On April 24, with the 22nd World Intellectual Property Day approaching, the Guangzhou Intellectual Property Court published its White Pater on Intellectual Property Protection and Top 10 Exemplary Cases for the Year 2021.

Said top 10 exemplary cases published this year cover various areas including overseas intellectual property protection, trade secret protection, emerging service industries, punitive damages and regulation on abuse of rights, and involve different case categories such as patent, computer software and know-how. Among them is the case involving compensation for damages arising from malicious IP litigation that Watson & Band’s Partner Joe Liu and his team represented for the rights holder. This case studied on how the rights holder could seek further economic remedies after it encountered malicious litigation by the other party, and explored a referential approach for similar cases in future.

Dispute Case over Liability for Damages Arising from Bad-faith IPR Litigation

(2020) Yue 73 Min Zhong No. 3687

In recent years, the judicial and administrative authorities in China endeavor to regulate the bad-faith trademark registration and litigation. This case is a referential precedent which has explored and provided the right holder with a meaningful way to seek further economic remedies in response to bad-faith litigation.

The UL bad-faith litigation retrial case was included by the Supreme People’s Court in the 10 typical IPR cases in China in 2019. Although the damages claimed by the other party in bad faith were not supported by the court, in response to the series cases filed in bad faith, UNIQLO suffered huge losses, including costs and operational losses. Therefore, W&B represented UNIQLO to file a counter-claim action against the plaintiffs of the bad-faith litigation, requesting them to bear all enforcement costs and operational losses incurred to UNIQLO therefrom.

Although we searched for and found several counter-claim for damages precedents involving patent bad-faith litigation when preparing for the case filing, there is so far no favorable case of the kind involving trademarks in China, because the dispute focus in former cases is the factual judgment on the inventiveness of the disputed patent on registration date. However in this case, a value judgment shall be made of whether the subjective status of “bad-faith registration” of the trademark identified in the later judicial proceeding is retrospective to the time of registration, since the improper trademark registration was judicially identified afterwards, and before that the trademark right was legitimate and valid in the external form. It becomes more difficult for the plaintiff to win support of the court if the standards for identifying bad-faith registration in the entire judicial and administrative system have materially changed during such period.

During the trial of the counter-claim for damages case, the defendant argued that its trademark right was then legitimate and valid to file the previous cases, which shall be deemed the legitimate exercise of the trademark right. Although the registered trademark was declared invalid as of the registration date after trial of the previous cases, it can still be reasonably claimed that the registered trademark became invalid as of the declaration of invalidity. Therefore, the defendant shall not be held liable for compensation for its filing of the series cases according to the principle of reliance interest in the publicity of right. However, we proved by analyzing the constant acts of the defendant that it had malicious intentions from the very beginning and the disputed trademark lacked substantial legitimacy due to the bad-faith registration, claiming that the external form of the trademark right cannot be used as a defense by the defendant.

It shall also be noted that in addition to the scope of compensation supported by the court in the counter-claim for damages precedents, i.e. legal fees paid by the plaintiff in response to the bad-faith litigation and other direct losses, we claimed in this case the operational losses incurred to UNIQLO from reasonably avoiding infringement in response to the bad-faith litigation, such as the plummeting sales amount due to voluntarily taking down the accused products.

Ultimately, our opinions were acknowledged by the court. The first instance court supported our claims in full amount and held the other Party liable for compensation in the amount of more than 4 million RMB. The appeal court upheld the first instance judgment. Therefore, this case serves as a referential precedent for IP, particularly trademark counter-claim for damages cases.