Answer: The so-called departed employee poaching customer normally refers the departed employee taking advantage of the personal relationship established with employer’s customer to attract and persuade the customer to become a customer of their new employer or their own business.
If the employer and the employee have signed a non-competition agreement, the employer can certainly hold the employee responsible for poaching the customer according to the non-competition penalty. However, under trade secret law and practice, it is very difficult and highly uncertain for the employer to pursue the employee’ liability for this type of activity.
Article 1 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets in 2020 stipulates: “The customer’s name, address, contact information, trade habits, intentions, content and other information contained in customer information are in-depth business information in trade secrets and shall be protected.” However, Article 2 of this regulation appears to be based on the principle of free market competition, requiring to limit the scope of infringement of trade secrets and that an employee’s post-employment transaction with former employer’s customer without unlawful acts, especially the customer voluntarily trading with the employee or their current employer, should not be considered as trade secret infringement. 1Article 2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). “The people’s court shall not support a party’s claim that a specific customer is a trade secret only on the ground of maintaining a long-term stable trading relationship with the specific customer. If a client conducts a transaction with the new employer of the former employee based on their trust in the employee, and after the employee terminates the role, it can be proved that the client voluntarily chooses to conduct a transaction with the employee or the new employer of the employee, the people’s court shall determine that the employee has not obtained the trade secrets of the right holder by unjustified means. “]In practice, in most cases, employers’ customers are willing to trade with departed employees or their new employers, and these transactions are usually based on in-depth business information; therefore it is a problem that the Supreme Court’s regulation cannot solve the problem of whether the situation of the departed employee trading with former employers’ customers should apply Article 1 to protect trade secrets, or apply Article 2 to deny trade secrets infringement.
At present, there are also contradictory judgments and opinions in judicial decisions.
Some judgments are based on the aforementioned Article 1 to examine whether there is in-depth customer information in the case, including the customer’s trading needs, habits, and information content as trade secrets. Employees using these in-depth information and contacting with customers constitutes infringement of trade secret. In the case of Anmei Weike (Beijing) Internet Technology Co., Ltd. in 2020, the Supreme Court, held that publicly available information such as the name list and addresses of customers do not constitute trade secrets; in the case of Qingdao Melville Machinery and Equipment Import and Export Co., Ltd. in 2020, an employer’s senior manager did four transactions with a department of the Sudanese government in two or three years on behalf of the company. Later, the manager set up a company to trade with the customer through his wife, and the transaction items were largely the same as the company’s original transaction. The Supreme Court ruled that it constituted an infringement of trade secrets.1Anmei Weike (Beijing) Internet Technology Co., Ltd. and Lingbo Technology (Beijing) Co., Ltd., Zheng Guanghui, Wu Jianming, Shi Hongliang and Xu Feng Infringement of Computer Software Copyright and Infringement of Trade Secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) No.1099. The court held that “According to the customer list submitted by Anmei Weike Company, the list is only a list of hotels, which can not show the special customer information different from the relevant public information, such as customer address, contact information, trading habits, intentions and contents, and the hotel name can be obtained through public channels, so it can not constitute the trade secret of Anmei Weike Company.” Qingdao Melville Machinery and Equipment Import and Export Co., Ltd., Xu Jingqing Civil Ruling on Retrial Review and Trial Supervision of Infringement of Trade secrets Disputes, Civil Ruling of the Supreme People’s Court of the People’s Republic of China (2020) ZGFMS No.401. In the case, the company’s senior manager has represented the company four times in two or three years trading with a government departments of Sudan, a major customer. Later, the manager set up a company through his wife to trade with the client, and the content of the transaction was basically the same as the original transaction of the company. The court held that this constituted an infringement of trade secret. Shenyang Industrial Pump Manufacturing Co., Ltd., Du Shaolong and other civil judgments of the second instance of civil disputes over infringement of trade secrets, Liaoning Provincial People’s High Court Civil Judgment (2021) Liao Min Zhong No.879. The court held that “Shenyang Industrial Pump Co., Ltd. can not claim that the specific customer belongs to a trade secret merely on the ground of maintaining a long-term trading relationship with the specific customer so as to restrict the right of the customer to choose their own trading partners and other business entities to participate in competition. Customer’s product requirements, product models, and technical parameters are very easy to be obtained by the relevant personnel in the field, and they are not confidential.” Xu Shuzhen and Lianyungang Qunsi Electronic Commerce Technology Co., Ltd. in the case of labor dispute appeal, Jiangsu Lianyungang Intermediate People’s Court Civil Judgment (2016) Su 07 Min Zhong 3313. In the case, the two parties signed a confidentiality and non-competition agreement, but did not agree to pay non-competition allowance, employees left the company, engage in competitive business, and contacted the employer’s customer group. The court held that the customer group belonged to the core business of the employer and was a trade secret, and that even if the non-competition allowance was not paid, it would not affect the employee’s liability for liquidated damages, and ordered the employee to compensate six months of wages, RMB 36,000 and the lawyer’s fee.
However, there are similar cases with the opposite result. In the case of Shijiazhuang Shimai Valve Manufacturing Co., Ltd. before the Supreme Court in 2020, a shareholders of the company and some others founded a new company engaged in the same business, trading with the company’s customers. The Supreme Court held that the customer had not formed long-term relationship with the company (only two transactions in one year), and there was no evidence showing that it involved specific trading needs, models, and other secret information, so it did not constitute trade secrets, nor did it constitute infringement.2Shijiazhuang Shimai Valve Manufacturing Co., Ltd. and Hebei Chuangmin Technology Co., Ltd. Civil Judgment of the Second Instance of the Dispute over Infringement of Trade secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) ZGFZMZ No.1695. In the case, a shareholders of the company established a new company with others and traded with the company’s customers who had two transactions with the company a year ago. The court found that the customer had no long-term relationship, and there was no evidence to show that there was specific trading needs, models, and other secret information, so it did not constitute a trade secret, nor did it constitute infringement.]Similarly, in the case of Kanhe before the Supreme Court in 2021, three employees set up a new company two years after joining an international logistics company and poached 25 customers of the company. The Supreme Court set aside the second instance judgment that found infringement, ruling that the content of the evidence (VAT invoice) submitted by the plaintiff was not a trade secret and the plaintiff’s claim was rejected.2(2021) Supreme Fa Min Zai No.310, Kan He et al. and Anhui Jinling International Freight Forwarding Co., Ltd. in the retrial of the dispute over infringement of trade secrets. In the case, after working for more than two years, three employees of the International Freight Forwarding Co., Ltd. established the same business enterprise and began to trade with 25 customers of the company. The first and second instance judgment found infringement, but the Supreme Court found that the VAT invoice evidence submitted by the plaintiff could not prove that the customer information belonged to trade secrets, and rejected the plaintiff’s claims. The appeal case of unfair competition disputes between Guangxi Hengsheng Electronic Technology Co., Ltd. and Tan Weiwei, the Civil Judgment of the High Court of Guangxi Zhuang Autonomous Region (2021) Gui Min Zhong No.1196.
Therefore, under the current law and case practice in China, an employee who has signed a valid non-competition agreement should certainly bear the liability for breach of contract, but whether the employee’s trading with employer’s customer, after leaving the company without a non-competition agreement, constitutes an infringement of trade secret is uncertain in different courts around the country. China’s trade secret law regarding customer poaching needs improvement because it is hard to distinguish infringement and non-infringement and thus legal consequence and outcome are uncertain in the system. Please refer to How to construct a reasonable rule in judging whether a customer poaching act constitutes infringement? Some Thoughts on the Reform of the Legal System Framework of China’s Trade Secrets regarding Customer Information.
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- 1Article 2 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). “The people’s court shall not support a party’s claim that a specific customer is a trade secret only on the ground of maintaining a long-term stable trading relationship with the specific customer. If a client conducts a transaction with the new employer of the former employee based on their trust in the employee, and after the employee terminates the role, it can be proved that the client voluntarily chooses to conduct a transaction with the employee or the new employer of the employee, the people’s court shall determine that the employee has not obtained the trade secrets of the right holder by unjustified means. “]In practice, in most cases, employers’ customers are willing to trade with departed employees or their new employers, and these transactions are usually based on in-depth business information; therefore it is a problem that the Supreme Court’s regulation cannot solve the problem of whether the situation of the departed employee trading with former employers’ customers should apply Article 1 to protect trade secrets, or apply Article 2 to deny trade secrets infringement.
At present, there are also contradictory judgments and opinions in judicial decisions.
Some judgments are based on the aforementioned Article 1 to examine whether there is in-depth customer information in the case, including the customer’s trading needs, habits, and information content as trade secrets. Employees using these in-depth information and contacting with customers constitutes infringement of trade secret. In the case of Anmei Weike (Beijing) Internet Technology Co., Ltd. in 2020, the Supreme Court, held that publicly available information such as the name list and addresses of customers do not constitute trade secrets; in the case of Qingdao Melville Machinery and Equipment Import and Export Co., Ltd. in 2020, an employer’s senior manager did four transactions with a department of the Sudanese government in two or three years on behalf of the company. Later, the manager set up a company to trade with the customer through his wife, and the transaction items were largely the same as the company’s original transaction. The Supreme Court ruled that it constituted an infringement of trade secrets.1Anmei Weike (Beijing) Internet Technology Co., Ltd. and Lingbo Technology (Beijing) Co., Ltd., Zheng Guanghui, Wu Jianming, Shi Hongliang and Xu Feng Infringement of Computer Software Copyright and Infringement of Trade Secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) No.1099. The court held that “According to the customer list submitted by Anmei Weike Company, the list is only a list of hotels, which can not show the special customer information different from the relevant public information, such as customer address, contact information, trading habits, intentions and contents, and the hotel name can be obtained through public channels, so it can not constitute the trade secret of Anmei Weike Company.” Qingdao Melville Machinery and Equipment Import and Export Co., Ltd., Xu Jingqing Civil Ruling on Retrial Review and Trial Supervision of Infringement of Trade secrets Disputes, Civil Ruling of the Supreme People’s Court of the People’s Republic of China (2020) ZGFMS No.401. In the case, the company’s senior manager has represented the company four times in two or three years trading with a government departments of Sudan, a major customer. Later, the manager set up a company through his wife to trade with the client, and the content of the transaction was basically the same as the original transaction of the company. The court held that this constituted an infringement of trade secret. Shenyang Industrial Pump Manufacturing Co., Ltd., Du Shaolong and other civil judgments of the second instance of civil disputes over infringement of trade secrets, Liaoning Provincial People’s High Court Civil Judgment (2021) Liao Min Zhong No.879. The court held that “Shenyang Industrial Pump Co., Ltd. can not claim that the specific customer belongs to a trade secret merely on the ground of maintaining a long-term trading relationship with the specific customer so as to restrict the right of the customer to choose their own trading partners and other business entities to participate in competition. Customer’s product requirements, product models, and technical parameters are very easy to be obtained by the relevant personnel in the field, and they are not confidential.” Xu Shuzhen and Lianyungang Qunsi Electronic Commerce Technology Co., Ltd. in the case of labor dispute appeal, Jiangsu Lianyungang Intermediate People’s Court Civil Judgment (2016) Su 07 Min Zhong 3313. In the case, the two parties signed a confidentiality and non-competition agreement, but did not agree to pay non-competition allowance, employees left the company, engage in competitive business, and contacted the employer’s customer group. The court held that the customer group belonged to the core business of the employer and was a trade secret, and that even if the non-competition allowance was not paid, it would not affect the employee’s liability for liquidated damages, and ordered the employee to compensate six months of wages, RMB 36,000 and the lawyer’s fee. - 2Shijiazhuang Shimai Valve Manufacturing Co., Ltd. and Hebei Chuangmin Technology Co., Ltd. Civil Judgment of the Second Instance of the Dispute over Infringement of Trade secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) ZGFZMZ No.1695. In the case, a shareholders of the company established a new company with others and traded with the company’s customers who had two transactions with the company a year ago. The court found that the customer had no long-term relationship, and there was no evidence to show that there was specific trading needs, models, and other secret information, so it did not constitute a trade secret, nor did it constitute infringement.]Similarly, in the case of Kanhe before the Supreme Court in 2021, three employees set up a new company two years after joining an international logistics company and poached 25 customers of the company. The Supreme Court set aside the second instance judgment that found infringement, ruling that the content of the evidence (VAT invoice) submitted by the plaintiff was not a trade secret and the plaintiff’s claim was rejected.2(2021) Supreme Fa Min Zai No.310, Kan He et al. and Anhui Jinling International Freight Forwarding Co., Ltd. in the retrial of the dispute over infringement of trade secrets. In the case, after working for more than two years, three employees of the International Freight Forwarding Co., Ltd. established the same business enterprise and began to trade with 25 customers of the company. The first and second instance judgment found infringement, but the Supreme Court found that the VAT invoice evidence submitted by the plaintiff could not prove that the customer information belonged to trade secrets, and rejected the plaintiff’s claims. The appeal case of unfair competition disputes between Guangxi Hengsheng Electronic Technology Co., Ltd. and Tan Weiwei, the Civil Judgment of the High Court of Guangxi Zhuang Autonomous Region (2021) Gui Min Zhong No.1196.