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640 Million RMB Awarded in China Trade Secret Case
Friday, June 14, 2024

Update: Per Michael Ma, the plaintiff is Geely Holding Group and the defendant is WM Motor. 

In what is believed to be a record high in intellectual property damage awards, and easily exceeding the previous record of 201.54 million RMB in a trade secret case, China’s Supreme People’s Court (SPC) awarded over 640 million RMB in a new energy vehicle trade secret misappropriation case. In decision (2023)最高法知民终1590号 released June 14, 2024, the SPC applied 2X punitive damages on appeal in a dispute between two well-known (and unnamed) domestic automotive companies regarding new energy vehicle chassis technical trade secrets that were misappropriated in a personnel poaching scheme.

As explained by the SPC:

Nearly 40 senior managers and technical personnel from Chengdu Gao XX Automobile Industry Co., Ltd., a subsidiary of Zhejiang Ji XX Holding Group Co., Ltd. , resigned and went to work for Wei XX Automobile Technology Group Co., Ltd. and its affiliated companies. Among them, 30 people joined the company right after leaving in 2016. In 2018, Ji Group discovered that Wei Group and Wei XX Smart Mobility Technology (Shanghai) Co., Ltd. used some of the above-mentioned resigned personnel as inventors or co-inventors, and applied for 12 utility model patents using the relevant new energy vehicle chassis application technology and 12 sets of chassis parts drawings and digital technical information that they had accessed and learned in their original company. In addition, Wei Group, Wenzhou Wei XX Automobile Manufacturing Co., Ltd. , Wei Smart XX Mobility Company, and Wei XX New Energy Vehicle Sales (Shanghai) Co., Ltd. (collectively referred to as Wei Companies) launched Wei EX series electric vehicles in a short period of time without any technical development or legal technical sources, which is suspected of infringing the technical secrets involved in the case of Ji Group and Zhejiang Ji XX Automobile Research Institute Co., Ltd. ( collectively referred to as Ji Companies). Ji Companies filed a lawsuit with the first instance court, requesting that Wei Companies stop the infringement and compensate for its economic losses and reasonable expenses for rights protection, totaling 2.1 billion RMB.

After trial, the first instance court held that Wei Companies infringed upon Ji Companies’ technical secrets of the five sets of chassis component drawings involved in the case, and ordered Wei Companies to compensate Ji Companies for economic losses of 5 million RMB and reasonable rights protection expenses of 2 million RMB.

On appeal, the Supreme People’s Court held that this case was an infringement of technical trade secrets caused by the organized and planned large-scale poaching of new energy vehicle technical personnel and technical resources by improper means. The appeal mainly determined and dealt with the following issues:

First, how should the alleged infringement of technical secrets in this case be analyzed and judged? The decision pointed out that for the alleged infringement of technical secrets caused by organized, planned, and large-scale poaching of personnel and technical resources of other enterprises, the people’s court should pay more attention to overall analysis and comprehensive judgment when hearing. If the alleged infringer produces products related to the technical secrets involved in a time that is obviously shorter than the reasonable time required for independent research and development, and the alleged infringer has channels or opportunities to obtain the technical secrets involved, at this time, due to the great possibility of infringement, the burden of proof of the technical secrets right holder for the infringement of technical secrets should be further reduced, and it can be directly presumed that the alleged infringer has committed acts of infringing the right holder’s technical secrets. The outstanding feature of this case is that the from the affiliated company of Ji XX, namely Chengdu Gao XX Company, the general manager, the project development team leader, the technical vice president, the technical department director, to the multiple employees who were engaged in the research and development of automobile chassis technology and had contact with or learned the technical secrets involved in the case, resigned from the original unit in an organized, planned, and large-scale manner in a relatively short period of time and joined Wei Companies and its affiliated companies. Wei Companies obviously had the channels and opportunities to come into contact with the technical secrets involved in the case of Ji Companies. Wei Companies had no technical accumulation or legal technical sources in the field of new energy vehicles; the evidence in this case can prove that Wei Companies illegally obtained the technical secrets involved in the case of Ji Companies and disclosed and used them. Taking the above factors into consideration, it is no longer necessary to compare the specific trade secret information involved in the case point by point. Through overall analysis and judgment, it can be determined that Wei Companies not only obtained all the technical secrets involved in the case of Ji Companies by improper means, but also illegally disclosed part of the technical secrets involved in the case by applying for patents, and used all the technical secrets involved in the case to manufacture the chassis and chassis parts of Wei Companies’ EX series electric vehicles.

Second, how to determine appropriate injunctions to stop infringement. The specific way to bear the responsibility for stopping infringement and the enforceability have always been difficult problems in intellectual property infringement cases. In order to enhance the enforceability, effectiveness and deterrence of the judgment of stopping infringement in intellectual property infringement cases, and to urge the obligor to perform the judgment obligations in a timely, comprehensive and effective manner, the judgment in this case has made positive explorations in this regard. The judgment clarified the consideration principles for specific measures to stop infringement: in order to achieve the purpose of effectively stopping and deterring infringement, when determining the specific way to bear the responsibility for stopping infringement, the people’s court can, in combination with the specific case, not only take into consideration specific claims of the right holder on the responsibility for stopping infringement, but also directly use its authority when necessary to refine the specific way, content, and scope of stopping infringement as much as possible; on the basis of fully considering the nature of the protected rights and interests and the severity of the infringement, especially the actual harmful state of the infringement and the possibility of continued infringement in the future, focus on considering the necessity, rationality, and enforceability of taking relevant specific measures to protect the rights and interests.

According to the specific circumstances of this case, the judgment further refines and clarifies the specific methods, contents and scope of stopping the infringement, including but not limited to:

1. Unless the right holder of the technical secrets involved in the case obtains consent, Wei Companies shall stop disclosing, using or allowing others to use the technical secrets involved in the case in any way, including stopping using the technical secrets involved in the case to manufacture automobile chassis and chassis parts products, and stopping selling automobile chassis and chassis parts products manufactured using the technical secrets involved in the case; the period of stopping infringement shall last until the date when the technical secrets involved in the case have become known to the public;

2. Unless the consent of the rights holder of the technical secrets involved is obtained, the 12 utility model patents involved shall not be implemented by the applicant, licensed to others for implementation, transferred, pledged or otherwise disposed of, including maliciously abandoning patent rights by failing to pay the annual patent fees in full and on time and failing to actively respond to requests for invalidation of patents;

3. Within the performance period specified in the judgment, under the supervision of the People’s Court or witnessed by the rights holder of the technical secrets involved, all drawings, digital models and other technical materials containing the technical secrets involved in the case held or controlled by Weifang’s four companies and affiliated companies, all current or former employees, and Weifang’s EX series electric vehicle chassis and chassis parts suppliers shall be destroyed or handed over to the rights holder of the technical secrets involved;

4. Within the performance period specified in the judgment, the shareholders, directors, supervisors, senior managers, all employees and subsidiaries, branches, other affiliated companies with investment relationships and the chassis and chassis parts suppliers of Wei’s EX series electric vehicles shall be informed of the judgment and the requirements for stopping infringement by publishing an announcement and making an internal announcement;

5. Within the performance period specified in the judgment, the judgment in this case and the requirement to stop infringement shall be notified in writing (including electronic data) to all employees who have resigned from the technical secret rights holders involved in the case and their affiliated companies (especially Chengdu Gao XX Company) and now work for Wei Companies and its affiliated companies, and all other personnel of Wei Companies and its affiliated companies who are responsible for or involved in the research and development of Wei XX EX series electric vehicle chassis and chassis components (including relevant senior management personnel), as well as suppliers of Wei XX EX series electric vehicle chassis and chassis components, and the relevant personnel and units shall be required to sign a letter of commitment to maintain the trade secret and not infringe on them.

Third, how to determine the amount of damages in this case. In this case, Ji Companies failed to provide direct evidence of the actual losses it suffered due to infringement, and Wei Companies was also in a loss-making state due to his own business reasons. In this regard, the judgment pointed out that if Wei Companies did not obtain and use Ji Companies’ technical secrets involved in the case through infringement, he would need to spend the corresponding automobile chassis technology research and development costs or pay license fees to the technology provider, which would lead to a corresponding increase in his losses. Therefore, the research and development costs or losses reduced by the infringement of the technical secrets involved in the case also belong to the benefits obtained by Wei Companies due to infringement. In view of the lack of direct evidence in this case to calculate the reduction of research and development costs or losses by Wei Companies due to infringement of the technical secrets involved, the profits of representative new energy vehicle companies in the same period can be used as a reference. According to the records in the “Prospectus” published by Wei Companies , the sales volume (81,733 units) and average sales price of Wei’s EX series electric vehicles are used as the basis to calculate the profits of its whole vehicle sales, and the profit contribution rate of the chassis technical secrets involved is taken into account to calculate the benefits obtained by Wei Companies from infringing the technical secrets involved. At the same time, considering that Wei had obvious intention to infringe, the circumstances of the infringement were egregious, and the consequences of the infringement were serious, the damages in this case are based on the implementation date of the Anti-Unfair Competition Law of the People’s Republic of China, which was amended in April 2019. Double punitive damages are applied to Wei’s infringement profits from May 2019 to the first quarter of 2022, while only compensatory damages are calculated for the infringement profits from September 2018 to April 2019. After calculation, Wei Companies should compensate Ji Companies for economic losses and reasonable expenses for rights protection of about 640 million RMB.

Fourth, how to ensure the performance of non-monetary payment obligations. For monetary payment obligations, the people’s court usually specifies at the end of the judgment the late performance fee that the obligor should bear when the performance is delayed. For non-monetary payment obligations such as stopping infringement, that is, behavioral obligations, in practice, the delay or refusal of the obligor to perform will not only lead to the expansion of the consequences of damage, but also easily lead to execution disputes and re-litigation. In this regard, according to the relevant provisions of the Civil Procedure Law and its judicial interpretation, the judgment of this case pointed out that in order to ensure the timely and comprehensive cessation of infringement, effectively prevent the further expansion of the consequences of infringement, and urge the timely performance of the non-monetary payment obligations determined by the judgment, the people’s court may, based on the specific circumstances of the case, comprehensively consider the nature and circumstances of the tortious act and the damages and negative impacts that may be caused by violating the relevant obligations to stop infringement, as well as enhance the deterrent effect of the judgment, and clarify the late performance fee and payment standard of the non-monetary payment obligations determined by the judgment. The relevant payment standards can be calculated on a daily or monthly basis or a one-time fixed amount as appropriate.

The appeal judgment of this case clearly stated: 1. If Wei Companies violates the obligation to stop using the technical secrets involved, it shall pay a late performance fee of RMB 1 million per day; 2. If Wei Companies disposes of the 12 utility model patents involved in the case without authorization, it shall pay a one-time payment of RMB 1 million for each of them; 3. If Wei Companies fails to perform any of the specific obligations of destroying or transferring to Ji Companies the relevant documents of the technical secrets involved, issuing announcements and internal notifications, and signing a letter of commitment to keep the technical secrets involved and not to infringe with relevant personnel and units within the time limit specified in the judgment of this case, it shall pay a late performance fee of RMB 100,000 per day.

The text of announcement from the SPC is available here (Chinese only). A redacted copy of the decision is available here (Chinese only).

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