With the increasing protection effort on intellectual property and the increasing amount of compensation for infringement in China, malicious proceedings filed with respect to intellectual property gradually emerge in the IP field. Recently, the Supreme People's Court issued the "Official Reply on Issues concerning the Claim of the Defendant for Compensation for Reasonable Expenses on the Ground that the Plaintiff Abuses Rights in the Action of Intellectual Property Infringement" (hereinafter referred to as the "Official Reply on the Claim for Compensation for Reasonable Expenses on the Ground of Rights Abuses" or the "Official Reply"). The Third Civil Tribunal of the Supreme People's Court has also issued an understanding and application of the Official Reply recently. In combination with the Official Reply of the Supreme People's Court and its understanding and application, as well as the "一品石" (Yipinshi)" case represented by Unitalen, coping with and countering against IP-related malicious proceedings will be introduced briefly here.

I. Identification of abuse of intellectual property rights and malicious proceedings

1. What is "malicious proceedings"?

Malicious proceedings essentially is an abuse of the procedural rights, and is contrary to the provision of Article 13 of the Civil Procedure Law that "in civil procedures, the principle of good faith shall be adhered to". In judicial practice, malicious proceedings is generally manifested as abuse of rights (flawed foundation of rights), fabricating facts to prosecute, malicious preservation, multiplicity of actions, etc.

According to the Guiding Opinions of the High People's Court of Jiangsu Province on Implementing the Strictest Judicial Protection on Intellectual Property and Providing Judicial Guarantee for High-quality Development, where an actor knows that the intellectual property rights he/she has acquired are not substantively legitimate, but based on the intellectual property rights he/she enjoys in form, for the purpose of unfair competition and hindering the normal operation of the opposite party, he/she initiates intellectual property proceedings against others and causes damage to others, it is a malicious proceedings of intellectual property.

2. The "four elements" of constituting malicious proceedings of intellectual property in judicial practice.

1) One party makes a certain request by filing an intellectual property proceedings, or threatens to make a certain request (abandoning claims, withdrawing lawsuits).

2) The party making the request knows that he/she has no legal and factual basis and has subjective malice. "Malice" is mainly reflected in firstly knowing that his/her claims lack factual and legal basis, and secondly having an improper purpose of proceedings that infringes upon the legitimate rights and interests of the other party.

3) There are actual damage consequences (property damage, loss of reputation).

4) There is a causal relationship between the act of filing of an intellectual property proceeding by the one party making the request and the resulting damage consequences.

II. A brief interpretation on the "Official Reply on the Claim for Compensation for Reasonable Expenses on the Ground of Rights Abuses" of the Supreme People's Court.

In the previously existing laws and judicial practice in China, only the defeated defendant bears reasonable expenses such as the attorney fees of the prevailing plaintiff, and if the prevailing defendant intends to claim that the defeated plaintiff compensates for the reasonable expenses that the defendant has paid, the defendant can only file a lawsuit separately. The "Official Reply on the Claim for Compensation for Reasonable Expenses on the Ground of Rights Abuses" of the Supreme People's Court benchmarks against the international treaties (the RCEP agreement stipulates that "the defeated party pays reasonable attorney fees and other fees to the prevailing party", and does not limit the status of the subject of the lawsuit, that is, the defeated party and the prevailing party are not corresponding to the plaintiff and the defendant), and solves the problem of "one-way compensation".

1. Applicable conditions:

The defendant bears the burden of proof (the plaintiff filling a lawsuit is an abuse of rights; the defendant's legitimate rights and interests are damaged due to the lawsuit filed by the plaintiff).

The plaintiff filling a lawsuit constitutes an abuse of rights stipulated by laws (abuse of rights vs malicious proceedings; it is only a procedural provision, and the constituent elements have to be judged according to the review standards for the entity of abusing rights in the General Provisions of the Civil Code).

The plaintiff compensates the defendant for the reasonable expenses incurred from the proceedings (attorney fees, transportation fees, room and board expenses, etc., excluding other economic losses caused by the abuse of the procedural rights, which should be resolved through other ways).

2. Ways of application:

1) The claim is made in accordance with the law by means of counterclaim. There is a causal relationship between the claims made based on that the prevailing defendant claims that the plaintiff that abuses rights shall bear the reasonable expenses incurred from the lawsuit and the plaintiff's lawsuit against the defendant for infringement, and the cases should be consolidated for hearing. For example, in the "一品石" (yipinshi) trademark case, in the accused case, it is claimed for defense that the plaintiff's rights were acquired maliciously and the rights were abused.

2) By making the request by means of a separate lawsuit, a separate lawsuit may be filed for the liability dispute regarding the damages caused by the malicious intellectual property proceedings, claiming reasonable expenses such as attorney fees. For instance, in the copyright case of "一品石" (yipinshi), an unfair competition lawsuit/infringement lawsuit was initiated, and the malicious warnings, malicious complaints and malicious lawsuit act of the trademark registrant are held accountable together. Or after the accused infringement case prevails, a lawsuit may be separately filed for counter-compensation against the malicious lawsuit (for the liability dispute regarding the damages caused by the malicious intellectual property proceedings), claiming compensation for the reasonable expenses.

3) Applicable spaces are reserved for other means, and the expression "requesting according to law" reserves spaces for exploration for the application of other means than counterclaims and separate lawsuits. For example, in the case of receiving complaints or warnings, a lawsuit for confirmation of non-infringement may be initiated, and through procedures such as invalidation/revocation, the foundation of rights may be moved.

III. Coping Strategy against Malicious Proceedings/Right Abuse

1. For the defendant, it may be claimed for defense that the plaintiff's rights were acquired maliciously, which constitutes abuse of rights. In addition to the above "一品石" (yipinshi) case represented by Unitalen, the "ELLASSAY" case, the guiding case No. 82 of the Supreme Court, the "SAIKESI" case in the Annual Report on IP Cases (2015) issued by the Supreme People's Court, and the "Uniqlo" case in the top 10 IP cases in Chinese courts in 2018 are all typical cases of this type.

2. In the case of receiving administrative complaints or warnings, a lawsuit for declaration of non-infringement may be initiated. The "WeChat Pay" case and others represented by Unitalen are typical cases of this type.

3. After the accused prevails in an infringement case, a lawsuit may be separately filed for counter-compensation against the malicious lawsuit (for the liability dispute of damages caused by the malicious intellectual property proceedings), claiming compensation for the reasonable expenses. The top 10 IP cases in Chinese courts in 2019 and the "金蝶妙想" (jindiemiaoxiang) case and others represented by Unitalen are typical cases of this type.

4. An unfair competition lawsuit/infringement lawsuit (such as the copyright case of "一品石" (yipinshi)) may be initiated, and the malicious warnings, malicious complaints and malicious lawsuits of the trademark registrant may be held accountable together.

5. In addition, through procedures such as invalidation/revocation against the "trademarks claimed" by the plaintiff, the foundation of rights may be moved. The "Zirkulin" case and others represented by Unitalen are typical cases of this type.