UK: Does Recent Tencent Case Indicate A Shift In The Way Companies Deal With Patent Trolls?

In a recent case before the Guangdong High Court, damages were awarded to Tencent in a tort action against a patent owner as a result of litigation by the patent owner that was found to be malicious. In Tencent v. Tan Fawen., [(2019) GD. Civil. Fin. No. 407] (June 10, 2019), the Guangdong Higher People's Court affirmed 500,000 Yuan awarded to Tencent by the Shenzhen Intermediate People's Court of Guangdong Province in an action against Tan Fawen.

Patent Trolls

A 'patent troll' or 'patent squatter' is a company or individual who acquires design patent rights with the intention of making improper gains from the patent against a genuine rights owner. The design patents registered by patent trolls are often copied from copyrighted content with a view to harass the copyright owner by initiating patent litigation. Such copying is possible due to the lack of substantive examination of design patents in China. Companies will often choose to settle actions initiated by patent trolls so as to avoid the expense of resolving disputes through the courts.

The Case

In January 2010, Tan Fawen registered a 'Mini Penguin' design patent which copied Tencent's copyrighted and trademarked 'QQ Penguin' logo. After registering the design patent, Tan Fawen started selling speakers with the 'Mini Penguin' image. As a result, Tencent brought an action before the Shenzhen Futian District People's Court against Tan Fawen in March 2011 for infringement of the copyright and trademark of their 'QQ Penguin' logo.

The infringement case was settled, with Tan Fawen agreeing to stop the infringement and abandon the 'Mini Penguin' design patent or transfer it to Tencent. However, Tan Fawen did not abandon or transfer the right and, in February 2016, he sued Tencent for infringement of his 'Mini Penguin' design patent, seeking patent royalties of 900,000 Yuan. Tan Fawen brought the infringement action before the Shenzhen Intermediate People's Court of Guangdong Province. Tencent sought to invalidate Tan Fawen's design patent in response to the infringement action.

Tencent were able to get the design patent invalidated by The State IP Office by demonstrating the substantial similarity between Tan Fawen's 'Mini Penguin' and Tencent's prior trademarked and copyrighted 'QQ penguin'. As a result of the invalidation of the design patent, the Shenzhen Intermediate People's Court rejected Tan Fawen's infringement action.

Tencent then filed the tort action against Tan Fawen in 2018, seeking damages for Tan Fawen's infringement lawsuit which they considered to be malicious since Tan Fawen knew his design patent was invalid. Before the Shenzhen Intermediate People's Court, Tencent alleged that Tan Fawen had intentionally registered the design patent for the 'Mini Penguin' which copied their well-known 'QQ Penguin' image and had deliberately refused to comply with the settlement of the earlier infringement case.

The Outcome

The court considered that the following requirements should be met to determine whether an intellectual property lawsuit is maliciously filed:

1. A party filed a request by filing an intellectual property lawsuit.
2. The party making the request has subjective maliciousness.
3. The lawsuit has actual damage consequences.
4. There is a causal relationship between the requesting party's act of filing an intellectual property lawsuit and the damage consequences.

Regarding requirement 2, the socalled maliciousness means that the party making the request knows that the request lacks justified reasons, improperly exercises the right of litigation against the other party, and intends to cause the other party to suffer damage. In this case, the court determined that Tan Fawen's actions were malicious because he knew and acknowledged from the earlier settlement with Tencent that his 'Mini Penguin' design patent copied Tencent's 'QQ Penguin' image.

The Shenzhen Intermediate People's Court therefore determined that the litigation was malicious and that Tan Fawen filed a patent infringement lawsuit against Tencent knowing that his request lacked a valid reason, causing economic losses to Tencent. The court ordered Tan Fawen to pay Tencent 500,000 Yuan in compensation.

Tan Fawen appealed the decision to the Guangdong Higher People's Court. However, the appeal was unsuccessful and the Guangdong Higher People's Court affirmed the ruling of the Shenzhen Intermediate People's Court.

Conclusion

It is worth noting, in this case, that the previous infringement settlement between Tencent and Tan Fawen influenced the court's view of the case. The court noted in their decision that, from the earlier settlement, Tan Fawen knew that his design patent was basically the same as Tencent's copyrighted works of art, and that he made a clear commitment to withdraw the patents involved. It therefore appears that the earlier agreement by Tan Fawen to abandon or transfer the design patent was ultimately seen by the court as an acknowledgement of the impropriety of the design patent and thus confirmed that the subsequent litigation was not justifiable and violated the principle of good faith. The earlier settlement therefore made it easier for the court to conclude that Tan Fawen knew the infringement claim lacked the right basis and was filed improperly.

Furthermore, given the circumstances, the court may have felt that it was necessary for such a violation of the principle of good faith to be punished in order to set a precedent for similar cases and to discourage patent trolls. The ruling is in line with a wider effort in China to minimise dishonest and malicious litigation. It could be argued that this effort to clamp down on such cases also, in turn, increases the protection conferred by registered trademarks and copyright or, at the very least, improves the enforceability of these rights against the improper rights of patent trolls.

While it may be unlikely that the malicious litigation ruling will have an immediate impact on the behaviour of patent trolls, this case may well have an effect on the way in which companies deal with patent trolls in the future. Many big companies have a history of settling cases with patent trolls and it is possible that the intention of the tort action by Tencent was to send a message to other parties looking to exploit Tencent's IP rights. Alternatively, the tort action may have been a result of the value of the 'QQ Penguin' to Tencent and their desire to protect an image that is so strongly associated with their brand. Either way, it will be interesting to see whether this decision causes Tencent and other companies to take a stronger stance against patent trolls in the future.

Given their profile, Tencent's success in this case sends a positive signal to the wider industry and to IP practitioners. The ruling of the court in favour of Tencent is a positive outcome for genuine rights owners and can be seen as a clear message from the courts that actions violating the principle of good faith will not be tolerated. Hopefully this message will be heard by those looking to abuse the system and will serve as a deterrent to individuals or companies looking to initiate litigation to obtain improper benefits.