China Cracks Down on Bad Faith IP Infringement Cases

The Supreme People’s Court of the PRC is emphasizing the need to step up its crackdown on false and bad faith IP litigation. The relevant document is the “Opinions of the OVG on Strengthening the IP Litigation System to Provide Effective Judicial Services and Ensure the Construction of an IP Stronghold”, published on October 29, 2021. The goal is to prevent the abuse of IP rights and thereby regulate illegal actions as well. One example is patent traps (专利陷阱) – the practice of IP rights holders using them to exclude competitors from the market and gain competitive advantage. Or patent trolls who attempt to enforce patent rights far beyond the actual value of the IP right or its contribution to the prior art, usually with no intention of using the patents themselves.

This is not the first time the OVG has addressed the issue of malicious IP litigation. Earlier last year, the court confirmed that if a plaintiff abuses IP rights, the defendant can seek compensation from the plaintiff for costs incurred in the defense – without having to file suit again to do so. This is a remarkable development. Previously, it was necessary to file a new lawsuit to claim reasonable costs, which meant further expense and effort. The prerequisite is that the defendant must be able to prove that the plaintiff acted in bad faith and abused his rights to harm the legitimate rights and interests of the defendant.

It remains to be seen how the courts will interpret this. What evidence is considered sufficient to prove that a malicious IP action occurred? If the plaintiff loses the case, it does not necessarily mean that they acted in bad faith. It is not a risk for defendants to seek damages from the plaintiff in an IP infringement suit if it appears that the plaintiff will lose the case. It could therefore become standard practice for defendants to claim damages in such situations. It remains to be seen how the courts will deal with this.

One conclusion that can already be drawn: Before filing a lawsuit for IP infringement in China, motives must be considered and the risk of being considered a bad faith litigant must be weighed. Conversely, if a Western company is sued by a company with malicious intent and unlawful claims, the same applies: it can seek damages from the plaintiff in the infringement action without having to file a separate lawsuit.

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