SPP to crack whip on malicious IP lawsuits

China's judicial authorities are stepping up efforts to punish and prevent malicious intellectual property lawsuits, warning that some parties abuse IP litigation to seek improper gains, suppress competition and disrupt market order.

The Supreme People's Procuratorate recently released five typical cases involving malicious IP lawsuits, covering utility model patents, design patents, trademarks and unfair competition. The Supreme People's Court has also released related cases to guide parties to litigate in good faith.

The SPP said malicious IP lawsuits are often filed in the name of protecting rights but are actually intended to generate profits or gain an unfair competitive advantage. Such lawsuits harm the lawful rights of others, waste judicial resources, disrupt judicial order and undermine judicial authority.

An official with the SPP's intellectual property procuratorial department said procuratorates have intensified special supervision over related lawsuits in recent years.

The latest cases provide guidance on identifying clues, initiating legal procedures, conducting investigations and carrying out follow-up supervision.

In one case, a machinery technology company based in Wuxi, Jiangsu province, was sued by an intelligent equipment company from Foshan, Guangdong province, over a utility model patent for a mixing device.

The two companies produced similar products, held similar patents and had competed in several projects.

In January 2023, the Foshan company filed a patent infringement lawsuit seeking 23 million yuan ($3.38 million) in damages.

The lawsuit was filed shortly after the Wuxi company's listing application had been accepted, forcing the suspension of the listing process.

The Wuxi procuratorate found that the patent lacked a stable legal basis after the National Intellectual Property Administration concluded that all of its claims failed to meet patent authorization requirements.

Prosecutors also determined that no infringement had occurred because the Wuxi company had commissioned production of the same type of product before the patent application was filed.

The court rejected the Foshan company's claims, ordered it to pay 400,000 yuan in reasonable expenses and publish a public statement. The top court upheld the ruling in June 2024.

The SPP said procuratorates should adopt a substantive review approach when handling malicious litigation supervision cases by examining whether the IP rights have a stable legal basis, whether infringement occurred and whether the plaintiff knew of possible defects in its rights.

Prosecutors should also assess the plaintiff's litigation motive and the timing of the lawsuit.

The SPP said maliciously registering and stockpiling trademarks before suing legitimate trademark owners for compensation is a common form of malicious IP litigation.

In another case, a listed high-tech company had used the Chinese characters "Changgao" as its trade name since 1998 and had registered related trademarks for electrical equipment since 2006.

In 2022, a digital technology company applied to register 12 trademarks containing "Changgao Dianxin" across multiple categories. It later used the trademarks as intellectual property contributions to establish an international trading company.

The two companies then filed a 10-million-yuan lawsuit against the listed company in Changsha, Hunan province, alleging trademark infringement and unfair competition.

The Changsha procuratorate found that the trademarks had been registered in bad faith rather than for genuine commercial use. The two companies filed the lawsuit despite knowing their legal basis was defective, with the aim of obtaining improper gains.

The Changsha Intermediate People's Court dismissed the case in December 2023 and fined the two companies 100,000 yuan in total for malicious litigation.

The Hunan High People's Court later upheld the decision. Through coordination among prosecutors, courts and intellectual property authorities, 72 registered trademarks held by the companies and their affiliates were invalidated.

The SPP said parties that knowingly file lawsuits for improper benefits based on trademarks registered in bad faith should be deemed to have engaged in malicious litigation.

It also said prosecutors should supervise cases in which IP holders conceal key facts, such as patent invalidation, and continue litigation despite knowing the legal basis for their claims no longer exists.

For pending IP cases, if prosecutors discover evidence of malicious litigation, they may transfer relevant information to the courts and remind judges to identify abnormal circumstances and punish bad-faith lawsuits in accordance with the law, the SPP said.