Chinese court finds companies liable for RMB 159 m in trade-secret infringement dispute

On 26 February 2021, the Supreme People’s Court (SPC) issued a decision in a trade-secrets infringement dispute, finding the companies Wanglong Group, Ningbo Wanglong Technology Co. Ltd., and Xifushi Wanglong Co. Ltd. and two individuals (Mr. Fu and Mr. Wang) guilty as infringers and ruling that they should award RMB 159 million in damages to right holders Jiaxing Zhonghua Chemical Co. Ltd. and Shanghai Xinchen Co. Ltd.

The trade secrets in dispute involve a method for producing vanillin, which is co-developed by the right holders in this case. Before the infringement actions occurred, Jiaxing Zhonghua Chemical Co. Ltd. was the largest manufacturer of vanillin in the world with a global market share of up to 60%.

Mr. Fu, who is a former employee of the company, joined Wanglong Group in 2010 and disclosed the trade secrets to the supervisor of Wanglong Group and the president of Ningbo Wanglong Technology Co., Ltd., Mr. Wang.

Since then, the infringers in this case produced more than 2000 tons of vanillin per year and controlled 10% of the global market share. As a result, the global market share of Jiaxing Zhonghua Chemical Co. Ltd. dropped from 60% to 50%. During the first instance, the court ordered the infringers cited above to stop the infringement actions and awarded RMB 3.5 million in damages to the right holders. Both sides appealed the decision.

The SPC considered factors such as the gravity of the infringement actions, the value of the infringed trade secrets (including the equipment and the process for producing vanillin), and the infringers’ refusal to comply with the court orders, and awarded the right holders a damage of RMB 159 million (including actual damages based on profits and the RMB 3.49 million incurred for litigation expenses).

The SPC noted that the damage claimed by the right holders is based on infringement actions performed between 2011 and the end of 2017, and pointed out that the damages incurred due to continuous infringement actions since 2018 entitles the right holders to seek remedies in a separate case. The Anti-Unfair Competition Law that took effect on 23 April 2019 is equipped with a punitive-damage clause awarding up to five times the actual damages. The right holders may seek punitive damages pursuant to it. In addition, the SPC stated that the infringers in the dispute are also suspected of criminal trade-secret infringement, and as a result the relevant documents will be handed to the public security department for further investigations.

This judgment marks a historic high for an award in a trade-secret infringement case. Although punitive damage is not applicable in the present case, the SPC has already indicated that the infringers’ actions represented wilful infringement. Starting in 2018, the laws related to intellectual property rights have been amended to strengthen protections, and will include punitive-damage clauses. In multiple instances beginning in 2020, Chinese President Xi Jinping along with the State Council and the SPC delivered speeches and guidelines, calling for the strict implementation of punitive-damage clauses that have been newly added to intellectual property laws. As a result, judgements against intellectual property infringers are expected to become more and more severe from this point on.

Link to the full text (Chinese only) of the case.

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