151.What civil liabilities are trade secret infringers subject to?

Answer: The legal liabilities for trade secret infringement encompass civil liability, administrative liability (see “What administrative liabilities are trade secret infringers subject to?”), and criminal liability (see “What criminal liabilities are trade secret infringers subject to?”).

The civil liability for trade secret infringement includes five types: cessation of infringement, compensating for losses, apologizing, bearing the cost of safeguarding rights, and special means.

The first type of liability is cessation of infringement, which is the most direct way to stop infringement of trade secrets. For the technical information type of trade secret, the law and practice of cessation of infringement are clear: the tortfeasor should immediately cease infringement until the trade secret is no longer valid (e.g., becoming public information) or the right holder permits.

However, for business information, the cessation of infringement until the publicity of the information may unfairly restrict the free competition rights of third parties and free employment rights of the employees, so it is necessary to stipulate an appropriate period of cessation of infringement. This is the provision of the Supreme Court on the judicial interpretation of trade secrets¹and also the practice of judicial practice. For example, in the case of Beijing Huasheng Yingjie Information Technology Co., Ltd. in 2007, the First Intermediate People’s Court of Beijing considered business competition employment rights and ordered the time limit for the employee’s use of the customer information secrets of their former employers was one year. ²There are also court decisions limiting the use of former employer’s client information secrets for two years.³

Cessation of infringement has an ancillary form of liability: destruction of the alleged infringing information. However, a special case is that, if the tortfeasor has creatively improved or upgraded the trade secrets of the right holder, the court may allow the tortfeasor to continue to use the improved or upgraded information for the purpose of protecting the increased intellectual property rights of the infringer, but order the infringer to pay damages in the form of license fees.⁴

When the protection of trade secrets is urgent, the right holder can apply to the court for an injunction order, and the court should judge whether to grant it according to an overall assessment of the likelihood of the right holder winning the lawsuit, damages comparison between granting and not granting the injunction, and the public interest.⁵

The second type of liability is loss compensation. This is the most common way of liability. The second paragraph of Article 20 of the Supreme Court’s Judicial Interpretation of Trade Secrets stipulates: “When the people’s court determines the amount of compensation in accordance with the fourth paragraph of Article 17 of the Anti-Unfair Competition Law, it may take into account the nature, commercial value, research and development costs, degree of innovation, competitive advantages that can be brought about by trade secrets, as well as the subjective fault of the tortfeasor, the nature, circumstances, and consequences of the infringement.”

The determination of the amount of loss generally is to first consider whether the actual loss of the right holder can be measured. If the actual loss can not be measured, the infringement income of the tortfeasor can then be used. For serious infringements, the Anti-Unfair Competition Law stipulates punitive damages of one to five times the actual losses. The court may also order a discretionary compensation under RMB 5 million according to the specific factors mentioned above.⁶

The third form of liability is making apology or eliminating the influence and restoring reputation, which is the form of civil liability stipulated in Article 179 of the Civil Code. The liability form of apology is applicable to the situation where the tortfeasor’s behavior infringes on the personality rights of citizens or legal persons and causes damage to the goodwill and reputation of the victim. The vast majority of judgments in trade secret infringement cases do not support such claim because the courts found no goodwill and reputation of the right holder are damaged.⁷However, if the tortfeasor’s act of counterfeiting does cause confusion among customers or damages to the right holder’s goodwill and reputation, the court may order the elimination of influence, the restoration of reputation and an apology.⁸

Although the Civil Code divides apology and elimination of influence and restoration of reputation into two forms of liability, the courts does not appear to make a substantive distinction in cases involving infringement of trade secrets, and some cases appear to use them jointly.⁹

The fourth type of liability is the cost of safeguarding rights.¹⁰In most other type of civil cases, costs of safeguarding rights (or costs in proceedings) are not a supportable item; this form of liability is a unique form of liability in intellectual property cases.The People’s Court of Yinzhou District, Ningbo City, Zhejiang Province held in the case of Zhejiang Holistic Health Industry Development Co., Ltd. in 2019 that the Anti-Unfair Competition Law does not explicitly support reasonable expenses for stopping infringement as the judicial interpretation of the Trademark Law does, so the right holder’s reasonable expenses for trade secret infringement cases can refer to the treatment of reasonable expenses of trademark infringement cases, including the reasonable costs for investigation, evidence collection, and legal fees.¹¹

The courts may discretionarily determine the costs of safeguarding rights, which can be ordered separately or together with damages. ¹²The liability of acquisition infringement is generally the reasonable costs for safeguarding rights including legal fees, which can also refer to the fee standard of legal industry, not necessarily strictly basing on the actual lawyer fees.¹³

The fifth type of liability is the special way implemented in judicial practice. This form of liability is not a statutory one. It is that patents registered by infringers who illegally acquire other people’s trade secrets are deemed to be the property of the owners of the trade secret, so the owner is entitled to add up a claim against the defendant to transfer the patent involved back to themselves.¹⁴

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Mr. Wangdong

Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.

Email: wangdong@royalaw.com

1
Article 17 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). “When the people’s court decides a civil liability of cessation of infringement of trade secrets, the duration for the cessation shall generally last until the trade secrets are known to the public. If the time to stop the infringement is obviously unreasonable in accordance with the provisions of the preceding paragraph, the people’s court may judge the tortfeasor to stop using the trade secret within a certain period or scope under the condition of protecting the competitive advantage of the right holder’s trade secret according to law.”
2
Beijing Huasheng Yingjie Information Technology Co., Ltd. v. Beijing Boruisida Digital Technology Co., Ltd. and Others (Dispute over Infringement of Trade Secrets and Other Unfair Competition) Civil Judgment of the First Intermediate People’s Court of Beijing (2007) YZMCZ No.10042. “Business information, especially the list of customers, is unlikely to have the situation where information is legally and naturally known to the relevant public due to technological progress… permanently ceasing to use the relevant business information on the customer list will unduly restrict¡the right to legitimate commercial competition and will also be unduly reduced.. employment opportunities. Therefore that is obviously unreasonable.”
3
Hebi City Reflective Materials Co., Ltd. and Song Junchao, Li Jianfa, Hebi Ruimingte Technology Co., Ltd. Case of Infringement of Trade Secrets Civil Judgment of Hebi Intermediate People’s Court of Henan Province (2015) H.M.C.Z. No.96.
4
Guangzhou Tianzhi High-tech Materials Co., Ltd. v. Wu Danjin’s appeal against disputes over infringement of technical secrets, the Supreme People’s Court of the People’s Republic of China Civil Judgment (2019) No.562. In the case, the employee mastered the technical secret formula of the employer and disclosed it to a third party for use, and the third party produced products after renovation and renewal. The appraisal could not identify that the two formulations were substantially identical. The court ordered the third party to compensate for the loss, did not support the destruction of the formula of the third party company, ordered the employee jointly and severally liable for part of the loss, and did not support the apology for the loss of goodwill.
5
People’s Court Daily, November 28, 2013, page 6: case guide, (2013) Hu Yi Zhong Min Wu (Zhi) Chu Zi No.119, Shanghai First Intermediate People’s Court ruled that in the case of Eli Lilly and others suing Huang Mengwei for infringement of technical secrets. The court held that “under normal circumstances, the applicant must prove the follows: the substantial possibility of winning the lawsuit; irreparable losses that will be suffered if the injunction is not granted; plaintiff’s possible injury being greater than any potential injury to defendant; public interest being not violated by the issuance of the injunction.”
6
Article 17 of the Anti-Unfair Competition Law of 2019 stipulates that “operators who violate the provisions of this Law and cause damage to others shall bear civil liability according to law. A business operator whose lawful rights and interests are impaired by an act of unfair competition may institute a proceeding in a people’s court. The amount of compensation to be paid to the operator who suffers losses due to unfair competition shall be determined according to the actual losses caused by the infringement. If the actual losses are difficult to calculate, the amount of compensation shall be determined according to the profits that the tortfeasor has gained from the infringement. If an operator maliciously commits an act of infringing upon trade secrets and the circumstances are serious, the amount of compensation may be determined by more than one time and less than five times the amount determined by the above method. Where an operator violates the provisions of Articles 6 and 9 of this Law, and it is difficult to determine the actual losses suffered by the right holder as a result of the infringement or the profits obtained by the tortfeasor as a result of the infringement, the people’s court shall, according to the circumstances of the infringement, judge that the right holder shall be compensated not more than RMB 5 million.” Langfang Baiyue Commerce and Trade Co., Ltd. and Langfang Ruoke Glass Co., Ltd. Civil Ruling on Retrial Review and Trial Supervision of Infringement of Trade Secrets Disputes of the Supreme People’s Court of the People’s Republic of China (2020) No.4074. The court held that “the infringement of Ruoke Company to a certain extent led to the loss of some customers of Baiyue Company and caused the economic losses of Baiyue Company. Although the evidence submitted by Baiyue Company proved the actual transaction volume between Ruoke Company and its customers to a certain extent, it is not inappropriate for the court of first instance to consider that Baiyue Company and its customers were not exclusive suppliers and that there were many factors affecting price changes and to concluded that the loss of market price fluctuations could not be attributed to the unfair competition of Ruoke Company. It is not improper for the court of second instance to apply statutory compensation and increase the amount of compensation awarded by the court of first instance as its discretion, taking into account the factors such as the nature of infringement, circumstances, subjective fault, transaction volume, number of transactions, and the impact of the disclosure of customer list on the market competitive advantage of Baiyue Company.”
7
Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2019) No.7 of the Supreme People’s Court on the Appeal Case of Technical Secret Infringement Dispute between Youkai (Shanghai) Machinery Co., Ltd. and Cao, et al. The court held that “As a way of assuming civil liability, eliminating influence is generally applicable to the case of damage to commercial reputation and commodity reputation caused by infringement.”
8
Maotuo Automation Control System (Shanghai) Co., Ltd., Pan Shirong and Magnatik Control System (Shanghai) Co., Ltd. Civil Ruling of Shanghai High Court (2018) Hu Min Shen No.318. CAO Lei v. NANJING HUANZHENG ENTERPRISE MANAGEMENT CONSULTING CO., LTD. Trade Secret Infringement Dispute Case Civil Judgment of Jiangsu Provincial People’s High Court (2010) S.Z.M.Z.Z. No.0154.
9
Liyang Laijiang Environmental Protection Engineering Co., Ltd. and Liyang Wuhuan Environmental Protection Engineering Co., Ltd. et al. Trade Secret Infringement Dispute Case Civil Judgment of Jiangsu Provincial People’s High Court (2003) S.M.S.Z.Z. No.010.
10
Article 17 of the Anti-Unfair Competition Law of 2019. “The amount of compensation shall also include the reasonable expenses paid by the operator to stop the infringement.”
11
Zhejiang Holistic Health Industry Development Co., Ltd. and Yang Qixi, Ningbo Yun Hospital Co., Ltd. Civil Judgment of First Instance on Infringement of Trade Secrets Civil Judgment of Yinzhou District People’s Court of Ningbo City, Zhejiang Province (2019) Zhe 0212 Minchu No.4855. “This court consider that infringement of trade secrets and infringement of the exclusive right to use trademarks are both infringements of intellectual property rights of others. Under the circumstances that the Anti-Unfair Competition Law and its judicial interpretation have not explained in detail the ¡®reasonable expenses paid by operators to stop infringement’, It can be identified as a reasonable cost for the right holder or the entrusted agent to investigate and collect evidence of the infringement by referring to the judicial interpretation of the Trademark Law.”
12
Civil Judgment of the Second Instance of Li Lili and Bian Rongjun’s Trade Secret Infringement Dispute Civil Judgment of Guangdong Provincial People’s High Court (2018) Yue Min Zhong No.1574.
13
Sun Zhiyu and Ingersoll Rand Industries USA Civil Judgment of the Second Instance of the Dispute over Infringement of Technical Secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) ZFZMZ No.1276. In this case, an employee downloaded the company’s technical secret drawings to other memories without permission, which constituted theft of technical secrets. The court ordered the employee not to disclose and use the secret, return the carrier immediately, and compensate RMB 300,000 of reasonable rights protection costs.
14
VMI Netherlands and Sachi Intelligent Equipment Co., Ltd. Civil Judgment of the Second Instance of the Civil Dispute over the Ownership of Patent Rights Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) Supreme Fa Zhi Min Zhong No.902. The court held that “Accordingly, according to the evidence of both parties and the court’s investigation of the facts, it can be determined that Sachi Company obtained the prior confidential technology of VMI Company by unjustified means and then applied for the patent involved and was granted the same. Therefore, the patent involved should be owned by VMI.”

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151.What civil liabilities are trade secret infringers subject to?

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