Chinese court imposes judicial punishment on malicious trademark squatter claiming for 10 million yuan

On April 26, 2024, the Supreme People’s Court (SPC), China’s top court, released the 2023 50 Typical IP Cases. One of the 50 typical cases involved judicial punishment related to trademark squatting and malicious litigation. Below is the detailed development of the case. 

On February 1, 2023, the Changsha Intermediate People's Court accepted a trademark infringement and unfair competition case. The plaintiff claimed for ten million yuan in damages.

The plaintiff Hou XX Company, demanded the following:

lThe defendant ceases infringing on the plaintiff's exclusive rights to twelve registered trademarks, including No. 63433365 for "长高电新（Chinese name for CHANGGAO NEET".

lThe defendant immediately stops using the stock name "长高电新".

lThe defendant changes its company name and ceases using "长高电新" as its corporate name.

lThe defendant ceases all promotional activities using "长高电新" and removes infringing content from their official website, WeChat Channel account, promotional materials, and products.

lThe defendant compensates the plaintiff for reasonable expenses and losses totaling 10 million yuan.

lThe defendant bears the litigation costs.

The defendant, CHANGGAO NEET, had been using "长高(Chinese name for CHANGGAO)" as its corporate name since 1998 and registered the "长高" series trademarks for electric power equipment in Class 9 starting in 2006. The defendant was listed on the Shenzhen Stock Exchange in 2010 under the name "CHANGGAO GROUP" and adopted the new stock name "CHANGGAO NEET" in May 2022.

The plaintiff, Hou XX Company, was established on March 1, 2021. On November 17, 2022, Hou XX Company and Chang XX Trade Company jointly filed this lawsuit with the Changsha Intermediate People's Court.

On January 3, 2023, the defendant, CHANGGAO NEET, filed an invalidation challenge against the plaintiff's trademarks at the China National Intellectual Property Administration (CNIPA).

On September 25, 2023, CNIPA issued a decision determining that Hou XX Company and Chang XX Trade Company repeatedly and extensively applied to register terms unrelated to their business in terms of nature and scope, such as "Holdings", "Group", "Technology", "Wealth Management", "Aviation", etc. They had also copied and maliciously registered names or product names of well-known companies in different industries, significantly exceeding their normal business needs. 

CNIPA found that Hou XX Company and Chang XX Trade Company intended to hoard trademarks and occupy public resources, harming fair market competition. This constituted "obtaining registration by other improper means" as specified in Article 44, Paragraph 1 of the Chinese Trademark Law, and also amounted to malicious registration without the intent to use, violating the same article. CNIPA declared all twelve disputed "长高电新" trademarks invalid.

Hou XX Company and Chang XX Trade Company were dissatisfied and requested a review of the invalidation decision. Currently, the review is pending.

On December 21, 2023, the Changsha Intermediate People's Court held that "长高电新" is an invented term with no inherent meaning and strong distinctiveness. It is highly unlikely for such a term to be coincidentally registered by unrelated parties without prior knowledge. 

The plaintiff, Hou XX Company, applied to CNIPA for twelve "长高电新" trademarks but did not provide evidence of using these trademarks in business activities. CNIPA's decision concluded that the plaintiff's registration was malicious and violated Article 44, Paragraph 1 of the Chinese Trademark Law, declaring all the registered trademarks invalid.

According to Article 47, Paragraph 1 of the Chinese Trademark Law, the exclusive rights to the disputed trademarks are considered nonexistent from the beginning. Therefore, the plaintiff's lawsuit based on these trademark rights must be dismissed.

Realizing the unfavorable situation, the plaintiff Hou XX Company requested the Changsha Intermediate People's Court to amend their lawsuit, reducing the claim amount from 10 million yuan to 3.1 million yuan.

The Changsha court rejected the plaintiff’s request.

The court reasoned that since Hou XX Company was using maliciously registered trademarks to file the lawsuit, their actions constituted a knowingly baseless lawsuit intended to harm others' legitimate rights and gain illegal benefits. Therefore, the court did not approve the request to amend the lawsuit but dismissed the Lawsuit.

During the trial process of this case, the defendant argued that the plaintiff had maliciously filed the trademark lawsuit and requested the court to dismiss the lawsuit and impose judicial punishment.

The Changsha court found that, according to Article 68, Paragraph 4 of the Chinese Trademark Law, maliciously filing a trademark lawsuit warrants punishment by the court.

The Court ruled that:

lThe plaintiff lacked a substantial legitimate rights basis for filing the lawsuit. The CNIPA declared all twelve "长高电新" trademarks invalid. Thus, the plaintiff did not possess the trademark rights to "长高电新" when filing the lawsuit.

lThe plaintiff should have known that there were no factual or legal grounds for their intellectual property lawsuit and should have foreseen that the improperly registered "长高电新" trademarks could be revoked. This was confirmed when the CNIPA canceled the trademarks.

lThe plaintiff's lawsuit sought to damage others' legitimate rights or gain illegal benefits by demanding 10 million yuan in compensation, indicating an intention to abuse their rights.

Therefore, the court determined that the plaintiff's lawsuit was a malicious action intended to harm others' legitimate rights and gain illegal benefits.

At this point, the Changsha Procuratorate submitted a prosecutorial suggestion to the Changsha Intermediate People's Court, arguing that the plaintiff had abused their trademark rights by filing an infringement lawsuit against the defendant. This constituted a malicious lawsuit and abuse of rights. The procuratorate suggested that the court impose appropriate penalties according to the relevant laws.

In December 2023, the Changsha Intermediate People's Court imposed a fine of 100,000 yuan on Hou XX Company and Chang XX Trade Company, payable within ten days of receiving the decision.

In April 2024, this case was listed by the Supreme People’s Court as one of the 2023 50 Typical IP Cases in China.