*AI-generated translation, for reference only.

Keywords: Civil; Infringement of Patent Rights; Single Act of Infringement; Intentional Splitting of Lawsuits; Principle of Good Faith; Abuse of Rights; Reasonable Expenses for Rights Protection

Case Facts

Beijing [REDACTED] Tu Technology Development Co., Ltd. (hereinafter referred to as "[REDACTED] Tu Company") alleged that it is the exclusive licensee of the invention patent with patent number 200710068015.1, titled "Plastic Telescopic Pipe and Method for Manufacturing the Same." Li [REDACTED], an individual business operator, sold "drain pipes" (i.e., the allegedly infringing products) on August 7, 2019, for the purpose of production and business operations without authorization. The allegedly infringing products fall within the scope of protection of Claim 1 of the patent in question. Therefore, the plaintiff requested that Li [REDACTED] cease the infringement, compensate for economic losses and reasonable expenses incurred in asserting rights in the a[REDACTED]nt of 10,000 yuan, and bear the litigation costs.

Li [REDACTED]  defended as follows: The parties had previously reached a settlement agreement on February 18, 2022, regarding a trademark infringement dispute , and Li [REDACTED]  had already paid [REDACTED] Tu Company RMB 2,000 in compensation.

The court found through trial as follows: On August 7, 2019, the accused infringing products were obtained through notarized evidence collection. In another case, Civil Case (2021) Jin 01 Min Chu No. 1424 (hereinafter "the No. 1424 Trademark Infringement Case"), [REDACTED] Xing (Beijing) Technology Development Co., Ltd. (hereinafter "[REDACTED] Xing Company") filed suit in 2021 against the same individual business operator, Li [REDACTED], for infringement of the "Submarine" trademark. The accused infringing products in that case were identical to those in this case — both were "drain pipes" — and were obtained through the same notarized purchase. In the No.1424 Trademark Infringement Case, [REDACTED] Xing Company and Li [REDACTED] reached a settlement agreement on February 18, 2022, under which Li [REDACTED] agreed to make a one-time payment of RMB 2,000 to [REDACTED] Xing Company, with no further disputes between the parties. [REDACTED] Xing Company holds 100% of the equity in  [REDACTED] Tu Company; the two companies are affiliated entities sharing the same registered address.

On October 18, 2022, the Taiyuan Intermediate People's Court of Shanxi Province rendered Civil Judgment (2022) Jin 01 Zhi Min Chu No. 126, dismissing  [REDACTED] Tu Company's claims. Following the judgment,  [REDACTED] Tu Company filed an appeal, arguing that this case was entirely different from the No. 1424 Trademark Infringement Case and that the settlement in the No. 1424 Case did not affect Li [REDACTED]'s liability for compensation in this case. On October 20, 2023, the Supreme People's Court rendered Civil Judgment (2023) SPC IP Civ Final No. 235, dismissing the appeal and affirming the original judgment.

Judge's Opinion

The court's effective judgment held as follows: The legislative purposes of China's Patent Law are to protect the legitimate rights and interests of patent holders, encourage invention and innovation, promote the application of such innovations, enhance innovation capabilities, and foster scientific and technological progress as well as economic and social development. China's Trademark Law likewise provides that the purpose of the Trademark Law is to strengthen trademark administration, protect exclusive trademark rights, encourage producers and operators to ensure the quality of goods and services, and maintain the reputation of trademarks, thereby safeguarding the interests of consumers and producers/operators and promoting the development of the socialist market economy. Once a patent is published as granted and a trademark is approved for registration, they shall be protected by law; if patent or trademark rights are infringed, the rights holders are entitled to file a lawsuit in accordance with the law. In this case,  [REDACTED] Tu Company and [REDACTED] Xing Company hold rights to the Patent-in-Suit and the "Submarine" trademark, respectively. They filed lawsuits through lawful channels to stop the infringing acts and protect their legitimate rights and interests; the People's Court should respect and support this in accordance with the law. However, the exercise of rights must have certain limits and must adhere to the principle of good faith, and must not harm the legitimate rights and interests of others. Article 7 of the Civil Code provides that civil entities engaging in civil activities shall follow the principle of good faith, act honestly, and honor their commitments. Article 132 provides that civil entities shall not abuse civil rights to the detriment of national interests, public interests, or the legitimate rights and interests of others. Article 20 of the Patent Law also explicitly states that patent applications and the exercise of patent rights shall adhere to the principle of good faith, and patent rights shall not be abused to the detriment of public interests or the legitimate rights and interests of others. Article 13(1) of the Civil Procedure Law of the People's Republic of China provides that civil litigation shall be conducted in accordance with the principle of good faith. It is thus evident that the principle of good faith is a fundamental requirement that civil entities in China must observe when engaging in civil activities and in conducting civil litigation. When legitimate rights and interests are infringed upon, the rights holder may exercise the right to sue in accordance with the law; however, such litigation conduct must be carried out in good faith and with due diligence, and must comply with the principle of good faith.

Information from related series of cases heard by courts across the country, as well as preliminary search and statistical data, indicates that, on a national scale,  [REDACTED] Tu Company and [REDACTED] Xing Company have filed thousands of lawsuits alleging infringement of the Patent-in-Suit and related trademarks, targeting primarily small and micro retailers, and have cumulatively obtained substantial damages. As rights holders with professional teams and extensive litigation experience in rights protection, they should adopt litigation methods and strategies conducive to achieving the legislative objectives of the Patent Law and Trademark Law; adhere to the principle of good faith to protect their own patent and trademark rights; and focus on combating the source of infringement by prioritizing the prosecution of manufacturers so as to effectively enforce their rights and obtain compensation — rather than merely targeting small and micro retailers dealing in hardware and daily sundries as defendants, and certainly not abusing their rights through non-bona fide means such as "litigating the same matter twice," thereby harming the legitimate rights and interests of citizens, legal persons, and other organizations. In this case, after [REDACTED] Xing Company — an affiliated company of  [REDACTED] Tu Company — had already reached a settlement agreement with the small and micro retailer stipulating "a one-time payment of compensation" and "no further disputes between the parties,"  [REDACTED] Tu Company subsequently filed this lawsuit. This can hardly be considered a legitimate exercise of rights. First,  [REDACTED] Tu Company and [REDACTED] Xing Company are affiliated companies. The fact that the two companies adopted a rights protection strategy of "joint evidence collection, separate notarization, and separate litigation" demonstrates that the two companies clearly colluded and reached a consensus regarding the choice of litigation methods and strategies. Second, while the Patent-in-Suit and the "Submarine" trademark are formally held by  [REDACTED] Tu Company and [REDACTED] Xing Company, respectively, as affiliated companies with a collusive and consensual approach to rights protection — and having commissioned the same intellectual property agency to gather evidence — the two companies were clearly aware that the sales conduct in question infringed both the patent rights and the trademark rights. To stop the infringing acts and effectively resolve the dispute, [REDACTED] Xing Company should have informed the defendant during the mediation of the prior trademark infringement lawsuit that the patent infringement issue could be resolved concurrently through a settlement; however, it failed to do so, which clearly falls short of the standard of good faith. Furthermore, after the settlement agreement signed by [REDACTED] Xing Company had explicitly stipulated "a one-time payment of compensation" and "no further disputes between the parties,"  [REDACTED] Tu Company filed another patent infringement lawsuit regarding the same sales conduct against the same defendant — who had not committed any new infringing acts. The purpose of this lawsuit was clearly not to stop the infringement, but to obtain unjust enrichment through additional compensation. Third, as affiliated companies,  [REDACTED] Tu Company and [REDACTED] Xing Company successively split into separate lawsuits a dispute that could have been resolved in a single proceeding. This not only increases the litigation burden and financial strain on the defendant — a small and micro-scale retailer — but also leads to an abnormal increase in the number of judicial cases and an unreasonable waste of judicial resources. In sum,  [REDACTED] Tu Company's filing of this lawsuit should be deemed an abuse of rights.

While safeguarding the legitimate exercise of patent rights by the parties, the People's Court must also provide lawful guidance on the exercise of patent rights, so as to ensure that limited judicial resources can provide patent holders with necessary and sufficient judicial relief. Filing suit against small and micro retailers that have a legitimate source — or that clearly lack any intent to infringe even in the absence of evidence of a legitimate source — while failing to actively assert rights against the manufacturers who infringe the patent, is not the optimal approach to protecting patent rights. Where a rights holder intentionally abuses rights through means such as "inducing infringement," "evidence-gathering traps," "misleading settlements," or "intentionally filing two lawsuits over the same matter," the People's Court shall take effective measures in accordance with the law to regulate such conduct. In this case,  [REDACTED] Tu Company intentionally "litigated the same matter twice," in violation of the principle of good faith and constituting an abuse of rights, thereby causing Li [REDACTED] — an individual business operator — to incur unnecessary litigation expenses such as transportation costs;  [REDACTED] Tu Company shall bear the corresponding legal liability. Pursuant to the Reply of the Supreme People's Court on the Issue of Defendants Claiming Compensation for Reasonable Expenses on the Grounds of the Plaintiff's Abuse of Rights in Intellectual Property Infringement Litigation, which provides that "in intellectual property infringement litigation, where the defendant submits evidence proving that the plaintiff's filing of suit constitutes an abuse of rights as provided by law that harms the defendant's legitimate rights and interests, and the defendant lawfully requests the plaintiff to compensate for reasonable attorney's fees, transportation expenses, accommodation expenses, and other costs incurred in connection with the lawsuit, the People's Court shall support such request in accordance with the law," Li [REDACTED]'s request in this case for  [REDACTED] Tu Company to compensate reasonable expenses such as transportation costs in the amount of RMB 1,000 has a legal basis and shall be supported.

Judgment Digest

The exercise of intellectual property rights shall adhere to the principle of good faith and must not harm the legitimate rights and interests of others. When intellectual property rights are infringed, the rights holder may exercise the right to sue in accordance with the law; however, the exercise of such right shall likewise adhere to the principle of good faith, be carried out in good faith, and proceed with due diligence. Where a rights holder intentionally abuses intellectual property rights through means such as "inducing infringement," "evidence-gathering traps," "misleading settlements," or "intentionally filing two lawsuits over the same matter," the People's Court shall take effective measures in accordance with the law to regulate such conduct, and may, depending on the circumstances, pursuant to the Reply of the Supreme People's Court on the Issue of Defendants Claiming Compensation for Reasonable Expenses on the Grounds of the Plaintiff's Abuse of Rights in Intellectual Property Infringement Litigation, order the rights holder to bear the opposing party's reasonable litigation expenses.

Article 20 of the Patent Law of the People's Republic of China

Reply of the Supreme People's Court on the Issue of Defendants Claiming Compensation for Reasonable Expenses on the Grounds of the Plaintiff's Abuse of Rights in Intellectual Property Infringement Litigation

Article 13(1) of the Civil Procedure Law of the People's Republic of China (The provision applicable to this case is Article 13(1) of the Civil Procedure Law of the People's Republic of China as effective January 1, 2022)

First Instance: Taiyuan Intermediate People's Court of Shanxi Province, Civil Judgment (2022) Jin 01 Zhi Min Chu No. 126 (October 18, 2022)

Second Instance: Supreme People's Court, Civil Judgment (2023) SPC IP Civ Final No. 235 (October 20, 2023)