Legislation and Application of the Principle of Good Faith in the Field of Intellectual Property Rights in China (Yugong QIN)
Introduction
The principle of good faith is a moral rule formed within market economic activities. It requires that in market activities, individuals value trust, honor commitments, act sincerely without deception, and pursue their own interests while not harming the interests of others or society as a whole.[1] The principle of good faith integrates moral norms and legal norms, serving both regulatory functions in law and morality, thereby providing significant flexibility in its legal provisions. As a result, courts have relatively broad discretion and, in some cases, can directly adjust the rights and obligations between parties based on the principle of good faith, excluding the autonomy of the parties. Therefore, the principle of good faith is regarded as the supreme guiding principle of modern civil law and is referred to by scholars as the "emperor clause."[2]
Intellectual property rights are a crucial component of civil rights, and civil entities should adhere to the principle of good faith in activities related to intellectual property rights. In China, with the continuous development of the economic society and advancements in science and technology, activities related to intellectual property rights have become increasingly active. The principle of good faith, regarded as the "emperor clause," plays an increasingly important role in the field of intellectual property rights.[3]
1. Legislative Background and Current Situation of the Principle of Good Faith in the Field of Intellectual Property Rights in China
Article 7 of the "Civil Code of the People's Republic of China" clearly stipulates that civil entities should observe the principle of good faith, be honest, and honor commitments when engaging in civil activities. Additionally, Article 13, Paragraph 1 of the "Civil Procedure Law of the People's Republic of China" states that civil litigation should follow the principle of good faith. Thus, the principle of good faith functions not only as a substantive legal norm but also as a behavioral norm in litigation activities. Regarding the essence of the principle of good faith, Professor Shi Shangkuan advocates for the balance of interests theory, arguing that the principle of good faith balances the interests of all parties and considers not only the interests of the parties but also the general public interest of society.[4] Professor Xu Guodong also believes that in the relationship between the interests of the parties and society, the principle of good faith requires that parties should not harm the interests of third parties or society through their activities and should exercise their rights in a manner consistent with social and economic objectives.[5] In general, the academic community in China views the principle of good faith as an important principle for balancing the interests of the parties and the public interest of society.
Intellectual property rights have a fundamental attribute of private rights and are part of the civil rights system. Therefore, related theories and doctrines in the civil system provide theoretical support for the intellectual property rights system and regulations and play a crucial complementary role in establishing the legal remedies system for intellectual property rights.[6] Before the principle of good faith was formally codified in the field of intellectual property rights in China, relevant sectoral laws already contained provisions reflecting the principle to some extent.[7] However, with the development of China's socialist market economy, new situations and problems constantly emerged, particularly in the fields of trademarks and patents, where phenomena lacking integrity, such as preemptive trademark applications and fraudulent patent applications, were frequent.
As a result, China amended the Trademark Law in 2013, formally codifying the principle of good faith. Specifically, Article 7 was added, stipulating that "trademark registration applications and usage should adhere to the principle of good faith." During the deliberation process of the amendment, an expert pointed out that the phenomenon of lacking integrity is prominent in the trademark field, such as trademark applications aimed at profit through transfer, preemptive applications with malicious intent, malicious objections, and the "manufacturing" of well-known trademarks through falsified evidence, all of which violate the principle of good faith. The provision "trademark registration applications and usage should adhere to the principle of good faith," added to the draft amendment to the Trademark Law, effectively addresses these issues.[8]
Similarly, in the 2020 amendment to the Patent Law, China added Article 20, stating that "patent applications and the exercise of patent rights should adhere to the principle of good faith. The abuse of patent rights should not harm the public interest or the legitimate rights and interests of others." The National Intellectual Property Administration explained this amendment by stating that while the current Patent Law includes mechanisms for restricting the exercise of patent rights, such as compulsory licensing and provisions for non-infringement, it lacks a basic principle that governs these provisions. This deficiency leaves courts and administrative bodies without sufficient legal grounds when adjudicating certain cases or formulating relevant subordinate regulations. Thus, adding a principle-based provision to the Patent Law is necessary to regulate the abuse of patent rights and balance the interests of patent holders with the public interest.[9]
Unlike the Trademark Law and Patent Law, where the principle of good faith is explicitly stipulated, the Copyright Law in China does not clearly specify this principle. In terms of the mode of rights acquisition, copyright arises automatically upon creation, unlike trademark rights and patent rights, which are granted through the examination of state agencies. Consequently, issues such as preemptive trademark applications or fraudulent patent applications, which involve a lack of integrity, do not arise in the application process for copyrights. Furthermore, in terms of the exclusivity of rights, copyright is merely a relative exclusive right, unlike the absolute exclusive rights of patent rights and trademark rights. Specifically, under the Patent Law, only one patent can be granted for the same invention, while under the Trademark Law, the exclusive effect of trademark rights extends to goods or services designated or similar to those designated by the registered trademark. In contrast, the Copyright Law pursues cultural diversity, making the exclusivity of copyright weaker than that of patent rights and trademark rights. Therefore, the preconditions for copyright holders to abuse their copyright are inherently lacking, and in practice, cases of copyright abuse are rarely seen. Even if copyright abuse occurs, existing laws, including the Copyright Law, Civil Law, and Anti-Monopoly Law, can address the issue.[10] However, with the advent of the artificial intelligence era, some scholars advocate that, similar to the Trademark Law and Patent Law, the Copyright Law should also explicitly stipulate that the acquisition and exercise of copyright should adhere to the principle of good faith to ensure a favorable environment for cultural innovation and copyright management in the intelligent era.[11]
2. Specific Applications of the Principle of Good Faith in the Field of Intellectual Property Rights in China
(1) Specific Applications of the Principle of Good Faith in the Trademark Field
Both the "Trademark Law of the People's Republic of China" (amended in 2013) and the current "Trademark Law of the People's Republic of China" (amended in 2019) stipulate in Article 7 that "trademark registration applications and usage should adhere to the principle of good faith."
The trademark field in China implements a registration acquisition system, linking the acquisition of trademark rights to registration. This system has inherent defects, as it does not align with the essence of trademarks' identification function, which arises and strengthens through commercial use. These defects lead to improper behaviors, such as preemptive applications, malicious objections, and cancellations.[12] To effectively curb dishonest practices, such as preemptively applying for others' trademarks, the draft of the second review of the Trademark Law amendment in 2013 added a provision to the original Article 9, Paragraph 2, stipulating that "trademark registration applications and usage should adhere to the principle of good faith." However, during the third review by the Standing Committee of the National People's Congress, experts pointed out that the original Article 9 pertains to trademark registration, and the principle of good faith is a fundamental principle for both trademark registration and usage. Therefore, placing it under Article 9 was deemed inappropriate.[13] Consequently, the amended Trademark Law placed this provision in Article 7, Paragraph 1, establishing it as an important legal basis for governing the entire process of trademark application and usage.
(2) Specific Applications of the Principle of Good Faith in the Patent Field
Article 20 of the "Patent Law of the People's Republic of China," amended in 2020, stipulates that "patent applications and the exercise of patent rights should adhere to the principle of good faith. The abuse of patent rights should not harm the public interest or the legitimate rights and interests of others. If the abuse of patent rights constitutes monopolistic behavior that excludes or restricts competition, it will be handled according to the 'Anti-Monopoly Law of the People's Republic of China.'"
In alignment with this, the "Implementing Regulations of the Patent Law of the People's Republic of China," amended on December 11, 2023, added Article 11, stating that "patent applications should adhere to the principle of good faith. All types of patent applications should be based on actual invention and creation activities and should not be deceptive." Additionally, this article provides specific legal grounds for preliminary examination, substantive examination, and invalidation review.[14] Furthermore, to standardize the application criteria for the principle of good faith, the National Intellectual Property Administration formulated the "Regulations on Standardizing Patent Application Behavior," which specifies abnormal patent application behaviors, such as filing multiple patent applications with the same invention or creation content, fabricating experimental data, and assembling prior art, and defines them as abnormal application behaviors.[15] Furthermore, the newly revised "Guidelines for Patent Examination" stipulates that "the provisions governing the conduct of patent applications" shall apply to the examination prescribed in Article 11 of the Patent Law Implementation Regulations."[16] This has essentially established a system of good faith in China's patent application process, which focuses on regulating abnormal applications such as falsification, fabrication, and plagiarism.
Unfair practices in the exercise of patent rights include malicious litigation and false litigation, which are forms of abuse of litigation rights. The Supreme People's Court explained this in a related briefing, stating: "Malicious litigation involving the exercise of patent rights primarily includes the following expressions: First, filing a patent infringement lawsuit knowing that the patent does not exist, such as when the patent has already expired due to non-payment of maintenance fees. Second, filing a patent application maliciously for a technical solution that another party has already publicly sold, followed by filing a patent infringement lawsuit. Third, filing another patent infringement lawsuit for the same suspected infringing act with the same patent after a valid ruling or judgment has determined that the act does not constitute infringement, or initiating litigation again even though the parties' dispute has been substantially resolved."[17] Additionally, the "Reply of the Supreme People's Court on the Issue of Compensation for Reasonable Expenses Claimed by the Defendant in Intellectual Property Infringement Litigation Due to the Plaintiff's Abuse of Rights" (Fa Shi [2021] No. 11) further clarifies that in intellectual property rights infringement litigation, if the defendant provides evidence that the plaintiff's lawsuit constitutes abuse of rights and causes damage to the defendant's legitimate interests, the People's Court shall support the defendant's claim for compensation for reasonable expenses, such as attorney fees, travel expenses, meal expenses, and accommodation costs incurred during the litigation. The defendant may also file a separate lawsuit to claim compensation for damages caused by the plaintiff's malicious intellectual property rights litigation. The application of the "Principle of Estoppel" in the patent field also reflects the requirement for the rights holder to act in good faith.[18]
3. Application of the Principle of Good Faith in Case Law
(1) Typical Cases Involving the Application of the Principle of Good Faith in the Trademark Field
In trademark rights granting and confirmation cases, as well as trademark infringement cases, the criteria for applying the principle of good faith in China's judicial practice vary somewhat.[19]
In trademark rights granting and confirmation cases, the principle of good faith is generally used as a supplement to specific legal provisions. For example, in the case (2015) Zhi Xing Zi No. 116, the Supreme People's Court determined that the opposed trademark was similar to the cited trademark and did not comply with the provisions of the Trademark Law. The court further pointed out that when registering and using related trademarks, one must adhere to the principle of good faith and avoid maliciously exploiting the reputation and good commercial credit of others. If a competitor knowingly or should have known of another's trademark and still maliciously applied for and used a similar trademark, allowing the "market order" or "reputation" formed by such actions would encourage competitors to act against the principle of good faith, contrary to the legislative intent of "protecting the exclusive rights of trademarks" under the Trademark Law.[20]
In trademark infringement cases, the principle of good faith can be directly applied and serves as the legal basis for regulating abusive actions. In the leading case No. 82 "Gao Lisi" Trademark Case, the Supreme People's Court recognized that the principle of good faith is a fundamental rule that all market participants should follow, requiring parties to exercise their rights in good faith and prudence without harming the interests of others and society. The lawsuit filed against Gali Si Company's legitimate use of a trademark acquired in bad faith was deemed an abuse of rights, and the related claims were not supported by law.[21]
(2) Typical Cases Involving the Application of the Principle of Good Faith in the Patent Field
In the patent rights granting and confirmation process, the principle of good faith is mainly used to regulate abnormal application behaviors. Given that the Patent Law, its Implementing Regulations, and related provisions have been recently revised, there are currently not many typical cases where the principle of good faith has been violated and declared invalid. However, in administrative procedures, the National Intellectual Property Administration has published typical cases of abnormal patent applications, listing dishonest behaviors such as submitting stolen or fabricated patent applications, using false addresses or contact information for patent applications, and organizing the fabrication and resale of patents.[22]
In patent infringement cases, the principle of good faith is mainly used to regulate improper exercise of rights, such as malicious litigation. In the case (2022) Zuigao Fa Zhi Min Zhong No. 1861, the Supreme People's Court ruled that malicious intellectual property rights litigation must meet the following elements: 1) the lawsuit filed clearly lacks a basis in rights or factual grounds; 2) the plaintiff knows this; 3) it causes damage to others; and 4) there is a causal relationship between the lawsuit filed and the resulting damage. If a patent holder knows that the related patent has expired due to non-payment of maintenance fees and still files a patent infringement lawsuit, causing losses to others, it can be considered malicious intellectual property rights litigation.[23] In the case (2022) Zuigao Fa Zhi Min Zhong No. 139, the Supreme People's Court ruled that patent holders must adhere to the principle of good faith when exercising their patent rights. If a right holder participates in a project and voluntarily provides patent technology, they must disclose the relevant patent situation to those involved in the project. If the right holder intentionally fails to disclose the above facts, it can be presumed that the project implementer is implicitly permitted to use the patent technology within the project scope, and the right holder may not assert rights related to the patent.[24]
Furthermore, as understanding of the principle of good faith deepens, in some cases, the defendant can use the plaintiff's violation of the principle of good faith and abuse of rights as a defense. In the case (2022) Zuigao Fa Zhi Min Zhong No. 124, the Supreme People's Court ruled that the prohibition of abuse of rights is an embodiment of the principle of good faith and a basic requirement for exercising civil rights. In patent infringement cases, the stability and validity of the patent are prerequisites and foundations for adjudicating patent infringement cases. If the court ignores the defendant's arguments regarding abuse of rights or the invalidity of the patent and still holds the defendant liable for infringement, it would be clearly contrary to the principle of fairness and would not encourage valuable inventions and creations. If there is evidence proving that a patent is likely to be declared invalid, the court may order a stay of the infringement proceedings or dismiss the case if necessary.[25]
4. Advice on Intellectual Property Rights Management for Japanese Companies in China
As an important legal provision for balancing the interests of the parties and society, the principle of good faith is becoming increasingly important in judicial practice in China. In light of the legislative background, specific provisions, and interpretations of typical cases of the principle of good faith, Japanese companies should appropriately respond in the following areas, avoid related risks, and fully utilize the principle of good faith to protect their legitimate interests.
1. In the rights granting and confirmation process, pay sufficient attention to compliance requirements for applications and choose high-level agencies. In trademark matters, investigate potential obstacles to rights related to their own marks as early as possible to avoid the risk of invalidating the accumulation of their commercial credit due to the use of marks similar to others' prior trademarks. In patent matters, fully understand the specific forms of abnormal applications and avoid engaging in abnormal application behaviors. For ungranted patents of competitors, use public comments to prevent competitors from obtaining patent rights early. For granted patents of competitors, consider requesting invalidation based on the reliability of data and other aspects.
2. In infringement proceedings, as a right holder, accurately grasp the constituent elements of the principle of good faith and exercise rights reasonably. As a defendant, fully understand the essence of the principle of good faith, submit defense arguments, and focus on collecting evidence of the plaintiff's dishonesty. Depending on the situation, choose to claim compensation for reasonable expenses based on the plaintiff's abuse of rights or file a separate lawsuit to demand compensation for damages caused by the plaintiff's malicious intellectual property rights litigation, thus countering the plaintiff's abusive litigation actions.
[1] Yang Hye-sung: "Fidelity Rule and Supplementation of Shortages," "Law Research," the second phase of 1994.
[2] Yang Hye-sung: “Law” page 323.
[3] Under section 123 of “the National Code of the People's Republic of China”, intellectual property rights include: (1) works; (2) inventions, utility models, designs; (3) trademarks; (4) geographical signs; (5) trade secrets; (6) layout design of integrated circuits; (7) new plant varieties; and (8) other objects. This article mainly introduces the three major intellectual property laws: patent law, trademark law, and copyright law.
[4] Shisho Hiroshi: "General Debts Law," Taipei Five-Printed in 1978, p. 319.
[5] Xu Guo-Wing: "Interpretation of the Basic Principles of Civil Code", 1992 edition of China Political Law University, p. 78.
[6] Yi Sun-ming: "Application of the principle of prohibition of abuse of rights in the field of intellectual property rights," "Chinese Law," the fourth period of 2013.
[7] Pursuant to section 31 of the People's Republic of China Trademarks Act (Amendment 2001), a trademark application shall not prejudice another person's existing prior rights and shall not preemptively apply for trademarks that are already used and have a certain influence. According to the provisions of Article 41, if a registered trade mark violates the provisions of Articles 10, 11 and 12 of the Law, or if registration is obtained by fraud or other wrongful means, the Trade Mark Office shall revoke the registered trade mark. Any other organization or individual may request the Trademark Review Board to adjudicate the revocation of the registered trademark.
[8]Hokudai Hobo: "Some Experts' Opinions on Draft Trademark Law Amendment," https://www.pkulaw.com/protocol/689e02c29528b63891d0c6b3aed56ba1bdfb.html , Last Access Date: April 1, 2024.
[9] National Bureau of Intellectual Property and Industry: [Recruitment of Opinions] Explanation on Draft Patent Law Amendment of People's Republic of China (Recruitment of Opinions), https://www.cnipa.gov.cn/art/2015/4/1/art_317_134082.html , Last Access Date: April 2, 2024.
[10] Li Yang: "Impression, Speculation and Proposition of Copyright Abuse Clause in Draft Copyright Law Amendment," Official Account of Intellectual Property Finance, https://mp.weixin.qq.com/s/P-4ZodiKR-O-Evex5rLhUQ , Last Access Date: April 2, 2024.
[11] Lee Jong-hui: "The Need and Development of the Intellectual Age <Copyright Act> to Define Faith Rules - Thinking by ChatGPT," "Peking University Academic Journal (Humanities and Social Sciences Edition), Volume 22 of January 2024.
[12] Jang Ok-min: "Trademark Law of Faith" and "Intellectual Property Rights," the seventh period of 2012.
[13] Rui Wenbiao, Ling Zongliang: "The Essence and Judicial Application of the Principle of Good Faith in the New Trademark Law," Electronic Intellectual Property, 2015, Issue 1.
[14] Refer to the reasons for the preliminary examination of Article 50, the substantive examination of Article 59 and the appeal for invalidation of Article 69 of “the Patent Act of the People's Republic of China (Amendment 2023)”.
[15] Article 2: When filing or representing a patent application, it shall comply with the relevant provisions of laws, administrative regulations and departmental regulations, strictly observe the principles of the Patent Act, and shall not make false accusations.
Article 3: The act of filing an abnormal application referred to in these Regulations includes the following. (1)(2) A patent application filed is a simple combination of features and elements of invention creation that are clearly the same or substantially different. (2) A patent application filed is fabricated, forged, altered, or plagiarized, easily replaced, or collected. (3) A patent application is not filed with computer technology. (6) Cases where multiple patent applications relating to a substantially specific organization, individual, or address are maliciously distributed, before, or in different areas. (7) Cases where the patent application right is transferred, transferred, or the inventor or designer has been changed to a false one for a wrongful purpose. (8) Any other unusual act of patent application that violates the principles of good faith and disturbs the normal order of patent business.
[16] Instruction for Patent Examination See Part I, Part I, Section 7.9, Article 11 of the Patent Act, Part II, Section 5 of the Patent Act, Section 5 of the Patent Act and Section 11 of the Patent Act, Part III, Section 6.3, Part II, Section 5 of the Patent Act.
[17] China Court Network: 'Enhance full intellectual property trial function and play a better role in building an intellectual property powerhouse - Chief People's Court officials answer reporters' questions on the appeal mechanism of intellectual property courts and state-level intellectual property cases,' https://www.chinacourt.org/article/detail/2024/02/id/7812013.shtml, Last Access Date: April 7, 2024.
[18] Please refer to Article 6 of the Supreme People's Court's Interpretation of Some Problems with the Application of Law in the Proceedings of Disputes for Infringement of Patent Rights. The People's Court will not support the technology plan abandoned by the patent applicant or patentee through amendment or statement of opinion in the patent grant or invalidation trial procedure if the right holder further incorporates it into the scope of patent protection.
[19] Please refer to Article 1 of the Supreme People's Court Regulations (2020 Amendment) on some issues in the examination of trademark rights and administrative cases determining rights. A trademark right granting and determining administrative case is a case in which the other party or interested party files a lawsuit with the People's Court against a trademark rejection decision, trademark objection, trademark revocation appeal, trademark invalidation appeal, etc.
[20] Refer to the Administrative Judgment of the Supreme People's Court (2015) Zhi Xing Zi No. 116.
[21] Refer to the Administrative Judgment of the Supreme People's Court (2014) Min Ti Zi No. 24.
[22] Typical Case of Abnormal Patent Application, published on the official account of the National Intelligence and Industry Administration, https://mp.weixin.qq.com/s/OZP0KMNeAukFOOaav9IJkQ, Last accessed: April 3, 2024.
[23] Refer to the Civil Judgment of the Supreme People's Court (2022) Zhi Min Zhong No. 1861.
[24] Refer to the Civil Judgment of the Supreme People's Court (2022) Zhi Min Zhong No. 139.
[25] Refer to the Civil Judgment of the Supreme People's Court (2022) Zhi Min Zhong No. 124.