(By You Yunting) Due to their lower prices, de-identified products — those with anti-counterfeit codes removed — are highly popular on e-commerce platforms. These discounted offerings, however, undermine brand owners’ price control mechanisms, leading to frequent trademark infringement lawsuits against sellers. While Chinese courts generally decline to find infringement where the de-identified goods are demonstrably genuine and produced by the brand owner, many small and medium-sized sellers are nonetheless held liable even when dealing in authentic goods. Today, let us analyze how courts might equitably balance brand protection against commercial freedom in such disputes.
1. Traceability Codes as Brand Owners’Instruments of Price Control
Under prevailing trademark doctrine, a product’s sale exhausts the trademark owner’s rights, leaving the owner without general authority to restrain downstream resale. Selling de-identified goods thus constitutes lawful resale; removal of codes does not affect the product’s authenticity and may be undertaken solely to circumvent a brand owner’s channel-tracking mechanisms.
Anti-counterfeit codes frequently serve a dual function: verifying authenticity and enabling brand owners to monitor distribution channels to deter gray-market diversion. Such diversion is a major concern for brand owners, who rely on tiered distributor networks and region-specific pricing regimes. Unauthorized cross-regional sales undercut these structures, erode premium brand equity, and trigger destructive price competition across regions. In essence, diversion breaks down the artificial price fences that brand owners construct to segment markets.
2. U.S. Courts Tend to Find Trademark Infringement Even for Genuine De-identified Goods
The trademark registration regime exists not merely to incentivize brand development, but more importantly to safeguard consumer interests. Those interests encompass two distinct dimensions. The first is affordable access to genuine goods, promoted by robust intra-brand competition and the erosion of territorial exclusivity. The second is assurance of comprehensive after-sales support and product traceability—functions closely tied to the traceability mechanisms embedded in anti-counterfeit codes. Brand owners commonly operate territorial allocation systems and make after-sales service conditional on the integrity of traceability codes. One purpose is to protect the economic interests of authorized local distributors, who bear the costs of post-sale support. Diverting sellers, by contrast, avoid these costs. Consequently, the deployment of traceability coding to enforce channel discipline is commercially justifiable.
Chinese courts have generally prioritized the consumer interest in affordable access to genuine goods, while U.S. courts have placed greater weight on preserving the integrity of a brand’s quality-control and after-sales service system. As a result, even where diverted merchandise is concededly genuine, U.S. courts are inclined to view a distributor’s deliberate removal of traceability codes as trademark infringement.
A leading U.S. precedent is Zino Davidoff SA v. CVS Corp. The plaintiff, Zino Davidoff SA, is a Swiss-based luxury perfumer. The defendant, CVS, a national retail pharmacy chain, removed their Universal Product Codes (“UPCs”) from Davidoff fragrances offered for sale. Davidoff sued for trademark infringement, alleging reputational injury and compromised quality-control and recall protocols. CVS defended on the ground that UPC removal was non-infringing because the fragrances constituted genuine gray-market imports—products lawfully distributed overseas through authorized channels and subsequently imported into the United States without the brand owner’s consent.
The U.S. Second Circuit held that Davidoff’s traceability coding system was a core part of its quality-assurance framework, enabling counterfeit detection and targeted recalls. CVS’s removal of UPCs undermined Davidoff’s capacity to maintain effective quality oversight, heightened the risk of counterfeit infiltration, and damaged the brand’s reputational capital. On that basis, the court affirmed that the conduct amounted to trademark infringement.
3. Allocation of the Burden of Proof Is Key in Chinese De-identified Goods Cases
In trademark actions concerning de-identified goods, Chinese courts typically avoid imposing infringement liability where the seller can prove a legitimate chain of distribution. A practical difficulty arises, however: brand owners routinely impose contractual or commercial sanctions on authorized distributors implicated in inter-territorial diversion. Sellers of de-identified merchandise are therefore deterred from disclosing their procurement channels, frequently leading to unfavorable rulings. One illustrative—and, in this author’s view, legally unsound—decision imposed concurrent liability for trademark infringement and unfair competition.
In the Shangqiu Suiyang District People’s Court, Case No. (2026) Yu 1403 Min Chu 416, concerning the sale of de-identified veterinary pharmaceuticals, the court ruled that the defendant had failed to establish a legitimate and verifiable supply chain. The decoding rendered the products incapable of traceability, obstructed verification of authorized distribution channels, and disqualified end users from accessing the plaintiff’s official after-sales and warranty services. On that basis, the court entered judgment of trademark infringement against the defendant.
The court separately upheld a cause of action under the Anti–Unfair Competition Law, invoking industry norms governing veterinary pharmaceuticals: brand-authorized distribution, territorial channel controls, and traceability-based anti-counterfeit management. The plaintiff’s implementation of QR-code traceability was recognized as a legitimate commercial measure. By undermining the plaintiff’s fair and transparent competitive order and transgressing the duty of good faith, the defendant’s conduct was held to constitute unfair competition.
The ruling suffers from two flaws. First, reliance on the Anti-Unfair Competition Law was legally redundant. Under the Supreme People’s Court’s precedent in the Kelp Quotacase, the dispute is governed by trademark law once the defendant fails to substantiate legitimate sourcing; invocation of Article 2’s residual good faith provision is therefore unwarranted. Second, this contrasts sharply with the approach taken by the Beijing Intellectual Property Court: the court’s assignment of the production burden conflicts with the standard set by the Henan Provincial High People’s Court in the retrial decision (2022) Yu Zhi Min Shen 82, which clearly places the burden of proving genuineness on the plaintiff.
The case involved de-identified medical devices and cosmetic products. The court observed that, although the agent barcode and QR code on the sealing label had been scraped off, the exterior packaging remained materially indistinguishable from genuine articles, and the internal packaging was congruent with authentic units. As the rights holder, the plaintiff bore the production burden and, pursuant to prevailing commercial norms, retained the institutional capacity to verify authenticity. In light of the plaintiff’s failure to provide supporting evidence, the trial court’s refusal to accept the allegation was well-founded. The plaintiff’s contention that the burden had been misallocated was unpersuasive and rejected on review.
The allocation of the production burden concerning de-identified goods remains a source of inter-provincial divergence. In contrast to the Henan Provincial High People’s Court, the Beijing Intellectual Property Court has consistently assigned the burden of proving authenticity to the defendant, as exemplified in (2024) Jing 73 Min Zhong 968, decided by the Beijing IP Court.
The seller claimed to have purchased de-identified cosmetic products from a Pinduoduo store and subsequently resold them. The trademark holder initiated suit, alleging infringement, while the defendant pleaded the statutory defense of lawful acquisition, citing procurement from the same marketplace. The court found that the abraded code and missing production date made authenticity unverifiable, and the defendant’s procurement evidence was insufficient. Accordingly, infringement was established.
Liability in that matter was based on the defendant’s inability to demonstrate that the de-identified goods were genuine. In practice, such defendants often possess documentary proof of lawful acquisition yet remain strategically deterred from disclosure. Revealing the upstream procurement channel exposes suppliers to punitive measures by the brand owner, including suspension of shipments, quota reductions, and disgorgement of incentive payments.
Failure to provide sourcing documents does not invariably preclude a favorable outcome. Two practical alternatives exist. The first, endorsed by the Henan Provincial High People’s Court, assigns the production burden to the plaintiff. The second is court-ordered forensic authentication: upon proper motion, a tribunal may direct a qualified laboratory to perform side-by-side chemical composition analysis of the plaintiff’s notarized purchase and independently procured market samples, thereby definitively adjudicating authenticity.
4. Placing the Burden on Brand Owners: A More Reasonable Framework
In my opinion, in trademark actions involving de-identified merchandise, the burden of establishing authenticity should reside with the plaintiff—the brand owner. Three considerations support this allocation.
(1) Protecting the Business Freedom of Small and Medium-Sized Sellers
A key procedural question arises from the Beijing Intellectual Property Court’s decision cited above: why was no forensic authentication conducted in that case? One plausible possibility is that the de-identified goods were indeed counterfeit, and the defendant prudently declined to invite adverse evidence. A more troubling possibility is that the merchandise was genuine, yet the defendant—a resource-constrained small- and medium-sized seller—faced forensic fees far higher than the potential damages and therefore chose to settle.
Antitrust principles, by contrast, affirm the independent trading rights of downstream sellers. When a brand owner weaponizes traceability codes to enforce resale price maintenance or territorial allocation, it imposes a secondary restraint on alienation—an impermissible intrusion upon distributor autonomy. Such practices raise cognizable vertical monopoly concerns, simultaneously injuring both competition and forcing consumers to absorb artificially inflated prices. Pursuant to the State Administration for Market Regulation’s Provisions on the Prohibition of Monopoly Agreements, resale price controls escape prohibition only where the brand owner’s market share falls below five percent and the relevant product’s annual turnover remains under RMB 100 million. Where these thresholds are exceeded, such pricing controls may constitute illegal vertical monopolies.
Therefore, when trademark enforcement against de-identified goods is used as a vehicle to uphold a brand’s pricing hierarchy, the law must step in to protect the commercial freedom of small and medium-sized sellers who deal in genuine products.
(2) Brand Owners Possess Superior Capacity to Authenticate Goods
From the standpoint of fact-finding, the brand owner is in the best position to authenticate merchandise. Having procured the accused merchandise as part of its pre-litigation investigation, the plaintiff retains proprietary formulations, in-house laboratories, production records, and comprehensive supply-chain data—resources that collectively empower definitive authentication through chemical and provenance analysis.
(3) Protecting Small and Medium-Sized Sellers Does Not Impede Anti-Counterfeiting
A legitimate concern is that assigning the burden of proof to brand owners would encourage counterfeiters. Such concern is overstated. China’s criminal enforcement regime sets a low bar for prosecution because, under the 2025 Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringements upon Intellectual Property Rights, knowingly selling goods bearing counterfeit registered trademarks becomes a prosecutable offense once illicit proceeds reach RMB 30,000. Accordingly, where a seller’s proceeds from counterfeit sales meet or exceed this threshold, the brand owner may file a criminal complaint with the competent authorities, triggering a formal investigation and potential prosecution. Criminal sanctions—including imprisonment and criminal fines—provide a powerful deterrent against counterfeiters without requiring the brand owner to rely solely on civil litigation and burden-shifting arguments.
Thus, although Chinese courts generally decline to find trademark liability on the resale of genuine de-identified merchandise, the allocation of the production burden often determines the outcome of such disputes in practice. The brand owner not only possesses a superior institutional capacity to authenticate goods but also advances the affirmative allegation that the merchandise is counterfeit. Requiring the plaintiff to shoulder this burden serves both procedural efficiency and market fairness. The court shall strike the right balance between brand protection and free competition and ensure that trademark law does not become a tool for vertical monopoly.
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