Chinese factories have been manufacturing Western companies' products at low cost for years, then exporting them back to other markets for high-profit margins. OEM stands for Original Equipment Manufacturer, and it is commonly referred to as OEM manufacturing. It earned China the nickname "World's Factory" because it was the main business model for China's industrial and economic growth for decades. The situation has changed in recent years. In the near future, China will become the world's largest market with hundreds of millions of consumers buying foreign products on the internet or traveling abroad to do their shopping, while low-cost manufacturing is moving elsewhere to be replaced by High-Tech businesses. The OEM manufacturing industry has lost its prior standing in government policy in the evolving socio-economic landscape. The Chinese economy is now projected to further integrate into the global capitalist system, a move that will benefit the entire world. Beyond the already well-known "Belt & Road" initiative, China has recently announced its new "Made in China 2025" initiative, a strategy designed to showcase China's own companies and products to the world and shift away from being the world's "factory" to becoming one that produces higher-value goods and services.
As evidenced in the recent legal developments concerning OEM manufacturing and trademark infringement, the policy change embodied in the "Made in China 2025" program reflects the recent changes in policy. The purpose of this article is to examine the evolution of such relationships and comment on the Supreme People's Court's most recent decision on this topic released in October 2019.
Importation of OEM parts and infringement of trademarks
To begin with, China is a country of first to file, which means that the owners of IP rights are the ones who file first. It is therefore not uncommon that a Chinese OEM manufactures products on behalf of foreign clients, wherein the trademark of the products is the same trademark already registered in China by another individual or company. Typically, when an OEM product is to be sold to a foreign country, the commissioning party owns the very same trademark that is used on the OEM product. There is an issue as to whether affixing the trademarks of others by an OEM to such products meat for export will be seen by a third party as an act of infringement of his or her registered rights in China.
The China Trademark Law provides no clarity on this issue, nor does its implementing regulations provide any answers. It has been decided that the People's Courts should be responsible for addressing this issue. This issue has been subject to conflicting interpretations for quite some time. According to some courts, affixing registered trademarks on goods destined to be exported to a country in which the consignee contains the same trademarks was not deemed to be a "use" of the trademark in China, and as such, no confusion would exist between the general public in those countries. Others, on the other hand, hold the opposite view. The Supreme People's Court stepped into the debate in 2015 and again at the end of this year. It issued judgments that became mandatory precedents for civil judges who are facing the same types of issues.