As efforts to protect intellectual property (IP) rights intensify, rights holders are increasingly resorting to legal measures to safeguard their legitimate interests. However, amid this is a phenomenon of abusing legal rights by maliciously initiating IP litigation to suppress competitors or gain illicit benefit.
In response, the Supreme People’s Court (SPC) amended the Provisions on the Causes of Action in Civil Cases in 2011, adding the third-level cause of action for “disputes over damages caused by malicious initiation of intellectual property litigation” and incorporating it into the jurisdiction of the people’s courts.
Additionally, the 2019 amendment to China’s Trademark Law, article 68, stipulates penalties by the people’s courts for maliciously initiating trademark litigation.
This article draws on professional and judicial practices to delve into judicial determination of malicious initiation of IP litigation.
Constituent elements
Chinese laws are currently silent on the constituent elements of malicious initiation of IP litigation. In judicial practice, the following elements are usually considered in determining whether IP litigation has been initiated maliciously:
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(1) The act element.
The perpetrator has committed infringement and usually, as one of the parties, puts forward a claim by initiating an IP litigation, or uses this as a threat;
(2) The injury element.
The act of initiating litigation causes the other party to incur an actual injury, including both direct and indirect injuries;
(3) The causality element.
The causal relationship between the initiation of IP litigation by a party and the injury incurred by the other party during the action; and
(4) The subjective element.
The subjective malice of the party making the litigation claim, the scope of which is limited to intentional acts and does not include negligence. In judicial practice, the subjective element is most often the key in determining a malicious litigation, but is also the point that presents the greatest difficulties.
Determining subjective malice
Subjective malice in malicious litigation refers to the intentional act of a litigant who knowingly lacks a legal or factual basis for their litigation yet pursues legal action to harm the opposing party’s interests or gain undue benefits for themselves.
In 2004, a research report from the SPC’s Civil Division III addressed the issue of malicious litigation. It suggested that determining whether a patent holder acts maliciously when suing a competitor can be evaluated from two angles: “Firstly, being aware that their litigation lacks factual and legal basis, and secondly, having improper litigation objectives that infringe upon the legitimate rights of the opposing party.”
In judicial practice, courts typically consider various factors when assessing whether subjective malice exists. These factors include the stability and legitimacy of the litigant’s rights foundation, as well as the legitimacy of their litigation objectives.
Courts also examine whether there is any blatant and unethical litigation behaviour that breaches good faith. Based on judicial practice, the following are several scenarios identified as constituting subjective malice.
Initiating litigation with knowledge of illegitimate rights acquisition.
In Jiangsu Zhongxun Digital Electronics v Shandong Bittel Intelligent Technology (2017), the litigant knowingly registered a trademark using unfair means, pre-empting a trademark already in use and with established influence.
In Anhui Liangyinmei Trading v Fuzhou Yibaocheng Medical Instrument (2022), the litigant, at the patent filing stage, intentionally concealed from the China National IP Administration the fact that, before the filing date, it had been publicly selling products incorporating the design patent, thus using false statements to secure granting of the design patent.
Initiating litigation with knowledge of unstable rights foundation.
In Shenzhen Jooan Technology v Zhang Zhimin, Shanghai KaiCong Electronic Technology (2019), the litigant was aware of publicly selling products similar to the patent before the application date, rendering the patent invalid due to a lack of novelty.
Initiating litigation with knowledge of lack of rights foundation.
In Beijing Far East Cement Products Company v Beijing Sifang Rugang Concrete Products Company (2015), the litigant initiating the patent infringement lawsuit lacked a legal basis, relying on method claims voluntarily abandoned during invalidation proceedings of the patent, as well as product claims prior to modification.
Knowingly disregarding a prior judgment’s finding of non-infringement and initiating litigation again, abusing the right to sue.
In Qingdao Zhongxingda Rubber Plastic v Jinfuyuan Rubber Plastic Products Factory (2018), despite a prior judgment that the opposing party’s existing design defence was valid and did not constitute patent infringement, the litigant initiated litigation again using the same patent. Subsequently, on the receipt of evidence supporting the existing design defence, they once again withdrew the lawsuit.
Initiating IP infringement litigation with an improper goal of harming a competitor’s interests.
In Shenzhen Jooan Technology v Zhang Zhimin, Shanghai KaiCong Electronic Technology (2019), the litigant in a business competition relationship with the opposing party, had made a claim for exceedingly high damages of RMB10 million (USD1.27 million) – which clearly had little chance of being upheld in full – and applied for property preservation and freezing of the other party’s funds of RMB10 million. This would have caused the other party to incur unnecessary losses, which led the court to ultimately find that the litigant had obviously instituted the prior legal action for a wrongful objective other than safeguarding their rights. It’s important to note that, in such cases, subjective malice cannot be automatically assumed solely because: the alleged infringer in the previous IP litigation raised existing technical/design defences; the rights foundation was invalidated/revoked during the litigation; the court ultimately ruled that IP infringement did not occur; or because the counterparty suffered damages. Each case undergoes individual examination based on relevant evidence submitted by both parties.
Recommendations
When enterprises engage in IP rights protection, they should rely on a legally valid rights foundation, exercising their litigation rights judiciously while thoroughly assessing the stability of their rights.
Within the scope of their rights, they should act prudently and in good faith to avoid maliciously initiating IP litigation.
Finally, when others maliciously obtain and exercise rights, violating legal purposes and principles, and causing harm to legitimate and lawful interests, it is imperative to actively employ legal means to hold them accountable for malicious litigation.
Chen Xi is an associate at Wan Rui Law Firm. Wan Rui Law Firm is a member of Sanyou IP Group
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