Former Distributor Liable for ¥9.18 Million Punitive Damages After Ten-Year Cooperation
For the food industry, long-term and stable partnerships between brands and distributors serve as a core guarantee for market expansion. Nevertheless, once such cooperation terminates, former partners who leverage resources accumulated during the collaboration to retaliate against the brand owner will trigger severe legal disputes.
The High People’s Court of Liaoning recently released a landmark case involving infringement by a former distributor. The final judgment ordered the former distributor to cease all infringing acts, eliminate adverse impacts, and pay over 9.18 million yuan in punitive damages.
The plaintiff is a food company based in Liaoning, the legitimate owner of the registered trademark "Guanghui Suiyue", which is approved for use on sausages, air-dried sausages and other goods. The defendant, a food company headquartered in Beijing, used to be the plaintiff’s distributor, with whom it maintained nearly ten years of cooperation and signed a trademark license contract.
However, the commercial partnership fell apart. After the two parties terminated the trademark license contract, the subsequent disputes far exceeded the scope of ordinary contractual conflicts.
Free-riding on Brand Reputation Plus Commercial Defamation: Dual Unfair Competition Tactics
Starting from March 2024, the Liaoning food company and market supervision authorities discovered identical meat products such as sausages marked with the sign "Jushihui Guanghui Suiyue" circulating across multiple regional markets. More alarmingly, parts of the packaging of these infringing goods bore striking similarities to the packaging design of the plaintiff’s genuine "Guanghui Suiyue" products, highly likely to confuse consumers.
Investigation confirmed that the Beijing food company — the former distributor with a decade-long cooperative history with the plaintiff — acted as the manufacturer and entrusting party of these counterfeit goods.
While using similar signs constitutes free-riding on the brand’s goodwill, the defendant took further aggressive action.
It issued an official notice to all downstream distributors, falsely claiming: "Recently, products supplied by the factory have quality defects; the factory cut off supply and suppressed our market sales." This statement painted the plaintiff in a negative light as a manufacturer with defective products that deliberately squeezed its distributors out of the market.
The court held that the notice contained fabricated and disseminated false information intended to damage the competitor’s commercial reputation and product credibility, constituting commercial defamation, a type of unfair competition.
Obvious Malice & Severe Circumstances: Double Punitive Damages Applied
The High People’s Court of Liaoning rendered a comprehensive and stringent ruling with three core findings:
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The defendant used signs similar to the plaintiff’s registered trademark on identical goods, thereby infringing the exclusive right to use the registered trademark.
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As the plaintiff’s long-term distributor, the defendant had full knowledge of the plaintiff’s trademark and product packaging yet continued infringement after the license terminated, demonstrating evident subjective malice.
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The infringing products circulated widely across numerous regions with highly imitative packaging, compounded by separate acts of commercial defamation, amounting to aggravated circumstances.
Regarding punitive damages, the plaintiff claimed a quadruple multiplier. The court ultimately adopted a double multiplier. This discretionary judgment balances the punitive function of the punitive damages system and the principle of proportionality, ensuring malicious infringers bear heavy liabilities without imposing excessive penalties beyond actual losses.
Based on the above findings, the High People’s Court of Liaoning issued the judgment:
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The defendant shall immediately cease acts infringing the exclusive right to the "Guanghui Suiyue" registered trademark;
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The defendant shall immediately stop unfair competition conduct involving commercial defamation;
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The defendant shall compensate the Liaoning food company more than 9.18 million yuan to cover economic losses and reasonable expenses for rights protection;
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The defendant shall post a public statement in a prominent position of its business premises for ten consecutive days to eliminate negative reputational harm caused by infringement.
The ruling imposes severe economic sanctions on the infringer. Meanwhile, the remedy of eliminating adverse impacts helps the right holder restore damaged market reputation, delivering dual relief covering both financial compensation and brand reputation recovery.
