º¬Ðß²ÝÉçÇø

China¡¯s intellectual property regime is designed to incentivise innovation by granting innovators exclusive rights through legal means and to promote the commercialisation of innovation by optimising resource allocation. Effective IP protection requires a balance between encouraging innovation and preventing the abuse of rights. In recent years, however, malicious IP litigation has surged, becoming a prominent issue that impedes technological innovation and disrupts fair competition.

Forms of malicious litigation

Fraudulent litigation. This involves initiating lawsuits based on fabricated facts and forged evidence to obtain illegitimate gains. For example, in a series of copyright infringement cases, a media company maliciously sued KTV operators nationwide by forging copyright ownership for musical works and obtaining registration certificates, launching large-scale ¡°shakedown¡± lawsuits.

In response, prosecutorial authorities, in collaboration with administrative regulators, have introduced special oversight measures to combat such large-scale malicious litigation.

Malicious litigation. Parties knowingly lacking substantive rights acquire formal legal rights through improper means and initiate lawsuits. Examples include maliciously registering trademarks already in use by others and then suing the original users for infringement or exploiting the lack of substantive examination for design patents and utility model patents to file applications for unqualified technologies and initiate mass litigation. Such conduct constitutes an abuse of the IP system and undermines market competition.

Malicious exclusion of competitors under the guise of rights protection. Some parties misuse litigation to target competitors. In a notable case, Foshan Golden Milky Way Intelligent Equipment v Wuxi Lingood Machinery Technology (2023), a company initiated a patent lawsuit against a competitor during the latter¡¯s critical IPO review period, despite knowing its own patent rights were unstable. The aim was to secure improper benefits and harm the competitor¡¯s legitimate interests, ultimately causing the competitor¡¯s IPO to be aborted. Such actions violate the principle of good faith and seriously disrupt normal business operations.

Standard for determining subjective malice. The intangible and exclusive nature of IP makes malicious litigation highly covert. The main manifestation is the deliberate initiation of lawsuits to seek improper benefits, especially after acquiring IP rights through improper means.

As a special type of tort, malicious IP litigation must meet the general requirements for tortious conduct, as well as additional criteria such as ¡°lack of reasonable basis¡± or ¡°the original malicious lawsuit has already failed¡±. The standard for determining subjective malice differs from that for general torts.

Subjective malice in IP litigation is limited to direct intent. According to the interpretation of the Provisions on the Causes of Action of Civil Cases regarding ¡°disputes over damages caused by malicious initiation of IP litigation¡±, the claimant must intentionally file an infringement lawsuit to pursue improper gains, causing harm to the other party¡¯s legitimate interests.

The claimant must actively seek the harmful outcome, rather than merely acquiescing to or opposing it. Given that the essence of malicious IP litigation is the excessive abuse of rights, the assessment must balance the interests of both parties, and indirect intent should not be included within the scope of malicious IP litigation.

For example, in the ¡°target flowmeter¡± utility model patent case, Supreme People¡¯s Court Civil Final No.1861 (2022), the rights holder repeatedly filed infringement lawsuits after the patent had been terminated, seeking to profit from such actions. The Supreme People¡¯s Court held that knowingly initiating lawsuits without a legitimate rights basis or factual foundation, resulting in harm to the other party and with intent to cause such harm, constitutes malicious litigation.

Strategies and recommendations

Strengthen internal IP compliance and risk warning mechanisms. Enterprises should establish and improve systematic IP strategies, including layered arrangements for patents, trademarks and copyrights, to enhance their IP protection. Regular risk assessments of IP litigation, verification of rights, market-oriented risk analysis and litigation screening should be conducted to effectively prevent and evaluate litigation risks.

Employ legal defences and countermeasures. When facing IP infringement claims, especially malicious litigation, parties should promptly assess the claimant¡¯s rights basis and take countermeasures, such as filing for cancellation of the disputed trademark or invalidation of the relevant trademark or patent, undermining the claimant¡¯s rights at the root.

In cases of malicious IP litigation, defendants should also consider filing counterclaims for damages to protect their legitimate interests. For instance, in the above-mentioned case involving obstruction of a technology company¡¯s IPO, the defendant promptly counterclaimed for malicious litigation, seeking compensation for legal fees and economic losses, shifting from a passive to an active position.

Establish industry and regulatory blacklists for malicious litigants. It is recommended that industry associations and credit regulators jointly establish databases of malicious litigants, incorporating serious abuses such as malicious IP litigation and monopolistic practices into the scope of disciplinary measures.

In judicial practice, typical cases should be used to establish adjudication rules and strengthen multi-agency governance. Enterprises should shift from passive defence to proactive compliance, building comprehensive IP protection and risk management systems. Only through the combined efforts of legal, administrative and market mechanisms can malicious litigation be curbed and the fundamental value of the IP system be restored.

Zhang Yubo and Li Shan are associates at Blossom & Credit Law Firm