CHANG TSI
Insights
China has continued to strengthen patent protection through policy and legal regulations in recent years. The revised Rules for the Implementation of the Patent Law and Civil Procedure Law, implemented in January 2024, are the focus of this article. The discussion will primarily address the principle of good faith in the field of patent law and its connection to malicious patent litigation, as well as how the revision of civil actions involving foreign parties will impact patent litigations.
China is comprehensively strengthening IP protection from a strategic national perspective and the requirements of entering a new phase of development. In 2023, the Chinese government deployed multiple policy initiatives around IP protection and optimised its IP management system. To ensure the effective implementation of the amended Patent Law of 2020 and to meet the requirements for joining the Hague Agreement Concerning the International Registration of Industrial Designs, the State Council of China amended the Rules for the Implementation of the Patent Law in November 2023. Additionally, within the context of advancing domestic and foreign legal governance, China revised its Civil Procedure Law in September 2023 to improve the provisions in the section of Special Provisions on Civil Actions Involving Foreign Parties. These newly revised laws and regulations have been implemented since January 2024 and affect both the procedural and substantive aspects of IP strategies in China.
Malicious patent litigation
Article 20 of the 2020 amendment to the Patent Law introduced the principle of good faith and the prohibition of patent right abuse, stating ‘whoever applies for a patent and exercises the patent right shall follow the principle of good faith. No person may abuse the patent right to harm the public interest or the legitimate rights and interests of other persons.’ This clause reflects private law principles in the field of IP law. Legislators intended to use this clause to combat abnormal patent applications and the abuse of patent rights. However, owing to a lack of corresponding enforcement mechanisms, apart from showing value orientation, this clause has not yet achieved its expected effect throughout the process of patent application and enforcement.
In practice, violations of the principle of good faith and the abuse of patent rights take various forms, with malicious litigation being particularly typical. Narrowly defined, malicious litigation is equivalent to the misuse of legal process in common law, meaning lawsuits that are filed by a party in the knowledge that they lack a legal or factual basis, with the purpose of obtaining illegal or improper benefits or harming the other party.[1] Malicious litigation damages the institutional function of patent law and the interests of other market entities, and it requires a response throughout the legislative and legal implementation chain.[2] As early as the third amendment to the Patent Law in 2008, China attempted to include provisions related to malicious litigation, but due to a lack of unified standards and other factors, these were not included in the final text. In Chinese civil law, malicious litigation is often defined as a special type of infringement. During the drafting of the Civil Code, it was suggested that malicious litigation be included, but this was not included in the officially published text. The Supreme People’s Court (SPC) added ‘dispute over liability for damages caused by maliciously initiating intellectual property litigation’ as a cause of action in 2011, when amending the Provisions on Causes of Civil Cases. However, current Chinese law does not officially categorise malicious litigation as a litigable type of infringement, and there is a lack of specific regulations for the patent field. In practice, it is difficult to determine the existence of malicious patent litigation, especially in terms of identifying subjective elements. According to the guiding principles of the SPC, the following elements must be present to determine that a lawsuit constitutes malicious initiation of IP litigation:
Principle of good faith
Compared to the Patent Law, the recently amended Rules provide more specific provisions on the principle of good faith. Article 11 of the Rules states that patent applicants shall follow the principle of good faith and shall be based on genuine invention or creation and shall not be falsified. Article 88 stipulates that ‘the patentee shall not, by providing false materials, concealing facts or other means, make a statement on open authorisation or obtain a reduction or exemption of the annual fee of the patent during the implementation of open authorisation’. For the aforementioned illegal acts, article 100 of the Rules prescribes administrative responsibilities, stating, ‘the authority responsible for patent law enforcement at or above the county level shall give him a warning and may concurrently impose a fine of not more than CNY100,000’.
According to article 69 of the Rules and the latest update to the Patent Examination Guidelines regarding the review of invalidation declarations, if the acquisition of patent rights clearly violates the principle of good faith, the collegial panel can introduce article 11 of the Rules as a reason for invalidation during the review. This means that the collegial panel can proactively review this issue on its own initiative. Additionally, the Provisions on Regulating Patent Applications published on the same day as the Rules specify eight types of abnormal patent application behaviour that violate article 11 of the Rules in article 3, including patent applications that involve fabrication or forgery or do not meet the principles of technical improvement or design logic. In other words, whether compliance with article 11 of the Rules is determined mainly depends on the abnormal patent application behaviour specified in the aforementioned provisions.
Incorporating the principle of good faith into litigation strategy
These regulatory changes mean that the principle of good faith and the prohibition of patent right abuse stipulated in article 20 of the Patent Law are now operational in specific circumstances. In cases of malicious patent litigation, the accused infringer can ask the China National Intellectual Property Administration to declare the involved patent rights invalid based on article 11 of the Rules. If the involved patent is ultimately declared invalid for violating the principle of good faith, the court may determine that the patent litigant has initiated the lawsuit with subjective malice. If this is determined, not only will the litigation claims be dismissed due to the loss of rights but the patent owner may also need to bear the liability for damages. According to relevant replies from the SPC, in such cases, the accused infringer can request compensation from the plaintiff for reasonable expenses such as attorneys’ fees, transportation costs and accommodation costs incurred due to the litigation, or they can separately sue the plaintiff for compensation for these reasonable expenses.[4]
Decisions made on the principle of good faith may involve subsequent procedures and may not be able to support and counteract malicious patent litigation in a timely manner. However, the regulatory changes undoubtedly offer accused infringers a new approach to malicious patent litigation. Depending on the situation, accused infringers can directly defend against the malicious acquisition of patent rights, counter-sue the patent owner for infringement owing to malicious litigation or separately request the invalidation of patent rights on the principle of good faith. Patent owners should fully understand the eight types of abnormal application behaviour specified in the Provisions on Regulating Patent Applications (2023) when applying for patents and should thoroughly assess whether their patent applications may be determined to violate the principle of good faith before initiating patent litigation.
Jurisdiction
China’s previous special territorial jurisdiction for foreign-related disputes was limited to contract or other property rights disputes. Only six connection points were specified where Chinese courts could exercise jurisdiction, such as the place of contract signing or the place of tort. Article 276 of the revised Civil Procedure Law made two modifications to the previous provisions. First, it expanded the scope of case jurisdiction to foreign-related civil disputes other than identity relationships, no longer limiting them to property rights disputes. Second, it added the principle of appropriate connection, setting a principled provision for ‘other appropriate connections’ based on the existing connection points. The latter modification will directly affect the jurisdiction of patent litigation in China. For example, in cross-border disputes over SEP licences, the location of the licensed subject matter, the place of patent implementation or the place of contract negotiation can all be recognised as having appropriate connections.
In recent years, the SPC has recognised the aforementioned rules in multiple cases.[5] Additionally, articles 277 and 278 were added to the revised Civil Procedure Law to respect the autonomy of the parties’ intentions and align with the development trends of international civil litigation.[6] An amendment also added that litigation arising from a dispute concerning the examination of the validity of IP rights granted within the territory of China was an exclusive jurisdictional matter, emphasising the exclusive jurisdiction of Chinese courts over such disputes. These modifications reflect China’s active participation in global IP governance. The expansion of Chinese courts’ jurisdiction over foreign-related disputes creates conditions for China to respond to the long-arm jurisdiction of foreign courts and helps parties initiate lawsuits in Chinese courts. When formulating global patent strategies and conducting patent litigation activities in China, it is necessary for multinational companies to comprehensively consider the jurisdiction of Chinese courts over such cases.
Parallel litigation
The revised Civil Procedure Law systematically stipulated the basic stance of coordinating jurisdictional conflicts and reducing parallel litigation for the first time in the newly added articles 280 and 281.[7] According to the new law, Chinese courts have jurisdiction under the Civil Procedure Law and can accept the case for disputes involving the same issue, whether it is repetitive or adversarial litigation. However, if the parties have entered into an exclusive jurisdiction agreement that chooses a foreign court and this neither violates the exclusive jurisdiction provisions of Chinese courts nor involves China’s sovereignty, security or public interests, Chinese courts can decide not to accept the case. The revision also first stipulated China’s suspension system for parallel litigation: if a foreign court has already accepted the case before a Chinese court, the Chinese court can decide to suspend the litigation unless the parties agree to choose a Chinese court for jurisdiction, the dispute falls under the exclusive jurisdiction of a Chinese court, or it is more convenient for a Chinese court to handle the case. These changes mean that parties involved in patent disputes need to consider the litigation environments of China and other countries when formulating litigation strategies and choosing the appropriate timing and suitable court in which to initiate litigation. If litigation has already been initiated in another country, the parties need to pay attention to potential subsequent litigation in China and its impact on the overall resolution of the dispute. Additionally, since exclusive jurisdiction agreements can result in Chinese courts not accepting litigations, parties need to be cautious when signing such agreements.
Service
The difficulty of serving documents in foreign-related cases has always been a challenge in Chinese civil and commercial cases. The revised Civil Procedure Law includes several modifications to address this issue. This is particularly noteworthy for foreign-funded enterprises. First, the revision added provisions for serving documents to wholly foreign-owned enterprises established in China without requiring authorisation from foreign shareholders. Second, it stipulated that if the person to be served is a foreign legal entity or other organisation, and its legal representative or main person in charge is within Chinese territory, documents can be served to that legal representative or main person. Third, it expanded the methods of electronic service, allowing this unless otherwise prohibited by the laws of the state where the person to be serviced is located. The revision also shortened the period for public announcement service from three months to 60 days. For litigation parties, familiarising themselves with and reasonably utilising these new service rules based on their positions can help advance a case in the expected direction and avoid procedural and substantive issues owing to service problems during the litigation process.
China is increasingly becoming a preferred location for international IP litigation. More and more foreign enterprises are choosing to resolve IP disputes in Chinese courts. Fully understanding China’s legislative changes will help enterprises formulate comprehensive litigation strategies. The principle of good faith stipulated in the Rules for the Implementation of the Patent Law can serve as a basis for combating malicious litigation, and the updates to civil litigation rules involving foreign parties will also impact the entire process and direction of patent litigations. Enterprises that make full use of these changes to make correct strategic decisions can better take the initiative and achieve expected results.
[1] See Li Chunhui (李春晖), Criteria for Identifying Malicious Patent Litigation and Legal Liabilities (专利恶意诉讼之认定标准及法律责任), Intellectual Property (知识产权), Issue 4, 2019.
[2] See Guan Yueying (管育鹰), Three Dimensions of Intellectual Property Legal System Construction (知识产权法治建设的三个维度), Intellectual Property (知识产权), Issue 2, 2024.
[3] See Supreme People’s Court, (2021) Zhiminzhong No. 1353 and Summary of Key Points of the Rulings of the IP Court of the Supreme People's Court (最高人民法院知识产权法庭裁判要旨摘要) (2023).
[4] See the Official Reply of the Supreme People’s Court on the Issues concerning the Defendant's Request for Compensation for Reasonable Expenses due to Abuse of Rights by the Plaintiff in Intellectual Property Infringement Litigation.
[5] For example, see Supreme People’s Court, (2019) Zhi Min Xia Zhong No. 157, Conversant Wireless Licensing Sàrl v ZTE; Supreme People’s Court, (2020) Zhi Min Xia Zhong No. 517, Sharp Corporation, ScienBizip Japan Corporation v Oppo.
[6] See Article 277, ‘Where the parties to a foreign-related civil dispute reach a written agreement on the accepting the jurisdiction of the people’s court, the case may be subject to the jurisdiction of the people’s court’, and Article 278, ‘The people's court shall be deemed to have jurisdiction if the party fails to raise any objection to the jurisdiction and responds to the lawsuit or initiates a counterclaim’.
[7] See Shen Hongyu (沈红雨), Guo Zaiyu (郭载宇), Commentary and Interpretation of the Amendments to the Foreign-Related Articles of the Civil Procedure Law (《民事诉讼法》涉外编修改条款之述评与解读), China Law Review (中国法律评论), Issue 6, 2023.
