Originally, this term OEM (original equipment manufacturer) was intended as a company that supplied equipment to other companies to resell or incorporate into another product using the reseller’s brand name. More recently, OEM is also used to refer to the company that acquires a product or component and reuses or incorporates it into a new product with its own brand name. In any case this modality in China has created some difficulties in protecting the trademarks of foreign companies because the judicial power has different opinions in merit (
http://www.lexology.com/library/detail.aspx?g=10207fd3-1910-4822-b740-1ccb1940222b
), and recently the concept of “reasonable use” of a trademark by the manufacturer has been accepted which can render the protection of a trademark more difficult for foreign companies acting in this way in China.
In China today, companies which have invested resources in developing their marks encounter numerous problems in protecting and enforcing their trademark rights. (Reference must always be made to the Trademark Law, available at:
http://www.lehmanlaw.com/resource-centre/laws-and-regulations/intellectual-property/amended-trademarks-law-of-the-peoples-republic-of-china-2001.html
). First and foremost, they face counterfeiters who without authorization use their marks on the same or similar goods. In addition, certain companies or individuals will become “trademark pirates” or “trademark squatters” and register marks of a famous brand in China. While some trademark pirates do this to “free ride” on the brand equity of the brand owner, some trademark squatters may do it in an attempt to “negotiate” payment from the brand owner in exchange for the mark. However, if the holder of a mark in a foreign market contracts with an original equipment manufacturer (“OEM”) in China for the manufacture of goods bearing said mark solely for export where the rights to said mark in the P.R.C. are held by another entity, are such actions (i.e. the manufacture solely for export of said goods) an infringement upon the P.R.C. trademark holder’s rights?
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. In this case it is also necessary to consider the Unfair competition Law (visit the following web—site:
http://www.wipo.int/wipolex/en/details.jsp?id=849
and
http://www.wipo.int/wipolex/en/text.jsp?file_id=125970
for the text of the mentioned Law).
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.
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.
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.
What exposed above describes the situation concerning OEM in China. However, it must always kept in mind that registration of a trademark is the first step in order to protect our IPRs in China. So before to initiate any type of business activity, the foreign investor must take the necessary steps to assure the smooth development of its business activity here.
Cristiano Rizzi