For Australian businesses that manufacture goods in China for export, China’s trade mark landscape has shifted in ways that demand attention. A legal protection many companies once relied upon, the so-called “OEM exception”, can no longer be taken for granted, and the consequences of getting it wrong range from customs seizures and supply chain disruption to court-ordered damages. It is therefore critical that Australian businesses with Original Equipment Manufacturing operations in China adopt forward-looking trade mark strategies to minimise the risk of costly commercial disruptions.
The OEM model and the trade mark problem
Original Equipment Manufacturing (OEM) is the arrangement by which a foreign brand owner engages a Chinese factory to produce goods bearing the brand owner’s trade mark, with those goods destined entirely for export. It is a cornerstone of how many Australian businesses source products, from consumer goods and health supplements to agricultural inputs and industrial equipment.
The fundamental tension arises from a structural difference between Australian and Chinese trade mark law. Australia operates on a use-based system, where rights can develop through commercial use. China operates on a strict first-to-file basis: trade mark ownership belongs to whoever registers first with the China National Intellectual Property Administration (CNIPA), regardless of prior use or reputation elsewhere. An Australian business may own its trade mark in Australia and in dozens of other markets, yet have no rights at all in China, leaving it exposed if a third party has registered the same or a confusingly similar mark there.
The shifting legal framework
For many years, Australian and other foreign businesses operating through OEM arrangements took comfort from a body of Chinese case law that protected them. The reasoning was straightforward: if products were manufactured solely for export and never entered the Chinese market, affixing a trade mark to those goods could not cause consumer confusion in China, and therefore did not constitute trade mark “use” under Chinese law.
The Supreme People’s Court (SPC) endorsed this position in two landmark rulings, the PRETUL case (2015) and the Dongfeng case (2017), which held that OEM manufacturers affixing a foreign brand owner’s mark on goods intended solely for export did not infringe a competing Chinese trade mark registration, provided the manufacturer exercised reasonable due diligence and caused no material damage to the Chinese trade mark owner.
That position was sharply reversed in September 2019, when the SPC handed down its decision in the HONDAKIT case. Honda had registered its trade marks in China since the 1980s. A Burmese company engaged Chinese OEM manufacturers to produce motorcycle parts bearing the mark “HONDAKIT”, confusingly similar to Honda’s Chinese registrations, for export to Myanmar. The SPC found infringement, and its reasoning was far-reaching.
The court held that physically affixing a mark to goods during manufacture is itself capable of constituting trade mark “use” in China. It also significantly broadened the concept of the “relevant public” who might be confused, extending it beyond end users to include logistics operators, and noting that Chinese consumers travelling overseas or purchasing through cross-border e-commerce could also encounter the exported goods. The fact that the goods were not sold in China directly was no longer a complete shield.
A landscape that remains unsettled
The HONDAKIT decision does not mean that every OEM arrangement now constitutes trade mark infringement. Chinese courts do not operate a strict system of binding precedent, and since 2019, the attitudes of China’s key enforcement authorities toward pure OEM production have diverged in important ways.
The Administration for Market Regulation (AMR), which handles administrative enforcement, generally considers pure OEM production not to constitute trade mark infringement. Chinese Customs will typically detain goods bearing a mark that conflicts with a Chinese registration, but where the goods are confirmed to be pure OEM production, Customs may grant the Chinese trade mark owner a specified period in which to file a lawsuit. If no lawsuit is filed within that period, the goods will be released; if proceedings are commenced, the goods will remain detained pending the court’s determination.
At the court level, the prevailing position since HONDAKIT is that pure OEM production does constitute infringement. However, exceptions have arisen where the domestic right holder’s registration is found to be defective or where special circumstances exist. For example, in a 2021 Zhejiang court decision concerning the mark “STAHLWERK”, the court held that the plaintiff’s enforcement violated the good faith principle because the plaintiff had prior knowledge of the defendant’s mark before filing its own Chinese application and had effectively pirated the mark. In a 2023 Shanghai decision concerning the mark “PREDATOR”, the court found no infringement where the exported product was a model machine that would not enter the Chinese market and therefore could not cause confusion among Chinese consumers or damage to the plaintiff. These exceptions remain fact-specific, and the outcome of any given case will turn heavily on its circumstances.
For Australian businesses, the practical risk is real and immediate: a competitor or former supplier registering your trade mark in China can use that registration to seek detention of your goods at Chinese customs, initiate civil proceedings against your Chinese manufacturer, or leverage the dispute to extract commercial concessions.
What Australian businesses should do
The key practical steps that brand owners operating through Chinese OEM arrangements should consider include:
- Register your trade mark in China early: ideally before entering into any OEM arrangement. Registration through China National Intellectual Property Administration (CNIPA) is class-specific and separate from any Australian registration. A Madrid System application is possible but direct CNIPA filing generally provides more precise protection.
- Importantly, maintaining a Chinese trade mark registration in the context of OEM manufacturing carries an additional benefit: evidence of OEM production in China can be relied upon to defend against a non-use cancellation application, meaning that a registration will not be vulnerable to removal for non-use merely because the goods are exported rather than sold domestically.
- Conduct clearance searches before committing to OEM production, to identify any existing or pending Chinese registrations that could conflict with your brand.
- Monitor the Chinese trade mark register on an ongoing basis to identify opportunistic filings by third parties.
- Put in place a robust OEM agreement that clearly establishes the parties’ rights, confirms the goods are for export only, and documents the Chinese manufacturer’s due diligence obligations.
- Keep thorough records of your OEM relationship, including authorisation letters, overseas trade mark registrations, and export documentation, which may be essential evidence if goods are seized at customs.
- Take early advice if a conflicting trade mark is identified. Invalidation applications may be available where a registration was made in bad faith or without genuine intent to use, and recent amendments to China’s trade mark law have strengthened grounds for such challenges.
China’s trade mark environment rewards those who act early. For Australian businesses manufacturing in China, the cost of registering and monitoring trade mark rights is modest compared to the disruption, and cost, of a supply chain brought to a standstill.
If you are manufacturing goods in China or have broader business operations in the Chinese market, obtaining specialist trade mark advice is not optional, it is essential. Hamilton Locke has extensive experience advising Australian businesses on trade mark strategy in China and works alongside a trusted network of local associates to navigate the complexities of the Chinese registration system and enforcement landscape. To discuss your position and ensure your brand is properly protected, contact our Intellectual Property and Technology team.
This article is general information only and does not constitute legal advice. If you have specific concerns about your trade mark position in China, please contact our Intellectual Property and Technology team.
For more information, please contact Alana Long and Sarah Gilkes.
