By Xu Jing, Partner at King & Wood’s Intellectual Property Group

Malicious litigation is broadly thought to be using a legal right to litigate to protect an interest when no substantive right has been violated. Currently, Chinese law does not provide any specific provisions on how to determine whether a party has abused its right to litigate, nor does the law define the concept of malicious litigation. Moreover, Chinese law does not provide specific remedies for a victim of malicious litigation to repair the damages suffered from a malicious litigation.

In 2006, however, the Nanjing Intermediate People’s Court heard the patent infringement case of Yuan Lizhong v. Yangzhou City Tongfa Air-Raise Actuator Factory & Yangzhong City Tongfa Industry Co. Ltd. This case was the first counter-suit for damages action brought as a reaction to malicious litigation. In March, 2009, the Supreme People’s Court promulgated the Opinions of the Supreme People’s Court on Several Issues Regarding the Implementation of the National Intellectual Property Rights Strategy ( Fafa [2009] No. 16) ("Opinion") which provides that: "The courts shall accept where appropriate and adjudicate cases that seek declaratory judgments of non-infringement and litigations that seek counter-suit for damages in claim of malicious litigations.”

The Opinion provides practical guidance to the people’s courts in counter-suit for damages actions if in the face of malicious litigation.

Definition of Malicious Litigation and How to Determine "Malice"
When a party initiates litigation in the PRC, it must adhere to the "Honest and Credit" principle. Otherwise, the party will be considered to be abusing its right to litigate under the Chinese law. Based on this principle and general understandings described in academic research papers, we believe the definition for malicious litigation refers to "a groundless civil action filed without a violation of substantive rights or without factual basis and other justifiable reasons to pursue litigation and which will result in damages to the interests of the alleged parties". Among the elements referred to above, the key element is to determine if the party that initiated the groundless civil litigation is acting with "malice" towards the other party.

Counter-Suit for Damages Actions
Although the Opinion issued by the Supreme People’s Court allows counter-suits for damages, it did not specify details on the application of such a practice. Since the counter-suit for a damages action is a type of litigation where a plaintiff prays for compensation for damages suffered from a malicious litigation, the proceeding at its core is a civil suit regarding infringement of rights and with the corresponding remedy for compensation.

Legal Trends for Counter-Suit for Damages Actions
Though there are not yet explicit provisions regarding malicious litigation in Chinese law, a basic legal mechanism for preventing malicious litigation is now being formed, particularly in the field of intellectual property. It is foreseeable that the people’s courts will set stricter criteria for accepting such cases and impose tighter controls over granting interim injunctive measures.