Now Shenzhen | October 27, 2022
Statistics show that disputes caused by the infringement of trade secrets are frequent within Guangdong Province, and the protection of trade secrets has become a problem that cannot be ignored in corporate governance. The following article analyzes two cases of infringement of trade secrets, digging into the facts and decisions. It’s a great reference for companies to check for corresponding problems and take precautions to achieve compliance management.
Civil Case I: The plaintiff Company A claimed that its business secrets, including customer information and supplier information, was infringed by the defendant B. Defendant B, used the resources and information obtained while working for Company A, purchased relevant products from the plaintiff’s suppliers after leaving the company, and made deals with a number of the plaintiff’s customers.
FOCUS
A. What is the legal definition of trade secrets
Trade secret refers to the technical information and business information that is not known to the public. It has commercial value and requires the right holder to take corresponding security measures. The information is not generally known and easily accessible to the relevant personnel in the field to which it belongs, can be recognized as not known to the public; the information has realistic or potential commercial value, can bring competitive advantage for the right holder, can be recognized as the right holder to bring economic benefits, with practicality; the right holder takes reasonable measures which is appropriate to its commercial value to prevent the leakage of information, can be recognized as the corresponding security measures are taken.
B. The key conditions for the court to determine the infringement of trade secrets by former or in-service employees
In the above-mentioned cases, the court determined the trade secrets through the following three points and found that the business information claimed by the plaintiff belonged to trade secrets and shall be protected according to law.
(a) Not known to the public: the business information involved is the in-depth information accumulated and developed by the plaintiff, its customers and suppliers in long-term communication, negotiation, and transaction, including the company name, address, contact person, contact telephone number of the customers and suppliers containing the exact combination of transaction habits, intentions, contents, etc., which is different from the general customer information in the public domain of the industry.
(2) Commercial value: the above business information enables the defendant to obtain information on customers and suppliers, so as to take the initiative of trading with customers and purchasing from suppliers, which has real and potential commercial value and can bring competitive advantage to the plaintiff, and thus has practicality.
(3) The right holder has taken appropriate confidentiality measures: the contract between the plaintiff and the defendant and other rules and regulations stipulate the confidentiality obligations of employers, which in normal circumstances are sufficient to prevent the leakage of confidential information.
The court found that the defendant used the business information obtained from the plaintiff’s company and contacted several plaintiff’s customers to offer a lower price while purchasing products from the plaintiff’s suppliers in the name of the company established by the defendant, which was sufficient to show that the business information utilized by the defendant was substantially the same as the business information claimed by the plaintiff as a trade secret. The defendant’s behavior infringed the plaintiff’s business information, sabotaged the plaintiff’s business and obtained illegitimate benefits.
Therefore, the supplier’s information is highly possible to fall into the category of confidential information. If the employee after leaving the company sets up another business, while using the original owner’s supplier information to take unfair competition, it is likely to violate civil law and has serious consequences. Moreover, it is also possible that this kind of behavior will violate criminal law.
Criminal Case II
Defendant D obtained the source code of a product and other related information while working for the plaintiffs company C and set up a company to produce and sell infringing products, leading to the loss of nearly RMB one million for the plaintiff. The court ruled that the defendant violated the duty of confidentiality and acquired the plaintiff’s trade secrets by illegitimate means, resulting in serious consequences and significant losses, constituting the crime of infringement of trade secrets.
C. Criminal responsibility of trade secret infringement
Article 219 of the Criminal Law: Whoever commits any of the following acts of infringing on business secrets and thus causes heavy losses to the obligee shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined; if the consequences are especially serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined :
(1) obtaining an obligee’s business secrets by stealing, luring , coercion or any other illegitimate means;
(2) disclosing, using or allowing another to use the business secrets obtained from the obligee by the means mentioned in the preceding paragraph; or
(3) in violation of the agreement on or against the obligee’s demand for keeping business secrets, disclosing, using or allowing another person to use the business secrets he has.
Whoever obtains, uses or discloses another’s business secrets, which he clearly knows or ought to know falls under the categories of the acts listed in the preceding paragraph, shall be deemed an offender who infringes on business secrets.
“Obligee” as mentioned in this Article refers to the owner of business secrets and the person who is permitted by the owner to use the business secrets.
Article 219A: Whoever steals, pries into, buys, or illegally provides any trade secret for any overseas institution, organization, or individual shall be sentenced to imprisonment of not more than five years and a fine or be sentenced to a fine only; or if the circumstances are serious, be sentenced to imprisonment of not less than five years and a fine.
Infringement of trade secrets crime could also be divided into two categories, breach of contract type and illegal access type. The perpetrator takes advantage of their position, gains access to the trade secret by legitimate means then defaults on his or her contract and uses or allows others to use the trade secret, which shall be recognized as a breach of contract. The perpetrator exploits illegitimate means to acquire trade secrets which it’s reasonable to presume that the perpetrator is using the convenience of work shall be recognized as illegal access type.
D. Conclusion
The vast majority may hold a false belief that stealing a company’s business information to set up their own company and conduct the same competitive business is legitimate. The reality is that if the company let’s it go, or the evidence itself is weak, you might get away with the law. However, once a criminal case is built, the criminal investigation department will intervene to gather the evidence and the perpetrator will face the risk of jail time, ending up with high costs in the long run. On the other hand, the company should also take precautions to protect confidential information by compliance management and minimize the risk of leakage.
Jingsh Law Firm has handled many such cases of trade secrecy infringement in the past. If you would like to know how you can protect your company against such infringements or there might be a potential leak of trade secrets at your company, please email me at [email protected] or add me on Wechat(my Wechat account is: z574951105). A professional team will assist you in fixing the evidence and develop a response plan or litigation strategy, thus effectively protecting the company’s trade secrets.
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