Plaintiff, FOCKER Security Products International Limited (hereinafter referred to as “FOCKER”) is the owner of No.3071808 “” mark for padlock goods in China. Defendant, Ningbo PUJIANG YAHUAN Company (hereinafter referred to as YAHUAN) is the Chinese manufacturer for “PRETUL” and “” padlocks authorized by TRUPER HERRAMIENTAS, who is the owner of “PRETUL” mark in Mexico.

On January 13, 2011, FOCKER requested NingboCustoms to seize two “PRETUL” padlocks shipments from YAHUAN, and then on January 30, 2011, FOCKER sued YAHUAN before Ningbo Intermediate People’s Court for infringement of its exclusive right to use “PRETUL” mark in China. Ningbo Intermediate Court rendered the judgment of that a foreign-related OEM relationship existed between YAHUAN and TRUPER HERRAMIENTAS. Pursuant to article 3 of the Implementing Regulations (Revised edition 2013) of the Trademark Law, and article 52 of China Trademark Law (Revised edition 2013), YAHUAN’s action constituted “use on purpose”, and therefore infringement was found to FOCKER’s “PRETUL & Device” mark. YAHUAN was requested to cease the infringement and paycompensation to FOCKER with total amount of RMB 50,000 (US$7700).

Both parties appealed to Zhejiang Higher Court on September 3, 2012. Zhejiang Higher Court quashed the judgment and increased the measure of damages to RMB80, 000 (US$12300). YAHUAN didn’t agree with this judgment and appealed to the Supreme People’s Court. The retrial petition was accepted by the Supreme People’s Court.

On November 26, 2015, the Supreme People’s Court rendered a final judgment of quashing both judgments at first instance and appeal, and holds that YAHUAN’s act of using the “PRETUL”and “PRETUL & Device” did not constitute “use on purpose”, and therefore did not constitute trademark infringement. The Presiding judge assessed trademark use as follows: “the Trademark Law protects the basic function of trademarks, their function of identification. To determine whether or not the use of identical trademarks for identical goods, similar trademarks for identical goods, or identical or similar trademarks for similar goods is likely to result in confusion, it is necessary to take a trademark’s ability to fulfill its identification function as the precondition. That is to say, whether the trademark’s identification function is compromised is the basis for determining whether the trademark right has been infringed.In this case, YAHUAN, a Chinese manufacturer that produces “PRETUL” padlocks authorized by TRUPER, who owns “PRETUL” mark in Mexico. YAHUAN fulfilled his “attention” obligation. Furthermore, all PRETUL padlocks are to be exported to Mexico directly, which will not circulate in Chinese market leading confusion among consumers.

From the “PRETUL” case, it can be seen that the Supreme People’s Court holds an opposite opinion on “use on purpose” that of the court at first instance and the appeals court.

The “PRETUL” case has a profound impact on judicial practice and administrative protection. (1)Negative impact: It makes law enforcement by customs more difficult and will have a negative impact on an active customs approach to law enforcement. Furthermore, this will shake multinational corporations’ resolve on cracking down on acts of passing off in China. (2) Positive impact: it is good news for companies that have not registered trademarks, or whose brands have been preemptively registered in China.

As case law is not applied in China, the end of OEM disputes is not in sight. However, the ruling of this case has important guiding significance to the Supreme People’s Court’s verdict.