April 26, 2017  Shanghai Legal Daily   B05: Frontier Observation

(Li Shulan Chen Huizhen  Ling Zongliang)

With the development of economic globalization, intellectual property rights have been penetrated into all aspects of international trade. During the judicial protection of trademark right in international trade, judgment and determination of foreign-related OEM processing, parallel import, the legal status of importers and scope of rights of registered trademarks, etc have always been difficult in judicial practice. This paper made an empirical analysis and research on these issues, and proposed some helpful suggestions in the hope that legitimate rights of both Chinese and foreign parties will be protected equally through fair and efficient trials, thereby creating a legal, international and facilitating business environment for transnational trade.

Determination of trademark infringement in inforeign-related OEM processing

Does foreign-related OEM processing infringe on others' trademarks?

Dispute on whether foreign-related OEM processing constitutes trademark infringement has existed for a long time.One view is that foreign-related OEM processing constitutes trademark infringement for the following reasons: trademark rights are territorially defined, the ordering party can't defend trademark infringement committed by the processing party at home based on its trademark rights owned outside the country; according to Article 57 of the Trademark Law,using a trademarkidentical to a registered trademark on the same commodity constitutes infringement upon the owner's exclusive right to use such registered trademark, whether it is likely to cause confusion or not. Another view is that foreign-related OEM processingdoesn't constitute trademark infringement for the following reasons: affixing trademarks in foreign-related OEM processing can't be deemed as "use as a mark" stipulated in the Trademark Law. Foreign-related OEM products won't be sold in China and consumers have no chance or possibility to gain access to them, meaning it's impossible to cause the relevant public to mistake the source of commodities; foreign-related OEM processing won't cause any substantial damage to the trademark owner's domestic market nor the function of trademark right it is entitled to; considering the general elements of civil infringement, no loss means no infringement. The third view is that a party undertaking the processing of commodities bearing others' registered trademarks should examine whether the ordering party has the exclusive right to use the registered trademarks. If it processes commodities that infringe upon others' exclusive right to use registered trademarks without fulfilling the obligation of due diligence, it shall be deemed as a joint tortfeasor of the ordering party.

The above views reflected different understanding and controversy on the legal issues related toforeign-related OEM processing.

How to judge whether foreign-related OEM processing constitutes infringement

In view of the complexity of legal and policy issues involved inforeign-related OEM processing, the Supreme People's Court (SPC) issued Opinions on Several Issues Concerning Intellectual Property Trials Serving the Overall Objective Under the Current Economic Situation on April 21, 2009. Article 18 points out that we should carefully study the IPR protection issues in processing trade, summarizethe trial experience, handle common trademark infringement disputes in foreign-related OEM processing properly, and in a trademark infringement case, reasonably determine the liability of each party for the infringement with consideration of whether the processing party has fulfilled its obligation of due diligence. On November 26, 2015, in the retrial case involving trademark infringement - Pujiang Yahuan Locks Co., Ltd v. Focker Security Products International Limited, SPC ascertained the judgment of trademark use in foreign-related OEM processing for the first time. It held that Trademark Law protects the basic function of trademarks, which, to be specific, refers to their identifiability. Whether using a trademark identical or similar to other's registered trademark on the same kind of or similar products is likely to cause confusion shall be determined based on whether the trademark can be used to identify the source of products. In this case, the mark Yahuan affixed to OEM products can neither be used to distinguish nor identify the source of the OEM products. Therefore, it has no trademark attributes and affixing it on products shouldn't be deemed as "use as a mark". The adjudication rules established by SPC in the trial of above case are undoubtedly of great guiding significance to judicial practice.

The author considers that two issues should be resolved in the trial of trademark infringement disputes caused by foreign-related OEM processing. First, define accurately whether the marks affixed to OEM products are used as trademark. According to the Trademark Law, use as a trademark doesn't mean affixing the mark to commodity simply, but be used as a trademark that distinguishes the source of the commodity. Trademark can play a role in identifying the source of commodity during commodity circulation, or identifying the source when the commodity withdraws from circulation or is used by the end user. Therefore, "use as a mark" shall be determined based on the functions as well as the usage scenario of the mark, that is to say, when and where the mark is used will be deemed as "use as trade mark" according to the Trademark Law. Second, accurately distinguish normal OEM processing from unauthorized processing, excessive processing (scope and quantity) and sales of products by the processing party. To be specific, trademark infringement in foreign-related OEM processing shall be determined with consideration of the status of the mark foreign client authorizes to affix, situation of the export market and specific usage of OEM products, etc. case by case. If the foreign client has legitimate trademark right in the country of destination, all OEM products are exported to the country of destination and processing party in China has fulfilled the obligation of due diligence, it can be determined in principle that the OEM processing of the processing party doesn't constitute trademark infringement; where the OEM processing of the processing party constitutes trademark infringement, liability of the processing party shall be determined reasonably with consideration of whether it has fulfilled the obligation of due diligence. As facts are different in each case, it's necessary to constantly sum up trial experience and define adjudication rules in judicial practice.

Determination of trademark infringement in parallel import

Essential standard for determination of trademark infringement

Although parallel import issueinvolves trade policies in various countries, it's a legal issueessentially, i.e. whether parallel import infringes upon domestic trademarks, which, hence, shall be determined according to the existing infringement determination criteria.

According to the Trademark Law of P.R.C, the following acts will be deemed to constitute trademark infringement: using a trademark that is identical to a registered trademark on the same product; using a trademark that is identical or similar to a registered trademark on similar products, which is likely to cause confusion; for well-know trademarks, dilution and tarnishment, etc. can also be used to determine trademark infringement.

In the author's opinion, the most basic value of trademark is its identificationfunction. Protecting a trademark means to protect its function in the process of commodity circulation or commercial activities. Identificationfunction is the basis, which is extended to quality assurance, advertising and other functions. In this sense, the essence or basic criteria for determination of trademark infringement is whether the trademark function is impaired, and both confusion and dilution criteria lies in this exactly. Of course, trademark function is a vague concept, which lacks operability that can be applied in each case. Confusion and dilution are specific criteria to determine whether the trademark function is impaired. Therefore, whether trademark function is impaired is an essential criteria to determine trademark infringement. For different infringement acts, it may refer to confusion of the source of goods, dilution and tarnishment of well-know trademarks, and improper use of goodwill, etc.  　　

Adherence to"commodity identity"

At present, discussion of whether parallel import infringes trademark right is mainly focused on the determination criteria - international exhaustion or domestic exhaustion of trademark right. The author believes that in parallel import trade, the alleged infringing products have been imported into China, and whether they infringe upon domestic trademark rightsis not necessarily linked with the international exhaustion of these trademark rights. The key point lies inwhetherdomestic trademark right is likely to be impaired due to parallel import. Trademark infringement in parallel import shall not be determined based on simple discussion on whether the trademark right has been exhausted internationally. Rather, we should focus on specific commodities, that is, to judge whether imported commodity is identical to the commodity circulated in China in terms of quality, function and packaging, etc. If a parallel import is identical to the commodity produced and sold by domestic trademark owner, and it won't cause confusion of consumers nor impair the quality assurance and other functions of domestic trademark rights, it won't constitute trademark infringement. However, if the commodity sold in foreign market is different from that sold in domestic market in terms of quality grade or composition, consumers may think that the quality of commodity produced and sold by domestic trademark owner has changed, which adversely influences the quality assurance function of the trademark. In such case, it constitutes trademark infringement. For example, in dispute over infringement upon exclusive right to use the trademark - Compagnie General des Etablissements Michelin v. Tan Guoqiang and Ou Can, the court upheld the "identity" standard and recognized that although the alleged infringing tyre was parallelly imported from Japan, it is different from the tyre produced and sold in China in terms of quality grade, which is likely to cause misunderstanding of consumers, and thus constituted trademark infringement.

Legal status of importers and registration of trademarks

Importer isn'tmanufacturer

With regard to the legal status of importers, one view is that importers' act of selling the infringing goods marks their initial circulation on the market in the country where the trademark is registered, which may lead to the same consequence as the manufacturer's act. Therefore, importers should be liable for infringement, including compensation, as manufacturers. Compared to ordinary sellers, importers have a higher duty of care as to whether the imported goods infringe upon the trademark rights of others, and shall not be exempted from compensation on the ground that they "don't know the infringement". Articles of the Patent Law and patent infringement proceedings also make it clear that importers of infringing goods can't raise legitimate source defense, so is the case with trademark right protection. Another view is that importers just selling the imported goods instead of manufacturing them, and thus should not be regarded as manufacturers.

The legislative aims of Patent Law and Trademark Law are totally different. The former stipulates that import is an independent act under the control of trademark right; while the latter makes no such provision and import is deemed as a part of commodity sales activity.

In the author's opinion, goods have already been affixed with trademarks when imported. Importers just import the goods bearing trademarks to domestic market rather than use the trademarks directly. Hence, they are sellers in legal status, who should exempted from compensation provided that they have fulfilled their obligation of due diligence and can present the legitimate source of the goods. For example, if an importer can prove that he has examined the status of rights of foreign trademark owner and the goods is identical to domestic goods, he should bear no liability for infringement.

Scope of right of importer'sregistered trademark should be limited

In practice, some operators are specialized in the sales of imported goods as an agent. During the agency, they will register the brands in advance in China and after obtaining the trademark right, still import and sell the goods without producing by themselves nor changing the packaging of imported goods. At the same time, they will require other agents stop importing and selling the goods on the ground that they enjoy the registered trademark rights. Some people think that other agents' act of importing and selling the same goods constitutes trademark infringement.

Given that trademark rights are territorially defined and their function is to identify the source of goods rather than its genuineness, we can't take genuineness of goods as source genuineness. In order to protect the trademark registration system, other agents' act of selling the same goods constitutes infringement even if they are selling genuine goods. An opposite view is that any agent has no right to prohibit other agents from continuing to import and sell the same commodity though it has registered the trademark in advance. Reasons are as follows: 1. goods sold by other agents have legitimate sources and won't cause confusion; 2. the plaintiff's registered trademark is actually the foreign brand it represents; if the foreign registered trademark owner has evidence to prove that it has been used in China and has already obtained certain popularity, the registered trademark owner in China may have maliciously preempted the trademark of others, who has no right to prohibit foreign registered trademark owner from selling its products in China nor prohibit others from selling the foreign trademark owner's products they imported. Another view is that the importer just imports and sells goods bearing trademarks identical to its registered trademark rather than use the registered trademark as a mark. It has no subjective intention to link the registered trademark to its company, and message transmitted to the relevant public is that goods affixed with this registered trademark come from foreign companies. There's no connection between the goods and registered trademark rights. Therefore, importers' act of importing and selling goods can't be deemed as "use as a trademark". If the trademark isn't used for three consecutive years, other agents don't need to make compensation.

The author holds that if an importer has registered a foreign brand in China for which he's acting as a sales agent and then still sells genuine imported goods, where the foreign brand owner doesn't raise any objection ordeclare the registered trademark is invalid, the importer's registered trademark shall be protected but protection scope shall be limited, that is to say, trademark owner can't prohibit others fromimporting goods of the same brand,but may prohibit others from counterfeiting its registeredtrademark.

Generally speaking, the source of goods identified by trademark should be the trademark owner. Under some circumstances, goods of foreign brandhave been sold in China and obtained high popularity before the importer registers such foreign brand for which he's acting as a sales agent in China, and consumers have formed a cognition that goods bearing such trademark come from abroad. In this case, although the importer registered the trademark in China ahead of the foreign brand owner and has obtained the trademark right, consumers will still believe that the goods come from abroad if it continues to import and sell the goods of such foreign brand without producing by itself or repackaging them to change consumers' cognition. At that time, other importers' act of importing and selling the same foreign brand goods can't be deemed to constitute infringement simply because the goods aren't from domestic trademark owner, that is, the importer.

(Author affiliation: Shanghai Intellectual Property Court)