Case Type: Civil Dispute over the Business Secret Infringement
Court of Trial: Shanghai Yangpu District People's Court
Decision No.: (2019) H0110 MC No. 1662
Lung Tin Representation: Shanghai Hao Shen Chemical Reagent Co., Ltd. and Shanghai Mei Shu Chemicals Co., Ltd. (Plaintiffs)
Procedural History: The Plaintiffs, Shanghai Hao Shen Chemical Reagent Co., Ltd. (hereinafter referred to as the “Hao Shen Company”), Shanghai Mei Shu Chemicals Co., Ltd. (hereinafter referred to as the “Mei Shu Company”) files a lawsuit to Shanghai Yangpu District People's Court for business secret infringement by the Defendants Jiajia ZHU, Shanghai Li Jing Trading Co., Ltd. (hereinafter referred to as the “Li Jing Company”).
The first Defendant in the case, Jiajia ZHU, originally a sales staff member of the two Plaintiff companies, left in October 2017. When Jiajia ZHU was in the Plaintiff's office, labor contracts, confidentiality agreements and other documents that the Plaintiff and Jiajia ZHU signed clearly agreed on matters related to trade secrets and intellectual property related to confidentiality. If Jiajia ZHU discloses trade secrets, the Plaintiff has the right to terminate the labor contract, and Jiajia ZHU should also bear the compensation for financial losses and other responsibilities. The second Defendant, Li Jing Company was founded in September 2017, and the original legal representative is a relative of Jiajia ZHU. After leaving Hao Shen Company, Jiajia ZHU enters Li Jing Company as a product salesperson, responsible for external liaison. Then Li Jing Company is actually operated by Jiajia ZHU.
After the Plaintiffs' investigation, the Defendant, Li Jing Company, initiates the transaction intention to at least 42 enterprises on the Plaintiffs' client list, and carries out commercial transactions with 41 of them. In many of these transactions, the products are originally purchased by the clients from the two Plaintiffs, and some of the products are priced below the prices of the products offered to them by the Plaintiffs. The Plaintiffs warn the two Defendants but they fail, and they sue the two Defendants to court.
The court affirms after trial that the business information of the client list claimed by the two Plaintiffs is in conformity with the conditions stipulated in the Anti-unfair Competition Law and constitutes the common trade secret of the two Plaintiffs; the Defendant Jiajia ZHU actually comes into contact with the business information of the client list claimed by the two Plaintiffs, but, in violation of the confidentiality agreement with the two Plaintiffs, discloses and uses the above-mentioned client information to Li Jing Company, whose conduct improperly exploits the competitive advantage brought by the two Plaintiffs through the accumulation of client information obtained by the operation of the two Plaintiffs, thus constituting an infringement of the trade secret enjoyed by the two Plaintiffs; Li Jing Company is aware of or should have known the above-mentioned illegal acts of Jiajia ZHU, but still uses the business information and engages in direct competition between the two Plaintiffs to earn profits, thus constituting an infringement of the trade secret enjoyed by the two Plaintiffs.
Therefore, the court judges that the two Defendants immediately stop infringing on the trade secrets of the client list enjoyed by the two Plaintiffs and jointly compensate the Plaintiffs for financial losses and reasonable expenses totally 673,000 CNY.
Key Points of Verdict: First of all, the court determines from the information content, confidentiality measures, commercial value and other angles that the client information involved in the case constitutes a trade secret, and because the two Plaintiffs jointly adopts confidential measures for the above information, the business secrets involved in the case are jointly enjoyed by the two Plaintiffs. Secondly, in the determination of the infringement, in the case of the Defendant issues “Information Note” that the person other than involved in the case voluntary transacts with the Defendant in the case, the court, in consideration of the confidentiality agreement between the Plaintiffs and the Defendant, affirms that although there is an “Information Note”, the Defendant could not prove that the person other than involved in the case has established a transaction relationship with the Plaintiffs because of the personal input of the Defendant, and that the relevant transaction is initiated by the person other than involved in the case. In the circumstances where it is difficult for the Plaintiffs to determine the amount of the actual economic losses suffered as a result of the infringement and the amount of the financial benefits obtained by the Defendant as a result of the infringement, the court determines the amount of damages of 600,000 CNY in the light of the Plaintiffs' efforts to establish the trade secrets involved, the previous transaction price of similar products and the nature of the Defendants' infringement, and supports the full reasonable expenditure claimed by the Plaintiffs.
Significance: The client list of the enterprise often carries the supply and marketing channel of the enterprise, and more directly refers to the operation lifeline of the enterprise. The client list is protected by the Anti-unfair Competition Law as the business information in the trade secret. While the trade secret case has always been the type of case with a low success rate in the intellectual property case, and the success rate of the dispute case involving the client list is lower. The difficulty of this type of case lies in the proof of the Plaintiff's rights and the Defendant's infringement. In this case, the Plaintiffs prove that they use professional business software not only to file client information for nearly 10 years, but also to input and collate each business information, from which to obtain these specific clients' demand for products and the acceptance of product prices, trading habits and other special information. In relation to the fact of the Defendant's infringement, the Plaintiffs request the clients to provide the preliminary evidence of the Defendants' infringement in a variety of ways to investigate the scope of the Defendants' infringement and to obtain the preliminary evidence that could be used in the court's filing and trial; secondly, the Plaintiffs pressure the Defendants by applying to the court for an investigation order, and finally the Defendant voluntarily submits his transaction information with the clients to the court, which becomes the basis for the subsequent calculation of the compensation.
Lawyer comments:
This case mainly involves three dispute focus, that is, whether the client list involved in the case constitutes a trade secret, whether the Defendants violate the Plaintiffs' trade secret, and the determination of the amount of compensation.
For the first dispute focus, we focus on the contents of the client list, arguing that the key points that distinguish from public information, such as client habits (including product demands, product prices) and other information cannot be obtained from the public domain, need to rely on long-term stable transactions to obtain. And the Plaintiffs make the information involved have a strong confidentiality based on the subjective confidentiality awareness and objective confidentiality measures. At the same time, because the two Plaintiffs are highly affiliated enterprises, using common client list in the actual operation, the trade secrets involved in the case are affirmed to be jointly owned by the two Plaintiffs.
For the second dispute focus, the identification is conducted according to the "contact + substantive similarity" tort judgment principle. There are two important points. On the one hand, the Defendant provides “Information Note”, a statement of the situation in which some of the persons other than involved in the case voluntarily trade with the Defendant. In view of this, we believe that the plea of personal trust should be based on that the client transacts with the Defendant due to the special trust relationship between the client and the Defendant. In the present case, on the contrary, the Defendant used the material conditions and the trading platform provided by the Plaintiffs to obtain the trading opportunities, that is, the client transacts with the Defendant on the basis of the trust relationship with the Plaintiffs. And "Information Note" only reflects the related persons other than involved in the case cares about the product price rather than the personal trust of the Defendant. So the defense based on the personal trust could not be carried out. On the other hand, by proving that the Defendant Jiajia ZHU is the actual controller of the Defendant Li Jing Company, the two Defendants constitute a joint infringement and should bear joint liability.
For the third dispute focus, although the court in this case does not support our punitive damages, since article 17 of the “Anti-unfair Competition Law” of the 2019 edition specifically includes provisions on malicious claims for infringement of trade secrets, in similar cases, the claim of punitive damages in respect of infringement of malicious is still the starting point of litigation strategy that can be considered.
