As an important part of foreign trade, foreign-related OEM is generally a kind of trade mode in which the domestic manufacturing party accepts the entrustment of the overseas entrusting party. The domestic manufacturing party produces the products according to the trademark designated by the overseas entrusting party and delivers all the products to the overseas entrusting party which sells them abroad, and the overseas entrusting party pays a manufacturing fee to the domestic manufacturing party. The nature of the contract is a processing contract. Due to economic globalization, a large number of Chinese domestic processing enterprises undertake commissions from foreign enterprises, which are engaged in commodity processing, manufacturing, OEM and export links. Nowadays, this has become an important means of foreign trade in China.

In foreign-related OEM trademark infringement cases, if the domestic manufacturing party uses a trademark registered overseas by the entrusting party, and the trademark is the same or similar to the registered trademark of others in China, then does the act constitute trademark infringement? With changes in China’s economic development mode, the understanding of trademark infringement in foreign-related OEMs is also constantly changing and deepening. This trade mode cannot be simply solidified as the exception to trademark infringement; nor can it be considered that the use of trademarks under this trade mode constitutes infringement. Therefore, by combining cases of the Supreme People’s Court and the judicial decisions of different courts with the relatively developed Chinese economy of recent years, the author makes a brief introduction to whether foreign-related OEM issues constitute trademark infringement in the judicial practice and, if yes, what will be elements as a test for it.

Issue

We all know that the exclusive right to use a trademark refers to the right of the trademark owners to use their registered trademarks exclusively for the approved use of goods or services. The Trademark Law of the People’s Republic of China protects the right to exclusive use of trademarks to identify the source of goods or services of the operator, thereby preventing consumers from being confused or misidentifying the operator when they purchase the goods or services. Therefore, regarding whether there is infringement, currently there are totally two different points of view in China.

A group which believes this does not constitute trademark infringement has said that the exclusive right to use a trademark is only valid within the geographical scope of registration. In foreign-related OEM, although the domestic manufacturer will attach the same trademark as the domestic registered trademark on the OEM goods, because these goods are all sold abroad and not sold in China, Chinese domestic consumers simply do not have any access to these goods; therefore, it is impossible for domestic consumers to confuse and misidentify the goods of the domestic trademark owner. It will not cause any confusion to consumers nor damage the rights and interests of domestic trademark owners. Therefore, domestic manufacturers accepting foreign brand owners’ commissions to manufacture OEM goods in China and sell them abroad will not cause confusion and will not violate the rights of domestic trademark owners.

However, another group, which believes there is definitely trademark infringement in this situation, held that, according to Chinese trademark law, manufacturing was already defined as one type of use, and accordingly, as long as it is the use in China, OEM shall be considered as trademark infringement no matter where the goods produced under OEM finally go to.

Related case law

The Pretul case

In a 2014 case concerning the use of the PRETUL logo, the Supreme People’s Court held that the basic function of a trademark as a mark to distinguish the source of goods or services lies in the identification of the trademark and that the above use of the relevant PRETUL mark in accordance with the authorization of its owner, a Mexican company, is only a physical attachment act in China, which provides the necessary technical conditions for the manufacturing company to use its trademark in Mexico. It does not have the function of identifying the source of goods in China. Therefore, the logo affixed by the company on the commissioned products does not have the meaning of distinguishing the source of the processed goods, nor can it achieve the function of identifying the source of the goods, so the logo affixed to the product does not have the attribute of the trademark, and the behavior of affixing the logo to the product cannot be identified as the use of the trademark.

The Hondakit case

In 2019, the Supreme People’s Court held that the manufacturer using the words and graphics of HONDAKIT on the motorcycles it produces and sells was guilty of infringement by highlighting the text of HONDA, which reduced the text part of KIT. Moreover, the manufacturer marked the H letter and a part of the H similar to the wing shape in red, which constitutes the same or similar goods with the three trademarks claimed by Honda Motor Company’s trademark. The infringement constitutes the use of the trademark, which also has the possibility of causing confusion and misidentification among the relevant public, and finally found that the respondent’s labeling processing behaviour constituted trademark infringement. In the Honda case, the Supreme Court affirmed for the first time that the use of trademarks in the labeling process is a “trademark use.” The Supreme Court affirmed that trademark use behaviour usually includes many links, such as physical attachment, market circulation, etc. Whether it constitutes the “use of trademarks” in the sense of the trademark law should be interpreted in accordance with the trademark law as a whole, and should not separate an act but only look at a certain link. If a trademark is used in a marked or other way on a product manufactured or processed, as long as there is a possibility of distinguishing the source of the commodity, it should be recognized as “use of the trademark” in the sense of trademark law.

The Stahlwerk case

In 2024, the Shanghai High Court, which also upheld the Zhejiang High Court in the 2022 STAHLWERK retrial case, held that when the People’s Court hears trademark infringement disputes involving foreign-related OEM, it shall fully consider the overall situation of domestic and international economic development; conduct specific analysis of trademark infringement disputes in specific periods, specific markets and specific transaction forms; accurately apply the law; properly balance the interests of trademark owners and OEM processing parties; and promote the standardized and healthy development of foreign trade. The foreign-related trademark processing trade is an important source of China’s foreign trade.

With changes in China’s economic development mode, the understanding of trademark infringement arising from foreign-related trademark processing is constantly changing and deepening. This trade mode cannot be simply solidified as the exception of trademark infringement, nor can it be considered that trademark use under this trade mode constitutes infringement. Although there is a possibility that the goods processed by foreign parties could return to China, whether the problem of “returning goods” affects the determination of infringement should be analyzed on a case-by-case basis, and does not necessarily lead to trademark infringement.

The Predator case

In 2024, the Shanghai Intellectual Property Court held that the damage of the unauthorized use of trademarks to the exclusive right to use registered trademarks is mainly manifested as damage of the trademark identification function and the damage of the inherent prohibition right of the trademark. For registered trademarks in China, whether it is the protection of the trademark identification function or the protection of the inherent prohibition right of the trademark, it is carried out within the territorial scope of our country. As far as foreign-related OEM processing is concerned, since all the processed products are sold abroad, the trademarks attached to the corresponding products will not cause confusion to the relevant domestic public, nor will they destroy the trademark recognition function protected by China’s trademark law, and in principle will not cause damage to the exclusive right to use domestic registered trademarks.

In addition, the Shanghai Intellectual Property Court held that whether the accused act constituted trademark use was only one of the elements of an infringement judgment. If there was evidence that the accused act did not meet the other elements of trademark infringement, it could be determined that the act did not constitute trademark infringement, and there was no need to judge whether it constituted an act of trademark use. Specifically, in this case, the product involved is a prototype, and there is no evidence that the manufacturer sold the product in China; because the prototype itself is very unlikely to return to the country again, it will not cause damage to the exclusive right to use the trademark and does not constitute trademark infringement. If it is found that the accused act constitutes trademark infringement, it will lead to an imbalance of interests between the parties and hinder the development of normal processing industry.

Conclusion

In judicial practice, there have been different opinions in different periods as to whether OEM manufacturing and processing constitutes “use” in the meaning of China’s trademark law and the infringement of the trademark. For foreign-related OEM, before the Honda case in 2019, OEM manufacturing was not considered to be a use in the sense of the trademark law. However, after the Honda case, there was the unified application in 2019, which considered that OEM manufacturing constitutes infringement. And from the case of the Zhejiang High Court in 2022 and the Shanghai High Court in 2024, we can see that local courts in China, under the guidance of the Supreme People’s Court, have detailed their reasoning according to the specific circumstances of each case. In particular, local courts have made a more vivid effort in the determination of whether foreign-related OEM constitutes trademark infringement, whether it constitutes trademark use, whether the OEM will pass through global trade and return to China and whether OEM products will cause confusion.

As mentioned above, foreign-related OEM trade is an important part of China’s foreign trade. With changes in China’s economic development mode, the understanding of trademark infringement arising from foreign-related OEM is also constantly changing and deepening. This trade mode cannot be simply solidified as the exception of trademark infringement. Nor can it be argued that the use of trademarks in this way of trade constitutes infringement.

All of these cases should remind other OEM enterprises that before accepting an OEM processing commission, the manufacturer should do a good job of relevant compliance work. And before establishing the legal relationship that goes with the OEM processing commission, it is necessary to check the following points:

1. Whether the entrusting party has the legitimate trademark rights certificate of the exporting country;
2. Whether the trademark is within the validity period;
3. Whether the goods produced are within the scope of approved goods in the trademark rights certificate;
4. Whether the trademark is authentic, which can be verified through open channels such as the intellectual property department of the exporting country;
5. Whether the same trademark enjoys the exclusive right to use a registered trademark in China and the relevant situation of the owner of the exclusive right to use a registered trademark in China; if the entrusting party is not the authorized processing party or has no relationship with the authorized party, it is necessary to be extra cautious;
6. For those who do not enjoy the right to exclusive use of the corresponding registered trademark in China, it must be clear in the entrustment contract that the sales area of the processed product designated by the entrusting party shall not be sold in China where the legal trademark rights are proved;
7. If the OEM processing enterprise encounters customs seizure or trademark litigation, it is recommended that it contact the entrusting party immediately, understand the relationship between the domestic right holder and the entrusting party, and seek solutions;
8. It is necessary to re-examine the content of the commissioned processing contract and whether the duty of care is fulfilled in the process of performance, organize the relevant evidence and prepare the relevant defense and response.