The Supreme People’s Court made a final judgment on the appeal filed by the Appellant Company A against the Appellees Natural Person X, Company B, Company C, and Natural Person Y regarding a dispute involving infringement of technical secrets. This case reasonably allocated the burden of proof in determining secrecy, and ultimately reversed the judgment to find the Appellees liable for infringing the technical secrets in question, ordering them to bear joint liability for infringement and applying punitive damages accordingly. Meanwhile, the judgment in this case proactively explored the specific ways for unlisted public companies to bear the responsibility to cease infringement. The infringing parties actively fulfilled the relevant obligations after the judgment, bringing a conclusion to this five-year-long technical secret dispute.
X, a shareholder of Company A, held the technical secrets of the manufacturing process of a synthesizing resin which replaced emulsifiers (also known as emulsions) with nano materials and water-based anti-corrosive coatings made with this synthetic resin. X had signed a confidentiality agreement with Company A. From 2014 to 2015, Company A introduced water-based rust-resistant coating products to the market. In 2016, Company A learned from Company B’s annual report that X had transferred relevant technology to Company B for CNY 5.1 million, contributing to increased revenue from "rust-resistant emulsion" and "water-based rust-resistant coating" at Company B. Company A alleged that X violated the confidentiality agreement by transferring the involved technology without consent and filed a lawsuit with the first-instance court, claiming that X, Company B, Company C (a subsidiary of Company B), and Y (the actual controller of Company B at the time) collectively infringed Company A’s technical secrets, seeking cessation of infringement, apology, and joint compensation for economic losses and legal expenses from the defendants.
The first-instance court held that: Company A’s technical information was neither sufficient nor clear, and there was evidence suggesting potential public knowledge of the information. Despite bearing the burden of proof regarding the secrecy of the technical information, Company A still explicitly insisted on not applying for an appraisal to determine whether the claimed technical information was “not known to the public.” As a result, the Court ruled that Company A should bear the legal consequences of failing to provide sufficient evidence, and dismissed all of Company A's claims. Dissatisfied with the ruling, Company A filed an appeal.
In the second instance, the Supreme People’s Court held that: 1) The technical information claimed by Company A was specific and clear, and had been used to produce products that were subsequently launched into the market. X had a confidentiality obligation concerning the formula content in the aforementioned information, which involved preparing emulsions and coatings using nano materials (excluding nano material-related technology) instead of emulsifiers. In determining whether the technical information possessed secrecy, the burden of proof should be reasonably allocated in accordance with the law, taking into comprehensive consideration the evidence provided by all parties, particularly the formation process of the technical information in question, whether the right holder submitted evidence demonstrating the implementation of corresponding confidentiality measures, whether there was preliminary evidence proving that the alleged infringer had committed the infringing act, and whether the alleged infringer submitted sufficient rebuttal evidence. Where the right holder’s evidence complies with the provisions of Article 32(1) of the Anti-Unfair Competition Law as amended in 2019, and the alleged infringer had ample opportunity to submit rebuttal evidence, it is inappropriate to simply dismiss the right holder’s claim regarding the secrecy of the technical information solely on the ground that the right holder did not apply for judicial appraisal. Based on a comprehensive analysis of the evidence on record, the technical information claimed by Company A possessed secrecy prior to the accused infringement and constituted a technical secret protected by the Anti-Unfair Competition Law. 2) The evidence provided by Company A demonstrated that it had implemented confidentiality measures for the claimed technical secrets. Furthermore, the evidence indicated that the "nano material technology for emulsion synthesis and the technology for emulsion synthesis and coating formulation using such nano materials" transferred by X to Company B was highly related to the technical secrets claimed by Company A, as both involved the use of nano materials as surfactants to prepare emulsions. Within less than two months of acquiring the relevant technology, Company B, in collaboration with Company C, launched new anti-rust emulsion and water-based anti-rust coating products, and Company B paid X the corresponding contractual consideration. This preliminary evidence reasonably indicated that the technical secrets claimed by Company A had been infringed. When requested by the second-instance court, Company B failed to provide effective evidence proving the lawful origin of the technology it used. Y, through Company B that he actually controls, established Company C with X. Despite being aware of his confidentiality obligations to Company A, X transferred the technology containing technical secrets to Company B, which was controlled by Y, and permitted Company B and Company C to use it. X, Company B, Company C, and Y were subjectively at fault and jointly engaged in acts infringing the technical secrets owned by Company A, constituting joint infringement. 3) As an unlisted public company quoted on the National Equities Exchange and Quotations, Company B, which illegally obtained and used another party’s technical secrets, causing significant losses, had an obligation to disclose the circumstances of this lawsuit in accordance with the law, effectively prevent further infringement and the expansion of damages, and provide necessary risk warnings to public investors. 4) As to infringement acts occurred between 2016 and the end of June 2019 as claimed by Company A, for the infringement between 2016 and April 22, 2019, the compensation amount was determined to be CNY 2 million. For the infringement between the effective date of the amended Anti-Unfair Competition Law (April 23, 2019) and June 30, 2019, punitive damages may be applied , where the compensation basis was determined to be CNY 200,000, and a one-time punitive multiplier was applied. Accordingly, the total compensation amounted to CNY 2.4 million, and reasonable litigation expenses of CNY 50,000 were also supported. 5) To ensure that all accused infringers promptly and fully cease their infringing acts, a delay penalty of CNY 10,000 per day was imposed for any delay in fulfilling the non-monetary obligations under this judgment.
In this case, by correctly applying the provisions of Article 32(1) of the Anti-Unfair Competition Law regarding the burden of proof for trade secrets, and comprehensively considering the evidence presented by all parties, the court lawfully revised the judgment to recognize the existence of a technical secret, thereby safeguarding the legitimate interests of the rights holder. Punitive damages were appropriately assigned for infringement liabilities, and a directive for the unlisted public company to issue an announcement about disclosing the circumstances of the litigation was issued. This judgment also made proactive and constructive explorations in defining the specific implementation of civil liability for ceasing infringement and the calculation standards for delay penalties for non-monetary obligations. This fully demonstrates the stringent protection of intellectual property rights.
(2022) Zui Gao Fa Zhi Min Zhong No. 2775
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