What Is the Legitimate Source Defense to Trademark Infringement?

The legitimate source defense is the exemption channel Article 64(2) of the Trademark Law gives good-faith sellers: a seller who did not know that the goods sold infringed the exclusive right to a registered trademark, can prove the goods were legitimately obtained, and identifies the supplier, bears no liability for damages. What is exempted is damages liability only—the duties to stop selling and cease the infringement cannot be exempted.

The Three Elements

1. Subjective lack of knowledge: the seller neither knew nor should have known the goods infringed. Prices markedly below the genuine purchase price, abnormal sourcing channels, or prior complaints or penalties for similar goods will all support a finding that the seller should have known, defeating the defense outright;
2. Legitimate acquisition: the goods were obtained through normal commercial channels, with genuine and corresponding purchase documentation—invoices, purchase contracts, payment records, and logistics documents—and the names, quantities, and dates on the documentation correspond to the accused goods;
3. Identification of the supplier: the upstream supplier's identity (name, address, contact details) can be clearly identified so the rights holder can trace the source. All three elements must be satisfied simultaneously and are subject to the seller's burden of proof.

Legal Effect

If the defense succeeds, the seller is exempted from damages but must still stop selling the infringing goods; the rights holder may pursue the identified upstream supplier or manufacturer instead. If the defense fails, damages apply under the normal infringement rules, and the seller may even be found to have a relatively high degree of subjective fault for having constructive knowledge.

Practical Points

• Most important for small merchants and terminal retailers: always obtain and keep invoices or proper receipts in daily sourcing, stating product names, quantities, and the supplier;
• The lesson for brand owners: fighting counterfeits means tracing the source—suing only small retail endpoints is easily defused by the legitimate source defense, and effort should follow the identified suppliers upstream;
• The defense also applies to online sellers, but abnormally low prices and repeated infringement records in platform data make 'no knowledge' hard to establish.

If you are unsure about the above, you may first arrange trademark monitoring on MyTMBee, and a filed trademark agent will give an analysis before you act.