OEM Products Distribution

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Current state of the law in China

US companies in this situation have a few options. First, US companies can file new applications every three years to avoid a cancellation action based on non-use. This strategy, however, is expensive and imperfect. Alternatively, the question arises – does OEM manufacturing in China constitute use of a trademark sufficient to defeat a cancellation action based on non-use? Like every good legal question, the answer is “it depends.”

The law in this area has shifted over the last several years, and OEM use has been more consistently recognized as valid trademark use in non-use cancellation proceedings. In Distinct Seasons Sd. Bhd. v. Trademark Review and Adjudication Board, the Beijing Higher People’s Court held in March 2017 that, although the OEM products had not yet been circulated in the Chinese market and were only exported for sale, the registrant’s use was sufficient to defeat a cancellation action. The court, however, specifically stated that, to successfully defend a non-use cancellation, the registrant is required to provide a clear document trail showing its activities in China. The Supreme People’s Court of China has not made a definite ruling on this issue yet, but its re-trial judgment in Sonneti International S.A. v. Trademark Review and Adjudication Board in December 2018, which ruled that it is wrong to draw the conclusion that a registered trademark is not in use simply because it is used in OEM activities only, strongly indicated that OEM use is sufficient to defeat a cancellation action.

In April 2019, the Beijing Higher People’s Court issued its Guidelines for the Trial of Trademark Right Granting and Verification Cases, which also provide that “if the goods using a trademark are directly exported without being circulated in China and the registrant of the trademark claims to maintain the registration of such trademark, this claim may be supported”.

The above Distinct Seasons Sd. Bhd. v. Trademark Review and Adjudication Board case and some other recent cases provide a clear signal to companies using OEM arrangements in China – have your paperwork in order. Having a clear trail of licensure, purchase orders, and invoices appears crucial to putting structures in place which are intended to combat against a cancellation action based on non-use.

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