Buying goods through a legitimate supplier does not automatically resolve a Chinese patent claim. A qualifying business user or seller may avoid compensation by establishing the lawful-source defense, but stopping sales and identifying the actual supplier remain separate issues. For a patent owner, a seller's purchase records may also point upstream. Start with the specific product, transaction and conduct rather than accepting either side's description of the supply chain.
What does the lawful-source defense cover?
Article 77 of China's Patent Law concerns business use, offers for sale or sales of patent-infringing products manufactured and sold without the patent owner's permission. It provides an exemption from compensation when the defendant did not know of that unauthorized manufacture and sale and can prove the products' lawful source.
The Supreme People's Court explains that lack of knowledge means both not actually knowing and not having reason to know. Lawful source means acquisition through normal commercial transactions, supported by evidence consistent with trading practice. See Article 25 of Patent Infringement Interpretation II. The Court's 2020 amendment decision, effective January 1, 2021, did not amend Article 25.
This defense does not decide patent validity or whether the accused product falls within the patent's protection. Nor does Article 77 provide a general exemption for manufacturing or importing. Identify each alleged act and the entity performing it before evaluating a defense.
Can the seller keep selling?
A compensation defense is not permission to continue selling. Article 25 generally supports the patent owner's request to stop the relevant use, offers for sale or sales even where lawful source is established. It contains a narrow exception for a user who proves payment of reasonable consideration for the product. That exception should not be treated as a blanket license for sellers to continue trading. Official judicial interpretation, Article 25.
For a business responding to a claim, review sales controls separately from the damages position. For the patent owner, frame the requested action precisely rather than assuming a compensation argument answers every remedy.
Build a transaction trail that identifies the accused goods
The following is an editorial preparation checklist, not a mandatory statutory document list. Its purpose is to help a reviewer connect the product being challenged with the actual transaction.
Identify the parties. Record the seller's legal entity, storefront operator, invoicing entity and claimed supplier. Explain differences rather than treating similar names as interchangeable.
Identify the goods. Match model numbers, stock codes, batches, photographs and packaging. A broad label such as “electronic accessories” may leave the critical connection unexplained.
Reconcile the transaction. Compare purchase orders, contracts, payment records, invoices, delivery notes and inventory entries. Flag differences in quantities, dates, descriptions and prices for investigation.
Connect shipment and stock. Explain how the purchased goods reached the seller and which stock was supplied to the customer or used in the finished product.
Retain supplier communications. Preserve product confirmations and explanations in their original context. A later supplier statement should be checked against contemporaneous records.
Record gaps honestly. Distinguish missing records from inconsistent records. Do not recreate documents or edit originals to make them appear consistent.
For example, an invoice for a large batch is less informative if there is no explanation linking that batch to the tested sample. A useful evidence index shows which record answers each identification question and marks unresolved connections. It should preserve the original files alongside any working translation or summary.
Separate the supplier, component maker and storefront
A retailer is not automatically the manufacturer. Likewise, the business assembling a finished product may have purchased the disputed component from another company. Build an entity map showing who made, purchased, assembled and sold each relevant item. Product labeling is a lead to investigate, not a substitute for examining the underlying transactions.
In Supreme People's Court case (2023) 最高法知民终959号, linked contracts, delivery records, inventory entries, invoices and supplier confirmation supported the component's source. Yet a prior settlement and continued knowing sales defeated the lawful-source defense. Although the case applied the earlier Patent Law, it illustrates why proof of purchase and absence of knowledge need separate analysis. It also distinguished the finished-product maker from the component maker.
Preserve evidence before a warning changes the situation
As a practical preparation step, preserve accessible product listings, seller identities, dated purchase records, samples and packaging before contacting the other side. Keep a clear record of what was collected, when and from where. Ask counsel whether formal evidence preservation is appropriate for the intended proceeding.
If a warning has arrived, preserve the notice and attachments, the product versions involved, the response and subsequent sales decisions. Do not assume that every warning automatically defeats the defense: its content, supporting material, receipt and surrounding facts need examination. Conversely, do not treat continued sales as harmless merely because invoices exist. Our China patent warning-letter guide explains related evidence and litigation risks.
The patent owner should also assess whether supplier records justify further investigation upstream. Supplier identification alone does not establish that supplier's infringement or responsibility.
Prepare a focused China patent dispute review
For a first discussion about China IP enforcement and disputes, provide the public patent number, party names, public product links, your role, relevant timing and anticipated budget. State whether you want to assess a response, preserve evidence or investigate the supply chain.
Complete conflict checks and agree on confidentiality and a secure transfer method before sharing nonpublic technical details or confidential case files. A preliminary discussion is not a formal infringement, validity or litigation opinion.
Official sources checked November 2, 2026. This article provides general information; the applicable law and evidence require review for the particular dispute.