How to Deal with the Malicious Lawsuit Brought by the IPR Holder

Company A planned to engage in the production and sale of a particular device, and filed an application to the authority for qualification. During the examination period, Company B which is the competitor of Company A, brought a lawsuit on the dispute over the utility model patent infringement against Company A. In addition, Company B reported to the authority. Company B insisted that Company A was involved in an IPR infringement case, so it failed to meet the approval requirements. The strange thing was that the involved utility model patent was lack of novelty as prescribed in the patent evaluation report.

It is reasonable for the IPR holder to file a lawsuit to protect its rights, however, if the IPR holder takes advantage of the lawsuit for the purpose of eliminating competition other than protecting rights, then such action shall be deemed as unreasonable. Sometimes, such IPR holder would apply for pre-litigation injunction, or property preservation prior to or during the litigation, against the competitor, which may affect the competitor’s business. If the IPR holder withdraws or losts the lawsuit, the competitor would suffer large loses, such as the backlogged goods, an important business opportunities, the expenses related to the lawsuit and etc..

At present, there is no systematic regulation on regulating the malicious lawsuit brought by the IPR holder. However, there are several judgements on this kind of case. ‘Provisions on the Causes of Action in Civil Cases’ (2011) has added the dispute over the liability for filing a malicious IPR lawsuit. In view of this, the defendant (the competitor) of an IPR infringement case could at least ask the plaintiff (the IPR holder) for compensation, while such IPR infringement lawsuit is a malicious one.

In practice, paragraph 2, Article 106 of ‘General Principles of the Civil Law ‘, and paragraph 1, Article 6 of ‘Tort Liability Law’ would be applied on dealing with such cases. Generally speaking, the judges shall analyze 4 elements (subjective fault, violations, damage, and causal relationship between the results of the violations and the damage) to identify whether the IPR holder’s right has been infringed, and the core issue is whether the malicious intention exists. But it is very difficult to prove that the IPR holder has a malicious intention, even if such patent has been declared as invalid. Different courts, even different judges in the same court may have different opinions.

Nevertheless, there are several judgements related to this kind of case could be provided for reference.

On identifying the malicious intention, the judges would analyze 2 aspects: (1) whether the IPR holder is fully aware that the infringement claim is lack of factual and legal basis; or (2) whether the IPR holder has the improper intention to infringe the defendant’s (the competitor’s) legitimate rights and interests.

For the first aspect, the judges would analyze those situation of the IPR holder, such as the period of R&D, the date of patent application, the patent evaluation report, the publish of the relevant technologies, the knowledge of the existing technology and etc.. For example, in the 2003 ‘Fire Ball Valve’ case, the Nanjing Intermediate People’s Court said that Yuan had taken the position as the valve workshop director and the factory director. As the professional in this industry, he should be familiar with the relevant statutory standard of the ball valve. However, he used this statutory standard which had been disclosed to the public, to apply for utility model patent, so he should be deemed as lack of good faith. He abused such patent to claim for infringement compensation against Company X, and the action had brought losses to Company X, so he should undertake the compensation liability to Company X. In view of this, to prove the malicious intention of IPR holder is not only about whether the disputed patent has been declared as invalid, but to prove “knowingly” is necessary and important.

For the second aspect, the judges would analyze the relevant actions of the IPR holder, such as, whether the IPR holder has taken advantage of the lawsuit to spread the rumor of the competitor, or bring bad effect to the transaction of the competitor. In view of this, the malicious intention shall be proved by fact instead of deduction.

Last but not least, in practice, even the competitor has won the lawsuit, it could only obtain the direct loss related to the lawsuit, such as the examination fee for the invalidation request, the court costs, attorney fees and the direct loss related to its business.