Recently, the Supreme People's Court concluded an appeal case involving a dispute over damage liability due to malicious filing of intellectual property litigation, in which the Court determined that the accused infringer's litigation action did not constitute malicious litigation, and further clarified the criteria for identifying malicious litigation.
Guiling A Company filed a lawsuit with the court of first instance, requesting to confirm that Case No. 3843 filed by Hunan B Company was a malicious intellectual property lawsuit, and to order to compensate for economic losses and reasonable expenses.
The court of first instance found that: On January 20, 2016, Hunan B Company was granted the invention patent involved in the case. On May 9, 2018, Guilin A Company issued the "Announcement on the Acceptance of Company's Public Allotment Application by the China Securities Regulatory Commission (CSRC)." On July 13, 2018, Hunan B Company filed a lawsuit with the court against Guilin A Company for infringing its patent by producing, selling, and offering to sell the relevant series of products, namely Case No. 3843. In this case, Hunan B Company believed that Guilin A Company openly produced, sold, and offered to sell the relevant series of products in large quantities without licensing, and that the sensory requirements, physical and chemical indicators, heavy metal content, microbial control and other aspects in its product inspection reports are highly consistent with those of products prepared by Hunan B Company through its patented method, which is an infringement against the patent of Hunan B Company. Thus, Hunan B Company required Guilin A Company to stop the infringement and compensate for losses. In August 2018, the CSRC received a report letter from Hunan B Company and learned the information of Guilin A Company being sued by Hunan B Company for patent infringement and was requested to invalidate its patent. On May 20, 2019, Hunan B Company submitted an application to withdraw Case No. 3843 after learning that its request for investigation and evidence-taking was refused by the Court. The Court approved the withdrawal.
The court of first instance held that, Hunan B Company, when initiating Case No. 3843, was exercising its legal right to sue, as its invention patent had been granted and in a valid state at the time, and there was no presence of subjective bad faith. Guilin A Company did not submit sufficient evidence to prove that Hunan B Company instituted legal proceedings with the knowledge that the patent in question lacked stability or for any unfair purposes beyond the litigation itself. The later withdrawal of Case No. 3843 by Hunan B Company was its normal exercise of its right to sue, which cannot prove that the litigation was malicious. Therefore, the judgment was made to reject all litigation claims of Guilin A Company.
Guilin A Company was dissatisfied with the first-instance judgment and appealed to the Supreme People's Court, requesting to revoke the original judgment and secure support for its first-instance claim.
The Supreme People's Court held that, for an intellectual property lawsuit to be deemed malicious, it must fulfill the following constituent elements: 1. The lawsuit is evidently lack of rightful or factual basis; 2. The plaintiff is aware of this deficiency; 3. Damage is caused to others; 4. There is a causal link between the lawsuit filed and the damage incurred. In identifying malicious lawsuits, the principles of caution and tolerance must be upheld. Failure to do so can not only undermine the full protection of civil rights but also introduce greater uncertainty into civil and commercial activities in society. The litigation competence of the concerned parties varies, often leading to adjustments in evidence submitted and the litigation action throughout the litigation process. The concerned parties have the right to choose when to file a lawsuit, what evidence to submit, or to withdraw the lawsuit. It is difficult to determine that the party's intent in filing a lawsuit is to infringe the interests of others solely based on the party's reporting action, insufficient evidence submission, or withdrawal of the lawsuit.
In this case, first, it is difficult to determine that Case No. 3843 filed by Hunan B Company evidently lacks a rightful or factual basis. Hunan B Company had made a preliminary judgment on whether Guilin A Company constituted patent infringement. As the owner of the patent involved, when it discovers the possibility of infringement, it has the right to file a lawsuit. Thus, Case No. 3843 filed by Hunan B Company has a preliminary factual and legal basis, which is rational to some extent, and is not a groundless lawsuit without legal and factual basis. Second, it is difficult to identify that Hunan B Company filed Case No. 3843 with obvious bad faith. The two parties in this case had patent administrative disputes before Case No. 3843. Guilin A Company twice filed invalidation requests against the above patent of Hunan B Company with the China National Intellectual Property Administration (CNIPA). It is undeniable that Hunan B Company’s filing of the lawsuit and related reporting actions before Guilin A Company’s public listing are measures to protect its rights, demonstrating a certain level of rationality. Third, Hunan B Company did not fabricate facts or make things out of thin air when reporting to CSRC, and it did not violate legal provisions. There is a reason to some extent for Guilin A Company not to promptly disclose relevant information related to the lawsuit: When Hunan B Company reported to CSRC, Guilin A Company hadn’t received the indictment and other response materials for Case No. 3843; the report by Hunan B Company to CSRC was made after the acceptance of Case No. 3843. It was hard to deem the parties’ behaviors clearly inappropriate. Fourth, Hunan B Company’s submission of the withdrawal application with the Court of First Instance on May 20, 2019, was a practice of its right to sue, which is hardly inappropriate. The mere presence of reporting, litigation, and case withdrawal cannot support a claim that Hunan B Company filed the lawsuit with the intent to harm others rather than to protect its rights. In view of the above, it is not sufficient to identify Case No. 3843 filed by Hunan B Company as malicious. Therefore, the appeal was dismissed and the original judgment was upheld.
The second-instance judgment of the case clarified that a lawsuit is considered malicious only when the act conductor files a lawsuit knowingly lacks the rightful basis, factual basis, justifiable reasons, or knowing that the alleged infringer does not constitute an infringement, causing harm to the other party. This case highlights the judicial stance of not only protecting the right to sue and intellectual property rights in accordance with the law, but also regulating the malicious exercise of the right to sue and the abuse of intellectual property rights.
 (2021) Zui Gao Fa Zhi Min Zhong No. 1353

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