Original Equipment Manufacturing Exception

Export Immunity

Traditional application of this rule meant that as long as the entire shipment left the country, the trademark owner in China could not sue for infringement. The original equipment manufacturing exception protected the “processing trade” which was a cornerstone of the Chinese economy for decades. Courts would look at whether the factory had checked the buyer’s trademark certificates in the destination country and whether the goods were actually shipped out.

If these conditions were met, the factory was generally immune from local trademark claims. This allowed international companies to use China as a production hub without worrying about local brand disputes. The policy was designed to encourage foreign investment and to protect the manufacturing sector from legal harassment.

It created a predictable environment where a contract with a foreign buyer was a valid defense against a local trademark suit. This immunity was especially important in industries like apparel and footwear where branding is a central part of the manufacturing process. The rule effectively separated the act of making from the act of selling.

Trademark Use

Legal definitions changed when the highest court began to view the act of attaching a brand to a product as a violation of the owner’s exclusive rights. The original equipment manufacturing exception came under fire because it allowed the production of goods that looked identical to those of the Chinese trademark holder. Critics argued that this could lead to “leakage” of the products into the local market and could cause confusion among suppliers and exporters.

In several high-profile cases, the court ruled that the manufacturing process itself constitutes trademark use under the law. This means that if a logo is printed on a shoe, it is a use of that mark, regardless of where the shoe is eventually sold. This new interpretation removed the primary defense for factories that were producing goods for foreign brands.

It also increased the risk for foreign companies who had not yet secured their trademarks in the mainland. The shift reflects a broader policy of strengthening intellectual property rights and prioritizing the first-to-file system. This change has transformed the exception from a standard practice into a rare and unpredictable defense.

Regulatory Constraint

Compliance for factories now requires a more rigorous verification of the trademark rights for every order they accept. The original equipment manufacturing exception no longer provides a guaranteed safe harbor, so manufacturers must demand proof of a Chinese trademark registration from their clients. If the client does not own the mark in China, the factory may refuse the order to avoid the risk of a lawsuit or a customs seizure.

This constraint has forced many foreign companies to participate in the Chinese trademark system even if they do not sell to local consumers. It also gives more power to trademark squatters, who can now block exports by filing for infringement at the border. The only remaining way to use the exception is to prove that the use was so limited that it could not possibly cause any confusion, a very high evidentiary bar.

Administrative staff at the trademark office and customs bureaus now follow this stricter standard during their daily inspections. This marks the end of the era where export-only status was a blanket protection for manufacturing. Foreign brand owners must adapt by filing early and often to maintain control of their production lines.