The Supreme Court has concluded a trade secret infringement case involving Appellant Chongqing A Company, Respondents X, Y, and Z (natural persons), Changzhou B Company, and Chongqing C Company, with Third Party T (a natural person) participating in the first instance. The Court ultimately ruled that Changzhou B Company's defense - claiming independent development of the alleged infringing technical information - was unsubstantiated. Accordingly, it held natural persons X, Y, and Z, along with Changzhou B Company, legally liable.
Chongqing A Company claimed that the design parameters for core components, including rotors and blades, in the automotive rotary vane compressors in dispute constitute its technical secrets. Defendants X, Y, and Z, who were all former employees of Chongqing A Company, left Chongqing A Company and joined Changzhou B Company between March 2014 and August 2015, taking positions in its R&D and technical departments. On July 20, 2017, Chongqing A Company purchased two automotive air-conditioning compressors manufactured by Changzhou B Company from Chongqing C Company through notarized preservation. Subsequent disassembly and comparative analysis revealed that the products were identical to those of Chongqing A Company in both external design and internal layout, with tolerance coefficients of relevant parts fully matching its proprietary design drawings.
Upon receiving the report from Chongqing A Company, the public security authorities commissioned an appraisal, which concluded that the technical information corresponding to the 25 alleged secret points related to Chongqing A’s "rotary vane automotive air-conditioning compressor" was not publicly known. A comparison between the accused infringing product, Model A, and these 25 secret points revealed 8 identical points, 10 substantially identical points, and 7 different points. During the investigation, X and Y admitted to the public security authorities that they had accessed production department blueprints during their employment with Chongqing A Company. Chongqing A subsequently filed a lawsuit against X, Y, Z, Changzhou B Company, and Chongqing C Company, requesting that the five defendants cease the infringement and jointly compensate for economic losses and reasonable expenses totaling CNY 1 million. In its initial filing, Chongqing A Company sought protection for 18 of the 25 secret points as trade secrets, but ultimately narrowed its claim to 12 secret points by the conclusion of the first-instance oral observations. In defense, Changzhou B Company argued that the accused technical information was independently developed, submitting evidence including its "2012-2013 Process Operation Instructions and Inspection Operation Instructions" and "2012-2013 Product Drawings" in support of this claim.
The first-instance court ruled that, the technical information in the accused Model A automotive air-conditioning compressor that was identical or substantially identical to Chongqing A Company's claimed secret points originated from technology independently developed by Changzhou B Company prior to the alleged infringement. Accordingly, the court found that Model A did not infringe upon the 12 secret points claimed by Chongqing A Company and dismissed the lawsuit. Chongqing A Company, dissatisfied with the ruling, appealed to the Supreme Court.
In the second instance, the Supreme Court held that:
First, the evidence submitted by Changzhou B Company was insufficient to prove that the accused product resulted from collaborative research and development. Although Changzhou B Company claimed that the relevant technology originated from a university in Xi’an and was reflected in automotive air conditioning compressor production drawings jointly developed by that university and a third-party company, it failed to provide the original physical or electronic copies of said drawings.
Second, the evidence submitted by Changzhou Company fails to establish that it had mass-produced and sold rotary vane automotive air-conditioning compressors using the same technology as the accused product before X, Y, and Z joined the company.
In determining whether Changzhou B Company's independent R&D defense could be sustained, the court could not limit its review to merely verifying whether the company had mass-produced and sold rotary vane automotive air conditioning compressors before the three individuals joined. Instead, it was necessary to conduct a further analysis of whether, prior to their employment, Changzhou B Company had already been mass-producing and selling rotary vane automotive air conditioning compressors with structures and parameters identical or substantially identical to those of the accused infringing Model A compressor notarially purchased by Chongqing A Company in 2017. Therefore, Changzhou B Company was required to demonstrate that it had developed and mastered technical information identical to or substantially identical to the alleged trade secrets before the three individuals joined, including proving that the provided carriers, such as drawings, were actually created before the three individuals joined Changzhou B Company, and excluding the possibility that Changzhou B Company independently supplemented and fabricated the relevant drawings after the litigation commenced. Additionally, it had to be shown that the specific content of the provided carriers, such as drawings, contained technical details identical or substantially identical to the trade secrets claimed. Upon review, the evidence provided by Changzhou B Company was found insufficient to satisfy these requirements.
Third, the evidence presented by Changzhou B Company fails to prove that the technical documentation, which allegedly reflects the trade secrets and predates the employment of X, Y, and Z, was the product of independent development. There are significant doubts across multiple aspects of the Changzhou B Company's submitted evidence. These concerns pertain not only to the completeness of its iterative R&D records and the formal authenticity of its design drawings and work instructions but also extend to the reasonableness of the information comparison between the drawings and the work instructions. Furthermore, even the company's delay in submitting these drawings and work instructions raises substantial questions.
Based on the foregoing analysis, Chongqing A Company, as the holder of the trade secrets involved in this case, has provided preliminary evidence establishing that the trade secrets in question were infringed upon by X, Y, Z, and Changzhou B Company. The defense raised by Changzhou B Company, which claimed that the allegedly infringing information was the product of its own independent development, is untenable. Consequently, the court of second instance overturned the first-instance judgment and ruled that Changzhou B Company, X, Y, and Z must immediately cease the infringement of Chongqing A Company's trade secrets related to rotary vane automotive air-conditioning compressors and jointly pay compensation for economic losses and reasonable costs totaling CNY 1 million. The judgment also specified the method for calculating late-performance penalties in the event of non-compliance with non-monetary obligations, such as the failure to cease infringement.
This case establishes that when an alleged infringer raises an independent development defense, the court must conduct a comprehensive and objective review of the evidence. This involves assessing the evidence's relevance and its internal consistency through logical reasoning and everyday experience. The court's analysis and determination in this case offer a valuable framework for adjudicating independent development defenses in future trade secret cases.
(2023) Zui Gao Fa Zhi Min Zhong No. 1669
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