Bad faith litigation of intellectual property as a violation of China’s anti-monopoly law: How should the current approach be improved?

ABSTRACT

Despite that access to justice is a universally recognized human right, comparative antitrust experience from both sides of the Atlantic demonstrates that bad faith litigation of intellectual property may constitute the abuse of dominance under the competition law. There has been an anti-monopoly case in China where bad faith litigation of intellectual property raised competition concerns, yet the Chinese anti-monopoly authority does not have sufficient experience in addressing these concerns, leaving some problems to be solved. Arguably, the Chinese authority neither provided a clear test for the assessment of bad faith litigation of intellectual property nor considered the interest balance in the case. This paper critically examines the US and EU approaches to analysing the bad faith litigation of intellectual property under antitrust law, and argues they in nature share a similar approach. In this regard, by learning from comparative experience, this paper suggests that China should establish an antitrust counterclaim in an infringement lawsuit of intellectual property and adopt a clear-up test for the bad faith litigation of intellectual property under the anti-monopoly law. Additionally, China should specify two specific circumstances: the first is related to a circumstance where the intellectual property holder has known that it was not entitled to any kind of legal intellectual property rights, and the second is related to another circumstance where the intellectual property in question becomes a standard.

KEYWORDS:

• Bad faith litigation
• intellectual property
• anti-monopoly law
• China
• comparative experience

Disclosure statement

No potential conflict of interest was reported by the author(s).

Acknowledgements

This article is supported by the Fundamental Research Funds for the Central Universities named ‘Cross-disciplinary Research on Departments of Law’, Zhejiang University.

Notes

1 Francesco Francioni, Access to Justice as a Human Right (Oxford University Press, 2007).

2 United Nations, ‘Access to Justice’ <https://www.un.org/ruleoflaw/thematic-areas/access-to-justice-and-rule-of-law-institutions/access-to-justice/>.

3 For example, when it comes to trade secret cases, Professor Harry First considers refusal to supply and sham litigation as two primary abusive practices in relation to trade secrets that may violate the US monopolization law. See Harry First, ‘Trade Secrets and Antitrust Law’ in C Dreyfuss Rochelle (ed), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar, 2011) 358. See also Michael D Oliver, ‘Antitrust Liability for Bad Faith Assertion of Trade Secrets’ (1989) 18 (3) University of Baltimore Law Review 544.

4 For instance, competition law scholars argued that in the context of intellectual property litigation, it is necessary for antitrust law to intervene if some litigants abuse the litigation process. See Ioannis Lianos and Pierre Regibeau, ‘“Sham” Litigation: When Can It Arise and How Can It Be Reduced?’ (2017) 62 (4) Antitrust Bulletin 643. See also Harry First, ‘Trade Secrets and Antitrust Law’ in C Dreyfuss Rochelle (ed), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar, 2011) 363. (‘A familiar problem in antitrust law is the alleged bad faith assertion of an intellectual property right as part of an effort to exclude competitors.’) Leading intellectual property lawyers, such as Mark Lemley, also noted that antitrust claims are a crucial part of IP lawsuits. See Mark Lemley, ‘Antitrust Counterclaims in Patent and Copyright Infringement Cases’ (1994) 3 (1) Texas Intellectual Property Law Journal 1.

5 See Jiangsu Zhongxun Digital v Shandong Bittel, Supreme People’s Court, (2019) Zui Gao Fa Min Shen 366. See also Will Wang, ‘How to Identify “Bad Faith” in the Bad Faith Litigation of Intellectual Property’ (Zhong Lun Law Firm, 21 April 2023) <https://www.lexology.com/library/detail.aspx?g=00603588-75f0-4c00-acc9-639ab95479d0>.

6 Bad faith litigation may also constitute the unfair competition practice, which is usually considered as a tort from a broader sense. See LII, ‘Unfair Competition’ (Cornell Law School) <https://www.law.cornell.edu/wex/unfair_competition>.

7 The following sections will analyse these cases in detail.

8 The methodologies and analytical framework applied in this paper may have some limitations. There are usually three steps for the analysis of the abuse of market dominance, which are market definition, the determination of market dominance and the analysis of abusive practices. Only if the intellectual property holder is in a dominant position in the relevant market can the bad faith litigation be regarded as the abuse of dominance. Due to word limit, this paper does not provide specific analysis of the market definition and market dominance, but mainly focuses on bad faith litigation as a potential abusive practice under competition law.

9 Huawei v InterDigital, Guangdong High People’s Court, (2013) Yue Gao Fa Min San Zhong Zi 306.

10 The enactment of the AML was an achievement resulting from comparative experience in jurisdictions with well-established competition laws, such as the EU competition law. See Deborah Healey, ‘An Anti-monopoly Law for China: Weapon or Mirage?’ (2008) 16 Competition & Consumer Law Journal 220. Meanwhile, the US antitrust agencies also played an essential role in discussions of the enactment of the AML before 2007. See Xiaoye Wang, ‘Highlights of China’s New Anti-monopoly Law’ (2008) 75 (1) Antitrust Law Journal 133.

11 In addition to the US antitrust law and EU competition law, competition laws from other jurisdictions, such as Japan, Korea, and Russia, may have some implications on China’s anti-monopoly practices. However, due to the word limit, this paper is unable to analyse comparative lessons from all of these jurisdictions.

12 Part 2 of this paper provides a brief literature review which shows the current research of bad faith litigation of intellectual property in China.

13 The AML was enacted in 2007 and amended in 2022. The AML used in this paper is the 2022 version.

14 Article 22 of the AML provides that ‘Any undertaking with a dominant market position is prohibited from engaging in the following practices of abuse of such position:(I) selling commodities at an unfairly high price or buying commodities at an unfairly low price; (II) selling commodities at a price lower than cost without justifiable reasons; (III) refusing to trade with its trading counterparties without justifiable reasons; (IV) restricting its trading counterparties to trade exclusively with the said undertaking or trade exclusively with the designated undertakings without justifiable reasons; (V) conducting tie-in sales or add other unreasonable trading conditions to the trading without justifiable reasons; (VI) giving discriminatory treatments to trading counterparties with the same conditions with respect to trading price and other trading conditions without justifiable reasons; and (VII) other practices determined as abuse of dominant market position by the Anti-monopoly Law Enforcement Agency of the State Council.’

15 Noteworthy is that there may be some infringement lawsuits of intellectual property with regard to some new-emerging areas, such as copyright and trademark infringement disputes relevant to Non-Fungible Tokens. See Jun Chen and Danny Friedmann, ‘Jumping from Mother Monkey to Bored Ape: the Value of NFTs from an Artist’s and Intellectual Property Perspective’ (2023) 31 (1) Asia Pacific Law Review 109.

16 Article 69 of the AML provides that the AML should apply if the undertaking abuses its intellectual property which may have anti-competitive effects.

17 CVD Inc v Raytheon Co 769 F 2d 842, 850 (1st Cir 1985).

18 Case T-111/96 ITT Promedia NV v Commission of the European Communities EU:T:1998:183.

19 See Ma Yunpeng, ‘Bad Faith Litigation of Patents and Its Judicial Response’ (2018) 10 Intellectual Property 40.

20 See Li Chunhui, ‘The Determination of Bad Faith Litigation of Patents and Its Legal Liability’ (2019) 4 Intellectual Property 34.

21 See Jiangnan, ‘The Determination of Bad Faith Litigation of Trademarks and Its Legal Regulation’ (2021) 4 Journal of Jiangxi University of Finance and Economics 132.

22 Nie Xin, ‘The Regulation Framework of Antitrust Law on Patent Malicious Litigation’ (2019) 3 Journal of Shanghai University of Finance and Economics 107.

23 Xianlin Wang, ‘Recent Developments in China’s Antimonopoly Regulations on Abuse of Intellectual Property Rights’ (2017) 62 (4) Antitrust Bulletin 806.

24 Ibid.

25 Supreme People’s Court, ‘A Forum Was Held in Memory of the Enforcement of the Anti-monopoly Law for 10 Years by the Supreme People’s Court’ (Court Gov, 16 November 2018) <https://www.court.gov.cn/fabu-xiangqing-130481.html>.

26 As WIPO states, patents which are essential parts of technical standards are SEPs. SEPs are ubiquitous in technical standards, ranging from mobile phones to memory devices. Standard setting organization often requires SEP holders to commit to licensing their SEPs on fair, reasonable, and non-discriminatory (FRAND) terms. See Doris Johnson Hines and Ming-Tao Yang, ‘Worldwide Activities on Licensing Issues Relating to Standard Essential Patents’ (Wipo Magazine, February 2019) <https://www.wipo.int/wipo_magazine/en/2019/01/article_0003.html>.

27 Ibid.

28 In 2011, Samsung applied for injunctions before some courts of member states in the EU against competing mobile device makers (e.g. Apple), arguing that they infringed Samsung’s patents which were incorporated into technology standards. The EU Commission opened an investigation on Samsung for the abuse of market dominance under Article 102 TFEU. See Commission, ‘Antitrust: Commission Opens Proceedings against Samsung’ (European Commission Website, 31 January 2012) <https://ec.europa.eu/commission/presscorner/detail/en/IP_12_89>.

29 Commission, ‘Case At.39939 – Samsung – Enforcement of UMTS Standard Essential Patents’ COM (2014) 2891 final.

30 See Eastern R. Conference v Noerr Motors 365 US 127 (1961); United Mine Workers v Pennington, 381 US 657 (1965).

31 The Noerr-Pennington doctrine applies in the decision-making of all three branches of the government – which might be legislative, executive, or judicial. See Jarod Bona, ‘What Is Noerr-Pennington Immunity and Is this Doctrine a Defense to an Antitrust Case?’ (Bona Law PC, 6 March 2021) <https://www.theantitrustattorney.com/what-is-noerr-pennington-immunity-and-is-this-doctrine-a-defense-to-an-antitrust-case/>.

32 The railroads petitioned the Governor’s veto for legislation that would have more flexible standards for truckers.

33 As the First Amendment to the US Constitution protects freedom of speech, the press, assembly, and the right to petition the Government for a redress of grievances, the railroads’ lobbying fell into the scope of the First Amendment and thus was granted immunity from antitrust liability. Pennington was a similar case. A mine workers’ union and some large mining companies tried to induce the Labour State to set minimum wages for employees that would be more difficult for smaller companies to compete in the market. The Supreme Court reiterated again that such lobbying was immune from competition law liability.

34 See Eastern R Conference v Noerr Motors 365 US 127 (1961).

35 See City of Columbia v Omni Outdoor Advertising 499 US 365 (1991).

36 OECD, ‘Competition Policy and Intellectual Property Rights’ (1989).

37 Mark Lemley, ‘Antitrust Counterclaims in Patent and Copyright Infringement Cases’ (1994) 3 (1) Texas Intellectual Property Law Journal 1, 2.

38 Professional Real Estate Investors, Inc v Columbia Pictures Industries Inc 508 US.49 (1993).

39 Ibid.

40 Ibid.

41 For instance, the Supreme Court reiterated in ICON that the sham litigation needs ‘baseless claims in an attempt to thwart competition’. See Octane Fitness, LLC v ICON Health & Fitness Inc 572 US 545 (2014).

42 Frederick Juckniess and Suzanne Larimore Wahl, ‘Antitrust and Intellectual Property Rights – the Ultimate Counterweapon?’ (2012) Michigan Bar Journal 23.

43 Walker Process Eqpt, Inc.v Food Machinery Corp 382 US 172 (1965).

44 In detail, when Food Machinery applied the underlying patent, it stated to the patent office that it did not know the invention had been in use in the US before the application. Nevertheless, Food Machinery withheld information that itself had been involved in the prior use of the invention before patent application. See Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice (6th edn, West Academic Publishing, 2020) 425.

45 Ibid, 424.

46 Paul Gugliuzza, ‘Patent Trolls and Patent Litigation Reform’ (Oxford Handbooks Online, 6 March 2017) <https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199935352.001.0001/oxfordhb-9780199935352-e-15>. However, some scholars, such Professor Josef Drexl, consider it inaccurate to call such companies ‘patent trolls’. Instead, non-practicing entities (NPEs) or patent assertion entities (PAEs) would be better names. See ‘Standard Setting Organizations and Processes: Challenges and Opportunities for Competition and Innovation’ (Concurrences, 15 June 2015) <https://www.concurrences.com/en/review/issues/no-3-2015/conferences/standard-setting-organizations-and-processes-challenges-and-opportunities-for>.

47 Fiona M. Scott Morton and Carl Shapiro, ‘Strategic Patent Acquisitions’ (2014) 79 (2) Antitrust Law Journal 463.

48 See generally Dan Burk and Mark Lemley, ‘Fence Posts or Sign Posts? Rethinking Patent Claim Construction’ (2009) 157 (6) University of Pennsylvania Law Review 1743.

49 Daniel Sokol, ‘Introduction’ in Patent Assertion Entities and Competition Policy (Cambridge University Press, 2017) 1. Professor Josef Drexl also argues that patent trolling is a phenomenon more of an immediate concern in the US than the EU. See ‘Standard Setting Organizations and Processes: Challenges and Opportunities for Competition and Innovation’ (Concurrences, 15 June 2015) <https://www.concurrences.com/en/review/issues/no-3-2015/conferences/standard-setting-organizations-and-processes-challenges-and-opportunities-for>.

50 See generally Li Zhu, ‘Punitive Damages Under Patent Law: Where Should We Go After Halo?’ (2017) 1 China Patents & Trademarks 25.

51 John A Trenor (ed), Guide to Damages in International Arbitration (Law Business Research Ltd., 2018) 7.

52 As patent trolling issues are mainly coming from problems of the US patent system, it is understandable that it was the White House and the Congress, rather than courts, which made their efforts to address these issues. See Christopher Hu, ‘Some Observations on the Patent Troll Litigation Problem’ (2014) 26 (8) Intellectual Property & Technology Law Journal 10.

53 See e.g. Emack v Kane 34 F 46 (1888).

54 Louis Altman and Malla Pollack, Callmann on Unfair Competition, Trademarks, and Monopolies (Thomson Reuters, 2008) s 11, 10.

55 Paul Gugliuzza, ‘Patent Trolls and Preemption’ (2015) 6 Virginia Law Review 1579. (‘The Federal Circuit brought the bad faith rule even closer to the sham litigation test under Noerr and its progeny.’)

56 Globetrotter Software v Elan Computer Group 63 F Supp 2d 1127 (ND Cal 1999).

57 Paul Gugliuzza, ‘Patent Trolls and Preemption’ (2015) 6 Virginia Law Review 1579.

58 CVD Inc v Raytheon Co 769 F 2d 842, 850 (1st Cir 1985).

59 See e.g. Harry First, ‘Trade Secrets and Antitrust Law’ in C Dreyfuss Rochelle (ed), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar, 2011) 363; Frederick Juckniess and Suzanne Larimore Wahl, ‘Antitrust and Intellectual Property Rights – The Ultimate Counterweapon?’ December 2012, Michigan Bar Journal 26.

60 For example, the US Antitrust Guidelines for the Licensing of Intellectual Property (2017) issued by DOJ and FTC points out that sham litigation to enforce IPRs may lead to a violation of Sherman Act. It particularly refers to as the CVD case regarding trade secrets. See Antitrust Guidelines for the Licensing of Intellectual Property (2017) 36.

61 Robert Donadio, Joseph Connolly and the CVD company were plaintiffs in this case.

62 CVD Inc v Raytheon Co 769 F 2d 842, 850 (1st Cir 1985).

63 Ioannis Lianos and Pierre Regibeau, “Sham” Litigation’ (2017) 62(4) Antitrust Bulletin 643.

64 A report of WIPO considers sham litigation as a potential type of anti-competitive enforcement of intellectual property rights. After researching on issues of sham litigation in different member states, this report believes that the EU and US share the similar doctrine. See WIPO, ‘Study on the Anti-competitive Enforcement of Intellectual Property Rights’ CDIP/9/INF/6, 14.

65 Case T-111/96 ITT Promedia NV v Commission of the European Communities EU:T:1998:183.

66 Alison Jones, BE Sufrin, and Niamh Dunne, EU Competition Law: Text, Cases, and Materials (7th edn, Oxford University Press, 2019) 534.

67 Case T-111/96 ITT Promedia NV v Commission of the European Communities EU:T:1998:183.

68 Alison Jones, BE Sufrin, and Niamh Dunne, EU Competition Law: Text, Cases, and Materials (7th edn, Oxford University Press, 2019) 535.

69 See eg Mariateresa Maggiolino, Intellectual Property and Antitrust – A Comparative Economic Analysis of US and EU Law (Edward Elgar, 2012) 198.

70 Case T-111/96 ITT Promedia NV v Commission of the European Communities EU:T:1998:183.

71 Commentators argue that Huawei v InterDigital was a leading case in China that stood at the crossroads of antitrust and intellectual property. See Michael Han and Kexin Li, ‘Huawei v InterDigital: China at the Crossroads of Antitrust and Intellectual Property, Competition and Innovation’ (2013) Competition Policy International Asia Column.

72 For example, a latest report published by China’s SPC shows that Chinese courts received 642, 986 cases relevant to intellectual property in 2021, which is a 22.33% increase over the figure of 2020. See The IP Tribunal of the Supreme People’s Court, ‘Intellectual Property Protection by Chinese Courts in 2021’ (Court Gov, 2022). Additionally, with the rapid development of platform economy in China, there are many repeated infringements of intellectual property on platforms, which may require platforms to adopt necessary measures to prevent repeated infringements. See Jie Wang, ‘How to Utilize Notice-and-Takedown procedures in IP Enforcement on E-commerce Platforms – A lesson from China’ (2021) 29 (2) Asia Pacific Law Review 254.

73 Article 68 of the Chinese Trademark Law (2019 amendment) says that ‘[W]hoever maliciously applies for trademark registration shall be subject to subject to a warning, a fine or any other administrative punishments, as the case may be; and whoever maliciously lodges a trademark lawsuit shall be penalized by the People’s Court according to law.’

74 Zhang Weiping[张卫平], Civil Procedure Law[民事诉讼法](Law Press, 2016)[法律出版社2016] 45.

75 See Office of the US Trade Representative, ‘2021 Special 301 Report’ (2021). The Special 301 Report is enacted by the US government annually to reflect whether other jurisdictions provide sufficient intellectual property protection.

76 Article 60 of the AML provides that ‘[U]ndertakings which implement monopolistic activities and causing others to suffer losses shall bear civil liability pursuant to the law.’

77 Aside from infringement lawsuits of intellectual property, some scholars suggests that arbitration can be a method of solving SEP licensing disputes, as there are some advantages of arbitration, such as expertise, flexibility, and confidentiality. See e.g. Julien Chaisse, ‘Arbitration of FRAND Disputes in SEP Licensing: Towards Global Substantive and Procedural Rules’ (2021) 4 Intellectual Property Quarterly 264.

78 China’s Legislation Law authorises the SPC to enact judicial interpretations which are legally binding for all Chinese courts. Article 119 of the Legislation Law (2023) says that ‘[T]he interpretations made by the Supreme People’s Court and the Supreme People’s Procuratorate on the application of laws in the judicial or procuratorial work shall be mainly targeted at specific legal articles, and shall conform to the purpose, principle, and original intention of legislation.’

79 China has established specialised Intellectual Property Courts in Beijing, Shanghai, and Guangzhou, which have jurisdiction over both intellectual property infringement cases and anti-monopoly cases. See Articles 1 and 3 of ‘The Notice of the Supreme People’s Court on the Jurisdiction of Intellectual Property Courts’.

80 Foreign countries often have some concerns about the intellectual property enforcement in China. For example, Australia expresses concerns over China’s poor record of intellectual property right protection and enforcement. See Ling Ling He, ‘On Re-invigorating the Australia-China Free Trade Agreement Negotiation Process’ (2013) 14 The Journal of World Investment & Trade 690.

81 Case T-111/96 ITT Promedia NV v Commission of the European Communities EU:T:1998:183, para 73. (‘Furthermore, when applying that criterion, it is not a question of determining whether the rights which the undertaking concerned was asserting when it brought its action actually existed or whether that action was well founded, but rather of determining whether such an action was intended to assert what that undertaking could, at that moment, reasonably consider to be its rights.’)

82 For the assessment of the requirement of reasonable secrecy measures, see Robert Bone, ‘Trade Secrecy, Innovation and the Requirement of Reasonable Secrecy Precautions’, in Rochelle Dreyfuss and Katherine Strandburg (eds), The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Edward Elgar Press, 2010).

83 Nuno Sousa e Silva, ‘What Exactly Is a Trade Secret under the Proposed Directive?’ (2014) 9 (11) Journal of Intellectual Property Law & Practice 923.

84 Simonetta Vezzoso, ‘Towards an EU Doctrine of Anticompetitive IP-Related Litigation’ (2012) 3 (6) Journal of European Competition Law & Practice 521.

85 See ‘Frequently Asked Questions: Patents’ (WIPO) <https://www.wipo.int/patents/en/faq_patents.html>. It should be noted what constitutes an intellectual property right depends on the domestic laws of the host country. Some forms of intellectual property, such as patents, are only acquired through registration. Even under international investment agreements, tribunals must defer to domestic courts with regard to the existence and validity of intellectual property rights. See Siegfried Fina and Gabriel M. Lentner, ‘The European Union’s New Generation of International Investment Agreements and Its Implications for the Protection of Intellectual Property Rights’ (2017) 18 Journal of World Investment & Trade 271.

86 See Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp and ZTE Deutschland GmbH EU:C:2015:477, paras 49 and 53.

87 A formal standard should be public. Thanks to the secrecy requirement of a trade secret, it cannot be incorporated into a formal standard.

88 Commission Decision of 24 May 2004 relating to a proceeding pursuant to Article 82 of the EC Treaty and Article 54 of the EEA Agreement against Microsoft Corporation (Case COMP/C-3/37.792 — Microsoft), para 30.

89 Ibid, para 31.

90 Ibid. Under the Commission’s requirement, the remuneration that Microsoft would take should not ‘reflect the strategic value stemming from Microsoft’s market power’ in the relevant market.

91 See Article 7 of China’s Civil Code.

92 See e.g. Jiangsu Zhongxun Digital v Shandong Bittel, Supreme People’s Court, (2019) Zui Gao Fa Min Shen 366.

93 The standard of ‘prima facie evidence’ should be understood as creating a permissive inference only. See Peicheng Wu and Charlie Xiao-chuan Weng, ‘Implications of the China-US Trade Agreement on the Civil Protection of Trade Secrets in China: Is it a Game Changer?’ (2020) 28 (2) Asia Pacific Law Review 326.

94 The State Council of China, ‘The Key Step to Establishing the Fundamental Role of Competition Policy’ <https://www.gov.cn/zhengce/2016-06/22/content_5084234.htm>