OEM manufacturing in China with a China trademark – a changed landscape

OEM manufacturing in China with a China trademark was clarified by a recent decision of the Supreme People’s Court of the PRC which held, on the facts of the case before it, that OEM manufacturing in China with a China trademark but solely for export did not infringe the rights of the owner of the China trademark.

The judgment, issued on November 26, 2015, appears to be the first time that the Supreme People’s Court has directly addressed the issue of OEM manufacturing in China with a China trademark but solely for export.

This decision of the Supreme People’s Court clarifies a previously confusing array of local court judgments in cases regarding OEM manufacturing in China with a China trademark. Some local courts have issued conflicting decisions on apparently similar facts, others have consistent outcomes supported by materially different reasoning.

China is a civil law country and legal precedents have no binding legal effect. Despite this doctrinal position, it is expected that local courts in China will follow the decision of the Supreme People’s Court when facing similar cases regarding OEM manufacturing in China with a China trademark but solely for export, bringing a degree of certainty to this important part of China related business.


The plaintiff, Focker Security Products International Limited (“Focker”) is a Hong Kong company and obtained the China registered trademark No.3071808 “PRETUL with an oval” from an individual on March 27, 2010. This trademark is registered on “hardware, hardware lock, padlock, metal lock and etc.” in Class 6 in China (“TRADEMARK”).

The defendant, Pujiang Yahuan Locks Co., Ltd. (“Yahuan”) is a Chinese manufacturer of locks and other hardware in Zhejiang Province, China.

In 2010, Yahuan signed two contracts with a Mexican company, providing that they wouldmanufacture 684 dozen padlocks for a total price of USD 3,069.79 and 10,233 dozen padlocks at the total price of USD 61,339.03. As required by their Mexican customer, Yahuan would affix “PRETUL” as a trademark on the locks.

Trial at first instance

On January 30, 2011, Focker filed a lawsuit at Ningbo Intermediate Court (“Trial Court”) claiming that Yahuan infringed its TRADEMARK rights by using an identical mark in the manufacture and export of locks. Remedies sought included:

  1. an order that Yahuan immediately stop the infringing activities;
  2. forfeiture of the infringing locks, packaging materials, and tools used in the manufacture of the infringing locks; and
  3. RMB 450,000 (a little more than USD 70,000) compensation to Focker.

Findings of fact

The Trial Court found the following facts:

  1. “PRETUL” was affixed and used on the body of the locks manufactured and exported by Yahuan, the keys of these locks and their product specifications.
  2. “PRETUL with an oval” was affixed and used on the sales package of locks.
  3. In the sales package, the Mexican customer was identified as the consignor with its address, telephone number, fax number, etc. indicated on the package. The words “Made in China” were also shown on the package but there was no information about Yahuan.
  4. The Mexican customer had registered “PRETUL” and “PRETUL with an oval” as trademarks in Mexico in Class 6 and Class 8.
  5. The Mexican customer issued a written authorization to Yahuan on March 24, 2011. In the authorization, it confirmed that it was the legitimate owner of the relevant “PRETUL” trademarks in Mexico and Yahuan was engaged to manufacture locks bearing this mark on its behalf for export only to Mexico.
  6. Yahuan agreed with the Mexican customer that: it should not sell any of the locks in China; the Mexican customer owns all trademarks and related IP rights; it should not apply for or register any trademark or copyright, directly or indirectly; and the Mexican customer was entitled to terminate the transaction at any time.

Trial Court judgment

The Trial Court held that:

  1. Yahuan was an OEM manufacturer for the Mexican customer; and
  2. its use of “PRETUL” on the body of locks, keys and product specifications should not be regarded as infringing the trademark rights of Focker with respect to the TRADEMARK because the mark used was not identical to the TRADEMARK and the goods would not be available in the China market.
  3. Yahuan’s use of “PRETUL with an oval” on the sales package of locks should be regarded as infringement of the TRADEMARK.

The Trial Court ordered Yahuan to immediately stop the use of “PRETUL with an oval” on the lock package and to pay compensation of RMB 50,000 (almost USD 8,000) to Focker.

Appeal of the Trial Court Judgment to the Zhejiang High Court

Both Focker and Yahuan appealed to Zhejiang High Court (“Zhejiang HC”) for review. No additional evidence was submitted by either party and no new facts were found.

Zhejiang HC overturned the decision of the Trial Court regarding the use of “PRETUL” on the body of locks, keys and product specifications holding that it did infringe the TRADEMARK but let the other part of the Trial Court’s findings stand.

Accordingly, Zhejiang HC revoked the trial judgment and held that Yahuan should immediately stop all use of “PRETUL” and “PRETUL with an oval”, and compensate Focker with RMB 80,000 (approx USD 12,500).

Supreme People’s Court review and judgment

Yahuan applied to the Supreme People’s Court for review of the Zhejiang HC judgment. The Supreme People’s Court approved the application on January 2, 2014, set the hearing date for April 11, 2014 and issued its judgment on November 26, 2015.

In its judgment, the Supreme People’s Court held that, OEM manufacturing in China with a China trademark should not be regarded as use of the trademark under the China Trademark Law because the basic function of a trademark is identifying the source of goods.  It cannot be infringement because there is no possible confusion in the China market.

The use of an identical or similar mark on the same or similar products in OEM manufacturing in China with a China trademark should not be regarded as infringing the rights of the owner   of the China registered trademark, because the goods are not available in the China market.

Based on its findings, the Supreme People’s Court revoked the trial judgment and the judgment of the Zhejiang HC, and rejected all claims by Focker.


This decision, although apparently logical is not in accord with the position in some other jurisdictions and to that extent may not be welcomed by many that have their products manufactured in China.

Anybody having goods manufactured in China should ensure that their trademarks are registered in the likely destination jurisdictions because that will probably have to be relied upon if counterfeits are manufactured in China.

Customers with China registered trademarks being applied to OEM goods solely for export may need to develop a strategy to keep their trademarks alive as this decision suggests that they would not meet the “use” test if their trademark is challenged.

It remains to be seen whether this decision will be followed in local and other courts and also whether it will be applied in practice by China Customs.  In the latter case, there is a potential question of liability if goods solely for export are detained at the request of the owners of a China registered trademark.  This is an area to be watched closely.

Take away points

  • Overall, the effect and scope of this decision will take some time to work through the China courts and China Customs.
  • Despite that, we suggest that anyone involved in OEM manufacturing in China needs to reconsider their trademark strategy and OEM documentation to ensure that they are still relevant in the changed China OEM landscape.
  • Action should be taken now because the consequences of inaction are serious.

© 2016 Graham Brown And Wei Xin. All rights reserved. The assistance of Peng Wei is gratefully acknowledged.


Plan for China – your trademark is important

Many businesses operate without registering a trademark in their home territory. While this is not a good idea, it is possible in many jurisdictions because at least some legal rights may accrue through use.

Home trademark rights do not extend to China

China is quite a different story. Your accumulated “at home” use of trade names, logos, and the like may accrue the rights previously referred to even without trademark registration.

Those rights are of no practical use in China, because trademarks are territorial. Rights outside China are not applicable inside China, the exception being where a local registered trademark is formally extended to China through the Madrid protocol.  China trademark registration is very important for China success.

China is first to register – why wait?

There is another complication: China is a “first to register” trademark jurisdiction, not “first to use”. Put another way – you do not have to show any prior use at all to register a trademark in China. China is a developing country with lots of budding entrepreneurs looking for ways to get ahead. Some of them have taken to registering foreign trademarks in China, either to use as the name for their own business, or to sell to the rightful user outside China, In some cases it is just a tactic to prevent the rightful user from using its trademark in China. Irrespective of motivation, there is a real chance that someone in China will register your “brand” as a trademark in China.

China trademark registration protects you

There is an easy and relatively inexpensive way to prevent this – register your own trademark in China before others do. Chinese can register directly, but others must use an agent in China for this. It takes a little time, but it is the surest way to protect your brand in China. China trademark registration is therefore  very important.

As with everything else, “cheap” is not usually the best value, so it is best to ensure that you get a complete service, not some bargain basement deal. It is your business future that is a stake here.

You could lose your China opportunity if you do not register your trademark in China.

An example might make the picture clearer. Imagine you are a well known wine producer, (say) “Alpinia Wines”. Every bottle you produce proudly bears the “Alpinia” mark at the top of the label, the masthead brand if you like. In the usual way the label then identifies the particular vineyard, the variety etc etc. Even the corks have the Alpinia brand on them.

Alpinia Wines decides that it wants to sell into China, one of the fastest growing markets for quality wines. The first shipment of wines is dispatched to their importer. Unfortunately, there is a problem. The importer advises that the shipment has been detained by China Customs because the labels infringe trademarks held by others. Alpinia has already been registered as a trademark for wine in China! China Customs warehousing charges are mounting and the wines will probably have to be destroyed. There could also be fines.

The owner of the Alpinia trademark in China for wines can request the China Customs to detain infringing goods . If products get past the China Customs undetected, as might happen, the trademark owner can still take action further down the line.

In the short term Alpinia Wines has no real options if China Customs has detained the goods. They might be able to quickly negotiate a licence with the trademark owner, but that is probably not very likely.

In the medium term, Alpinia Wines has limited options: it can re-brand for the China market, an expensive and unwanted course of action; it can try to obtain a licence or buy the China trademark from the China trademark owner; or it can try to find a legal ground that would permit them to have the China trademark cancelled or invalidated, allowing Alpinia Wines to apply for it.

Each of these options has common factors – they are inconvenient, expensive, uncertain, and time consuming. The time and cost invested in registering a trademark in China is trivial by comparison.

The example above has been drawn from our experience in this area. It is just an example on these pages, but for the business people involved it is devastating. The cost is not just the actual money costs, but the secondary cost of being diverted from developing the business and lost business opportunities that may be taken up by others. All preventable by timely trademark registration in China, which is what we have been recommending for a long time.

Take away point: China trademark registration is very important

  • To answer our own question, on any rational analysis, having registered China trademarks is very important for anyone that may do business with China, even if doing business in or with China looks a long way off now.
  • At the very latest, China trademarks should be registered as one of the very first steps in actually engaging with China.
  • The likely cost of failing to register far outweighs the cost of registration.


© 2014 Graham Brown and Wei Xin. All rights reserved.