This article is a fictionalized instructional analysis based on typical scenarios and does not refer to any real case.
Whether the legitimate source defense succeeds depends on whether all three elements—lack of knowledge, legitimate acquisition, and identification of the supplier—hold firm. The following contrasts a success and a failure scenario to show how courts examine the defense.
Scenario One: Defense Succeeds
A small supermarket purchased a batch of daily chemical products from a long-established wholesaler in the local regular wholesale market, at prices comparable to the brand's normal wholesale price, and obtained and kept purchase orders and payment records stating the product names, quantities, and amounts. The goods were later identified as counterfeit products bearing a registered trademark, and the brand owner sued the supermarket for damages.
In litigation, the supermarket submitted the purchase orders and payment records and clearly identified the supplier wholesaler's name and business address. The court found: the supermarket's sourcing channel was regular and the price reasonable, the fakes were hard to identify by appearance, and subjectively it neither knew nor should have known the goods were infringing; the documentation corresponded to the goods and the supplier was identified—so the legitimate source defense succeeded. The supermarket was exempted from damages but had to stop selling, and the brand owner pursued the wholesaler instead.
Scenario Two: Defense Fails
An online store long sold products of a certain sports brand at less than half the genuine price, had no regular purchase invoices, could only produce a handwritten receipt that could not be matched to specific goods, and was vague about the identity of its supplier. The store had previously been penalized by the platform for selling similar goods.
After the brand owner sued, the store asserted the legitimate source defense. The court held: the selling price was markedly abnormal, valid purchase documentation corresponding to the goods could not be provided, the supplier could not be clearly identified, and—having been penalized for similar goods and continuing to sell—the store at least should have known; the defense failed, damages applied, and its degree of subjective fault was weighed in setting the amount.
Key Takeaways
- All three elements are indispensable: the line between the two scenarios lies in documentation correspondence, price reasonableness, and supplier identifiability—the defense fails if any link breaks;
- Exemption from damages is not exemption from liability: in the success scenario the seller must still stop selling;
- Price is the most sensitive signal: a price markedly below the normal purchase price nearly always defeats the claim of no knowledge;
- Prior record aggravates the finding: continuing to sell after complaints or penalties slides from 'no knowledge' to 'should have known' or even bad faith.
Lessons
For sellers: regular sourcing, obtaining and keeping invoices, and wariness of abnormally low prices are the cheapest compliance insurance in daily operations. For brand owners: before suing, assess the other side's room for the defense; for small stores with complete documentation, aim to make them identify the upstream supplier, and concentrate firepower on the wholesale and manufacturing sources.
For the specific procedures above, you may book trademark monitoring on MyTMBee, and a filed trademark agent will provide full assistance.