In October 2026, the Hainan Free‑Trade Port Intellectual Property Court concluded and released a ruling on a dispute involving trademark infringement and unfair competition concerning the "YangShengTang" mark. The judgment sets out clear criteria for dividing liabilities between producers and sellers.

A pharmaceutical company was ordered to pay RMB 1.236 million for prominently using marks containing “YangShengTang” on product packaging. Haikou Trading Firm, which sold the same infringing goods, successfully invoked the legal‑source defence for the trademark‑infringement claim by submitting complete purchase documents. It was only ordered to pay RMB 2,000 for unfair competition arising from its online‑shop name.

Case Basic Information

The plaintiffs are YangShengTang Company and its licensed user, YangShengTang Pharmaceutical Company. YangShengTang Company is the proprietor of the registered trademark “YangShengTang”. There are two defendants: a pharmaceutical company, producer of the infringing goods; and a Haikou‑based trading firm, the seller of the infringing goods.

The cause of action covers trademark infringement and unfair competition. The two plaintiffs requested the court to order both defendants to cease infringement, publish an apology statement, and jointly compensate RMB 5 million for economic losses plus RMB 36,000 in reasonable enforcement expenses.

Rights Basis and Alleged Infringing Facts

The registered trademark “YangShengTang” was recognised as a well‑known trademark in 1999 and enjoys high reputation in the pharmaceutical and health‑product sector. YangShengTang Company owns the trademark and has licensed its use to YangShengTang Pharmaceutical Company.

As found by the court, the pharmaceutical company prominently displayed marks containing “YangShengTang” on the outer packaging of multiple manufactured and sold products. Such marks include “YangShengTang Chinese Medicine Science Research Institute” and “YangShengTang Chinese Medicine Science Research Institute · Technical Support”. It also sold these goods through an online store on the Alibaba platform.

The defendant Haikou trading firm operated a Douyin store under the name “XX YangShengTang”, selling goods manufactured by the aforesaid pharmaceutical company whose packaging bore the words “Hong Kong YangShengTang”.

During the hearing, both defendants presented their defences regarding conduct and liability. In particular, the Haikou trading firm submitted purchase orders, logistics records and supplier information from its upstream supplier to support its legal‑source‑defence argument.

The court made the following findings of fact:

1. YangShengTang Company is the legitimate proprietor of the subject registered trademark. The rights licensed to YangShengTang Pharmaceutical Company are protected by law.
2. The pharmaceutical company’s prominent use of marks containing “YangShengTang” on various self‑manufactured and sold goods constitutes trademark infringement.
3. The Haikou trading firm infringes trademark rights by selling the infringing goods. Its use of “YangShengTang” in its Douyin shop name additionally constitutes unfair competition.
4. With respect to the Haikou trading firm’s legal‑source defence: based on the submitted evidence including complete purchase orders, logistics records and supplier information, the court held that the disputed goods were lawfully obtained. Accordingly, the defence succeeds in respect of the trademark‑infringement claim.

Judgment and Tiered Allocation of Liabilities

Taking into account the reputation of the trademark, circumstances of infringement and degree of fault of each defendant, the court rendered its judgment and drew clear distinctions between liabilities for producers and sellers.

First, cessation of infringement and elimination of adverse effects:

Both defendants shall immediately cease the alleged trademark‑infringement and unfair‑competition acts. The pharmaceutical company shall publish a statement to eliminate adverse consequences caused by its infringing conduct.

Second, liabilities of the producer:

The pharmaceutical company committed trademark infringement by prominently using marks containing “YangShengTang” on product outer packaging. The court ordered it to pay the two plaintiffs a total of RMB 1,236,000, covering economic losses and reasonable litigation‑related expenses.

Third, liabilities of the seller:

The Haikou trading firm’s sale of infringing goods itself constitutes trademark infringement. Nevertheless, it submitted complete purchase orders, logistics records and supplier information proving lawful acquisition of the disputed goods. The court upheld its legal‑source defence and exempted it from compensation liability for this part of the claim.

However, the trading firm’s use of “YangShengTang” in its Douyin shop name constitutes an independent act of unfair competition, which cannot be exempted merely by lawful sourcing of goods. The court finally ordered it to pay RMB 2,000 as compensation for economic losses to the two plaintiffs.

Scope of Application for the Legal‑source Defence

This case is designated by the Hainan Free‑Trade Port Intellectual Property Court as a typical intellectual‑property dispute featuring co‑existing trademark‑infringement and unfair‑competition conducts, as well as clear liability differentiation between producers and sellers.

A key distinction emerges from this judgment: the legal‑source‑defence rule applies only to the act of selling infringing goods, and does not extend to independent unfair‑competition conduct. The judicial logic delivers two layers of messages:

1. Courts maintain a strict stance against source‑end infringement. High damages together with cross‑class protection for well‑known trademarks serve as effective deterrence.
2. For sellers, liability is allocated in a precise and prudent manner. Compliant sellers will not be subject to heavy joint liability for infringements committed by upstream manufacturers. Even so, complete purchase vouchers are by no means a universal get‑out‑of‑jail card. Acts of free‑riding on well‑known brands via shop names or promotional wording shall independently give rise to legal liability.