In China, patent infringement disputes often hinge on the stability of the underlying patent right. When patent validity is uncertain, courts face the critical task of balancing various interests, including primarily the patent holder's right to protect their innovation and the alleged infringer's right to avoid undue burden and seek remedies.

This article analyzes two landmark decisions of the Supreme Court (SPC), examining case details, judicial reasoning, and impacts on the parties, to shed light on how interests are balanced when patent stability is uncertain.

Case 1: (2022) SPC Civil Final No. 124

Case Overview and Judicial Process

This dispute involved Company Z suing Company S for infringing its utility model patent. Company S countered that Company Z had filed two patents on the same day for identical technology, one of which had already been invalidated. The first-instance Court, recognizing the substantial identity between the two patents, concluded there was a clear or strong likelihood the remaining patent would also be invalidated, leading it to dismiss Company Z's claims.

Company Z appealed to the SPC. During the second instance, Company S initiated an invalidation proceeding against the disputed patent. Recognizing the uncertainty over the patent's validity, the SPC guided both parties to voluntarily commit to future compensation arrangements contingent on the patent's fate. The approach enabled the Court to revoke the initial judgment and dismiss the case, in a manner that preserved Company Z's right to sue again if the patent survived the invalidation process.

Judicial Reasoning and Significance

This decision marked the first time the SPC encouraged parties to make voluntary commitments tied to ongoing administrative patent reviews. The Court's rationale was rooted in principles of fairness and good faith. By enabling such obligations, the SPC facilitated a settlement-like approach that maintained procedural efficiency while acknowledging the core uncertainty surrounding the validity of the patent right. This approach enabled a more flexible and equitable resolution, preventing an immediate, potentially unjust ruling based on an unstable right, and deferring to the specialized administrative procedure for patent validity confirmation.

Impact on the Parties

For the patent holder, Company Z, the case outcome offered both strategic relief and lingering challenges. By avoiding the immediate and definitive dismissal imposed by the first-instance Court, Company Z preserved an opportunity for its patent to be upheld through the invalidation process. The voluntary compensation arrangement also established a framework for potential future recovery if the patent were ultimately found to be valid. However, the company did not secure immediate injunctive relief or damages. The dispute's resolution was effectively postponed, tied to the uncertain outcome of the invalidation proceeding, which itself involves further costs and risks. Additionally, Company Z's commitment to a future compensation mechanism introduced a prospective obligation that could become significant if the patent were to survive.

For the alleged infringer, Company S, the decision likewise presented a mix of advantages and new burdens. The dismissal of the case shielded the company from immediate liability and adverse judgment, affording critical breathing space. It also provided an essential window to actively pursue invalidation of the patent, a move that could ultimately eliminate the infringement claim. Nonetheless, Company S still faced the possibility of renewed litigation should the patent withstand the validity challenge. Engaging in the invalidation process also meant incurring additional legal expenses and dedicating time and resources to a complex proceeding, prolonging the overall dispute.

Case 2: (2022) SPC Civil Final No. 2833

Case Overview and Judicial Process

This second case addressed similar tensions regarding patent stability but under different circumstances. The patentee, an environmental company, initially secured a first-instance ruling that a tech company had infringed its utility model patent, ordering the tech company to cease infringement and pay roughly RMB 250,000. However, the lower Court's judgment also noted that the patent evaluation report questioned the inventiveness of all claims, thereby raising significant doubts about the patent's stability.

On appeal, the SPC faced a unique situation: despite being aware of the patent's questionable validity based on the evaluation report, the patentee refused to offer any future compensation guarantees in the event of potential invalidation. Concurrently, the alleged infringer would not plan to pursue an invalidation proceeding.

In response, the SPC extended the payment deadline by one year. This extension came with a critical stipulation: if the infringer did not initiate or lose an invalidation action within that year, it would be liable for double interest on any delayed payments.

Judicial Reasoning and Significance

The SPC's decision in this case was heavily influenced by the principle that rights should not be abused and that patent holders must act in good faith. The Court emphasized that a stable patent right is a prerequisite for just infringement liability. It reasoned that a patentee who, despite knowing their patent's questionable validity, insists on pursuing an infringement suit that ultimately proves baseless due to invalidation, might be abusing their rights. The SPC highlighted that simply upholding a patent as valid in an infringement suit, while ignoring its questionable stability, would violate the principle of fairness and undermine the incentive for truly valuable innovations.

The Court therefore listed potential interest-balancing measures, including proactively informing alleged infringers about their right to initiate invalidation proceedings (and potentially suspending the infringement suit thereafter), guiding parties to make future compensation commitments, or, as applied in this case, extending the performance deadline for an infringement judgment. This last measure served to compel the alleged infringer to seek remedies for their benefit actively. The SPC explicitly criticized both parties for their inaction: the patentee for not making compensation promises despite doubts about stability, and the alleged infringer for neglecting to seek an available remedy.

Impact on the Parties

For the patent holder, the environmental company, the outcome offered partial affirmation of its rights but came with meaningful setbacks. While the company ultimately preserved the finding of infringement and retained the right to damages, the patent was not invalidated outright by the Court. However, the collection of the awarded compensation was delayed by a whole year, which impacted cash flow and enforcement certainty. Notably, the Supreme People's Court implicitly criticized the patentee for refusing to provide future compensation guarantees despite doubts over the patent's stability, signaling a lack of good faith that could tarnish its credibility in future disputes. The company also faced the ongoing risk that the patent might be invalidated in the future, which would render the damages award effectively unenforceable.

For the alleged infringer, the tech company, the judgment provided critical breathing room but introduced substantial new pressures. The additional one-year period granted by the Court allowed it either to prepare for payment or, more importantly, to initiate a patent invalidation proceeding that could eliminate liability. This grace period offered both financial relief and a clear procedural opportunity to challenge the patent. At the same time, the company faced the significant burden of acting decisively: failing to pursue invalidation or losing such a challenge would mean not only paying the original damages but also incurring double interest on the delayed payment. The Court's remarks on its lack of prudent action underscored the importance of actively defending its position, warning that passive strategies could invite harsher consequences in future litigation.

Conclusion

Lessons Learned for Stakeholders

These two landmark cases from China's Supreme Court illustrate the judiciary's proactive approach to balancing interests when patent validity is uncertain. They move beyond a binary "valid or invalid" approach in infringement suits, embracing more flexible solutions.

For Patent Holders: These cases underscore the critical importance of ensuring patent quality and stability before initiating infringement litigation. Patent holders are encouraged to act in good faith and consider commitments that mitigate risks for alleged infringers, particularly when the validity of a patent is questionable. Failing to do so can lead to delays in judgment enforcement or even judicial criticism, as seen in Case 2. The SPC's willingness to engage in interest balancing means patent holders might face more complex paths to relief, but also provides avenues to preserve claims even when stability is initially doubtful.

For Alleged Infringers: These decisions highlight the imperative for alleged infringers to be proactive in asserting their rights. When faced with a potentially unstable patent, relying solely on an infringement defense is insufficient. Actively pursuing patent invalidation proceedings is crucial to avoid potential "neglect of available remedies" criticism and adverse consequences, as demonstrated by the double interest penalty in Case 2. The extended performance period or dismissal for re-filing offers valuable time and leverage if utilized effectively.

Auther: Dawn YU