If Enforcement Becomes Abuse: Chinese Courts Take a Firm Stance Against Malicious IP Litigation

06 May 2026

By Seven Liu

Intellectual property rights are designed to protect legitimate business interests. But what happens when those rights are used not as a shield, but as a tool for profit through litigation?

A recent judgment by the Jiading District People’s Court highlights how Chinese courts are increasingly willing to address this issue.

The case provides a clear example of how malicious trademark registration combined with opportunistic litigation can lead not only to invalidation of rights, but also to liability for damages.

From Trademark Filings to Litigation Strategy

The dispute arose from a pattern of behavior rather than a single act.

The defendant, an e-commerce company, registered more than twenty trademarks closely resembling the names of well-known driving schools. These registrations were made within a relatively short period and covered marks that had clear commercial associations with existing businesses.

After obtaining these registrations, the defendant filed a trademark infringement lawsuit against the plaintiff (an information consulting services company) despite knowing that it had no substantive legal basis for these trademarks.

Faced with the costs and uncertainties of litigation, the plaintiff ultimately opted for settlement and paid the damages and litigation costs.

However, the situation evolved. The defendant continued to pursue similar claims against related entities, suggesting a broader strategy rather than an isolated dispute.

The Turning Point: Invalidation of the Trademarks

The plaintiff later challenged the validity of the defendant’s trademarks. Following administrative and judicial review, including proceedings before the China National Intellectual Property Administration and courts in Beijing, the marks were ultimately declared invalid.

The authorities found that the registrations had been obtained through improper means. The volume of filings, their similarity to existing business names, and the absence of evidence of genuine intent to use all pointed to a pattern of abusive registration.

This finding fundamentally changed the legal landscape of the dispute. What had initially appeared as a standard enforcement action was now recharacterized as conduct lacking a legitimate rights basis.

Recognizing Malicious Litigation

Following the invalidation of the trademarks, the plaintiff brought a new claim, arguing that the earlier infringement proceedings constituted malicious litigation.

The court agreed.

It emphasized that trademark registration should serve the purpose of genuine commercial use and should not be used to disrupt market order or extract unjustified economic benefits.

Filing a large number of similar trademarks without a real business need, and then using those registrations to initiate litigation, was found to reflect subjective bad faith.

Crucially, the court did not view the earlier settlement as closing the matter.

Even though the plaintiff had voluntarily agreed to pay compensation at the time, that agreement was based on a mistaken assumption about the validity of the defendant’s rights.

Establishing Harm and Causation

The court also examined whether the plaintiff had suffered legally recognizable harm as a result of the defendant’s conduct.

It found a clear causal link between the malicious litigation and the plaintiff’s losses.

The plaintiff had paid compensation and court fees as a direct result of the earlier proceedings, and had incurred additional legal costs in defending itself.

These financial consequences were not incidental: they were the foreseeable result of the defendant’s strategy.

Damages: A Balanced Approach

In determining compensation, the court adopted a measured approach.

It ordered the defendant to return the amounts previously paid under the settlement, including damages and court fees.

In addition, it awarded compensation for part of the plaintiff’s legal expenses and financial losses arising from the dispute.

However, the court declined to grant damages for alleged business interruption, as the plaintiff was unable to establish a sufficiently direct causal link between the litigation and any broader operational losses.

This reflects a consistent judicial approach in China: while courts are prepared to sanction abusive conduct, they require clear evidence when awarding damages beyond direct financial losses.

A Strong Signal from Chinese Courts

This case sends an important message about the limits of IP enforcement in China.

First, it confirms that trademark hoarding without genuine intent to use can undermine the validity of rights and expose the registrant to legal risk.
Second, it shows that courts are willing to look beyond formal rights and examine the purpose and pattern of behavior behind enforcement actions.
Finally, it establishes that malicious litigation is not without consequences. Parties who misuse the legal system to extract settlements or exert pressure may ultimately be required to return those gains and compensate the affected party.

Conclusion

As China’s intellectual property system continues to mature, the focus is shifting from formal rights to substantive fairness and market order.

This case illustrates a broader principle: IP rights are powerful tools, but they must be exercised in good faith. When litigation becomes a business model rather than a means of protection, courts are increasingly prepared to intervene.

A well-structured IP strategy must be grounded not only in registration, but also in genuine use and responsible enforcement.