By ZHU Zhigang of the MARQUES China Team

On 3 June 2021, the Supreme People's Court of China issued its “Reply on the Issue of the Defendant's Request for Compensation for Reasonable Expenses on the Grounds of the Plaintiff's Abuse of Rights”.

The Supreme People’s Court’s Response provides that: “In an intellectual property infringement case, if the defendant submits evidence proving that the plaintiff’s lawsuit constitutes an abuse of rights and damages its legitimate rights and interests, and claims for compensation not just for the court costs, but also the fees of lawyer, accommodations and travelling expenses, etc., the people’s court shall support this claim in accordance with the law. The defendant may also sue separately and request the plaintiff to compensate the above-mentioned reasonable expenses.”

Bad faith and trade mark squatting cases

Bad faith infringement claims are closely associated with trade mark squatting. In recent years, trade mark squatters have brought more and more legal actions to force the real trade mark owner to either pay damages or purchase back the trade mark acquired in bad faith at very high prices.

Chinese courts have gradually developed a consistent practice to dismiss such cases on the basis of abuse of right by the trade mark squatter.

In the Ellassay case (2014), the Supreme Court ascertained that the principle of good faith, which applies to the act of filing and using trade marks, also applies to civil litigation. Therefore, a trade mark right acquired in bad faith cannot serve as a legal ground for an infringement claim.

In the Uniqlo case (2018), the Supreme Court dismissed the lawsuit of a plaintiff, who had registered more than 2,600 trade marks, and who, after having failed to sell one of the trade marks to the defendant, had started an infringement lawsuit nationwide. The court reiterated that filing so many trade marks without an intention to use them harmed the public interest. It affirmed that the lawsuit was an abuse of right.

The right owners fought back after invalidating the squatter’s trade mark and claimed the compensation of reasonable costs and even damages.

In the CPU case (2018), the Supreme People’s Court ascertained that Gongli Company was fully aware that CPU is a generic name in the industry but it still applied for a trade mark registration, and filed a trade mark infringement lawsuit against Keshun Company and malicious complaints with the local Administration for Market Regulation. Gongli Company was ordered to compensate Keshun Company’s reasonable expenses of RMB 160,500 ($25,000), including the attorney fee, notary fee, etc.

In the Bridgestone case (2018), the Suzhou Intermediate Court ruled that the cost of 291,343 RMB ($45,500), involved in safeguarding the trade mark rights, including trade mark opposition and following administrative litigation and infringement, should be paid by the losing defendant.

In the Bayer case (2018), the Hangzhou Intermediate Court went further and ordered the bad faith squatter to pay damages. The court considered that, by knowingly registering as a trade mark the logo for which Bayer enjoyed the copyright, and then filing massive online complaints against Bayer’s distributors, the bad faith squatter violated the principle of good faith. The court ordered the defendant to pay Bayer RMB 700,000 ($106,000) in damages.

Likewise, in the Brita case (2021), Brita, after successfully concluding all the administrative cases caused by the defendant, sued on the ground of unfair competition. Minhang District Court held that the defendant’s malicious pre-emptive registration of trade marks and abuse of trade mark administrative procedures (systematically challenging of Brita’s registrations or uses) violated the principle of good faith and business ethics and disrupted the order of market competition. The court affirmed that the defendant’s behaviour constituted acts of unfair competition and ordered the payment of RMB 2.8 million ($437,500) as damages.

New SPC Response

The new SPC Response tends to suggest that, when the real right owner is facing a bad faith infringement claim, it is possible, even before the trade mark acquired in bad faith is invalidated in the relevant administrative procedure – like in the Ellassay and Uniqlo cases – to argue the abuse of rights and ask the court to order the plaintiff to compensate for reasonable costs in association with this infringement lawsuit.

This Response should be sufficient to deter trade mark squatters from filing bad faith infringement claims.

It is hoped that the Supreme Court could go one step further and extend this practice to administrative procedures (oppositions and invalidations), and provide the victims of trade mark squatting with a means to recover their costs at the end of the administrative proceedings.

This should be possible, according to Article 61 of the Administrative Procedure Law (amended on 11 January 2014) which provides: "In an administrative litigation involving administrative licensing, registration, expropriation, and administrative agency’s rulings on civil disputes, where the parties apply to resolve the relevant civil disputes together, the people’s court may hear them together.”

If the applicant in the opposition or invalidation procedure, which is followed by an administrative litigation involving the registration of a trade mark, requests the recovery of its costs involved in the procedure, such civil claim should be treated and answered together with the decision on invalidation or refusal of the trade mark.

Recovery of costs should be granted whenever the litigious trade mark is found to have been filed in bad faith.

Contributed by Mr ZHU Zhigang, a partner and attorney-at-law with Wanhuida Law Firm, and a member of the MARQUES China Team