by Fabio Giacopello and Royal Hu
A recent ruling by China’s Supreme People’s Court highlights the issue of malicious litigation, setting a precedent against the abuse of IP litigation.
The dispute involved Jin Company, an industry leader in specialized equipment, and Ling Company, an emerging competitor. Over the years, Jin Company repeatedly sued Ling Company for patent infringement, but earlier cases were dismissed due to lack of evidence.
In January 2023, just as Ling Company was preparing for its IPO on the Beijing Stock Exchange, Jin Company filed a new lawsuit, claiming 23 million RMB (roughly 3mlUSD) in damages based on a utility model patent granted in 2020. However, Ling Company discovered that Jin Company had concealed an official patent evaluation report, which indicated the patent lacked inventiveness —a key requirement for validity.
The Court’s Verdict: A Turning Point in IP Litigation
The court found that:
Jin Company was aware that its patent had weak legal grounds, as the patent evaluation report indicated that all claims lacked inventiveness. Despite this, it concealed the report and proceeded with litigation.
Jin Company delayed filing the lawsuit until Ling Company's IPO review period, suggesting intentional interference.
Jin Company’s compensation claim of 23 million RMB was suspiciously higher than in previous cases (8 million RMB), aligning perfectly with disclosure thresholds that forced Ling Company to pause its IPO process.
This lawsuit increased Ling Company's litigation burden and forced it to disclose the dispute to investors, potentially harming its business relationships and IPO success.
Based on these findings, the court determined that:
Ling Company did not infringe on Jin Company’s patent.
Jin Company knowingly pursued a baseless lawsuit, concealing evidence.
The lawsuit was strategically timed to disrupt Ling Company's IPO.
As a result, the court dismissed Jin Company’s claims and, in a rare move, ordered Jin Company to compensate Ling Company with 400,000 RMB (55.000 USD) for legal expenses and issue a public statement to mitigate reputational damage.
Jin Company appealed, but the Supreme People’s Court upheld the original judgment.
Why This Case Matters
This ruling reinforces that IP rights must be exercised in good faith. Filing lawsuits purely to disrupt competitors, especially during critical business moments, is an abuse of rights and will not be tolerated. It also signals that Chinese courts are taking a firm stance against malicious litigation, ensuring that IP laws serve their intended purpose: to protect innovation, not stifle competition.
For businesses operating in China, this case serves as a reminder: IP enforcement must be strategic, but also ethical. Misusing litigation as a competitive tool could backfire — legally and reputationally.
Understanding Malicious IP Litigation
In recent years, China has made significant steps in strengthening its intellectual property (IP) protection framework, aligning with global standards and fostering a more robust enforcement environment. However, with these advancements comes an unintended consequence: the rise of malicious IP litigations. This phenomenon poses serious risks to legitimate businesses, particularly foreign companies navigating the complexities of the Chinese legal system.
Malicious IP litigation refers to the abusive use of legal procedures by entities that exploit the IP system for unfair commercial advantages. This practice includes:
Bad-faith trademark registrations: Individuals or entities register trademarks with no intent to use them, solely to file infringement claims against established brands.
Frivolous lawsuits: Competitors or opportunistic actors file baseless infringement claims to disrupt business operations, delay market entry, or pressure legitimate owners into settlements.
Patent trolling: Entities acquire or file broad patents, not for innovation but to target companies with infringement claims, seeking monetary compensation or licensing fees.
Unjustified customs enforcement actions: Some parties manipulate administrative enforcement mechanisms, such as customs seizures, to block competitors’ legitimate shipments.
Such tactics can lead to financial losses, reputational damage, and operational disruptions for affected businesses.
Legal Landscape and Recent Reforms
The Chinese government has acknowledged the challenges posed by malicious IP litigation and has introduced several legal reforms to limit these abuses:
Trademark Law amendments: China’s revised Trademark Law explicitly prohibits bad-faith filings without intent to use, empowering authorities to reject such applications.
Punitive damages for bad-faith litigation: Courts have been increasingly active in identifying and penalizing frivolous lawsuits, deterring abuse of the legal system.
Strengthened patent examination procedures: The China National Intellectual Property Administration (CNIPA) has tightened scrutiny on patent filings to prevent fraudulent claims.
While these measures are promising, businesses must still proactively defend themselves against potential threats.
Strategies to Protect Against Malicious IP Litigation
At Allasya Law & IP, we advise businesses to adopt a multi-layered approach to mitigate the risks associated with malicious IP litigation:
Proactive IP Portfolio Management
Secure trademarks, patents, and copyrights in China early, even before market entry, to prevent bad-faith registrations; Assess vulnerabilities and strengthen the scope of protection across key business areas.
Monitoring and Early Intervention
Monitor new filings and take early action against potential infringers or malicious filers; Leverage opposition and invalidation procedures to remove bad-faith registrations before they escalate into litigation.
Strategic Litigation Defense
Collect proof of prior use, reputation, and legal ownership to counter infringement claims; When appropriate, initiate legal actions against entities engaged in malicious litigation to deter future abuse; Use Alternative dispute resolution (ADR): Explore mediation or arbitration to resolve disputes efficiently and minimize disruptions.
Customs and Enforcement Safeguards
Prevent unauthorized parties from weaponizing customs enforcement against legitimate shipments by recording trademarks and patents with China Customs.
Leveraging Legal Reforms
Courts now have greater authority to penalize bad-faith litigants: companies should leverage anti-malicious litigation provisions in their defense; Businesses impacted by frivolous lawsuits may pursue compensation, deterring further malicious actions.
Conclusion
China’s evolving IP landscape presents both opportunities and challenges for businesses. While malicious IP litigation remains a significant concern, a well-prepared strategy can mitigate its impact.
At Allasya, we provide expert guidance tailored to the complexities of the Chinese market, ensuring that businesses can operate with confidence and protect their intellectual assets effectively.