"Offense and Defense" in Dispute over Trademark Right in OEMs

December 26, 2022

Recently, a Unitalen-represented case of confirmation of non-infringement upon the trademark right and dispute over liability for damages due to application for customs intellectual property protection measures was successfully mediated under the organization of the People's Court of Pudong New Area, Shanghai. In this dispute, Unitalen was involved in the two stages of customs seizure and civil litigation, helping the entrusted party of OEM to change from defense to offense, from passive to active in the dispute, and finally fulfilled its appeal.

Customs seizure stage

Offense side ► Domestic trademark holder

Defense side ► Entrusted party of OEM (represented by Unitalen)

I. Basic case at the customs stage

In 2021, a Jiangsu Company S (pseudonym) declared to Shanghai Customs to export a batch of lamps and lanterns in the form of general trade. And a Company Y (pseudonym) applied for customs seizure on the grounds that this batch of lamps and lanterns was suspected of infringing upon its trademark right filed with the General Administration of Customs, and security deposit was paid. Because the goods were seized, the Company S approached Unitalen for assistance.

After reviewing the materials and discussing with the Company S, the attorney learned that the seized goods were all in OEM: that is, the Company S in China accepted the commission from the overseas trademark owner a Chilean company to manufacture relevant lamps and lanterns, and, according to its written authorization, to affix the trademark provided by the Chilean company on the manufactured products and the external packing, and all the manufactured lamps and lanterns are exported to Chile and not sold in China.

II. Coping strategies

Based on the experience of handling such customs seizure cases, for the goods of OEMs, if the exporter can clearly state the reasons why the exported goods are in OEMs, and provide the trademark registration certificate of the overseas entrusting party in the destination country, the trademark authorization letter to the domestic entrusted party and other materials, the customs will generally make an assertion that it cannot be determined whether it is an infringement. The attorney wrote a Statement of Non-Infringement on behalf of the Company S and provided relevant evidence to the customs. Finally, Shanghai Customs issued a Notice on the Status of Intellectual Property Rights of Imported and Exported Goods, by which an infringement could not be determined.

Civil litigation stage

Offense side ► Entrusted party of OEM (represented by Unitalen)

Defense side ► Domestic trademark holder

I. Basic case at the litigation stage

In the process of sorting out the facts of the case, the attorney found that the Chilean company had registered the relevant trademark in Chile, Peru and other South American countries a long time ago and carried out commissioned manufacture in China. The domestic registered trademark of the Company Y had obvious traces of imitation. After checking the trademark data under the name of the Company Y, it was found that the Company Y also registered other trademarks similar to those of the well-known lamps and lanterns manufacturers in South America.

II. Offense strategy

According to relevant laws and regulations, if the customs cannot determine whether the detained goods violate intellectual property rights, unless the person applying for the seizure confirms the immediate release of the goods, it needs to wait 50 working days from the date of detention to release the goods if a notice from the court to assist in enforcement is not received. Coupled with the process time before being detained, once the goods are seized, it will cause a significant delay in delivery time. The Company S may continue to manufacture products in OEM for the Chilean company in the future. Also, the customs seizure also caused losses to the Company S, and Company S needed to make up for the losses.

Therefore, after discussing with the Unitalen attorneys, Company S decided to turn from defense to offense, and initiated a lawsuit for confirmation of non-infringement upon trademark rights and a lawsuit regarding the dispute over the liability of damages due to application for customs intellectual property protection measures, so as to eliminate the current unclear legal status of export goods, and make up for the losses. The attorney formulated a multi-level offensive strategy for this case.

(I) Dispute over confirmation of non-infringement upon the trademark rights

1. Taking "OEM" as a shield

At the litigation stage, the plaintiff first continued to claim that the exported goods were manufactured in OEM, which did not infringe upon the defendant's right to exclusive use of registered trademark.

2. Taking "prior rights" and "abuse of rights" as a spear

After the Supreme People's Court's "HONDA Case" retrial judgment was made, the judicial views on OEMs have changed, and it is with some uncertainties to determine whether a domestic entrusted party has infringed upon trademark rights. In order to further consolidate the plaintiff's claim, the plaintiff's attorney further strengthened the claim from the perspectives of prior rights and abuse of rights: that is, claiming that the design part of the defendant's domestic registered trademark is the work of the Chilean company that is entitled to the prior copyright, the word part is the same as the Chilean company's prior used name, and the Chilean company holding the prior right. According to the principle of good faith and the main points of the judgment determined by the Guiding Case No. 82 of the Supreme People's Court, it is believed that not only the plaintiff did not constitute trademark infringement, but the defendant constituted abuse of rights.

3. Using property preservation as a bargaining chip

While filing the case, the plaintiff also initiated a property preservation procedure, and the court ruled to freeze part of the defendant's bank deposits and the deposits paid to the customs.

(II) Dispute over the liability of damages due to application for customs intellectual property protection measures

There are contradicting views in judicial practice regarding the principle of attributing liability for damages caused by application of customs intellectual property protection measures. There is a view that Article 14 of the Regulation on the Customs Protection of Intellectual Property Rights stipulates that the premise of the right holder's liability for compensation is "improper application", so whether the application is improper, and the time point of subjective fault should be considered in the case. There are also views that the key is whether the detained goods can be identified as infringement by the customs or court, if not, it is an improper application. Taking into account the different viewpoints in judicial practice, the attorney in this case suggested that the plaintiff make claims at multiple levels, namely:

The first level: claiming that as long as it is confirmed that the trademark right has not been infringed, the plaintiff's claim for compensation should be supported.

The second level: it is difficult to claim that the defendant's acquisition of the trademark right is legitimate, and the application for customs seizure constituted an improper application from the very beginning.

The main reason is that: Article 28 of the current Regulation on the Customs Protection of Intellectual Property Rights has set the conditions for compensation as "where the customs is unable to ascertain that the detained suspected infringing goods have infringed upon the intellectual property right holder's intellectual property, or the people's court rules that the said goods have not infringed upon the intellectual property right holder's intellectual property right", and the condition of "improperly taking protection measures" in the 1995 Regulation has been abandoned. Moreover, the defendant knew clearly about the Chilean company's trademark, and it was improper from the beginning to apply for customs seizure of the export goods commissioned by the Chilean company to manufacture after the defendant has registered the trademark.

Case outcomes

During the first-instance trial of this case, the court organized the plaintiff and the defendant to reach a mediation: the defendant confirmed that the plaintiff's use of the trademark of the overseas entrusting party on the lamps and lanterns manufactured and exported to Chile did not infringe upon the defendant's right to exclusive use of the registered trademark and paid the plaintiff a certain settlement amount.

Another goal of the plaintiff in this case is to hope that the future OEM goods can be exported to the Chilean company normally without being seized. After negotiation, the defendant also issued a power of attorney to the plaintiff in addition to the mediation agreement, confirming that the plaintiff has the right to mark the relevant trademarks individually or in combination on the goods exported to the Chilean company and of which the importing country and the destination country are both Chile, the outer packaging or containers, transaction documents, and export declaration materials.