The decision is one which provides some comfort to companies manufacturing in China. This is because where OEM goods are being exported only, and the trade marks and brands in use are registered in the export market, a trade mark infringement action by a Chinese trade mark owner is unlikely to succeed. This is irrespective of whether or not the Chinese trade mark registration is held by the true trade mark owner. This is good news for foreign brand owners using China as a manufacturing base.
However the decision creates a potential loop-hole for counterfeiters. This is because it is possible for counterfeit branded goods to be manufactured in, and exported from, China without any ramification. For example, if those goods are being exported to a jurisdiction where the counterfeiters have obtained a trade mark registration, it seems the counterfeit goods will now not be susceptible to being permanently seized by Chinese customs.
In addition, foreign brand owners could still have their goods seized by Chinese customs if the Chinese trade mark owner has a customs watch in place. The foreign brand owner would then need to establish that their use in China was for OEM purposes only, and that they have registered rights overseas. This has the potential to create substantial costs and delays which can severely impact any business. Since the SPC decision was issued, it has been the centre of much commentary within the Chinese trade mark space and many Chinese commentators consider that the ultimate effect of the decision will take some time to filter through to practical operations within Chinese customs.
Finally, the decision raises questions for foreign brand owners who have registered their trade marks in China to secure their manufacturing base. Registered trade mark owners must meet certain ‘use’ requirements within China in order to maintain a valid registration. For Chinese trade mark owners who only manufacture OEM goods for export out of China, where those goods do not enter the Chinese market for retail or trade, there is some concern that this will no longer be considered ‘use’ sufficient to maintain the registered trade mark rights in China. Previous judicial decisions in China on this specific question have held that when considering trade mark use for registration maintenance purposes, it is not necessary to only consider end consumers, but market operators (such as those involved in marketing and distribution of products) are also relevant.
Previous commentary suggested that where a trade mark was only used on OEM goods by a registered Chinese trade mark owner, to revoke it for non-use would be unfair and in contradiction of the country’s foreign trade policies. As a result, manufacturing use was sufficient for registration maintenance purposes. The latest SPC ruling may affect this position, although this is as yet an unknown factor.