Wang’s case involving the alleged infringement of trade secrets

Chen Hongjun: Former Senior Counsel at Liaoning Tongfang Law Firm

Geng Luhong

Keywords: trade secrets, expert opinion, intellectual property, non-compete clause

The original defendant, Wang, the actual operator of Company A, was taken into criminal detention on December 17, 2014, on suspicion of the crime of issuing false special value-added tax invoices, and was formally arrested on January 21, 2015.

On February 1, 2016, the People's Procuratorate of a certain district filed public prosecution with the People's Court of that district. After review, the People's Court of the district accepted the case in April of the same year and, in accordance with the law, formed a collegial panel to conduct non-public trials on May 25 and August 10, 2016.

Case details

The District Prosecutors Office charged the following facts: From 2007 to 2010, while serving as the Equipment Department Manager at a certain joint-stock company in Anshan (hereinafter referred to as “the Company”), the defendant Wang illegally obtained the technical drawings for an automated production process of high-strength color-coated packaging steel strips that belonged to the Company and saved them on his personal computer. After leaving the Company in 2010, Wang took these drawings with him. On April 28, 2012, Wang, acting on behalf of Company A, signed a technology transfer contract with Company B, transferring the illegally obtained technical drawings for the automated production process of high-strength color-coated packaging steel strips to Company B. In 2013, Wang collaborated with Company C and, using the illegally obtained drawings and technology from the Company, developed an automated production line for high-strength color-coated packaging steel strips. Company C then sold this production line to Company B and Company D for RMB 5.25 million and RMB 5.88 million, respectively. During this transaction, Wang transferred the drawings containing the technical secrets for the automated production process of high-strength color-coated packaging steel strips along with the equipment to Company D.

On March 7, 2014, an expert appraisal conducted by the Liaoning Intellectual Property Judicial Appraisal Institute determined that the automated production technology for high-strength color-coated packaging steel strips owned by a certain company constituted that company’s trade secret. On October 30, 2015, another expert appraisal conducted by the Liaoning Intellectual Property Judicial Appraisal Institute found that the production drawings related to the automated production line for packaging steel strips obtained by Company B and Company D were substantially identical to the drawings of the automated production technology for high-strength color-coated packaging steel strips owned by the aforementioned company, demonstrating substantial identity. On December 25, 2015, an expert appraisal conducted by the Liaoning Intellectual Property Judicial Appraisal Institute concluded that Wang Mou had disclosed the automated production technology for high-strength color-coated packaging steel strips owned by the aforementioned company to Companies B and D, causing the company a total economic loss of RMB 700,000.

The defense counsel argued that Wang was a first-time offender and an occasional offender, and that he had voluntarily turned himself in and demonstrated a sincere attitude of guilt. Moreover, many of the trade secrets involved in this case embody Wang’s personal intellectual achievements. Additionally, the victim company in this case bore some degree of fault: after Wang left his position, the company failed to pay him the monthly economic compensation for non-compete restrictions as required.

Case details

The court adopted the expert opinion issued by the Liaoning Province Intellectual Property Judicial Expertise Institute.

With regard to the defense counsel’s arguments, the court accepted the defense counsel’s view that Wang was a first-time offender. However, with respect to the second point raised by the defense counsel, the court held that between 2007 and 2010, the defendant Wang served as the Equipment Department Manager at a certain company and had entered into a labor contract with the company. Article 29 of the contract explicitly stipulates: “During the term of employment and within three years after leaving the company, Party B shall be bound by a duty of confidentiality and shall not disclose Party A’s trade secrets; otherwise, Party B shall compensate Party A for any losses incurred and bear legal liability.” The trade secrets involved in this case encompass both Wang’s personal work achievements and intellectual creations, and thus should be regarded as his official acts performed during the duration of his employment. The fact that the defendant Wang signed the labor contract demonstrates his agreement to the non-compete clause contained therein. Although the victim company failed to pay the defendant Wang monthly economic compensation for the non-compete restriction as required by law after the termination of the labor contract, this does not alter the fact that, despite being fully aware of the non-compete clause, Wang still took away drawings containing trade secrets when he left his job and sold them to another company, thereby causing substantial losses to the victim company. Therefore, Wang’s conduct constitutes the crime of infringing upon trade secrets.

The court ruled: The defendant, Wang, obtained the trade secrets of the rights holder through improper means, causing damage to the rights holder of the trade secrets. His conduct has thus constituted the crime of infringement upon trade secrets.

The defendant, Wang, infringed upon trade secrets, causing a loss of RMB 700,000 to the rights holder, a certain joint-stock company in Anshan. He should be sentenced to a fixed-term imprisonment ranging from one year to one year and six months. However, considering that he voluntarily turned himself in to the public security authorities after the incident and truthfully confessed his criminal acts—thus constituting self-surrender—and that he pleaded guilty voluntarily in court, he may be given a lighter punishment in accordance with the law.

First-instance judgment and reasoning

This case is a quintessential example of a commercial secret infringement dispute. The significance of this case lies in the fact that, even during the appraisal process, lawyers can still play a pivotal role in ensuring that the client’s commercial secrets are recognized by the appraisal agency.

In this case, with regard to the portion of the trial involving the alleged crime of trade secret infringement, the expert opinion submitted by the prosecution was accepted by the court, whereas the defense counsel’s arguments on the issue of trade secrets were not adopted by the court. This demonstrates that in trade secret cases, expert testimony is a crucial component and can significantly influence the progress of the case.

The victim in this case, a certain company, is a leading steel strip manufacturer in the industry, boasting advanced production technologies. As early as the last century, the company was the first in its sector to adopt a grand strategy of market development centered on brand building. In 1997, it took the lead in its industry by obtaining ISO9002 international quality certification and registering its trademark. In 2003, the company’s self-developed high-strength packaging bags and heat treatment processes sparked a revolution in the packaging field. With the overall strengthening of the national economy, the country’s annual total demand for steel strips used in packaging has reached 120,000 tons. At the beginning of the 20th century, Baosteel alone produced only 25,000 tons of high-strength packaging steel strips each year. Within one year after the company began producing high-strength packaging steel strips in 2003, it had already manufactured 3,401.05 tons, providing strong support for the development of China’s steel industry.

From its very inception to the point of increasingly sophisticated technology, a certain company has continuously filed patent applications with the State Patent Office, and more than ten of its patent applications have already been granted by the State Patent Office. Meanwhile, part of the company’s intellectual property is protected as trade secrets. Although the victim has taken certain measures to safeguard its existing intellectual property rights, as a domestically advanced technology, it is inevitably subject to imitation by industry peers—and this case serves as a prime example.

During the trial of this case, resolving the issue of whether the defendant had plagiarized the victim’s technology relied on expert appraisal. The content of the appraisal included: what commercial secrets the parties possessed; why these technical points could be considered commercial secrets; what protective measures the parties had taken to safeguard their own commercial secrets; and how the parties persuaded the appraisal agency that these technical points indeed constituted commercial secrets for them.

In the course of the case, the first major challenge that the lawyer had to overcome was expert appraisal. In this case, the company in question is a leader in its industry, and the materials it produces are unique and cannot be replicated by other companies in the same sector. However, to prove this point, the lawyer would have to diligently search for evidence.

Meanwhile, a certain company holds multiple patents and trade secrets. To handle the case appropriately, it is crucial first to distinguish between primary and secondary issues: which patent or trade secret carries the greatest value within the industry and should be protected first. This also requires the lawyer to have a thorough understanding of the client’s situation and to grasp the significance of each patent to the client. Next, the lawyer must clearly identify the type of protection needed—for patents, this means carefully comparing them against the claims in the patent application. In this case, since the issue involves trade secrets, the lawyer’s primary task is to be able to interpret technical drawings accurately, thereby effectively identifying the confidential points along the production line. During the examination process conducted by the expert appraisal agency, the lawyer should clearly communicate to the agency the key points that require special attention and be able to offer well-reasoned recommendations.

Furthermore, throughout the entire process, lawyers must also adopt a dynamic mindset. For a given set of equipment, there is unlikely to be only one single point of trade secret; and for each individual trade-secret element, the infringer is unlikely to copy it exactly as it is. Instead, the infringer will typically make modifications to the trade-secret content, thereby creating differences from the company’s intended protected trade secrets—intended precisely to mislead the expert appraisal agency. However, for an entire set of equipment, a single isolated trade-secret element alone is meaningless. Rather, it is necessary to consider the equipment as a whole to determine whether the defendant has indeed infringed upon the trade secrets. In this particular case, the infringing equipment has undergone slight modifications in just a few specific data points. If one were to examine only these few areas, it might not appear to constitute infringement. Yet, when viewed holistically, the infringing product differs only slightly in appearance but remains strikingly similar in its technical implementation. This underscores the importance for lawyers, during the appraisal process, of adopting a comprehensive and dynamic perspective—not merely focusing on isolated details.

Most importantly, during the appraisal process, the most challenging aspect for lawyers is dealing with blueprints that constitute trade secrets. Since most lawyers have only limited knowledge of science and engineering subjects, they often find themselves in an awkward position—not only in trade-secret cases but also in intellectual-property cases more broadly. To address this challenge, lawyers must break away from conventional legal practice patterns and make a concerted effort to acquire knowledge in the relevant scientific and engineering fields. At the same time, they must skillfully apply legal principles to better safeguard their clients’ rights and interests. The key to quickly gaining a solid understanding of the technical aspects involved lies in lawyers deeply immersing themselves in the client’s business—getting to know the company’s operations, grasping how its production lines function, visiting the workshops firsthand, and personally experiencing the mechanics of the production process. Only by fully comprehending the role of each stage can lawyers ensure smooth communication between their clients and the appraisal institutions and steer the appraisal procedure onto a rational and well-founded path.