Nature Republic Co., Ltd. (“Nature Republic”) is the exclusive licensee of the “NA YI QI ER in Chinese” mark with reg. no. 9481384 (license term: Jan. 1, 2018 to June 5, 2022, said mark was later assigned to Nature Republic in 2020). Nature Republic sued Jianglin Cosmetics Store (“Jianglin”) for trademark infringement. Jianglin argued that the evidence it submitted could prove that the alleged infringing goods came from legitimate sources, and that it had exercised reasonable care during the purchase of the alleged infringing goods and should not be liable for compensation. The first and second instance courts did not recognize Jianglin's legitimate source defense and ruled that Jianglin should stop the infringement and compensate Nature Republic for reasonable legal costs and economic losses of RMB10,000 (USD1,383). The Supreme People's Court held in retrial that the review of the objective elements of the legitimate source defense should proceed from the original legislative intention and comprehensively consider factors such as the market position of the seller, the rights holder's legal costs, market transaction habits, and lay a reasonable burden of proof on retailers. Here, Jianglin, as an individual retailer, has a weak position in market activities and its trading methods are usually more flexible. Its burden of proof to prove legitimate sources should be appropriately reduced, and the completeness of the formal requirements for evidence should not be too stringent. The chain of transactions shown in the product distribution contracts, outbound orders, inbound orders and other documented evidence is complete and in line with general trading practices. Its source of supply has been proven legitimate. Therefore, the evidence can carefully prove that Jianglin obtained the accused infringing goods through legal channels. As an individual industrial and commercial owner, Jianglin has a small business scale and low professionalism. The bar to determine its ability as to understand whether the goods he sells is infringement should not be too high. Based on the evidence in the case, it can be inferred that it did not know and should not have known that the goods it sold were infringing goods, and there was no subjective fault. Therefore, Jianglin has completed its burden of proving that the accused infringing goods have a legitimate source and that it has exercised reasonable care. Its legitimate source defense is satisfied and it should not be liable for compensation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
