Preface

In September 2022, Lusheng Law Firm won a landmark final judgment in a foreign-related OEM case for trademark dispute for its client Juratek Ltd. This trademark infringement proceeding was instituted by Laizhou Baoyi Machinery Co., Ltd. (‘Baoyi'), which first registered the "" trademark in China against Juratek's OEM processor in the country. Lusheng, on behalf of the accused infringer, claimed that Baoyi's acquisition and exertion of the registered trademark rights violated the principle of good faith and was supported by the final judgment of Zhejiang Provincial Higher People's Court.

Winning this case was a huge milestone for Juratek and its partners in the Chinese original equipment manufacturer (OEM) sector. Matt Robinson, the General Manager of Juratek, said: "We are very pleased with the final decision. When our goods were detained (on charges of trademark infringement), we suffered and were highly disillusioned. I've been doing business in China for 20 years and have been satisfied with everything, but the recent maters caused me to harbor doubts. Fortunately, Chinese legal experts advised us to be patient and confident, and we ultimately achieved our goal. "

The case "Juratek" has the typical characteristics of OEM cases for trademark disputes, and the victory involved complex evidence collection and presentation of legal argument. The team endured the process and won the case. Here, the attorney involved discusses the focus, difficulties and challenges of foreign-related OEM cases regarding trademark disputes.

Conflicts and Challenges from Judicial Views

Through more than two decades of  judicial practice evolution, foreign-related OEM legal matters have the following core characteristics: First, the domestic processor produces products for the overseas client under its authorization, and affixes the trademark on the product in a form consistent with legal provisions; Second, the products are not sold in the domestic markets in China, but exported, typically, to the country where the client is located; Third, the client must have legal trademark rights at the place of receipt. Since OEM products are produced in China and shipped overseas, the transaction process involves two trademark systems at home and abroad, which can lead to conflicts between domestic and overseas trademark rights.

In the People's Republic of China, there have been changes and conflicts in the judgment standard about such cases, which mainly focus on "trademark use", "obfuscation", "subjective fault" in the elements of trademark infringement, as well as the "regional" principle and "good faith" principle of trademark rights. In 2019, the Supreme People's Court clarified in the "Honda Case" that the act of attaching a trademark to OEM products is equivalent to use the trademark, emphasizing the geographical principle of trademarks, and clarifying that domestic registered trademark rights have priority over overseas trademark rights. The decision made in the Honda case posed a huge challenge for OEM managers' claim of non-infringement.

Case Background

Juratek, the overseas OEM client of the disputed product in this case, is a leading supplier of automobile brake products. It was established in the United Kingdom in 1982 and renamed as JURATEK LIMITED in March 2000. Juratek applied for the registration of the European Union trademark "JURATEK" in September 2004 and was approved in May 2006. At the end of 2013, the company upgraded its brand, creating and using a new brand identity: such as and . Since 2000, Juratek has been continuously engaged in OEM business in China, commissioning Chinese manufacturers to produce and export automotive brake products with its commercial logo.

The Plaintiff in the first trial is Baoyi. Baoyi was established in Laizhou, Shandong Province, in June 2011, engaged in producing and selling automobile brake products. In April 2017, the company applied for registration of the trademark  in China. It was approved in March 2018, and was designated to be used on Class 12 brake discs, brake pads, and other products. It immediately filed a trademark protection record with the General Administration of Customs, P. R. China. The Defendant in the first trial is Suzhou Kingrun Auto Parts Co., Ltd. ("Kingrun Company"). In 2018, Kingrun Company and Juratek began to cooperate in OEM, and Juratek issued a letter of authorization to authorize Kingrun to use its "Juratek" trademark and  logo. In 2020, Baoyi applied to Ningbo Customs to check and detain the brake callipers declared by Kingrun Company for export. It immediately sued Kingrun Company for infringement of its  registered trademark right. The first trial was tried in Ningbo Intermediate People's Court. It was ruled that Kingrun Company infringed the registered trademark right of Baoyi, and should stop the infringement, destroy the related products and compensate Baoyi RMB 200,000. Kingrun Company appealed to Zhejiang Provincial Higher People's Court. In September 2022, Zhejiang Provincial Higher People's Court issued the final judgment, revising the first trial judgment, and determining that Baoyi violated the principle of good faith in applying for and using the trademark right involved, and Kingrun Company did not infringe.

In this case, the attorney focused on the legal rights of "Juratek" company and the improper acquisition and exertion of trademark rights by "Baoyi". It is challenging to prove these two aspects.

Difficulties and Obstacles of Overseas Clients in Foreign-related OEM Cases for Trademark Dispute

• The difficulty in protecting overseas intellectual property rights in China

Juratek has created the word mark "Juratek" and the graphic and word mark involved in the case, and used "JURATEK" as its corporate name. It has used these intellectual property rights worldwide and built goodwill and influence.

The attorney collected previous materials of Juratek creating and continuously using the trademark involved and accumulating popularity and influence on the trademark involved, which includes the design background and design drawings of the trademark, news, and pictures published in overseas newspapers and internet media at its first use, previous web pages of Juratek's website (www.juratek.com), and continuous reports on Juratek and its brands and products by internationally renowned auto parts and after-sales service websites. The collection of this evidence is challenging. On the one hand, it takes effort and even "luck" to find and obtain previous materials. Furthermore, evidence adduced from overseas requires costly notarization, authentication and translation procedures to meet the formal evidence requirements. However, based on the territorial principle of intellectual property protection, overseas rights will often not be protected in China judicial cases.

• The difficulty in proving the prior use right of trademarks in China.

Based on the prior use right of the trademark, before the application date of a domestic trademark, if the overseas client has used the same or similar trademark in good faith and continuously on similar goods or services and enjoys certain influence, it shall have the right to continue to use the trademark in the original scope.

Besides, OEM business is a transaction between the client and processor, and the relevant transaction documents are not made public. In this case, the attorney collected many documents and materials that Juratek engaged in OEM business in China before the application date for the trademark of Baoyi. However, these were questioned as internal information of both parties to the transaction.

Besides, since the OEM products do not appear in China market, there was no report on the "Juratek" brand in the Chinese media, so it was difficult for the attorney to obtain public information to prove that "Juratek" has certain influence due to its OEM use in China. Due to the characteristic of the transaction, it is more difficult to collect persuasive evidence of previously use by Juratek's OEM business in China.

• The difficulty in claiming the domestic registered trademark holder violating the principle of good faith

It is challenging to claim the application of the principle of good faith in a given case. The principle of good faith is a basic principle of law and serves as the "king clause". Article 7 of the Civil Code of the People's Republic of China:

"When conducting a civil activity, a person of the civil law shall, in compliance with the principle of good faith, uphold honesty and honour commitments";

Article 32 of the Trademark Law of the People's Republic of China:

"An application for the registration of a trademark shall not create any prejudice to the prior right of another person, nor unfair means be used to pre-emptively register the trademark of some reputation another person has used."

The principle of good faith in trademark law can be embodied in this clause. However, the high abstraction and generality of the principle of good faith lead to difficulties in judicial practice. As a legal principle, it is general, somewhat subjective and, covering a wide range. However, its applicable standards are vague and difficult to uniformly express. The situation leaves excessive leeway for judges to decide cases, and also uncertainty to the process.

As far as this case is concerned, to prove that Baoyi had violated the principle of good faith use, it was first necessary to prove that Baoyi had known the relevant logo of JURATEK before applying for registration, but that it still continued to use it for improper purposes Moreover, it was necessary to prove that Baoyi maliciously exerted a right to use the trademark obtaining the trademark right. In Chinese judicial precedents, it is often necessary for the claimant to provide direct evidence that the preemptive registrant "knew" the claimant's prior rights, such as, there was a commercial or former agency relationship between the preemptive registrant and the trademark creator. Yet here there was no such fact in this case.

Persistence and Breakthrough

In the face of difficulties, the attorney did not stop but improved the evidence chain around the principle of "good faith" through multi-angle evidence.

Based on the evidence that the overseas client created and used the trademark involved and continuously uses the relevant trademark in the form of OEM in China, the attorney collected the evidence that Baoyi obtained and exerted the trademark involved by improper means from various angles, including: Baoyi and Juratek are located in the same region as many OEM partners in China where gathers China's automobile brake products industry cluster. The local government attaches great importance to relevant industries and continues to organize peer managers to participate in domestic and overseas exhibitions; Baoyi is engaged in the same industry, and its legal representative Xiaobin Lou is the deputy secretary-general of the local industry association. He has also set up a company engaged in this industry in the United Kingdom, and has sufficient channels to contact domestic and overseas brands and operators; Juratek logo has inherent distinctiveness, and the trademark registered and used by Baoyi is the same as that created and previously used by Juratek. We won't know if it is a coincidence; More coincidentally, the company also uses the same packaging on its products as Juratek's. In addition, Baoyi has registered other overseas famous brands in this industry, and its registration motive is hard to say if it's a goodwill. The above evidences, as well as the fact that Baoyi demanded high compensation from Juratek, comprehensively proved that Baoyi "knew" Juratek's trademark, still registered and used the same trademark subjectively and maliciously, and then claimed that the infringement of the goods of the legal obligee for illegitimate interests.

A Hard Victory in Final Judgment

In September 2022, the final judgment from Zhejiang Provincial Higher People's Court overturned the first trial judgment from Ningbo Intermediate People's Court. In the judgment, the Court held that:

"In the process of obtaining and using trademark rights, the subject of trademark rights shall abide by the principle of good faith. Violation of the purpose and spirit of the law, to harm the legitimate rights and interests of others, improper exertion of trademark rights is abuse of rights, and its related claims should not be protected and supported by law. Based on the comprehensive research and judgement on the situations including overseas use of "JURATEK" series logo and relevant trademark registering by Juratek Ltd., its business cooperation with domestic foreign-related OEM enterprises, Baoyi's cognition of Juratek Ltd. and its "JURATEK" series logo, Baoyi's subjective intention, its use of the trademark involved after registration and application for registration of several trademarks identical or similar to well-known auto parts brands in other countries and regions, the court held that the way Baoyi exerted the trademark right involved violated the principle of good faith. Looking back at Kingrun Company, it has fulfilled its prudent and reasonable duty of care in this case. "

Given this, the Court held that Baoyi's filing an infringement lawsuit against Kingrun Company authorized by Juratek Ltd. for the alleged infringing OEM goods in China on the basis of the trademark right involved violated the principle of good faith. Therefore, its exertion of the registered trademark right was hardly justified, and its claim should not be supported.

Pay Tribute to Zhejiang Provincial Higher People's Court

After two trials, the final judgment finally confirmed that Baoyi's behavior of obtaining and exerting the trademark right involved in the case was hardly in good faith, constituting a violation of the principle of good faith, which is not easy. During these two trials, the attorney has submitted about 80 items of evidence and dozens of attorney opinions, which means that the court needs to spend a lot of labor and time trying, identifying, and determining each item of evidence and its supporting matters in turn.

The attorney of this case now pays tribute to Zhejiang Provincial Higher People's Court. An ancient Roman jurist once said, "Law is the art of goodness and justice". The judges handling this case are professional and dedicated, safeguarding social fairness and justice and carrying forward the values of honesty and credit.

Conclusion

Through acting as the attorney in the case, we deeply felt that foreign-related OEM traders often face extremely difficult proof obstacles, some of which are difficult to overcome, when encountering infringement proceeding.

The author thinks that what Trademark Law protects is the goodwill of the trademark, the purpose of which is to urge producers and managers to guarantee the quality of goods and services, maintain the trademark's reputation and promote the development of a socialist market economy. China's trademark laws, regulations and judicial precedents have set up specific and clear standards for trademark infringement judgment. Still, these standards lead the OEM processor to bear excessive burden of proof when facing the special transaction mode such as foreign-related OEM, which leads to the imbalance of rights and obligations of market traders.

Foreign-related OEM trade is a common transaction form, which has greatly contributed to the national economy. However, the heavy burden of proof and too strict protection conditions for OEM traders do not conform to the long-term strategic planning of related industries, nor do they meet the needs of national economic development. The author appeals that the legal judgment standard of foreign-related OEM trademark disputes should not be limited to the specific standard of trademark infringement judgment but should focus on the comprehensive investigation of the related OEM subjects and the characteristic of their respective rights, to reasonably balance the legal effect of trademarks at home and abroad in processing trade.

In a separate piece, the author also shares her reflections on the judicial decisions of the OEM-related trade mark infringement cases in China.

For more information on the Juratek case, please see our press release piece Landmark win for OEMs in China and case study article ‘Bet the house’ trade mark battles in China.