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PRC Supreme People's Court Judgment Concerning Issuing Cease and Desist Letter
The Supreme People's Court civil judgment No. Minsanzhongzi 7 (2014) issued in December 2015 addresses certain factors to be considered in deciding whether the issuance of a cease and desist letter by a patent holder may violate the Anti-Unfair Competition Law.
This case involves two phases of cease and desist letters issued in September 2003 and January 2004, respectively. In the first phase, the design patentee issued cease and desist letters to the manufacturer and its regional distributors for asserting design patent infringement. After negotiations failed, the manufacturer filed a suit against the design patentee for declaration of non-infringement and the patentee also filed a design patent infringement suit against the manufacturer. The two cases were later merged. Subsequently, the patentee issued the second phase of cease and desist letters to the manufacturer's nationwide distributors. In 2013, the manufacturer added tort claims to this case for the patentee's wrongful acts, including the issuing of the cease and desist letter with malice. In February 2014, the first instance judgment decided no infringement of the design patent concerned and awarded RMB 50 million to the manufacturer for the torts of issuing both phases of cease and desist letters. Both parties appealed the case to the Supreme People's Court, with the manufacturer seeking a higher amount of damages.
The Supreme People's Court sustained the non-infringement judgment of the first instance and decided that the issuing of the first phase of cease and desist letter was reasonable for the purpose of negotiation and thus was lawful. However, the scope of recipients of the cease and desist letter issued in the second phase was expanded from regional distributors to include nationwide distributors, with a correspondingly expanded impact on the market. Furthermore, the cease and desist letters did not specify substantive reasons supporting the allegation of infringement nor provide any patent infringement analysis. In addition, the design patentee failed to disclose the facts that both parties were pursuing judicial actions so that the distributors could have sufficient information for making business decisions. The patentee was negligent for not meeting its duty of acting with reasonably prudence when issuing the second phase of cease and desist letters and thus violated Article 2 of the Anti-Unfair Competition Law. RMB 16 million was awarded to the manufacturer according to Article 20 of the Anti-Unfair Competition Law.