1. Trade Secret in China Session II Infringement Action 2013/09/18 Prof. Peng pengzhesd@gmail.com 1

2. CIVIL LAW PROVING TRADE SECRET INFRINGEMENT 2

3. WHAT THE LEGISLATION SAYS Unfair Competition Act of PRC 1993 3

4.  Article 10 An operator shall not adopt any of the following means to infringe on the business secrets of others:  (1) obtaining business secrets from the owner of the right by stealing, promising of gain, resorting to coercion or other illegitimate means;  (2) disclosing, using or allowing others to use the business secrets of the owner of the right obtained by the means mentioned in the preceding item;  (3) disclosing, using or allowing others to use the business secrets that it has obtained by breaking an engagement or disregarding the requirements of the owner of the right to preserve the business secrets.  Where a third party obtains, uses or discloses the business secrets of others when it or he has or should have full knowledge of the illegal acts mentioned in the preceding section, it or he shall be deemed to have infringed on the business secrets of others. 4

5. Obtained by Illegal means  (1) obtaining business secrets from the owner of the right by stealing, promising of gain, resorting to coercion or other illegitimate means;  (2) disclosing, using or allowing others to use the business secrets of the owner of the right obtained by the means mentioned in the preceding item; 5

6. Obtained by legal Means, But then Misused  (3) disclosing, using or allowing others to use the business secrets that it has obtained by breaking an engagement or disregarding the requirements of the owner of the right to preserve the business secrets. 6

7. Third Party Liability Where a third party obtains, uses or discloses the business secrets of others when it or he has or should have full knowledge of the illegal acts mentioned in the preceding section, it or he shall be deemed to have infringed on the business secrets of others. 7

8. WHAT THE JUDICIAL INTERPRETATION SAYS? Interpretation of the Supreme People's Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition 2007 8

9. JI, Unfair Competition, 2007  Article 14 In case any party claims that someone else has infringed upon its business secret, it shall assume the burden of proof to prove that its business secret meets the statutory requirements, the information of the other party is similar or substantially similar to its business secret, and the other party has adopted unfair means. In particular, the evidence for proving that its business secret meets the statutory requirements shall include the carrier, specific contents, commercial value of this business secret as well as the specific confidentiality measures adopted for this business secret.  Article 12 The business secrets obtained through independent development and research or reverse engineering shall not be affirmed as an infringement upon business secrets prescribed in Items (1) and (2) of Article 10 of the Anti- unfair Competition Law.  The “reverse engineering” mentioned in the preceding paragraph refers to the relevant technical information on the products as obtained through dismantling, mapping or analyzing the products gotten from technical means or other public channels. In case any party knows the business secrets of someone else by unjustifiable means and then claims its acquisition as lawful for the reason of reverse engineering, it shall not be supported. 9

10. Burden to Prove  In case any party claims that someone else has infringed upon its business secret, it shall assume the burden of proof to prove that… 10

11. Elements to Prove  (1)its business secret meets the statutory requirements:  the carrier, specific contents,  commercial value of this business secret  the specific confidentiality measures adopted for this business secret.  Which element of TS provided by the statute is not mentioned?  etc  (2)the information of the other party is similar or substantially similar to its business secret, and  (3)the other party has adopted unfair means. 11

12. Defense against Article 10 (1)(2) Infringement  Non-infringement  The business secrets obtained through  independent development and research  or reverse engineering  the relevant technical information on the products as obtained through dismantling, mapping or analyzing the products gotten from technical means or other public channels.  In case any party knows the business secrets of someone else by unjustifiable means and then claims its acquisition as lawful for the reason of reverse engineering, it shall not be supported. 12

13. Case 95 No.18 Institute(1997) Infringement What the disputed technology is? 13

14.  What is the relationship among the plaintiff and defendants?  P vs. D1 = Former Employer vs. Former Employee  P vs. D2 = Competitors 14

15. Elements to Prove  (1)its business secret meets the statutory requirements,  the carrier, specific contents,  commercial value of this business secret  the specific confidentiality measures adopted for this business secret.  Unknown  Expert appraisal  Successfully licensed to the other companies  (2)the information of the other party is similar or substantially similar to its business secret, and  (3)the other party has adopted unfair means.  Monetary reward  Sun did not return the confidential notes to the former employer as required (facts not in the summary) Defense of Independent Research/reverse engineering  Expert Appraisal: Independent research/reverse engineering is impossible in such a short term  No valid evidence to prove independent research or reverse engineering 15

16. Case 92Chengdu Jialing Electric Manufacturing (2002)  Non-infringement  What the technology is about?  What the defendant’s argument? 16

17. The defendant did not use the TS  Plaintiff  The plaintiff’s product has substantially identical function with the defendant's product  The plaintiff’s former employee, who had the knowledge of the TS, broke the employment contract and went to work for the defendant  The Court:  Expert Appraisal: the defendant's product is made by different technology  Same function ≠ same technology 17

18. Compare to Patents  Trade Secret  (2)the information of the other party is similar or substantially similar to its business secret  “Same function ≠ same technology”  Patent  Doctrine of Equivalents(DOE): substantially the same function and the same effect by substantially the same means  No DOE if merely the same function and the same effect (without the same means) 18

19. Case 97 Kunsan Isotope Chemical Engineering  Evidence: Expert Appraisal  The court’s discretion over the expert appraisal 19

20.  Infringement?  Yes  Who provided expert appraisals?  Plaintiff: SSTC (Shanghai Science and Technology Commission) –reverse engineering is impossible  Defendant: the Center for IP Affairs under the Ministry of Science and Technology– the technology used by the defedant was known to the public 20

21.  Expert Appraisals  Plaintiff: SSTC (Shanghai Science and Technology Commission)  Accepted  Defendant: the Center for IP Affairs under the Ministry of Science and Technology  Not accepted. Why?  Failed to prove the technology mentioned in the supporting documents is relevant to the defendant's technology  Based on two documents which were not proved to be authentic 21

22. JI Unfair Competition (2007)  Article 17 The determination of damages for the acts infringing on business secrets as prescribed in Article 10 of the Anti-unfair Competition Law may be governed by the methods of determining damages for patent infringements by analogy, and the determination of damages for the unfair competition acts prescribed in Article 5,9 or 14 of the Anti-unfair Competition Law may be governed by the methods of determining damages for infringing upon registered trademark rights by analogy.  In case a tort causes any business secret to be known by the general public, the damages shall be determined according to the commercial value of this business secret. The commercial value of this business secret shall be determined according to the research and development costs, the proceeds from implementing this business secret, possible benefits, and the time for maintaining the competitive advantage to this business secret, etc. 22

23. CIVIL LAW--REMEDY 23

24. Remedy under Civil Law Injunctiondamage Remedy under Civil Law 24

25. Injunction--JI Unfair Competition 2007  Article 16 When the people’s court adjudicates the civil liability of stopping the infringement on any business secret, the time for stopping the infringement shall generally be extended to the time when this business secret has become known to the general public.  In case the time for stopping the infringement adjudicated according to the preceding paragraph is clearly improper, the tortfeasor may be ordered to stop the use of this business secret within a certain term or scope under the circumstance that the competitive advantage of the obligee to this business secret is protected. 25

26. Damage--JI Unfair Competition (2007)  The determination of damages cased by trade secret infringement  Consider the method of determining patent infringement damage as a reference 26

27. JI Unfair Competition (2007)  In case a tort causes any business secret to be known by the general public, the damages shall be determined according to the commercial value of this business secret.  The commercial value of this business secret:  be determined according to the research and development costs  the proceeds from implementing this business secret, possible benefits,  and the time for maintaining the competitive advantage to this business secret,  etc. 27

28. Case 100: Li Zhiting Case (2007)  How did the trial court (First Instance) determine the lost caused by the infringement?  Assignment fee of over 220,00 euro (RMB 1.86 million yuan)  Training –RMB 490,000yuan  Appellate Court(Second Instance)?  Affirmed 28

29. CRIMINAL SANCTION AGAINST TRADE SECRET INFRINGEMENT 29

30. Criminal Law of the PRC (1997)  Article 219. Whoever engages in one of the following activities which encroaches upon commercial secrets and brings significant losses to persons having the rights to the commercial secrets is to be sentenced to not more than three years of fixed-term imprisonment, criminal detention, and may in addition or exclusively be sentenced to a fine; or is to be sentenced to not less than three years and not more than seven years of fixed- term imprisonment and a fine, if he causes particularly serious consequences:  (1) acquire a rightful owner's commercial secrets via theft, lure by promise of gain, threat, or other improper means;  (2) disclose, use, or allow others to use a rightful owner's commercial secrets which are acquired through the aforementioned means;  (3) disclose, use, or allow others to use, in violation of the agreement with the rightful owner or the rightful owner's request of keeping the commercial secrets, the commercial secrets he is holding.  Whoever acquires, uses, or discloses other people's commercial secrets, when he knows or should know that these commercial secrets are acquired through the aforementioned means, is regarded as an encroachment upon commercial secrets.  The commercial secrets referred to in this article are technical information and operation information that are unknown to the public, can bring economic profits to their rightful owners, are functional, and are kept as secrets by their rightful owners.  The rightful owners referred to in this Article are owners of the commercial secrets and users who have the permission of the owners. 30

31. JI, Criminal Cases of IP Infringement (2004)  Article 7 Whoever commits any of the acts as prescribed in Article 219 of the Criminal Law, with the amount of losses caused to the obligee of the commercial secret to be no less than 500,000 Yuan, shall be deemed to have “caused heavy losses to the commercial secret obligee”, and shall be sentenced to a fixed- term imprisonment of not more than three years or criminal detention for the crime of infringing upon commercial secret, and/or be imposed upon a pecuniary fine.  If the amount of losses caused to the commercial secret obligee is no less than 2,500,000 Yuan, he/it shall be deemed to have caused “particularly serious consequences” as prescribed in Article 219 of the Criminal Law, and shall be sentenced to a fixed- term imprisonment of not less than three years but not more than seven years for the crime of infringing upon commercial secret, and shall be concurrently imposed upon a pecuniary fine. 31

32. Criminal sanction Civil Remedy Liability of Trade Secret Infringement 32

33. Case 100: Li Zhiting Case (2007)  How did the right holder obtain the technology, which was claimed to be trade secret?  By contract with MIDI, a French corporation  Assign technology  Provide training for the employees 33

34. Case 100: Li Zhiting Case (2007)  Criminal Sanctions:  2 years in prison  RMB 200,000 yuan  Civil Compensation for the plaintiff’s lost?  Assignment fee of over 220,00 euro (RMB 1.86 million yuan)  Training –RMB 490,000yuan 34

35. 35

36. Criminal Law Act (1997)  Article 64. The legitimate property of the victims shall be promptly returned.  No civil supplementary action required  Does it apply to trade secret case? 36

37. Case 99 Case Su Dongling et al.  No.  It is the intellectual property right that was infringed  Article 64 of The Criminal Act would apply if  The property e.g. equipment was illegal acquired  The police sized and detained the illegally acquired property, when arresting the suspect  The police is supposed to return the property to the victim when the case is closed 37

38. Time Limitation of the Civil Complaint and the Criminal Charges 2 years Time limitation Since the infringee knows or should know this right has been infringed Calculation of the time limitation 38 Time Limitation for Bring a Civil Complaint

39. Time Limitation of the Civil Act and the Criminal Charges  Time limitation:  2 years  Calculation of the time limitation  Since the infringee knows or should know this right has been infringed 39

40. 90 Chemical Engineering Plant  Whether the lawsuit was beyond the time limitation?  No. Because? 40

41.  1991 infringement  No evidence to prove the infringee knew  Dec 1994 criminal charges by the prosecutor  Dec 20 1994, supplementary civil action 41

42. Administrative Enforcement Civil Law Remedy Criminal Law Sanction Administrative Enforcement Consequence Trade Secret Infringement 42

43. Unfair Competition Act, 1993 Article 25 Where any party infringes on business secrets in contravement of the provisions of Article 10 of this Law, the relevant control and inspection authority shall order it or him to desist from the illegal act and may, according to circumstances, impose on it or him a fine of more than RMB 10,000 yuan but less than RMB 200,000 yuan. 43