by April Fan
In a recent case from Hunan Province, a Chinese court has drawn a clear line between legitimate trademark enforcement and abuse of IP rights. The decision highlights an important principle: trademark rights must be exercised in good faith and with respect for commercial reasonableness, even when the formal license term has expired.
The Background: A Licensing Relationship Ends, but the Products Remain
The plaintiff, a Guangdong-based brand management company, held authorization to sell and enforce rights related to the well-known Pierre Cardin trademark in China. The defendant, a clothing company based in Chenzhou, had been an authorized distributor of Pierre Cardin-branded apparel, with a formal distribution agreement expiring on June 30, 2022.
Before the license expired, the distributor had lawfully purchased and stocked Pierre Cardin products bearing official hangtags. However, there was no agreement about whether unsold stock could still be sold or whether the tags had to be returned after the license expired.
Just one day after the license lapsed, the plaintiff conducted a notarized online purchase of a product from the distributor’s online store and immediately filed a trademark infringement lawsuit, alleging unauthorized use of the brand.
The Court’s View: Technical Infringement ≠ Legal Wrongdoing
The court didn’t buy the plaintiff’s narrative. In both first and second instance decisions, the Hunan courts sided with the defendant, rejecting the infringement claim.
Here’s why:
- No bad faith: The defendant was previously authorized and had purchased genuine, branded inventory. The court found no evidence that the company had tried to misrepresent or counterfeit the brand post-license.
- Reasonable transition period: Within just three days of the license expiring, the distributor sold only three items, one of which was the plaintiff's test purchase. All related listings were removed shortly thereafter. This was considered a reasonable period for clearing remaining inventory.
- Lack of warning: The plaintiff gave no notice or grace period: instead choosing to conduct a late-night purchase immediately after the expiration date, raising doubts about the good faith of the enforcement action.
- No damage to trademark function: The court concluded that the continued use of the trademark, in this very limited context, did not weaken the brand, mislead consumers, or disrupt the association between the mark and its source.
Why This Case Matters
This case is one of China’s clearest examples of a court refusing to support rigid, formalistic trademark enforcement where it would run counter to good commercial ethics.
It reinforces a few key legal and practical principles:
1. Trademark Rights Are Not Absolute
Even with a valid registration, enforcement actions must respect business norms and be rooted in good faith. Rights holders cannot use trademarks as tools to trap or punish former partners.
2. Transition Periods Matter
The law implicitly recognizes that distributors need a reasonable period to sell through inventory obtained under valid license agreements. Filing a lawsuit one day after expiration, especially without notice, is viewed as opportunistic.
3. Honest Use of Genuine Goods is not Infringement
When a party is selling authentic goods previously purchased with authorization, continued use of branding to describe those goods (for example, in online listings) may be permissible, especially if used descriptively and not in a misleading or promotional way.
4. Enforcement Abuse will be Discouraged
The ruling serves as a signal to trademark holders that Chinese courts will not endorse enforcement tactics that violate good commercial ethics or disrupt normal product distribution.
Practical Lessons for Rights Holders and Licensees
For rights holders:
Always include clear clauses in distribution agreements about how to handle unsold inventory after expiration.
Consider a grace period for clearing stock to avoid disputes.
Exercise enforcement rights with a measured and commercially reasonable approach.
For distributors and licensees:
Avoid using trademarks in new marketing after license expiration but using them to sell genuine goods already purchased may not be infringement if done in a fair and limited way.
Keep documentation showing when products were purchased and when listings were taken down.
Final Thought
Trademark protection is essential, but so is fairness in enforcement. As this case shows, Chinese courts are increasingly aware of the balance between protecting IP rights and maintaining a healthy commercial environment. Rushing to litigate, especially over minor or transitional sales of legitimate goods, may backfire.
If your company is involved in trademark licensing, inventory clearance, or post-license compliance in China, Allasya Law & IP can help you draft enforceable agreements, assess litigation risk, and avoid costly missteps.