How to effectively refute the defence of legitimate source

It is not easy to find the manufacturer in all intellectual property (IP) infringement suits, therefore only the seller is sued as the defendant in many cases. However, the seller as the defendant will often provide evidence to claim a legitimate source, thereby avoiding liability. In practice, when the right-holder encounters the legitimate source defence, he/she usually pays attention to whether the seller can provide the sales contract, invoice and other objective elements, but tends to ignore the subjective elements.

This article introduces how to refute and deny the defence of the defendant’s legitimate source through the subjective elements, based on a relevant case.

Relevant provisions of the law

Article 25 of the Judicial Interpretation of the Supreme People’s Court on Hearing Cases of Patent Infringement Disputes provides that: “Where the seller uses, offers for sale or sells, for production or business purposes, any patent infringing product, without knowing that it is made and sold with no authorisation of the patentee, and proves that the product is of legitimate source, the people’s court shall support the claim made by the right-holder to stop the above-mentioned use, offer for sale or sale, except where the user of the product accused of infringement provides evidence to prove that he/she has paid a reasonable consideration for the product. The term ‘not know’ in the first paragraph of this article refers to the fact that the seller does not know and should not know.”

According to the judicial interpretation, and the current judicial practice, “not know” means that the seller does not actually realise that the product sold is manufactured and sold without the authorisation of the patentee, indicating that the seller is in good faith. “should not know” means that the seller has fulfilled the reasonable duty of care, and is not at fault subjectively for the fact that he/she does not actually know that the product he/she sells is manufactured and sold without the authorisation of the patentee.

Therefore, the defence of legitimate source should not only prove that the seller has a legitimate source, but also prove that the seller has fulfilled its reasonable duty of care as a good-faith operator, and that the seller is in good faith and free from fault subjectively.

With respect to the case of dispute over infringement of patent right of utility model in Hu Zhengyu v Yueqing Badun Electronics (Zhi Min Zhong Case No. 896 Civil Judgment [2019]), the patented product involved is an electrical connection plug. The defendant is a sale company engaged in electronic accessories.

The defendant claimed the legitimate source and submitted the purchase orders, sales lists, payment receipts and other evidence in the lawsuit, thus proving that the accused infringing product came from the third party outside the case.

If the plaintiff could not prove the subjective negligence of the defendant, he/she could not claim damages. Therefore, the patentee also submitted the following evidence in the lawsuit: (1) other photos of suspected infringing products, which were from the legal authorised dealer of the patentee. Such product photos also contained the registered trademark of the legal authorised dealer; and (2) the legal authorised dealer of the patentee also had an online shop on the Alibaba platform to sell the patented product. The model of the product accused of infringement sold by the defendant is the same as that of the patentee’s patented product.

The court held that the defendant’s use of the registered trademark, product pictures, and the same product model of the company legally authorised by the patentee, showed that the defendant had access to the information of the patented product involved. Thus, the court further held that the defendant knew, or should have known, that the infringing product was made and sold without the authorisation of the patentee.

The court required the defendant to provide evidence to prove that it exercised a reasonable duty of care as to whether the product sold was made and sold with the authorisation of the patentee. However, the defendant did not provide evidence, so the court held that the defendant was subjectively negligent, and the defence of legitimate source could not be established.

The Supreme People’s Court concluded in its judgment on the case that, “if there is a high probability that the evidence provided by the patentee can preliminarily prove that the seller knew or should have known that the product sold was made and sold without the authorisation of the patentee in combination of the seller’s ability of fulfilling the duty of care, possibility of accessing information about the patented product, market sales of the patented product, specific sale circumstances and other factors, the seller shall provide further evidence. Otherwise, it should be determined that it is subjectively negligent, and fails to meet the subjective requirement of ‘“good faith without fault’ for the defence of legitimate source.”

Specifically, the right-holder can refute from the following aspects:

(1) the seller’s ability of fulfilling the duty of care, for example, the size of the seller, sales experience, type of product, specific user, etc.;

(2) whether to conform to the usual trading habits. For example, whether the product purchased or sold is correctly marked with manufacturer information. If the defendant fails to provide regular goods in line with normal trading habits, it can be inferred that the defendant has not fulfilled its reasonable duty of care;

(3) the possibility of the defendant accessing information about the patented product, such as the marketing channels, sales volume, etc., of the patented product. In case of overlapped sale channels and high awareness, there is a high possibility that the defendant has access to information about the patented product; and

(4) information about whether a warning letter or lawyer’s letter is sent, or a complaint on the e-commerce platform is made.

In summary, the right-holder should actively collect and provide evidence to prove that the defendant is negligent when the defendant claims the defence of legitimate source, so as to claim that the defendant as a seller should bear the legal responsibility of stopping infringement, and compensation for damages.

Chen Jian is a patent attorney at Sanyou Intellectual Property Agency, and is the director at Wan Rui Law Firm