Disputes over OEM Electronics Manufacturing Contracts with Chinese Partners
As more Vietnamese companies engage in electronics manufacturing under OEM (Original Equipment Manufacturer) contracts with Chinese partners for export, disputes arising from these OEM agreements have become a significant legal risk. This article analyzes the causes, dispute resolution mechanisms, practical challenges, and recommended strategies for Vietnamese enterprises facing such situations.
1. Nature of OEM Contract Disputes in Electronics Manufacturing and Key Risks
1.1. Characteristics of OEM Contracts and Legal “Gray Areas”
An OEM contract is an agreement where the manufacturer produces goods according to technical specifications, designs, and trademarks provided by the ordering party (the brand owner). When the Chinese partner is the ordering party, the Vietnamese manufacturer produces goods for export under the agreement. According to DEDICA’s insights, OEM contracts often lie between a service contract and an international sale of goods agreement, making it complex to determine the applicable law, dispute resolution forum, and customs/tax obligations.
Typical risks include:
The buyer’s delay or refusal to pay when defects or technical issues arise;
Differences in quality standards, testing methods, warranty, or replacement policies;
Trademark, design, and patent ownership issues leading to intellectual property disputes;
Origin and customs declaration problems — when components are sourced from China or third parties, determining the Certificate of Origin (CO) can be contentious;
IP infringement risks if products bear trademarks identical or similar to other brands in China or other countries.
1.2. Common Disputes and Legal Trends in China
China is a major global OEM manufacturing hub, so OEM-related disputes there often set precedents for similar cases.
Honda vs. Chinese OEMs: Chinese courts previously held that OEM production for export did not constitute “use of a trademark” within China (e.g., Pretul and Dongfeng cases).
However, in a recent decision, the Supreme People’s Court (SPC) ruled that OEM manufacturing for export may constitute trademark use if it causes confusion among relevant consumers.
This marks a shift in Chinese judicial perspective, increasing the risk for OEM contracts involving trademark issues.
Among 50 model cases recently published by Chinese courts, many involve OEM and trademark infringement, showing that the Chinese judiciary is tightening scrutiny over such activities.
Therefore, Vietnamese companies engaged in OEM exports involving Chinese trademarks should exercise extreme caution regarding trademark use, logo placement, and ownership rights.
2. Dispute Resolution Mechanisms and Challenges in Vietnam
2.1. Choice of Dispute Resolution Clauses and Applicable Law
A key element in any international OEM contract is the dispute resolution clause.
The parties should clearly agree on the forum (international arbitration or court), venue (city, country, arbitration center such as ICC, SIAC, Hong Kong, or Vietnam), and the governing law (Vietnamese law, Chinese law, or a neutral jurisdiction).
The dispute resolution clause is legally independent of the main contract — even if the main agreement is invalid, the arbitration clause can still stand.
If the contract is treated as an international sales agreement, the CISG (United Nations Convention on Contracts for the International Sale of Goods) may apply, provided both countries are members and have opted in. Under CISG, a fundamental breach due to product nonconformity can justify contract termination.
In practice, enforcing international arbitral awards in China or Vietnam can be difficult if the losing party refuses to comply.
2.2. Practical Barriers for Vietnamese Companies in International Disputes
When Vietnamese companies initiate or defend claims in international OEM disputes, they may face the following challenges:
Foreign law application, technical barriers, and high costs
Understanding and applying Chinese or third-country laws requires specialized expertise and often involves substantial legal and translation costs.Difficulty in collecting evidence from China
Evidence such as production records, factory inspection reports, or QC documentation may be inaccessible or lack transparency due to data control in China.Enforcement of international judgments or awards
Even after winning, enforcing awards in China or another jurisdiction may be difficult unless both sides cooperate or there is an effective mutual recognition framework.Differences in IP enforcement and export control
Vietnamese companies must comply with both domestic IP laws and international conventions (WTO, TRIPS).
For example, under Vietnam’s Circular 11/2015/TT-BKHCN, “using an identical sign for identical goods constitutes infringement without considering confusion.”
Even if the products are for export only, identical trademark use may still trigger sanctions under Vietnam’s export control on IP infringement.
Hence, OEM contracts must explicitly allocate trademark ownership and usage responsibilities.
3. Preventive Measures and Practical Solutions When Disputes Arise
3.1. Preventive Steps When Entering OEM Contracts
Draft clear and comprehensive contracts:
Define technical standards, inspection methods, and acceptance protocols;
Specify responsibilities for repair, replacement, and warranty;
Clarify IP ownership — who owns the design, trademark, and logo usage rights;
Specify dispute resolution terms — arbitration venue, applicable law, and chosen institution;
Include payment safeguards (e.g., advance payment, L/C, or performance bonds) to mitigate non-payment risks.
Conduct due diligence on Chinese partners:
Verify production capacity, IP portfolio, and litigation history;
Check whether the partner has been involved in prior IP disputes;
Request guarantees (e.g., parent company guarantees or secured assets).
Establish independent quality control mechanisms:
Engage third-party inspection services to verify quality;
Define notice periods for defect reporting and remediation procedures.
Ensure transparent origin documentation:
Confirm Chinese-origin certificates for imported components;
Where possible, localize the supply chain in Vietnam to reduce origin risks.
3.2. Steps to Take When a Dispute Occurs
Negotiation and mediation:
Before litigation, parties should attempt negotiation or mediation — possibly through an international arbitration body or neutral mediator — especially if required by the contract.
Arbitration (if applicable):
File a request with the designated arbitration center;
Submit evidence — contracts, inspection reports, technical correspondence, and expert findings;
Seek interim measures (e.g., asset freezing or preservation orders) if allowed.
Court litigation (if applicable):
If the contract selects a court in China or a neutral country, the Vietnamese company may sue there, but must carefully weigh costs and enforcement risks.
Enforcing judgments or awards:
After prevailing in arbitration or litigation, recognition and enforcement in China or the partner’s jurisdiction may still face obstacles if local authorities or the debtor are uncooperative.
Emergency measures in Vietnam:
If the OEM products appear in Vietnam (through import or distribution), the Vietnamese company may file IP infringement claims, request import bans, or product recalls — creating leverage for settlement in the international dispute.
4. Conclusion
Disputes over OEM electronics manufacturing contracts with Chinese partners involve complex risks — IP ownership, product origin, enforcement challenges, and high international legal costs. However, with proper contract drafting, clear dispute resolution clauses, partner due diligence, and independent quality control, Vietnamese companies can significantly minimize those risks.
When disputes arise, negotiation and mediation should be prioritized, with arbitration or court action as a last resort. Companies should also prepare enforcement strategies in advance. If the OEM products affect the Vietnamese market, domestic legal actions can serve as effective leverage in international negotiations.
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