Appeal by Amer Sports Trading concerning a dispute over trademark infringement
The core of the court’s reasoning in this case lies in first determining that the alleged conduct constituted trademark infringement, namely that the infringer, in violation of the trademark owner’s intent, placed into the market defective goods that had been entrusted to it for destruction, thereby undermining the quality‑assurance function of the trademark, which does not fall within trademark exhaustion or fair use. On this basis, the court further examined the conditions for the application of punitive damages: the infringer clearly knew that the goods should not be circulated, yet still concealed the truth by issuing false destruction certificates and selling the goods without authorization, which may be deemed as subjective bad faith; moreover, the infringer’s profits from the infringement exceeded RMB 400,000 and could potentially cause greater losses to the right holder, which may be deemed as constituting “serious circumstances.” Accordingly, using the infringer’s profits as ascertained in the criminal proceedings as the base amount, and comprehensively considering the bad faith and the seriousness of the circumstances, the court determined punitive damages at five times that base amount, and at the same time included reasonable rights‑protection expenses within the scope of compensation. As for the right holder’s claims regarding goods pending sale and other unascertained transactions, due to the lack of sufficient evidence proving that they were intended for sale, such claims were not upheld. This adjudicative approach clarifies the criteria for determining that the unauthorized sale of defective goods entrusted for destruction constitutes trademark infringement, as well as the specific requirements for the application of punitive damages in such entrusted‑destruction scenarios.
Brief Facts
Amer Sports Trading (Shanghai) Co., Ltd. (hereinafter “Amer Sports”) once entrusted a company actually operated by Ji to destroy its defective and out‑of‑season branded products. From September 2018 to June 2020, without actually destroying them, Ji sold to the public multiple branded products under Amer Sports that should have been destroyed, illegally obtaining profits of RMB 418,414, and forged destruction certificates to fraudulently obtain fees. The court of first instance held that Ji’s conduct constituted trademark infringement and ordered Ji to compensate economic losses in the amount of RMB 500,000. Believing that the amount awarded was insufficient to make good its losses, Amer Sports appealed. The Shanghai Intellectual Property Court on second instance held that Ji clearly knew that the goods involved were items pending destruction that must not enter the market, yet still sold them externally over a long period and in a concealed manner, and forged destruction documents to cover up the infringing acts, evidencing obvious subjective bad faith and serious circumstances. Accordingly, using Ji’s profits from the infringement as the base amount, the court determined the amount of compensation at five times that base, and in accordance with the law revised the judgment, ordering Ji to compensate economic losses totaling RMB 2,092,070 and reasonable expenses of RMB 100,000.
Gist of the Judgment
The court made it clear that, where genuine goods entrusted for destruction are sold without authorization, even though the goods themselves are produced by the right holder, such conduct constitutes the infringing act of “causing other damage to the exclusive right to use a registered trademark of another person” as provided in Article 57(7) of the Trademark Law. The rationale is that such goods, due to defects or being out of season, have been designated by the right holder to be withdrawn from circulation channels; their unauthorized sale undermines the quality‑control and goodwill‑protection functions carried by the trademark and impairs consumers’ trust in the brand’s quality, and therefore the principle of “exhaustion of rights” does not apply.
The court of second instance, taking into account such circumstances as the infringer’s long‑term storage of a large quantity of goods pending destruction, systematic fabrication of destruction records, and profit‑making sales through concealed channels, found that the infringer’s subjective bad faith was obvious, the infringement lasted for a long period, and the amount of profits was large, thereby satisfying the requirement of “serious circumstances.” On this basis, the court, using the infringing profits of RMB 418,414 as the base amount, imposed compensation at five times that amount in accordance with the law, thereby fully reflecting the punitive orientation of the Trademark Law toward malicious infringement.
