As a law firm specializing in intellectual property enforcement across China, we frequently encounter a critical oversight in how international brand owners manage their licensing chains. Many assume that securing a well-drafted master license agreement with a primary distributor is sufficient to control risks in the Chinese market. However, in a commercial ecosystem as layered and dynamic as China’s, trademark infringement often occurs at the secondary distribution level—a segment frequently overlooked yet holding substantial legal liability.
Secondary distributors—entities that obtain sub-licenses from primary licensees and authorize downstream manufacturers—often operate under the misconception that they are mere intermediaries, insulated from infringement liability. Judicial practice across China tells a different story. These actors can be held directly and jointly liable for trademark infringement under Chinese law, creating both a vulnerability and an opportunity for rights holders.
This article examines the legal exposure of secondary distributors under China’s trademark regime and offers strategic insights for brand owners to strengthen their enforcement posture.
Why Target Secondary Distributors? The Strategic Value in Enforcement
From an enforcement perspective, pursuing secondary distributors is often more effective than focusing solely on end manufacturers. There are several practical and legal reasons for this approach:
- Greater Financial Solvency: Unlike small-scale factories that may dissolve or lack recoverable assets, secondary distributors are often established companies with tangible operations and assets. Court-awarded damages are more likely to be enforceable against such entities.
- Centralized Evidence Trail: Secondary distributors sit at the nexus of the licensing chain. Their sub-license agreements, purchase orders, and transaction records provide clear evidence of the scope of infringement and intent, making it easier to establish a complete chain of liability.
- Clear Liability as “Contributory Infringers”: Article 57(6) of the Chinese Trademark Law explicitly prohibits “intentionally providing convenience or assistance for trademark infringement.” By issuing unauthorized or overreaching sub-licenses, secondary distributors fall squarely within this definition.
Thus, a sophisticated enforcement strategy should view secondary distributors not as bystanders but as pivotal control points for curbing infringement.
Four Major Legal Risks for Secondary Distributors Under Chinese Law
Secondary distributors often assume their role is low-risk. However, Chinese courts have consistently imposed liability in the following scenarios:
1. Invalid Sub-License: Authorizing Without Authority
It is common for master license agreements—particularly those involving Japanese animation IP or European fashion brands—to expressly prohibit sub-licensing. Nevertheless, primary licensees sometimes grant sub-licenses in violation of these terms. The secondary distributor, often relying on a simple authorization letter without reviewing the master agreement, then extends sub-licenses to manufacturers.
Legal Implications
Under Chinese trademark law, a license cannot exceed the scope of the licensor’s own rights. Any sub-license issued without authorization from the original rights holder is legally void. As a result, both the secondary distributor and the end manufacturer may be held jointly liable for unauthorized trademark use. In a recent case we handled for a well-known anime brand, legal action against the secondary distributor revealed the primary licensee’s breach of contract, leading to a comprehensive victory for the brand owner.
2. Scope Creep: Exceeding the Licensed Boundaries
Even when sub-licensing is permitted, secondary distributors frequently exceed the geographic, product, or duration limits set by the primary licensee. For example, a distributor authorized for “T-shirts” may authorize the production of “footwear,” or extend a one-year license to three years.
Legal Implications
The secondary distributor bears independent liability for any activity falling outside the authorized scope. If the primary licensee is aware of this overreach and continues to supply goods or support, it may also be deemed a joint infringer under Article 1168 of the Civil Code.
3. Failure to Supervise: Liability for Downstream Infringement
Some distributors believe that once they issue a sub-license, their responsibility ends. This is incorrect.
Legal Implications
Chinese law imposes a duty of reasonable supervision. If a secondary distributor knows or should have known that a manufacturer is overproducing (“factory leakage”) or using the trademark on unapproved products but continues to supply authorization documentation or facilitate transactions, it may be liable for contributory infringement. The Implementing Regulations of the Trademark Law specifically list “providing storage, transportation, printing, or concealment assistance” as prohibited facilitative acts.
4. The “Intermediary” Myth: Liability Beyond Physical Handling
Certain intermediaries claim immunity on the basis that they never take possession of goods.
Legal Implications
Liability turns on whether the intermediary acts in its own name. If it issues authorization documents under its own seal, uses the brand’s trademarks in promotional materials, or shares profits from licensed sales, courts will likely treat it as a participating infringer rather than a neutral intermediary. Physical handling of goods is not a prerequisite for infringement liability.
Actionable Strategies for International Brand Owners
Understanding these vulnerabilities allows rights holders to turn risk into leverage. We recommend the following measures:
- Incorporate Robust Clause in Master Agreements
Stipulate that primary licensees assume joint liability for any infringement committed by their sub-licensees. Require them to flow down key restrictions—particularly sub-licensing limits—to their distributors and regularly report a list of authorized sub-licensees. - Establish an Authorization Verification Mechanism
Create a system whereby downstream manufacturers can verify the authenticity and scope of a sub-license—for example, through a dedicated contact at the brand owner’s office or an online verification portal. This reduces the incidence of forged or exaggerated authorizations. - Monitor Secondary Distribution Channels
Extend market monitoring efforts to trade fairs, B2B platforms, and distributor marketing materials. Any promotion beyond licensed scope should trigger a legal notice to both the distributor and the primary licensee. - Adopt a “Piercing” Litigation Strategy
When litigating, name both the manufacturing factory and the secondary distributor as co-defendants. This strategy undermines defenses based on “authorization” and facilitates higher damages by exposing the entire infringing network.
Conclusion: Turning Legal Exposure Into Proactive Protection
In China’s multi-tiered market, effective IP protection requires looking beyond the primary licensee. Secondary distributors represent both a point of vulnerability and a powerful lever for enforcement.
By recognizing the legal liability at this level, international brand owners can design more resilient licensing programs and conduct more impactful enforcement campaigns. The goal is not only to punish infringement but to create a licensing ecosystem where compliance is the default.
Our firm assists international brands in auditing licensing structures, drafting enforcement-proof agreements, and implementing layered enforcement strategies. If you are evaluating your current licensing model or confronting infringement in China, we invite you to contact us for a consultation grounded in practical litigation experience.
Protect your brand where the risks are hidden but the leverage is real.