The Changing Landscape of Trademark and OEM Business in China and What It Means for Foreign Trademark Owners

China has been the global hub for OEM manufacturing for the past score of years thanks to its low labor cost and advanced manufacturing industry. In a typical OEM setup, the client company is usually a foreign company that licenses the manufacturer the necessary technology as well as the trademark needed for the production of the good. However, the client company may not necessarily have registered the relevant trademark in the country where manufacturing takes place. More often than not, the trademark may not be registered in the place of manufacture or it may even be registered by a third party not related either to the client company or the manufacturer. The very nature of OEM process makes it a fertile ground for potential trademark infringement issues. Despite the importance of OEM manufacturing to the development of China’s economy and the global supply chain, there is no specific provision in either Chinese law or in any of the international trademark law treaties regulating trademark law issues arising out of OEM-type of arrangements. The trademark issues arising out of OEM arrangements have been treated in different ways by different courts in China over the years. In the early period following China’s joining of the WTO, the affixation of a trademark on a product manufactured in OEM process was still considered a use under trademark law and therefore was held to be an infringement with the OEM manufacturer usually being sued by the foreign or local trademark owner in China. However, this had attracted criticism especially from academia because the purpose of a trademark is to indicate the origin of the goods and since these OEM-produced goods were all intended for overseas export and never sold in the Chinese market, there was no likelihood of their causing any confusion among the Chinese consumers or misleading them about the source of the goods. Subsequent to the trademark law amendment in 2013 and a couple of prominent cases in Beijing and Shanghai courts, the opinion began leaning towards holding that there is no infringement in cases where the entire OEM production was intended for overseas export and the OEM manufacturer was affixing the mark under legitimate authorization from the OEM client. The courts did recognize that there was a duty on the part of the OEM manufacturer to check whether the licence to use the mark was properly held. However, after the latest amendment of Chinese trademark law in 2019 and there has also been an important case concerning OEM production that reverses the principle of no infringement established by earliercase law. Although China does not have the same system of precedents as in common law countries, a decision from the Supreme People’s Court is nevertheless important and influential and if this judgment is now the standard, this will have significant consequences for foreign OEM client companies who have not registered their trademarks in China because they are not offering their products in the Chinese local market. This paper traces some of the most significant related to OEM production issue and examine how the most recent changes in both the legislation and case law are likely to affect OEM trademark issues and what companies that engage in OEM production in China should do in response.