturer’s liability for infringement shall be reasonably determined based on whether the manufacturer has performed the duty of due care; if all products marked with trademark manufactured by domestic trademark owners are exported to other countries and a third party applies for revoking the trademark registered in China on ground that the trademark has not been used for three years, the application shall be rejected. Of course, as there are many special circumstances and some problems in this field are yet to be resolved, the courts still need to explore and draw on experience in practice.

According to the above judicial policies and principles, in the trial of disputes over trademark infringements by OEMs, in case the alleged infringer has reviewed the trademark rights involved and all products are exported, if the consumers in China would not be confused by such products, the behavior of the manufacture does not constitute a trademark infringement. But in practice, whether the behavior of a manufacture constitutes a trademark infringement shall be determined according to the specific circumstances.

II. The trademark rights obtained by the Plaintiff in violation of the principle of good faith are defective

The determination of trademark infringements shall be based on that the Plaintiff has legal trademark rights. According to the provisions of Article 7 of the current trademark law of China, people shall apply to register and use trademarks on the principle of good faith; Article 13 also contains special provisions regarding the protection of well-known trademarks. Both Articles are fully consistent with relevant provisions of the Paris Convention for the Protection of Industrial Property and the Agreement on Trade-Related Aspects of Intellectual Property Rights. Accordingly, if an enterprise or individual maliciously registers a trademark in violation of the principle of good faith, the rights they obtain would be defective. In this case, the trademark of the Plaintiff is defective. The Plaintiff brought this case based on the registered trademark (No. 12496478), however, after the trial, the court found that, GCI started to use the word mark “GCI OUTDOOR” in 2000 and started to use the triangular figure mark containing such words in 2008. From 2002, the Plaintiff started to accept orders from GCI and manufacture and export outdoor chairs with such marks for GCI. This showed that the Plaintiff knew that GCI was using the word mark GCI OUTDOOR and the related marks but took advantage of the fact that GCI did not register its trademark in China to register such trademark in China upon termination of the cooperation, which was in violation of the principle of good faith. Moreover, during the trial, the registered trademark of the Plaintiff was invalidated by the Trademark Review and Adjudication Board of the State Administration for Industry and Commerce; although the invalidation did not come into force, the Plaintiff’s rights were seriously defective.

In addition, the Plaintiff submitted a series of evidences including purchase contracts and declarations to prove that it used the “GCI OUTDOOR and figure” logo in 2000. However, some were fake contracts; and for some contracts, no invoice or delivery note was available to prove the implementation thereof, and no evidence other than certificates issued unilaterally was provided to prove the actual implementation thereof. The above evidences provided by the Plaintiff could not prove that it used the involved trademark in 2000.