As everyone knows, counterfeit products have always been a chronic problem in the daily chemical/cosmetics industry, and a “zero-tolerance” attitude towards counterfeits is also the unanimous stance of major companies/brands. In recent years, leading domestic daily chemical/cosmetics companies such as Procter & Gamble, Shanghai Jahwa, and Blue Moon have launched a series of actions to combat counterfeit products.
However, a recent case published on the WeChat public account of the Intermediate People’s Court of Wuxi City revealed a different outcome. A rural grocery store in Yixing, selling counterfeit “Safeguard” soap, was sued by Procter & Gamble but was ultimately determined by the People’s Court of Yixing City, Jiangsu Province (administered by Wuxi) to be of “legal origin and not liable for compensation.” So, what happened here?
Rural Shop Selling Counterfeit “Safeguard” Not Held Liable
On April 17th, the WeChat public account of the Intermediate People’s Court of Wuxi City released an article titled “Rural Shop Sued for Selling Counterfeit ‘Safeguard’: Court Rules it as Legally Sourced and Not Liable for Compensation.” The article described a trademark infringement dispute case involving the sale of counterfeit “Safeguard” soap that was concluded by the People’s Court of Yixing City.
According to the case details, Procter & Gamble, as the registrant of the “Safeguard” trademark, holds exclusive rights to the brand in China, including soap and other related products. On September 2, 2022, during the process of market protection, Procter & Gamble discovered that a rural grocery store in Yixing was selling soap using the “Safeguard” trademark, which was confirmed to be “not genuine” through authentication. As a result, Procter & Gamble filed a lawsuit demanding the cessation of infringement, compensation for economic losses in the amount of 15,000 yuan, and reasonable expenses of 5,000 yuan, totaling 20,000 yuan.
During the trial, the defendant grocery store argued that they “were unaware that the soap sold was not genuine” and that the soap was purchased from a legitimate e-commerce platform at the market price of 3.5 yuan per piece. They presented transaction vouchers and business information materials from the supplier, indicating that the product was “Safeguard” soap and the supplier was Company A.
After examination, the court concluded that the defendant grocery store submitted transaction vouchers from a legitimate platform, clearly stating the name, specifications, quantity, and supplier of the product, which was sufficient to establish that the soap in question was purchased from Company A and had a legal source. The court also stated, “Although the sales behavior of the grocery store constitutes an infringement of the exclusive rights to the registered trademark, they did fulfill their obligation to conduct inspections, and the purchase price was reasonable. It can be determined that the grocery store sold products without knowledge of infringing on the exclusive rights to the registered trademark.”
Based on these facts, the People’s Court of Yixing City, in accordance with relevant provisions of the Trademark Law, ruled that the legitimate source defense of the grocery store was established, and they were not obligated to compensate for economic losses. However, considering that the act of selling infringing products itself constituted an infringement, the grocery store still needed to bear the reasonable expenses incurred by the rights holder in stopping the infringement. The final ruling required the defendant grocery store to pay Procter & Gamble 500 yuan as reasonable protection fees.
According to the provisions of the Trademark Law, selling goods that infringe on the exclusive rights of a registered trademark constitutes an infringement of the registered trademark. At the same time, the Trademark Law also explicitly stipulates circumstances in which the seller is exempt from liability in trademark infringement disputes, namely the defense of legitimate source: if the seller can prove that they did not know that the goods infringed on the exclusive rights of a registered trademark, and can demonstrate that they legally acquired the goods and provide information about the supplier, they will not be held liable for compensation.
Cracking Down on Counterfeits Requires Tracing the Source
Although regulatory authorities have been making considerable efforts to combat counterfeiting and selling fake products, the high profits associated with counterfeit daily chemical products have led many people to take risks, resulting in rampant counterfeit goods within the industry. What’s more, with the rise of livestreaming e-commerce in recent years, the sales channels for counterfeit and substandard products have expanded, making it more challenging for regulatory authorities to crack down on them. As exemplified in the aforementioned case, the defendant grocery store argued that the soap was purchased at the market price of 3.5 yuan per piece through a legitimate e-commerce platform, highlighting the problem of counterfeit goods being sold on e-commerce platforms.
Therefore, in recent years, beauty and daily chemical companies/brands have been intensifying their efforts to combat counterfeiting. Procter & Gamble, for instance, has sued thousands of small shops over the past five years, including the grocery store mentioned in the previous case. Public information from QCC (an enterprise information platform) shows that in the first quarter of this year alone, Procter & Gamble filed more than 160 lawsuits related to trademark infringement disputes. These lawsuits initiated by Procter & Gamble have been conducted in batches across the country.
It’s not just Procter & Gamble; companies like Shanghai Jahwa, Blue Moon, and Head & Shoulders have also launched a new round of trademark protection battles nationwide. Taking Shanghai Jahwa as an example, since 2018, they have initiated over 14,000 cases of trademark infringement, targeting convenience stores, supermarkets, and other retailers, with the brands involved mostly being “Liushen.”
It’s worth noting that in these trademark protection cases, while most of them end with the victory of the companies/brands and compensation from the stores, there are also situations like the one mentioned earlier, where the stores were unaware that the products they sold infringed on the exclusive rights of a registered trademark and were able to prove that the products had a legitimate source, resulting in a judgment of no liability.
For example, in the trademark infringement dispute between Procter & Gamble and the 365 Supermarket in Chuanhui District, Fugou County, Henan Province, the defendant supermarket stated, “We were not aware that the products in question infringed on the exclusive rights of a registered trademark when selling them. As a small-scale retail merchant, we do not have the capability to distinguish between genuine and counterfeit products. The products in question were legally purchased, and we can provide sales service cards as evidence.” In the end, the court ruled that since the supermarket sold the products without knowledge of infringing on the exclusive rights of a registered trademark and could prove that the products were legally obtained, they were not liable for compensation.
Therefore, industry experts suggest that brands should focus on tackling counterfeiting at the source and increase efforts to combat counterfeit and fake products. Legal professionals also indicate that “in general, if a store can provide a legitimate source of goods, regulatory authorities will follow the trail to crack down on the source of counterfeits.”
“Establishing a Purchasing System is Crucially Important for Stores”
It is worth noting that based on the analysis of the aforementioned case, senior legal professionals in the industry believe that such cases also have reference significance for cosmetic stores. In the process of operating cosmetics, the business entities should procure from legal channels, verify the identity of suppliers, and proactively request relevant documents such as purchase orders, receipts, and invoices. “This plays a crucial role in protecting the legitimate rights and interests of operators, as it can avoid losing the opportunity to trace counterfeit goods in case of disputes and being unable to argue for their lawful sources.”
In fact, not only in the case of selling counterfeits, if a cosmetic store encounters product quality issues or adverse reactions from the products sold, it may also be exempt from liability if it can provide compliant procurement documents.
For example, as early as June 29, 2022, the Heilongjiang Provincial Drug Administration issued the “List of Tolerances and Exemptions in Drug Regulatory Field (Trial) (Draft for Solicitation of Comments),” which includes a provision stating, “If a cosmetic operator fulfills the obligation of verifying the purchase records and has evidence to prove that they were unaware that the purchased cosmetics did not comply with mandatory national standards and technical requirements, they may be exempt from administrative penalties.”
An industry insider with nearly 20 years of experience expressed that since the introduction of the new regulations, it is undeniable that regulatory enforcement has become stricter. If cosmetic operators or stores can provide compliant procurement sources, regulatory authorities can trace the source of problematic products. “This is also the significance of emphasizing the establishment of a procurement system for cosmetic operators in the ‘Cosmetics Supervision and Administration Regulations.’ In simple terms, it means not accusing those who are unaware and not letting the real culprits go free.”
According to Article 38 of the “Cosmetics Supervision and Administration Regulations,” cosmetic operators should establish and implement a system for verifying purchases, check the market entity registration certificate of suppliers, cosmetics registration or filing status, and the certificate of product factory inspection compliance. They should truthfully record and keep relevant documents. According to the provisions in the “Measures for the Supervision and Administration of Cosmetics Production and Operation,” specific records should include the cosmetic name, special cosmetic registration certificate number or ordinary cosmetic filing number, expiration date, net content, quantity purchased, supplier name, address, contact information, and purchase date.
It is worth mentioning that several cosmetic stores/companies have previously been fined for failing to establish a procurement verification system, including some well-known enterprises. At that time, a senior legal engineer told CHAILEEDO, “Establishing and implementing a procurement verification record system is a fundamental task for cosmetic operators, and its importance is self-evident. It is related to tracing the root cause of problematic cosmetics and is of significant importance to cosmetics regulation and law enforcement.”
From the case of the rural grocery store in Yixing selling fake “Safeguard” but being able to prove the source of its procurement, thus avoiding liability, it can be seen that establishing a procurement system is of great significance for all cosmetic stores/operators. As one industry insider said, “Compliance with the law and regulations by cosmetic operators is not only responsible to others but also for their own protection.”
