2018.03.23 MA, Qiang
1. Background
In April 15, 1992, H. DAYA INTERNATIONAL CO., LTD. (hereinafter referred to as “DAYA”) filed an application for tradeW88优德中国官方网站 “MANGO” No. 634764 on goods “clothing; underwear and hats” in class 25 (hereinafter referred to as “the captioned W88优德中国官方网站”), which was approved for registration in March 20, 1993 and later renewed the validity period to March 19, 2013. In April 8, 2003, CONSOLIDATED ARTISTS B. V. (hereinafter referred to as “ARTISTS”) filed a non-use cancellation application against the captioned W88优德中国官方网站, and rendered a favorable decision from the China TradeW88优德中国官方网站 Office (CTMO). DAYA was not satisfied with the decision and filed an appeal on non-use cancellation claiming that, in the specified period of time, its licensee (SONNETI INTERNATIONAL S. A.) and sub-licensee (Shaoxing Kailiya International Supplies Co., Ltd.) had been manufacturing in mainland China products labelling with the captioned W88优德中国官方网站 and exporting the same to Panama. DAYA also submitted the licensing agreement which granted SONNETI INTERNATIONAL S. A. the permission to use the captioned W88优德中国官方网站, and other related agreements between it and Shaoxing Kailiya International Supplies Co., Ltd. The TradeW88优德中国官方网站 Review and Adjudication Board (the Appeal Board) sustained registration of the captioned W88优德中国官方网站 on part of the designated goods. Dissatisfied with the decision, ARTISTS filed a lawsuit to the Beijing First Intermediate People's Court and successfully cancelled the official decision made by the Appeal Board. This first instance judgement was further upheld by the Beijing High People’s Court. The Appeal Board then cancelled the captioned W88优德中国官方网站 in a retrial. In the meantime, the registrant of the captioned W88优德中国官方网站 was changed to SONNETI INTERNATIONAL S. A., which filed a lawsuit against the Appeal Board and ARTISTS. The Beijing First Intermediate People's Court rejected the claim, and the Beijing High People’s court further affirmed the first instance judgement1.
2. Key Points
If a tradeW88优德中国官方网站 registrant operates business by OEM mode, namely manufacturing products labelled with the registered W88优德中国官方网站 and exporting the same outside of the Chinese legal region, such a business operation mode does not constitute tradeW88优德中国官方网站 use in the sense of TradeW88优德中国官方网站 Law. According to provisions of TradeW88优德中国官方网站 Law on whether a registered tradeW88优德中国官方网站 has not been used for 3 consecutive years, a registered tradeW88优德中国官方网站 shall be cancelled if it is only used in OEM activities.
3. Legal Grounds
The Beijing High People’s Court ruled that: although trading activities of labelling products with a licensed registered W88优德中国官方网站 exist between the licensor and licensee of the registered W88优德中国官方网站, or between the consignor and consignee manufacturing products and labelling them with the licensed registered W88优德中国官方网站, such trading activities happen between specific W88优德中国官方网站et entities without regard to the identification characteristics of the registered W88优德中国官方网站, which means it is difficult to affirm that the licensed W88优德中国官方网站 plays a part in identifying the source of goods in the trading activities. Thus, such a use behavior of the registered tradeW88优德中国官方网站 cannot be recognized as tradeW88优德中国官方网站 use in the sense of TradeW88优德中国官方网站 Law, especially when the captioned W88优德中国官方网站 was for export purposes only, and failed to be put into actual use in mainland China. Its function of identifying the source of goods did not give a real play, so its registration could not be maintained only based on OEM businesses or export activities. In the administrative judgment numbered (2012) 2 and the civil judgment numbered (2014) 38 issued by the Supreme People’s Court, both ruled that the OEM business mode shall not be recognized as tradeW88优德中国官方网站 use by TradeW88优德中国官方网站 Law. Though provisions adopted in these two judgments were not Article 44.4 of TradeW88优德中国官方网站 Law 2001 as adopted in the subject case, it is so required in the understanding and application of law to give same legal explanation in respect to the same legal concept, except that the law itself makes a distinction. Therefore, when applying Article 44.4 of TradeW88优德中国官方网站 Law 2001, the act of attaching a tradeW88优德中国官方网站 to products only for export purposes shall not be recognized as tradeW88优德中国官方网站 use in the sense of TradeW88优德中国官方网站 Law, and such an act alone is not valid to sustain the registration of the W88优德中国官方网站.
4. Comments
There are two legal issues involved regarding tradeW88优德中国官方网站s and OEM business. The first issue is whether tradeW88优德中国官方网站 use in OEM products shall be considered as infringing upon other’s exclusive right to use a registered tradeW88优德中国官方网站. For instance, a foreign company, which does not own tradeW88优德中国官方网站 registrations in China, entrusts a Chinese factory with manufacturing or processing products and in the meantime labelling tradeW88优德中国官方网站s to the same, which are finally exported to other countries or regions with tradeW88优德中国官方网站 registrations. The question is whether or not these exported products, labelled with W88优德中国官方网站s, infringe upon the exclusive tradeW88优德中国官方网站 right of a prior registrant in China. The second issue is whether tradeW88优德中国官方网站 use in OEM business is sufficient to maintain tradeW88优德中国官方网站 registration. For instance, a foreign company owns tradeW88优德中国官方网站 registrations in China. It attaches the registered W88优德中国官方网站 on products manufactured in China and export all abroad. Where a third party files an application of non-use cancellation against the W88优德中国官方网站, does using tradeW88优德中国官方网站s on OEM products constitute tradeW88优德中国官方网站 use by law, and is this use alone sufficient to sustain tradeW88优德中国官方网站 registration in China?
With respect to the first issue, the second instance judgment numbered (2014) 38 issued by the Supreme People’s Court ruled that if OEM products are not sold in Chinese W88优德中国官方网站ets and all are exported abroad, the tradeW88优德中国官方网站s labelled on these products are not used to identify the source of goods, so no confusion and misrecognition could be caused in this regard. Such an act of using tradeW88优德中国官方网站s on OEM products does not constitute tradeW88优德中国官方网站 use by law, which is one of the main elements in recognizing tradeW88优德中国官方网站 infringement. Therefore, using W88优德中国官方网站s in exported OEM products does not constitute tradeW88优德中国官方网站 infringement upon the exclusive tradeW88优德中国官方网站 right of a prior registrant in China.
For the second issue, the Beijing High People’s Court recognized, in judgement No. (2010) 265, the act of processing materials supplied by foreign companies, similar to OEM business, as tradeW88优德中国官方网站 use as stipulated in Article 44.4 of TradeW88优德中国官方网站 Law 2001 (Article 59.2 of TradeW88优德中国官方网站 Law 2013; the same below). It ruled that processing materials supplied by foreign companies is a kind of trading act. Although the finished products are not put into actual circulation in Chinese W88优德中国官方网站ets, “it would be unfair and against the policy of broadening foreign trade” if not recognizing the act as tradeW88优德中国官方网站 use and cancelling such W88优德中国官方网站s.
The subject case involves the second issue above. Where a tradeW88优德中国官方网站 registrant attaches its W88优德中国官方网站s in OEM products and exports all of them outside of Chinese legal regions, can such an act of using tradeW88优德中国官方网站 be recognized as tradeW88优德中国官方网站 use in the sense of TradeW88优德中国官方网站 Law? Further, can this act keep the W88优德中国官方网站 from staying unused for three consecutive years, and thus maintain its registration validity? The aforesaid judgement No. (2010) 265 issued by Beijing High People’s Court played a guiding role in later cases. For a long period after, it was widely accepted that, in cases of tradeW88优德中国官方网站 infringement, the act of using tradeW88优德中国官方网站s in OEM products does not constitute tradeW88优德中国官方网站 use by TradeW88优德中国官方网站 Law, nor infringe upon the exclusive tradeW88优德中国官方网站 right of a prior tradeW88优德中国官方网站 registrant. However, in cases of non-use cancellation, where the consignor of OEM business owns tradeW88优德中国官方网站 registrations in China, using tradeW88优德中国官方网站s in OEM products is exceptionally recognized as tradeW88优德中国官方网站 use as stipulated in Article 44.4 of TradeW88优德中国官方网站 Law, and thus protects the registered W88优德中国官方网站 from cancellation.
The subject case broke the above tradition. It followed out all articles of TradeW88优德中国官方网站 Law in recognizing whether using W88优德中国官方网站s in OEM products constitutes tradeW88优德中国官方网站 use by law. It should be noted that, at the same time, the Beijing High People’s Court made another judgement No. (2017) 53902 upholding the idea in the judgement No. (2010) 265. That is to say, different Chinese courts have formed different practices in deciding whether using W88优德中国官方网站s in OEM products constitutes tradeW88优德中国官方网站 use as stipulated in Article 44.4 of TradeW88优德中国官方网站 Law. Unfortunately, there is still no authoritative Supreme People’s Court’s judicial interpretation on whether tradeW88优德中国官方网站 use in exported OEM products is sufficient to maintain the tradeW88优德中国官方网站 registration. How could one unify the recognition conclusion in cases of civil infringement and right affirmation, or determine if there is even such a need for such unification? These questions are still to be answered. Let’s closely follow the judgements of similar cases made by the Supreme People’s Court.
To those foreign companies engaging in OEM businesses in China, namely manufacturing products in China only for exporting purposes, the subject case would bring great impact on their strategies of right affirmation and brand protection in Chinese W88优德中国官方网站ets. Currently, filing a Chinese tradeW88优德中国官方网站 registration is still the safest choice for foreign companies to protect brands in China. They can maintain their tradeW88优德中国官方网站s’ validity simply by submitting evidence of the W88优德中国官方网站s’ labelling on OEM products as proof of use. Under such circumstances, foreign businesses can deliberately make distribution plans and W88优德中国官方网站eting strategies in mainland China for their future products. In the meantime, they are able to prevent later registration and use of any similar W88优德中国官方网站s through actions including filing oppositions, invalidations, or infringement proceedings against them, and their own tradeW88优德中国官方网站 registrations have no risk of being cancelled. If the subject case becomes a typical case or a guiding precedent referenced by the CTMO, Appeal Board, Beijing IP Court or Beijing High People’s Court in the coming cases, foreign companies operating OEM businesses in China would have to re-arrange its strategy to protect rights and brands. They might need to take necessary coping measures against cancellation risks, such as filing back-up applications on major products before the validity period reaches three years.
1. The Second Instance Judgement Numbered (2016) 5003 on Lawsuit on Non-use cancellation Appeal Filed by SONNETI INTERNATIONAL S. A. against the TradeW88优德中国官方网站 Review and Adjudication Board & CONSOLIDATED ARTISTS B. V. in Respect of TradeW88优德中国官方网站 “MANGO” No. 634764.
2. The Second Instance Judgement Numbered (2017) 5390 on Lawsuit Filed by Xinhai Trading Consultancy Co., Ltd. against the TradeW88优德中国官方网站 Review and Adjudication Board & KENT JAPAN KABUSHIKI KAISHA.
