In an appeal case concerning a dispute over infringement of technical secrets, the Intellectual Property Court of the Supreme People's Court conducted a comprehensive analysis to establish the joint infringement of three infringers, clarified and refined their respective infringement liabilities, reversed the original judgment and supported all claims of the plaintiff.
Company A said that it independently developed a production process, and on the basis of this process, Company A entrusted Company B to design a construction production scheme matching the process involved. The parties agreed that all intellectual property rights in the design results belong to Company A and Company B would be under a confidentiality obligation in respect thereof. The carrier of the technical secrets at issue is present in the design results. The technical secrets at issue carry enormous economic value, and Company A has taken a number of confidentiality measures for the technical secrets at issue. X, formerly a director of Company A, later transferred his shares and exited the company. The equity transfer agreement expressly provides that X and the company funded by him are prohibited from engaging in the same products and businesses as those of Company A. X, having had access to and gained mastery of the technical secrets at issue, breached his confidentiality obligation by revealing the said technical secrets to Company C and allowed Company C to use. Furthermore, he instigated and enticed the former designers of Company B into providing Company C with the complete set of drawings and technology pertaining to the technical secrets at issue. X and Company C also took advantage of the convenience of the civil engineering and equipment installation drawings in the technical secrets at issue, hired Company D to build a plant exactly the same as the Phase-II plant of Company A, and contacted the Phase-II facility supplier of Company A to supply the same equipment to Company C.
Company A filed suit in the first-instance court, requesting: 1. order Company C to cease infringement upon the technical secrets of Company A; 2. order Company C to dismantle and destroy the production equipment that infringes upon the technical secrets of Company A, and destroy the obtained drawings containing the technical secrets of Company A; 3. order X to stop unfair competition; 4. order X and Company C to jointly compensate Company A for economic losses and reasonable expenses totaling 60 million yuan; 5. order Company D to bear joint and several liability for the above economic losses and reasonable expenses within the scope of 20 million yuan.
The first-instance court found that: Company A is the right holder of the technical information at issue; in the technical information claimed by Company A, certain confidential aspects of plant layout, production equipment and manufacturing process are found to possess secrecy, economically valuable, and Company A has taken confidentiality measures, so they constitute technical secrets and should be protected; Company C used the technical scheme concerning relevant manufacturing process of the alleged infringement; the technical features of the infringing plant layout, production equipment, and manufacturing process are substantially the same as those of the corresponding confidential points asserted by Company A. The first-instance court held that that Company C violated Company A's requirements on keeping trade secrets and used technical information substantially the same as Company A's technical secrets at issue, constituting an infringement and Company C shall bear corresponding civil liability; order Company C to immediately stop infringing upon Company A's technical secrets and compensate Company A for its economic losses and reasonable expenses of 5 million yuan. However, other claims of Company A were rejected by the court. Company A's claim that Company C instigated and enticed Company D to reveal Company A's technical secrets to Company C in violation of confidentiality obligation was not supported due to lack of evidence. Company A's claim that X instigated and enticed Company D to reveal Company A's technical secrets to Company C in violation of confidentiality obligation was also not supported due to lack of evidence. Company A's claim that Company D has committed the alleged infringement was not supported due to lack of evidence. Company A's claim that X and Company D should bear infringement liability was not supported due to lack of factual and legal basis. And, Company A's claim that Company C should dismantle and destroy infringing production equipment and drawings was not supported.
Both Company A and Company C were dissatisfied with the first-instance judgment and appealed.
The Supreme Court conducted an examination on each of the disputed points:
It is clarified that the examination over infringement of trade secrets should generally focus on three issues: subject, act and responsibility. Wherein, the examination of subject (disputed technical information or business information) mainly involves three aspects: ownership (whether the disputed technical information or business information is legally controlled by the party claiming rights), scope (whether the disputed technical information or business information is clear and specific, so as to determine the scope of the disputed technical information or business information) and characteristics (whether the disputed technical information or business information has the legal conditions of trade secrets, i.e. secrecy, value and confidentiality).
In view of dispute I, whether Company A is the legal right holder of the technical information at issue: based on the evidence on file and the facts ascertained, Company A is the legal right holder of the technical information at issue.
In view of dispute II, whether the technical information for which Company A seeks protection qualifies as “technical secrets” under the Anti-Unfair Competition Law, the first-instance judgment’s analysis and determination regarding the secrecy concerning Company A’s plant layout, production equipment, and manufacturing process were proper and hereby affirmed. It is also found that Company A has taken corresponding reasonable confidentiality measures for the claimed technical information. Part of Company A's grounds of appeal on this disputed issue is established and shall be supported.
The major dispute III is whether Company A’s claim that X, Company C and Company D have infringed upon the technical secrets at issue is established. The following conditions need to be met to constitute joint infringement: two or more infringerss jointly commit an infringing act. From the point of view of subjective fault, jointly committing an act is either jointly intentional, or jointly negligent, or the combination of both. Either of above three situations can be identified as jointly committing a infringing act. Third, the victim has damage, and the damage is inseparable. Fourth, there is legal causal connection between the infringement of each actor and the consequential damage.
X engaged in the acts of acquiring the technical secrets at issue by other improper means, and instigating and enticing Y to violate the requirements of Company A on keeping trade secrets, and acquiring, revealing, using and permitting others to use the technical secrets of Company A; Company C engaged in the acts of acquiring, revealing, using or permitting others to use the technical secrets of Company A; Company D engaged in the acts of acquiring, revealing, using and permitting Company C to use the technical secrets (i.e. technical information related to civil engineering and plant layout) in violation of confidentiality obligation or the requirements of Company A on keeping trade secrets.
Although the infringement committed by X, Company C and Company D each occupy a different link in the chain of infringement, what X, Company C and Company D have done are not exactly the same, and their contributions to the damage caused by the infringement upon Company A’s technical secrets at issue are not the same. However, from the overall perspective, it should be considered that the three infringers obviously shared a common fault in unauthorized use of Company A’s technical secrets at issue.
Specifically, on the one hand, it should be considered according to the ascertained facts that X and Company C had a common intention in unauthorized use of Company A’s technical secrets at issue; on the other hand, Company D was at least obviously aware of Company C’s unauthorized use of Company A’s technical secrets relating to civil engineering and plant layout, but failed to fulfill the duty of care, thereby committing gross negligence. Therefore, it should be considered that X, Company C and Company D at least have a common fault (i.e. the combination of intentional behavior and negligent behavior) in making unauthorized use of Company A’s technical secrets relating to civil engineering and plant layout. Moreover, the acts engaged by the three infringers are indispensable to the ultimate damage that “Company A’s technical secrets at issue is infringed” (the other side of this damage is that Company C acquired and used Company A’s technical secrets through unfair competition, thus achieving the large-scale production of infringing products and seeking benefits). Therefore, on the basis of that X, Company C and Company D respectively infringed upon Company A’s technical secrets at issue, the second-instance court further found in accordance with law that X, Company C and Company D constituted joint infringement upon Company A’s technical secrets at issue.
The first-instance judgment’s founding that Company A's claim of technical secret infringement against X and Company D could not be established due to lack of evidence was improper. Company A's appeal is established, and supported by the court.
The dispute IV is the possible legal liabilities of Company C, X and Company D. In order to facilitate the smooth connection and efficient operation of trial and enforcement proceedings, and to ensure that the lawful rights and interests of the parties are protected in a timely manner, the People’s Court may, when ordering an infringer to assume civil liability for cessation of infringement, combined with the specifics of the case, either act in accordance with the specific claims of the right holder regarding the cessation of infringement or, when necessary, directly refine the specific way, content and scope of cessation of infringement as much as possible ex officio, in order to effectively enhance the enforceability and deterrent effect of judicial rulings. Meanwhile, in accordance with the relevant provisions of judicial interpretations on trade secrets, when the People’s Court renders a judgment ordering the cessation of infringement as civil liability for acts infringing upon trade secrets, the duration of such cessation shall generally last until the trade secret becomes publicly known. If the rights holder requests the Court to order the infringer to return or destroy the carrier of trade secret and to erase the trade secret information under their control, it is generally supported by the People’s Court.
Regarding the dismantling of the production equipment that infringes upon Company A’s technical secrets at issue, the first-instance judgment, taking into account the waste of social resources and production safety concerns, ordered to stop using but not destroy the production equipment, in the hope of encouraging Company A to reach a technical licensing agreement with Company C. In response, the Supreme People's Court held that although there is certainly some justification for the approach taken in the first-instance judgment regarding the aforementioned handling, considering the subjective fault of Company C in this case and the implementation scale of its admitted infringement, such a handling method not only unduly restricted the rights holder's full protection of its technical secrets but also risked creating a stalemate and potentially triggering new disputes or even litigation if the parties failed to reach an agreement, thereby failing to truly achieve the goals of resolving the case comprehensively and settling disputes definitively. In particular, this handling method cannot effectively protect Company A’s technical secrets at issue, and will also increase the cost of dispute settlement between the two companies to some extent. The primary goal of judicial protection for intellectual property rights is to comprehensively and effectively protect the intellectual property rights of right holders in accordance with law, resolutely crack down all acts of infringement that disrespect others' intellectual property rights, and effectively deter potential infringement attempts. At the same time, only by effectively curbing infringement and fully protecting intellectual property rights can we truly encourage all parties involved in the case to engage in good-faith negotiations based on a clear understanding of each other's rights and the boundaries of their acts, and to properly handle future related matters. Therefore, Company A's claim for dismantling the infringing production equipment should be supported by the Court.
To effectively prevent the continuous occurrence of infringement and the further expansion of damages, Company C not only bears the obligation to cease its infringement but is also obligated to notify, within the performance period specified in this judgment, its shareholders, directors, supervisors, senior management personnel, and affiliated companies with an investment relationship about this judgment and the requirements for cessation of infringement contained therein. It shall require the notified parties to actively cooperate in fulfilling the requirements for cessation of infringement set forth in this judgment and to sign a confidentiality agreement regarding trade secrets and non-infringement commitment.
Regarding the civil liability of compensation for losses, the Supreme Court held that Company A had made every effort to present evidence in support of its claim for compensation, while Company C failed to provide relevant financial information after the Court issued an order requiring Company C to provide the financial documents in its possession within a specified period, and offered no reasonable explanation or justification, thereby constituting an obstruction of the burden of proof. Meanwhile, the calculation method proposed by Company A is found to be reasonable and may therefore serve as the basis for determining the amount of compensation in this case. Therefore, the Court fully supports the economic losses and reasonable expenses of Company A's claim for compensation totaling 60 million yuan. As mentioned above, X and Company C jointly infringed upon Company A’s technical secrets at issue, Company A's claim that X and Company C jointly bear economic losses and reasonable expenses totaling 60 million yuan is supported by the Court.
Company D, together with X and Company C, constitutes a joint infringement in this case. Given that Company A has not provided direct evidence to prove that Company D also participated in the infringement of two of the technical secrets of its production equipment and manufacturing process, that is, the evidence on file can only prove that Company D infringed upon one of Company A's three technical secrets at issue (the one related to civil engineering and plant layout). In addition, the leading actor and ultimate beneficiary of the infringement in this case is Company C, not Company D, and Company A only filed a lawsuit to claim that Company D should be jointly and severally liable, within the scope of RMB 20 million, for the compensation amounts that X and Company C are required to pay. Therefore, taking the above factors into account, the Court ordered Company D to bear joint and several liability for RMB 20 million of the RMB 60 million in damages imposed upon X and Company C.
The Supreme Court decided to revoke the first-instance judgment and ordered Company C to cease, from the date this judgment is served, the infringement of Company A’s technical secrets at issue, and the duration of such cessation shall last until the technical secrets becomes publicly known. The Court further specified the specific way, content and scope of cessation of infringement, including but not limited to: 1) immediately cease revealing, using and permitting others to use Company A’s technical secrets at issue from the date when this judgment is served; 2) immediately destroy or transfer to Company A all drawings (in both hard-copy and electronic form) carrying Company A’s technical secrets at issue within 30 days from the date this judgment is served, under the supervision of the People's Court or in the presence of Company A; 3) dismantle the production equipment bearing Company A’s technical secrets at issue (the declaration formalities to the relevant administrative departments shall be fully fulfilled within 30 days from the date this judgment is served) within 180 days from the date this judgment is served, under the supervision of the People’s Court or in the presence of Company A; 4) within 30 days from the date this judgment is served, notify Company C’s shareholders, directors, supervisors, senior management personnel, and its affiliated companies with an investment relationship of this judgment and the requirements therein regarding the cessation of infringement, inform the aforementioned notified parties that they shall actively cooperate in fulfilling this judgment, and sign a confidentiality agreement regarding trade secrets and non-infringement commitment (with the text of the notice and the commitment attached). Meanwhile, the original copy of the commitment shall be submitted to the first-instance court, and a copy shall be provided to Company A; order Company C and X to jointly compensate Company A for economic losses and reasonable expenses of 60 million yuan within ten days from the effective date of this judgment; order Company D to bear joint and several liability for 20 million yuan of the compensation amount determined in the preceding item.
This case clarifies the consideration for determining joint infringing act, emphasizing that, in order to facilitate the smooth connection and efficient operation of trial and enforcement proceedings, and to ensure that the lawful rights and interests of the parties are realized in a timely manner, the People’s Court may, when ordering an infringer to assume civil liability for cessation of infringement, combined with the specifics of the case, either act in accordance with the specific claims of the right holder regarding the cessation of infringement or, when necessary, directly refine the specific way, content and scope of cessation of infringement as much as possible ex officio,, in order to effectively enhance the enforceability and deterrent effect of judicial rulings. It serves as guidance for both the adjudication of technical-secret infringement cases and the protection of such secrets by right holders.
(2023) Zui Gao Fa Zhi Min Zhong No. 1228
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