Liability for damages arising from malicious IP litigation

By Shi Yakai, Sanyou Intellectual Property Agency
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In revising the Regulations on Cause of Action for Civil Cases by the Supreme People’s Court in 2011, the newly added cause of action being a “dispute over the liability for damages arising from malicious claims by intellectual property litigation” acts as a judicial response to this new type of malicious prosecution case in the field of intellectual property rights. In this column, the author has taken a successful case represented recently by the agency company concerning the liability for damages arising from malicious claims by intellectual property litigation as an example to introduce the relevant problems in such cases.

石亚凯 SHI YAKAI 三友知识产权代理有限公司 律师 Attorney-at-law Sanyou Intellectual Property Agency
石亚凯
SHI YAKAI
三友知识产权代理有限公司
律师
Attorney-at-law
Sanyou Intellectual
Property Agency

In June 2014, the first defendant in this case applied for the design patent numbered ZL201430181353.7, which was authorized in October 2014. The key concern regarding the patent at issue shows that there is a “jumping deer” logo on the upper right of the cylindrical body of the patent. That logo is the registered trademark of Deere Company, an affiliated company of the plaintiff in this case, John Deere China Investment. The plaintiff John Deere China was authorized to use this trademark in China. Meanwhile, the shape and design of the patent at issue is basically the same as the outer cylindrical packaging used by the plaintiff for lubricating oil sold in China. Furthermore, the plaintiff had used the lubricating oil with the outer cylindrical packaging in the form of advertisements in publications in 2010.

In December 2014, the administrative decision handed down by Jiamusi Municipal Department for Industry and Commerce was determined that the use of the “jumping deer” trademark in the outer packaging of the lubricating oil sold by the outsider had violated the exclusive rights to use the registered trademark of Deere Company, the affiliated company of the plaintiff. These infringing products had been purchased from an outsider company. The outsider company and the second defendant in this case John Deere (Dandong) Petrochemical shared the same legal representative, who together with the first defendant of this case acting as the agent of the outsider company had taken part in the hearing of the administrative case, and in the statement of defense recognized that these alleged infringing products had been purchased.

In May 2015, the first defendant, and the second defendant John Deere Dandong, filed for patent infringement litigation against the plaintiff John Deere China with respect to the patent at issue, claiming that the packaging drums of the lubricating oil series products that were produced, sold, or promised to be sold by the plaintiff had violated the patent in dispute, thereby requesting the court to order the plaintiff to stop the infringement and the sale of the alleged infringing packaging, and to apologize with a compensation totaling more than RMB 3 million.

In July 2015, the plaintiff filed a patent invalidation request concerning the patent at issue and submitted the outer cylindrical packaging it displayed in the publications in 2010 as the comparative design evidence. After its review, the Patent Re-examination Board declared that the patent at issue was invalid.

In August 2016, the defendants applied to the court to withdraw the patent infringement litigation against the plaintiff. In February 2017, the plaintiff sued the defendants, claiming that the defendants should bear the liabilities for damages arising from the malicious claims of intellectual property litigation and the economic losses incurred including the legal fees paid by the plaintiff. The court decided after the trial that the defendants had filed a malicious claim against the plaintiff, which caused the plaintiff to suffer losses wherein the two defendants jointly paid the plaintiff RMB10,000.

THE CASE CONSIDERATIONS

In this case, the court took the analytical framework of general tort theories as the basis for consideration and conducted assessments from the four aspects of tort actions namely, injurious behaviours, damages, subjective fault and causation; drawing the conclusion to determine malicious intellectual property litigation that is initiated should at least meet the following four important requirements.

Firstly, for a party that files a request in the form of intellectual property litigation or is threatened by such a request, the court will not consider whether or not the tort action was illegal but instead the restricted tort action as the limiting action itself. In the abovementioned case, the defendants first demanded the plaintiff bear the infringement liabilities in the previous litigation and then abandoned the claim by means of withdrawal. It can be deemed that the defendants have completed the act of threatening by making specific claims.

Secondly, the party who makes the request was subjectively malicious, whereby the court held that the defendants’ malice in the abovementioned case was shown in two ways, namely, the malicious application for a patent, and the initiating of the infringement litigation knowingly that there was no foundation to such rights in order to expose and damage the property or reputation of the plaintiff.

Thirdly, there is actual damage consequences. The court held that where the dispute over the liability for damages arising from the malicious claims of intellectual property litigation was caused by another intellectual property litigation, and if the previous litigation did not cause damage consequences to the parties concerned, then it was possibly unnecessary to have the latter litigation. In the abovementioned case, the commission fees and other expenses paid by the plaintiff in response to the patent infringement litigation initiated by the defendant will be consequently taken up as the damage consequences of economic losses caused by the malicious prosecution against the plaintiff.

Fourthly, there is a causal relationship between the action of the party that initiates an intellectual property litigation and the damage consequences: in the abovementioned case, the court held that the commission fees and other expenses paid by the plaintiff due to malicious prosecution may have a consequent causal relationship with the patent infringement litigation, which was maliciously initiated by the defendants. In the end, the court decided on the basis that the defendants had maliciously initiated a patent litigation against the plaintiff knowingly that its claim was short of justifiable reasons and caused the plaintiff to incur commission fees and other economic losses in the litigation, which should be compensated for.

In practice, the determination of subjective malice may be complicated, and it is necessary to make a comprehensive judgment and look at the wrongdoer’s knowledge or awareness of its legitimacy in the source of its rights, the stability of the state of its rights and the authenticity of the facts in accusing others of infringement.

Shi Yakai is an attorney-at-law at Sanyou Intellectual Property Agency

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