The Main Risks of Manufacturing in China and How They Are Priced
China manufacturing risks are priced through registered sub-class trademarks, tight tooling bailment, explicit defect reserves, and local court enforcement.
HONDA Ruling
Meaning
Judicial precedents regarding the use of trademarks on products intended solely for export clarify the boundaries of infringement when the goods are never sold in the domestic market. The 2019 decision known as the honda ruling established that even if a product is only for export, the use of a registered mark on the goods can still constitute trademark infringement. It governs the liability of original equipment manufacturers who produce goods for foreign clients using marks that are already registered by third parties in China.
This precedent stops applying when the domestic mark holder has no legitimate basis for their registration or if the use does not cause confusion among the relevant public.
Infringement Theory
Traditional views on trademark law in the manufacturing sector once held that export only goods could not infringe because they did not enter the local marketplace. Following the honda ruling, the Supreme People Court shifted this perspective by emphasizing that trademarks serve multiple functions beyond just identifying the source for local consumers. One such function is the protection of the investment and reputation of the trademark owner.
The court found that the act of applying the mark to the goods during production is itself a form of use that can be infringing. This remains true even if the goods are sealed in containers and sent directly to a port. The decision removed the safe harbor that many manufacturers had relied on for decades.
Now, every production run must be checked against the domestic trademark database.
Export Limitation
Manufacturing for foreign markets requires a higher level of diligence regarding the intellectual property rights of local entities. Since the honda ruling, a factory can no longer defend an infringement claim by simply showing an authorization letter from a foreign brand owner. If a local company has registered the same mark for the same class of goods, the factory is at risk of being sued and having their goods seized at the border.
This has created a significant challenge for global supply chains where a brand is owned by different people in different countries. The ruling means that the local registrant has the power to block exports of goods they did not authorize. Customs authorities are now more active in checking export shipments for potential trademark violations.
Companies must now clear their marks in China before starting production for any market.
Judicial Interpretation
Lower courts have used the principles from this case to evaluate a wide range of intellectual property disputes in the manufacturing hubs. While the honda ruling is the most famous example, it reflects a broader trend toward stronger protection for registered marks. Judges now look at whether the use of the mark is likely to cause confusion, but they define the relevant public to include people involved in the international trade and distribution of the goods.
This broader definition makes it much easier for a trademark owner to prove their case. The ruling has also increased the importance of registering marks as early as possible. Defensive registrations are now a standard part of doing business to prevent others from using the export rule as a weapon.
This case has fundamentally changed the risk landscape for international trade.