HONDA wins infringement case against Chinese parts exporter

Honda Motor Co. Ltd. – This company and the HONDA brand need no introduction. Every car enthusiast and even the layman knows it. But not everyone knows that Honda is not only a car manufacturer, but also an aircraft and robot manufacturer, and the world’s largest engine manufacturer. The company first registered its trademark with the Chinese Patent Office in 1982 (in class 12, as in vehicle) and still uses it in the Chinese market today. However, despite registering the trademark so early, Honda has faced a legal battle in the Chinese market. At issue is the fight against counterfeit spare parts.

Export of counterfeit spare parts

Independently, but with reference to Honda’s business in China, it is worth citing an interesting situation that perfectly illustrates the challenges faced by brand owners in China.

Well, in 2016, the Chinese company Chongqing Heng Sheng Group Ltd signed an agreement with the Burmese company Meihua Company Ltd to produce motorcycle parts under the brand name ‘HONDAKIT’. This can be described as typical OEM (Original Equipment Manufacturer) production, i.e. production under the brand name of the customer. The parts were shipped to Myanmar by the manufacturer’s subsidiary, Chongqing Hengsheng – Xintai Trading Co. Ltd until the Chinese customs office in Ruili (a township in China’s Yunan Province, which borders Burma) stopped the customs clearance of 220 sets of parts under the brand name “HONDAKIT” on suspicion of trademark infringement. Although the customer fought to get the order through customs, it argued that it held the rights to the HONDAKIT trademark, but…. these were granted by the Patent Office of Myanmar, not China.

Can customs stop the unauthorised clearance of branded goods?

The trade in counterfeit products is being combated by many countries. Legal procedures relating to trademarks are helpful in this respect. One of these is the customs recordal of a trademark. This procedure helps the owner of the trademark to request information from customs when products bearing the trademark cross the border in either direction. When this happens, the trademark owner receives a notification from customs. If he has ordered the transport, the goods cross the border. If not, the customs officers stop clearance. And this is exactly the situation we have encountered here.

As the cleared products bore a brand name similar to HONDA and the parts were classified as OEM (Original Equipment Manufacturer) products, the office became suspicious about the legality of the designation. It was not possible to determine directly whether or not they infringed HONDA’s trademark rights, as this is not the role of the customs office. The Japanese manufacturer was informed of the incident and it was left to them to decide what to do with the shipment.

The customs office became suspicious of the legitimacy of the designation when they noticed that the cleared products had a brand name similar to HONDA and that the parts were classified as OEM (Original Equipment Manufacturer) products. It was not possible to determine directly whether or not they infringed HONDA’s trademark rights, as this is not the role of the customs office. The Japanese manufacturer was informed of the incident and it was up to them to decide what to do with the shipment.

How to prevent the export of fakes? HONDAkit example

HONDA is an active brand in the Chinese market. The company has registered a number of Class 12 trademarks in China, i.e. trademarks relating to automobiles, cars, motorcycles, spare parts and other products typical of Class 12. These include key registrations such as the HONDA mark (Register No. 314940), the distinctive H stamp (Register No. 1198975) or the old wing mark (Register No. 503699).

Honda trademarks registered in China. Source: Lexology

The examination of the dispute had to be based on an analysis of the composition of the mark HONDAKIT. The first two syllables are identical in sound to HONDA, which probably evokes the Japanese mark for the overwhelming majority of the public in the sector. All the more so as the counterfeit products (motorcycle fenders) had the trademark written in capital letters HONDA and in small letters “kit”. The dispute seemed obvious and it must be said that the customs office made the right decision in stopping the clearance.

HONDAKIT. Logo na pojeździe. Źródło: Lexology

Legal proceedings and challenges encountered

Honda Motor Co. Ltd. filed a civil lawsuit against Heng Sheng and Xintai in September 2016, alleging trademark infringement. At the time, the Intermediate Prefectural Court initially ruled in favour of the Japanese company, finding that the defendants’ actions violated OEM manufacturing regulations. The defendants were ordered to pay RMB300,000 (US$43,000) in damages to Honda. However, the Yunnan Higher People’s Court overturned this decision in November 2017, finding that the defendants’ activities were in accordance with the OEM contract. The details of whether the OEM contract included a guarantee by the customer regarding its intellectual property rights in China are not known. It is presumed that it did, as evidenced by the subsequent course of the trial. Honda Motor Co. Ltd fought on.

Appeal to the Supreme People’s Court

Dissatisfied with the second-instance decision of the Yunan Higher People’s Court, the Japanese decided to appeal to the Supreme People’s Court. The defendants’ defence was that they had obtained permission from a Burmese company to use their HONDAKIT trademark.

In its ruling, the Supreme People’s Court emphasised that the existence of foreign trademark rights does not automatically imply the granting of rights in China and, as a result, the Chinese company was found to be an exporter of components that did not meet OEM standards and infringed HONDA’s trademark rights.

The final judgment of the Court of First Instance upheld the original decision, finding infringement and ordering payment of the damages previously determined at first instance.

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