Every year, the Supreme People’s Procuratorate publishes a number of ‘representative cases’ of malicious intellectual property (IP) litigation, to highlight its efforts to prevent the abusive enforcement of IP rights for improper commercial gain. The cases demonstrate the important role of the Procuratorate in safeguarding fair competition and ensuring that China’s IP system protects innovation rather than enabling abuse.
The cases chosen to be published usually involve the use of tactics such as the enforcing of invalid patent rights, the hoarding of trade marks without a genuine business use, and in the case we discuss below, the filing of strategically timed IP lawsuits to exert maximum pressure on competitors.
Patent Litigation on the Eve of an IPO
This representative case stands out as being a scenario we regularly come across, with a patent infringement lawsuit being commenced just days, or even hours, before a PRC company’s IPO launch on the Hong Kong stock market. This could be a genuine past/ongoing infringement, a ‘skeleton in the cupboard’ that the client failed to disclose to us while preparing for its IPO, but more often it is a strategically timed case with little merit deployed by a competitor to upset the listing process and try to achieve a quick settlement.
In this case, a Foshan equipment company launched a utility model patent infringement lawsuit in the PRC against a competing Wuxi technology company, seeking RMB 23 million in damages. The case was filed shortly after the Wuxi company had applied for a stock market listing. Prosecutors found that the patent’s validity had already been put into doubt by a patent evaluation report and furthermore that the Wuxi company had prior-used the relevant technology before the patent filing date. The PRC court determined that the lawsuit lacked a proper factual basis and constituted malicious litigation, dismissing the claim and ordering compensation for the losses caused.
Takeaway
By commencing infringement proceedings during a listing process, patentees may seek to maximise their leverage at a time when a company is under heightened regulatory and investor scrutiny. The case serves as a cautionary tale for IPO applicants, who need to be prepared for such last minute upsets. The decision reflects a growing willingness though, by the Chinese courts to scrutinise not only the merits of IP claims, but also whether they are being strategically deployed just to gain a commercial advantage.
For IPO applicants, the case underscores the importance of treating IP risk management as a core component of IPO readiness. Early IP due diligence is critical. Identifying potential patent, trade mark and other IP risks at an early stage can help companies assess exposure, formulate response strategies and avoid last-minute surprises during the listing process. Companies should also carefully assess the strength and validity of any asserted rights and maintain a robust documentary record, as evidence relating to technology development, prior use and independent creation may prove invaluable in defending opportunistic claims.
More broadly, businesses should remain alert to the possibility of strategically timed litigation and be prepared to respond swiftly where IP proceedings appear designed to disrupt a transaction, influence negotiations or otherwise affect a public offering. Ultimately, the case serves as a reminder that IPO readiness extends beyond corporate and financial matters. Effective management of IP risk should form an integral part of a company’s overall IPO preparation, particularly in technology-driven sectors where patent disputes are more likely to arise.
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