CHINA Trends and Developments Contributed by: Feng Zheng, Xiaoyang Yang, Baihe Liu and Hongfeng Li, Wanhuida Intellectual Property
Bad faith litigation Bad faith litigation has been garnering atten- tion in recent years. It refers to litigation that is brought by a plaintiff out of no legitimate legal or factual basis to obtain illegal or illegitimate benefits and thus causing financial losses to a defendant. The concept of bad faith litigation arises from the principle of honesty and trust- worthiness now codified by the Civil Code. As the principle of honesty and trustworthiness is introduced as a fundamental rule by the leg- islator without elaborating on the circumstances as to how bad faith litigation can be established, stakeholders could only rely on case law to deci- pher the thinking of the Chinese judiciary in that regard. It is pivotal that multinational companies follow closely the development of the jurispru- dence in this area to avoid the pitfall of being labelled as acting in bad faith in litigation or fall- ing victims of bad faith litigation. Two SPC decisions could shed some light on this matter. (2022) Zui Gao Fa Zhi Min Zhong No. 1861 The decision (2022) Zui Gao Fa Zhi Min Zhong No. 1861 is the first decision where the SPC found a patent infringement action brought by a patentee could constitute bad faith litigation and ruled the patentee was liable for financial compensation to the accused infringer. In this case, the patentee owned a utility model (“patent at issue”), which later lapsed due to insufficient payment of annuity unbeknownst to the patentee. Shortly after the lapse, the unwit- ting patentee sued the accused for infringement of the patent at issue. Infringement was not found until at the retrial stage of the case, which took place years after the original expiry date of the patent at issue. At that time, as neither
the court nor the accused were aware the pat- ent at issue had already lapsed, the court found infringement and the accused paid the financial compensation as ordered by the court. The patentee subsequently filed a second litiga- tion, claiming RMB3.5 million as damages for the period from the filing date of the first litigation to the date when the patent at issue would have expired. This time, the accused found out about the lapse of the patent at issue and informed the court, and the patentee withdrew its complaint. The accused then applied to the Supreme Peo- ple’s Procuratorate (SPP) to protest the errone- ous decision of the first litigation, on the basis that the patent at issue had already lapsed at the time when the first litigation was brought. However, the SPP rejected the application of the accused. Meanwhile, the patentee initiated an administrative proceeding challenging the CNI- PA’s decision to terminate the patent at issue due to insufficient payment of annuity, but later withdrew the complaint. Then the patentee filed a third litigation against the accused, claiming damages of RMB4.5 mil- lion for the same time period as the second litigation, but once again withdrew its complaint later. A fourth litigation ensued shortly. This time the patentee applied for interim preservation of the accused’s property, and the court granted its application before eventually dismissing the patentee’s claim. The accused then sued the patentee, contend- ing that the third and fourth litigation consti- tuted bad faith litigation, requesting financial compensation for losses caused by, inter alia, its disqualification by the wrongful accusation of patent infringement from biddings for a contract and the interim preservation measure applied for by the patentee in the fourth litigation. The case
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