A “patent troll” is a term used to identify a person or company that attempts to enforce patent rights against accused infringers far beyond the patent’s actual value of the prior art. Generally, patent trolls do not manufacture the patented product or process. Rather, they seek to profit through litigation against rich companies with similar patents, and then wait for a favorable settlement from the side of the opponent. It is a legal phenomenon that occurs throughout the world.
In China, intellectual property (“IP”) owners have been facing lawsuits from patent trolls for many years. In the past, giant companies in China tended to settle with patent trolls rather than pursuing a win-or-lose outcome.
However, a recent legal dispute between Tencent and a patent troll in Shenzhen seems to indicate a potential shift in big companies’ attitudes in dealing with these trolls.
(Photo from: South China Morning Post)
On November 12, 2018, a trial judgment of the Intermediate People’s Court of Shenzhen confirmed that the world-famous IT giant, Tencent, had won its tort suit against an individual.
Tencent： Copyrighted and Trademarked
Mr. Tan：obtained an Industrial Design Patent
Tencent sued Mr. Tan
Infringe: © and TM
Mr. Tan sued Tencent
Infringe: industrial design
Tencent sued Mr. Tan
Ended with a settlement
Invalided Tan’s design (by The State IP Office)
(A Brief Time-Line Table)
According to the facts of the case, the State Intellectual Property Office, which is now called the China National Intellectual Property Administration (“CNIPA”), granted the defendant (“Mr. Tan”) an Industrial Design Patent entitled “Xzeit mini-penguin” on January 13, 2010, in response to his application.
(Tencent’s image [LEFT] and Tan Fawen’s product [RIGHT],photos from: Tencent and SooPat)
After learning about this, Tencent sued Mr. Tan in March 2011, in the Futian People’s Court, Shenzhen, for infringing its copyrights and trademarks of “QQ Penguin” images. The suit ended with a mediated settlement. In the settlement, Mr. Tan agreed to “stop the infringement and compensate the loss Tencent suffered.”
However, six years later, on February 25, 2016, Mr. Tan filed a lawsuit against Tencent and Shenzhen Zhongke Ruicheng Intelligent Technology Co., Ltd. (“Zhongke Ruicheng”) for the infringement of his “Xzeit Mini penguin” to seek patent royalties of 900,000 CNY.
However, before the trial finished, Tencent successfully filed a request for invalidation to the Patent Re-examination Board of the State Intellectual Property Office (by providing evidence including the registered Copyright Certificate and the registered Trademark Certificate of the disputed images, Tencent showed its priority in creation and the substantial similarity between the two parties’ images). Therefore, the Shenzhen Intermediate People’s Court in 2016 rejected Mr.Tan’s patent infringement charge.
In 2018, Tencent launched a tort suit, based on the 2016 holding, seeking damages for Tan’s “malicious lawsuit.” Tencent insisted that Mr. Tan intentionally registered his image knowing that it resembled Tencent’s nationwide-famous “QQ penguin” images, and deliberately refused to comply with the mediated settlement to withdraw the suit.
With all the facts above, on November 12, 2018, the Court held that Mr. Tan maliciously sued Tencent in 2016 and he needed to compensate Tencent 500000 CNY.
In China law, the common law cause of action “misuse of legal process” (MLP) has its counterpart in “malicious litigation”, which also leads to tort law responsibility.
Like the case-by-case establishment of the common law standard of “misuse” in MLP, in China, the standard for “maliciousness” in IP litigation has been also gradually clarified through judicial practice.
Statutory history of “Malicious Litigation”
In an earlier version of China’s Civil Code Draft, “malicious litigation” was defined as “intentionally instituting civil litigation for the purpose of damaging other people without factual basis and justified reasons, and as such those who damage others and seek to make them suffer through the litigation should bear civil liability.” This statement was deleted in a later draft, but it was adopted by the Supreme People’s Court in one of its formal documents titled Research Report on Malicious Litigation in 2004. Though this document is not binding, it shows the definition from the highest judicial institution.
Seven years after the research report, in February 2011, the Supreme People’s Court promulgated a new Provisions on the Causes of Actions of Civil Cases, which lists the approved causes of action in civil cases, adding “disputes over liability for damage in intellectual property litigation due to malicious intent” as a new cause. The Provision requires courts of all levels to “seriously learn and apply” those causes.
Case-law history of “Malicious Litigation”
Besides statutory provisions, under a series of “Guiding Case Provisions”  from the Supreme People’s Court, other persuasive cases from the Supreme People’s Court, and litigation cases from higher courts, especially Guiding Cases from the Supreme People’s Court, seem to have a semi-binding effect on lower courts’ reasoning in similar cases.
Known as the first malicious intellectual property lawsuit, in Yuan Lizhong and Yangzhong Tongfa Pneumatic Valve Actuator Factory v. Yangzhong Tongfa Industrial Co., Ltd. (Yuan Lizhong case), the reasoning that a local court used was consistent with the Research Report of the Supreme People’s Court.
In the Yuan Lizhong case, the Nanjing Court found that the tortfeasor patented a national industrial standard though the old non-substantive examination system of utility model patents, with no novel components in its design. Further, the Nanjing Court found that the tortfeasor deliberately launched patent litigation to interrupt the victim’s business activities in their competitive field and cause losses.
Later, a clearer standard was set in the case of Beijing Far East Cement Products Co., Ltd. v. Beijing Sifang Ru Steel Concrete Products Co., Ltd. (Far East Cement case) in 2015.
Designated as one of the “Ten Innovative IP Rights Litigation in Beijing Courts of the year 2015”, the Beijing Intellectual Property Court held in the Far East Cement case that a “so-called ‘malicious lawsuit’ usually refers to the act in which the parties intentionally bring a lawsuit without foundation in fact and in law, for the purpose of obtaining illegal or unfair interests, and causing the relevant person to suffer losses in the lawsuit.” According to comments by an assistant judge of the IP division of the Supreme People’s Court, the Far East Cement case summarized nine years of practical experience since Yuan Lizhong case and thus set a clearer judicial standard.
Through the leading cases mentioned above, pertaining to malicious litigation in the IP area, the “maliciousness” could be determined as depending on:
1) the validity of disputed patents or copyrights and the reason for their invalidity; and
2) the motivation for the litigation; and
3) whether the opposing party substantially suffered from the litigation.
Similar to the principles summarized in the Yuan Lizhong case and the Far East Cement Case, the Shenzhen Intermediate People’s Court in 2018 found Mr. Tan’s malicious intent based on the following factors:
- Mr. Tan’s patent was invalid (because it was recognized as “highly consistent” with Tencent’s in the court’s 2016 holding);
- Mr. Tan intentionally launched the 2016 litigation while knowing his patent’s status and he failed to comply with his promise in the mediation in 2011, at the Futian People’s Court;
- Tencent’s losses suffered losses in both litigation fees and ordinary business activities, caused by Mr. Tan’s litigation.
Local Industry Protectionism?
In the famous “Qihu 360 v. Tencent” case (an IP case about market dominance), the plaintiff questioned whether “local industry protectionism” was behind Tencent’s original success in the local litigation since Tencent is a company located in Guangdong Province and the suit was heard in a Guangdong court. However, later in its appeal, the Supreme People’s Court upheld the lower court’s decision in favor of Tencent, based on the special characteristics of online message services in that case. In other words, compared with “local protectionism,” in my view, the more decisive issue for IP litigation, is the characteristics of the disputed issue.
Accordingly, in the present case, due to the fame of Tencent’s QQ images and Mr. Tan’s conduct in both the 2011 Futian People’s Court litigation and the 2016 Shenzhen Intermediate People’s Court litigation, in my view, local protectionism could only play a negligible role.
A Sign of Attitude Change in Tencent
Tencent’s tradition of making settlements
Similar to its approach with Mr. Tan in 2016, Tencent used to prefer settling or entering into mediation agreements with Patent Trolls during litigation, and seldom sued them itself.
(Photo from: Caixin Global)
In fact, litigation records show that even in the past five years, Tencent was still willing to settle with plaintiffs in litigation.
- On March 15, 2014, Tencent sued 37WAN for infringing its trademarks and image copyrights in computer graphics and protocol drawings at Putuo District Court, Shanghai. One month later, 37WAN and Tencent made a settlement. In exchange for Tencent dropping the case, 37WAN publicly apologized for its infringement and promised to eliminate the relevant negative influence of its acts. (Available Here)
- One year later in 2015, Tencent sued Zhangshangzongheng Information Technology (Beijing) Co., Ltd. (“Zhangshangzongheng”) for infringing its mobile phone game GunZ Dash trademark. Six months later, a settlement was made, where Zhangshangzongheng would pay Tencent a lump sum of RMB 2.51 million within three working days. (Press report available here.)
The different attitude in this case
Nevertheless, unlike the 37WAN and Zhangshangzongheng cases, Tencent did not seek to settle during the litigation process in this case.
In fact, the business interests involved in the present case are not as critical as those involved in those two cases, namely, video game computer graphics and protocol drawings and mobile phone game trademark, which are all in Tencent’s money-making game industry.
(Photo from: newzoo.com)
However, the image in the present case has a greater impact from a societal perspective. The image Mr. Tan used, is one of the most-famous identical icons of Tencent, the “QQ Penguin.” Before “WeChat,” “QQ” was the most well-used online communication application in the Chinese language world.
Therefore, from a societal impact perspective, Tencent’s action in this case is more like an aggressive “teach-you-guys-a-lesson” lawsuit, not a “stop-what-you-are-doing” suit as in the 37WAN case and the Zhangshangzongheng case. In other words, this time, Tencent took a more aggressive way to deter Mr. Tan and other potential patent-trolling companies from doing something similar in the future.
Policy background for launching an aggressive lawsuit
Why did Tencent take such an aggressive path this time? It may relate to China is strengthening its protection in the IP industry.
In February 2018, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council of People’s Republic of China jointly issued their first document, specifically on IP litigation: The Opinions on Several Issues concerning Increasing Reform and Innovation in the Field of Intellectual Property Adjudication (2018). According to this document, one of the policies promoted in IP litigation reform is to “strengthen the construction of the system of honesty and credit in this area.” In other words: the direction of China’s IP adjudication reform includes minimizing dishonest and malicious litigation.
Moreover, faced with the pressure related to IP protection issues from the China-U.S. Trade Negotiation, and the needs of the domestic high-tech industry, China is strengthening its IP protection.
Under this background, Tencent’s success, in this case, is a win-win result for both the company and the government. With Tencent’s global fame, Tencent’s success in defeating a patent troll sends a positive signal to the international community that China is improving its IP protection system, which improves the government’s impression of Tencent. Also, a legal determination supporting Tencent’s ownership of a nationwide-famous image could make an impression to the public that Tencent is a good corporate citizen.
Thus, compared to the tradition of making settlements, under the present IP policy and the influence of the “QQ Penguin” in China’s society, Tencent’s victory in this “teach-you-a-lesson” lawsuit may bring it more benefits in the eyes of the public and government.
A turning point for the industry?
Similar acts by the other IP giant in China
Almost at the same time as Tencent’s suit, another Chinese IP giant, Alibaba, won a lawsuit against a patent troll by filing a suit as a third party” in the litigation).
(Photo from: Yahoo Finance)
More aggressive than Tencent, Alibaba chose to facilitate its platform retailers to sue a patent troll that repeatedly harassed customers and retailers with its forged patents.
In mid-September 2018, with the assistance and direction of Alibaba’s legal department, six Taobao (Alibaba’s E-Commerce Platform) sellers who had received legal complaints from the same defendant with his forged IP certificate, launched a series of tort lawsuits against this patent troll.
Several months later, on January 24, 2019, in the last of a series of cases, the Hangzhou Internet Court issued its judgment: the court found that the defendant’s malicious complaints violated the principle of good faith, harmed commercial competition order, which constituted unfair competition, and the defendant needed to compensate the plaintiff for the loss of RMB 2.1 million.
According to Alibaba’s record, this was the first time it had voluntarily initiated a tort suit against a patent troll that only attacked its platform customers. Though Alibaba participated in the litigation as a “third-party”, its legal department assisted those direct victims all the way from collecting evidence to initiating litigation. In a sense, the litigation was completely guided by Alibaba.
Due to the large influence of the Taobao platform in China, this “teach-you-guys-a-lesson” suit could also be productive (similar to Tencent’s benefits in the case above) in both raising public awareness and improving corporation-government relations. This is particularly true in the context of the national policy of strengthening nationwide IP protection.
A trend for the industry?
Known as the Top-Two Supreme Giants in China’s IT industry, Alibaba and Tencent represent, to some extent, the industry’s attitude. This, then, allows us to consider whether more IP holders will litigate against patent trolls throughout the industry?
(Photo from: brandinside.asia)
Based on the above cases, at least for big companies, the answer seems to be yes. China’s IP policy change does support industry-leading companies seeking their IP interests in a more proactive way.
Litigation statistics trends to support this view. In 2019, Beijing Internet Court has 10 times more copyright-related cases in comparison to 2018. Likewise, in 2018, almost 70% of the civil IP cases in Liaoning Province were copyright-related and copyright litigation was up 162.86% in Jiangsu Province.
Though the attitude from small businesses is not as clear, considering the leading role of Tencent and Alibaba in the industrial community, and the growing public awareness of IP protection, the answer could potentially also be yes.
 “Europe also has a loser pays costs regime which is one reason why unlike in the US the troll problem is not too bad (quoting Klaus Grabinski of the German Federal Supreme Court).” Annsley Merelle Ward: “Fordham Report 2014: The European Unitary Patent and the Unified Patent Court”, April 25, 2014, IPKat. Available at: http://ipkitten.blogspot.com/2014/04/fordham-report-2014-european-unitary.html
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 Patent Number: ZL200830254103.6.
 “QQ Pictures Series II-QQ Penguin LOGO Series.”
 Trademark Registration Certificate of 1915548.
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 In China’s Civil Procedure Law (2017), a third party could lunch another litigation against the result of the current suit, if he or she has the “independent requesting rights” defined in Article 56 and disagrees with the current result.
 “30 Amazing Taobao Statistics and Fact”, 24 March 2019, DMR. Available at: https://expandedramblings.com/index.php/taobao-statistics
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