"Dual Filing" Case: Supreme Court Clarifies That Patent Invalidation Cannot Be Used Retroactively to Infer Malice at the Time of Filing

On April 2, the Supreme People's Court issued a final judgment in the case concerning liability for damages arising from malicious intellectual property litigation between Shenzhen Company A and Yang Moujia (Mr. Yang) versus Beijing Company B and Beijing Company C. The Court held that a patentee who files a lawsuit while holding a valid patent and a positive patent evaluation report has fulfilled its duty of care, and hindsight cannot be used to retroactively infer pre-litigation malice. This judgment puts an end to the controversy over malicious litigation triggered by the "dual filing" practice.

It is understood that the core dispute in this case was whether the infringement lawsuit and subsequent administrative litigation filed by Company B and Company C based on the utility model patent at issue constituted malicious intellectual property litigation. The patent at issue is a utility model patent titled "Series Power Supply Circuit, Virtual Digital Currency Mining Machine, and Computer Server," with a filing date of July 21, 2015, and a grant announcement date of March 30, 2016. The patentee was successively changed to Company C and then Company B. On the same date as this patent, an invention patent application (the "510 application") was also filed. The 510 application received three office actions and was ultimately rejected by the China National Intellectual Property Administration (CNIPA) in December 2018.

Case records show that in July 2017, based on a Patent Evaluation Report issued by the CNIPA (which found the patent-at-issue to be novel and inventive), Company B and Company C filed a patent infringement lawsuit in the Urumqi Intermediate Court, alleging that Mr. Yang and Company A infringed the patent-at-issue. The case was docketed as (2017) Xin 01 Min Chu No. 557. Around the same time, Mr. Yang and Company A successively filed invalidation requests against the patent-at-issue with the Patent Reexamination Board. In April 2018, the Patent Reexamination Board issued a decision declaring the entire patent-at-issue invalid.

Thereafter, the Urumqi Intermediate Court, based on the invalidation decision, dismissed the infringement lawsuit filed by Company B and Company C. The two companies appealed but later withdrew their appeals. Company B also challenged the invalidation decision by filing an administrative lawsuit, which was dismissed after first-instance and second-instance trials. In July 2021, Company A and Mr. Yang sued Company B and Company C in the Beijing Intellectual Property Court for malicious intellectual property litigation, claiming economic losses and reasonable expenses totaling RMB 2.4 million. They alleged that Company B and Company C, knowing that the patent-at-issue lacked inventiveness and having maliciously obtained the patent, nevertheless filed related lawsuits to suppress them.

The first-instance court held that at the time Company B and Company C filed the infringement lawsuit, the patent-at-issue was legally valid, and they had submitted the Patent Evaluation Report, thereby fulfilling their duty of care. The office actions of the 510 application were merely procedural documents, and the prior art cited therein differed from that in the invalidation proceedings; therefore, it could not be inferred that the two companies knew the patent should not have been granted. The appeals and administrative litigation filed by the two companies were lawful exercises of their statutory rights to remedy, without subjective malice. Accordingly, the court dismissed all claims of Company A and Mr. Yang.

Company A and Mr. Yang appealed the first-instance judgment. After second-instance trial, the Supreme Court held that the establishment of malicious IP litigation requires four elements: (1) the right holder subjectively knew that the lawsuit lacked factual and legal basis; (2) the right holder acted with the intent to harm others or seek illegitimate gains; (3) actual damage was caused; and (4) there is a causal link between the litigation and the damage. In this case, when Company B and Company C filed the infringement lawsuit, the patent-at-issue was legally valid, and they had submitted the Patent Evaluation Report, providing a reasonable basis for reliance on their rights. The office actions of the 510 application could not support an inference that the two companies knew the patent should not have been granted. Moreover, the subsequent invalidation of the patent was the result of administrative and judicial review, which cannot retroactively prove malice at the time of filing. The appeals and administrative litigation filed by the two companies were lawful exercises of their rights to remedy and lacked subjective culpability. Accordingly, the Supreme Court affirmed the first-instance judgment and dismissed the appeal.

"Dual filing" refers to a special filing practice in which an applicant files both an invention patent application and a utility model patent application for the same invention-creation on the same filing date. The institutional purpose is to allow the applicant to obtain an initial patent right early while retaining the invention application, and after substantive examination is passed, to obtain a more stable invention patent with a longer term of protection at the cost of abandoning the utility model patent. The examination standards and procedures for invention applications and utility model patents differ. Therefore, negative opinions in the examination of an invention application cannot be directly used as a basis for inferring "knowing" malice on the part of the patentee of the co-filed utility model patent.