The Supreme People's Court concluded a case involving an on-the-job technical professional who invested and established a separate company, "cloning" relevant business operations to infringe upon the trade secrets of his employing company. The court revised the original ruling, recognizing both relevant technical and operational information as trade secrets. Based on the evidence presented, the court determined that the employee and his newly established company jointly committed acts of trade secret infringement.
Chongqing A Company (hereinafter referred to as “Company A”) filed a lawsuit with the court of first instance, accusing that Natural person X, one of its technical management personnel, had invested in and established Chongqing B Company (hereinafter referred to as “Company B”) during his employment with Company A. X violated confidentiality obligations by disclosing Company A's technical secrets and operational information to Company B. Company B then used this information to manufacture identical adjustor products, which were then sold to Tianjin C Company, one of Company A's distributors, for use with coatings. Meanwhile, Company B utilized domestic substitute raw material information disclosed by X to preemptively sign sole agency agreements with manufacturers, and subsequently sold these materials to Company A at a high price for profit. Company B, aware of X's infringement of Company A's trade secrets, knowingly used such information, thereby constituting joint infringement with X. Company A sought injunctive relief against X and Company B to cease using its trade secrets and demanded compensation for damages and reasonable expenses.
Upon trial, the court of first instance held that neither the technical nor operational information claimed by Company A constituted trade secrets, and accordingly dismissed all of Company A's claims. Dissatisfied with this ruling, Company A appealed.
The Supreme People's Court, in its second-instance judgment, clarified that when a trade secret right holder initiates litigation against the alleged infringement on its trade secret, it bears the initial burden of proof regarding the key facts that constituting unfair competition by infringing trade secret. In determining whether a trade secret is "not generally known to the public," the right holder should not be required to provide excessively stringent proof distinguishing its claimed trade secrets from public information. Where the right holder provides preliminary evidence proving the secrecy of technical information (e.g., by demonstrating the organization of technical personnel to process and compile the relevant technical information), or offers a reasonable explanation or justification for why the claimed technical secret is "not generally known to the public," such evidence may suffice for a preliminary determination that the secrecy requirement is met. Once the right holder has presented preliminary evidence, if the alleged infringer claims that the technical secret in question is publicly known, they shall submit evidence to substantiate such defense, rather than merely raising a negative plea. When determining whether the trade secret owner has implemented corresponding confidentiality measures, the assessment shall generally focus on two aspects. The first assessment shall be whether the right holder has provided evidence demonstrating that they have taken objective measures reflecting their intent to maintain secrecy. However, such confidentiality measures do not need to meet an excessively stringent standard, nor must they strictly correspond to each specific item of confidential content on a one-to-one basis. The second assessment shall be made on the infringer’s specific role, managerial responsibilities, and other relevant factors. These shall be considered from the perspective of a dutiful confidentiality manager (bona fide secret keeper), and their confidentiality obligations shall be comprehensively evaluated in accordance with the proper conduct as defined under Article 2 of the Anti-Unfair Competition Law.
Regarding the technical information at issue, Company A sought protection for precise quantitative composition data of its adjustor product series. X failed to provide sufficient evidence proving that the specific composition data could be directly obtained through reverse engineering, nor did he submit evidence of actually conducting such reverse engineering for obtaining such specific composition data. Therefore, the specific composition data claimed by Company A were not generally known or readily accessible to relevant industry personnel at the time of infringement, i.e., not generally known to the public and constituting trade secret.
As for the operational information regarding domestic substitute raw materials, Company A had undertaken efforts on raw materials localization to reduce production costs. Through numerous testing, it identified domestic manufacturers producing raw materials qualified for replacing imported raw materials and established corresponding technical standards. To achieve such, Company A inevitably incurred necessary substantial operational costs in the process. No evidence indicated that this localization information had been publicly known. Company A required employees, including X, to maintain confidentiality obligations regarding the company’s technical data and business channels by means such as signing confidentiality clauses in employment contracts, and implementing the Employee Handbook and Computer Usage Policy. Particularly, as a core technical employee, X should have recognized the commercial value of such information as important business secrets of Company A and was accordingly bound by confidentiality obligations. Based on the totality of evidence, the court concluded that the domestic substitute raw material and relevant operational information constituted trade secrets.
During his employment with Company A, X invested in, established, and effectively controlled Company B, violating confidentiality obligations by disclosing and permitting Company B to use the technical information of the adjustor and the operational information of the domestic substitute raw material of Company A. With full awareness of X's role as an employee of the right holder, Company B utilized these trade secrets to manufacture and sell adjustor products to Tianjin C Company, effectively "cloning" Company A's products and business operations, thereby infringing upon the technical secrets of Company A's adjustor. Plus, combining evidence on file, it can be further established that X and Company B jointly infringed upon Company A's domestic substitute raw material operational information. Company B and X were thus held jointly liable for their collaborative acts of infringement.
After comprehensive consideration of factors including the nature of the trade secrets, commercial value, R&D costs, degree of innovation, competitive advantages gained, the infringers' subjective fault, nature and circumstances of the infringement, and the profit statements made by Company B's legal representative during police interrogation, the second-instance court ordered X and Company B to cease infringement and jointly compensate Company A for damages of CNY 2.1 million plus reasonable expenses of CNY 200,000.
This case further clarifies the specific criteria for determining whether technical secrets are "not generally known to the public" and whether reasonable confidentiality measures have been taken. Moreover, despite the right holder's failure to preserve the alleged infringing products, the court comprehensively evaluated all evidence and concluded that the defendant had engaged in the infringement of the trade secrets in question. The ruling holds reference value for adjudicating similar cases in the future.
(2022) Zui Gao Fa Zhi Min Zhong No. 2581
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