Factory Overruns in China: Separating Contract Breach from Trademark Infringement

By Pan Jianxing · Published 20 September 2026

Branded products appear outside the approved supply chain, and the factory says they came from the same production line as the authorized order. That explanation does not settle the dispute. The decisive questions are whether those units were authorized, which Chinese rights protect the mark, and what evidence connects the factory to the stock. Product quality and the source of the materials cannot answer those questions alone.

This analysis uses the mainland Chinese rules in force on 20 September 2026. The revised Trademark Law takes effect on 1 January 2027; conduct and proceedings spanning that date require review under the applicable rules.

Define what “overrun” means in the actual order

Distinguish unauthorized extra production from approved tolerance, replacement units, quality-control samples, rejected stock and goods made under a later purchase order. Reconcile approved quantities with production, acceptance, shipment, returns and documented destruction. A difference between ordered and discovered quantities is an investigative lead; it is not yet proof that every extra unit was made without permission.

Read the master manufacturing agreement, trademark licence, purchase orders, specifications and later amendments together. Identify who could approve additional production and whether that authority was exercised. Preserve communications that explain the scope of permission, including those unfavorable to the brand. A demand letter that overlooks an approved tolerance can weaken the factual account from the outset.

Test the licence and the trademark claim separately

Article 8 of CNIPA’s Criteria for Determining Trademark Infringement, Guo Zhi Fa Bao Zi [2020] No. 23, expressly includes use exceeding permitted categories, duration or quantities within use without the registrant’s permission. The criteria guide administrative trademark enforcement. They provide an important basis for assessing genuine excess production, but do not replace proof of the licence, the goods and the particular conduct.

Under Article 57 of the current Trademark Law, unauthorized use of an identical mark on identical goods is addressed separately from similar-mark or similar-goods cases, where likelihood of confusion matters. The legal analysis should identify the applicable category rather than assume that manufacture in an approved factory authorizes every batch.

Conversely, authorized production followed by a breach of a sales restriction needs careful treatment. In its official explanation of the infringement criteria, CNIPA distinguishes use exceeding contractual territorial restrictions as a contract issue. That explanation does not resolve every resale or altered-product dispute. It does show why a breached distribution clause should not automatically be presented as unauthorized manufacture.

Confirm the rights holder and the contracting party

The company placing orders may differ from the Chinese trademark registrant. Map the registrant, purchasing affiliate, licensee, factory and subcontractor. Check registration status, the protected sign and goods, assignments and the documents authorizing each entity’s role. Ownership of a foreign registration does not establish the Chinese registered right on which a domestic infringement claim relies.

If a licensee will sue, its standing needs separate examination. The Supreme People’s Court’s trademark civil-dispute interpretation, as amended by Fa Shi [2020] No. 19, distinguishes exclusive, sole and ordinary licensees when determining who may bring proceedings. A purchasing relationship alone should not be assumed to confer standing. The same party may also need different authority to pursue contractual relief.

Preserve evidence that connects permission, quantity and source

A useful evidence package should answer three connected questions: what production was allowed, what unauthorized activity occurred, and who carried it out. Organize it by batch and event rather than by whichever employee supplied the files.

• Permission: executed agreements, approved artwork, purchase orders, quantity amendments, instructions about rejects and evidence of termination or expiry where relevant.
• Activity: production and packaging records, inventory movements, label orders, inspection reports and records showing how surplus stock was handled.
• Attribution: lawfully obtained sample purchases, seller details, payment and delivery records, packaging and batch identifiers, and communications connecting the seller or stock to the factory.

Keep the purchased item and its packaging together and record how each was obtained. Preserve original electronic records as well as readable copies. Screenshots of a listing may show an offer, but usually need supporting material to connect a particular factory to manufacture or supply. Consider preservation before approaching parties who control relevant records.

Choose the procedure for the required result

Where Chinese contract law applies, Articles 577 and 584 of the Civil Code of the People’s Republic of China provide for contractual liability and compensation subject to the applicable loss and foreseeability rules. Contract proceedings can address agreed production controls and resulting loss. Check the parties, governing law and dispute-resolution clause before selecting a forum.

For a supported trademark claim, Articles 60 and 62 of the current Trademark Law provide for administrative handling and investigation powers. An administrative penalty does not itself award the brand civil damages. Court proceedings can address civil relief; Articles 65 and 66 provide conditional routes to pre-action protective measures and evidence preservation. Each request needs its own evidential foundation. The statutory provisions should be checked against the proposed action.

Where the evidence suggests criminal counterfeiting, assess that route against the relevant offence requirements and evidence. Do not use a criminal allegation merely to increase pressure in a quantity dispute. Coordinate overlapping proceedings so that quantities, permission dates and loss calculations remain consistent.

The initial enforcement assessment should identify which batches are disputed, which entity can act and which remedy would protect the business. For a case-specific review, provide the rights records, complete order history, licence documents and available samples before characterizing all surplus goods as infringing.

Pan Jianxing
China-qualified lawyer · Partner, 北京市长安律师事务所
Beijing & Shenzhen
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