By Cher Yang
In administrative enforcement actions involving the sale of goods that infringe registered trademark rights, one practical issue frequently arises but is not always carefully examined: how to determine whether the goods already sold by the party involved constitute infringement.
In China’s trademark administrative enforcement system, the amount of illegal business turnover (违法经营额) is one of the most important factors influencing the severity of administrative penalties. In some situations, it may even affect whether the conduct crosses the threshold into criminal liability. While, whether the sales amount of sold goods can be included in the illegal business turnover depends first on the characterization of the sold goods.
In practice, enforcement authorities often seize allegedly infringing goods at the inspection site. These goods are typically identified by the trademark owner as counterfeit or otherwise infringing, and their value is then counted toward the illegal turnover. However, the situation becomes more complicated when the seller’s accounting records or sales data show that similar goods have already been sold. Those sold items are no longer physically available for inspection, and they are rarely examined individually by the trademark owner.
The question therefore arises: can enforcement authorities simply assume that the previously sold goods were also infringing?
The answer under Chinese administrative law is more nuanced than a simple presumption.
Chinese Administrative Law imposes relatively high requirements on the determination of facts in administrative penalty cases. Article 40 of the Administrative Penalty Law clearly stipulates that an administrative organ must clarify the illegal facts before making a decision on an administrative penalty; if the illegal facts are unclear or the evidence is insufficient, the administrative penalty shall not be imposed.
This approach reflects an important distinction between administrative enforcement and civil litigation. In civil cases, courts sometimes rely on a standard of “high probability” or the preponderance of evidence, meaning a fact may be accepted if it is more likely than not to be true. Administrative enforcement, by contrast, generally demands clearer factual verification, because administrative penalties are imposed by public authorities exercising state power. As a result, assumptions that might be acceptable in civil litigation cannot automatically be applied in administrative penalty cases.
Although enforcement authorities cannot automatically presume that sold goods were infringing, this does not mean that such goods can never be included in the calculation of illegal turnover. In many cases, infringement may still be established through evidence combined with reasonable inference.
Chinese trademark enforcement rules allow authorities to rely not only on direct evidence but also on logical conclusions drawn from known facts and common commercial experience. When the available evidence concerning the sold goods strongly indicates that they were part of the same infringing activity as the seized goods, a finding of infringement may still be justified.
One of the most significant forms of evidence in this context is the statement of the party involved. If a seller acknowledges that previously sold goods were counterfeit or otherwise infringing, such admissions can constitute important evidence. Even when a party later retracts the statement, enforcement authorities may still rely on it if the party cannot produce convincing contrary evidence.
Beyond statements, authorities often examine the broader factual context surrounding the goods.
The purchase price and selling price of goods often reflect their authenticity. Prices significantly lower than normal market levels, without a reasonable explanation, are typically important indicators that the goods may be counterfeit.
Chinese judicial interpretations concerning intellectual property crimes recognize this principle as well. Extremely low purchase prices, especially when inconsistent with normal commercial practices, can suggest that the seller knew or should have known the goods were infringing.
When sales records show such abnormal pricing patterns, authorities may reasonably infer that the goods involved were counterfeit.
Another factor relates to the source of the goods. In legitimate commercial distribution systems, genuine branded products typically move through authorized or traceable supply chains. When goods originate from unlicensed workshops, counterfeit production sites, or undocumented suppliers that cannot provide normal transaction documentation, the likelihood of infringement increases significantly.
Chinese trademark enforcement guidelines consider procurement through such irregular channels as an indication that the seller cannot claim ignorance regarding infringement. If both the seized goods and the previously sold goods are shown to come from the same questionable source, authorities may reasonably conclude that the sold goods were also infringing.
The context in which goods are sold may also be relevant. Commercial experience suggests that high-end or well-known branded goods are normally distributed through authorized retailers or formal sales channels. When products bearing famous trademarks appear in environments that are clearly inconsistent with their usual market positioning, such as informal street markets or small unregulated shops, this discrepancy can raise serious doubts about authenticity.
For example, luxury goods are rarely sold through temporary market stalls, and premium alcoholic beverages are unlikely to be distributed through small convenience shops with no official authorization. When the sales environment is clearly inconsistent with ordinary brand distribution practices, it may support a finding that the goods involved were not genuine.
Ultimately, determining whether previously sold goods were infringing requires a careful assessment of multiple factors rather than a single assumption. Enforcement authorities must balance the need to effectively combat counterfeit goods with the obligation to ensure that administrative penalties are supported by reliable evidence.
When sufficient evidence exists (such as admissions by the seller, irregular supply chains, abnormal pricing, or other indicators consistent with counterfeit trade) authorities may reasonably conclude that sold goods were infringing and include their value in the illegal turnover calculation. Conversely, when such evidence is absent, including those sales may risk undermining the factual basis of the penalty decision.