*AI-generated translation, for reference only.

[Keywords]

Civil, infringement of trade secret, infringement of technical secret, hybrid parent, circumstances of infringement, amount of compensation

[Case Facts]

Hebei Hua [REDACTED] Seed Co., Ltd. (hereinafter referred to as Hebei Hua [REDACTED] Seed Company) alleged that Changji Zhou Xi [REDACTED] Seed Co., Ltd. (hereinafter referred to as Changji Zhou Xi [REDACTED] Seed Company) illegally obtained and used in 2022 its parent "W68" of the maize hybrid "Wannuo 2000," which was subject to confidentiality measures, as the male parent to produce maize seeds on 882.63 mu of land in a village in Shawan City, Tacheng Prefecture, Xinjiang Uygur Autonomous Region. Therefore, it requested the court to order: Changji Zhou Xi [REDACTED] Seed Company to immediately cease infringing the technical secret of the "W68" maize inbred line parent seed, and to compensate it for economic losses (including punitive damages) and reasonable expenses for rights protection totaling RMB 4,000,000 (currency unit same below).

Changji Zhou Xi [REDACTED] Seed Company argued that it did not acknowledge that the plot from which Hebei Hua [REDACTED] Seed Company took samples was the plot where Changji Zhou Xi [REDACTED] Seed Company produced seeds under commission from a third party; the hybrid variety involved in the audit report submitted by Hebei Hua [REDACTED] Seed Company was "Wannuo 2000," whereas the hybrid variety involved in this case was "Meiyu 27," and different hybrid varieties have different market demands and profits, so the audit report was not relevant to this case. Changji Zhou Xi [REDACTED] Seed Company contended that it did not intentionally infringe and should not bear infringement liability.

The court ascertained through trial: In this case, Hebei Hua [REDACTED] Seed Company alleged that Changji Zhou Xi [REDACTED] Seed Company used its "W68" technical secret for hybrid seed production, and requested that the compensation amount be calculated by reference to the profit of "Wannuo 2000," which is produced using "W68" as the male parent.

On July 29, 2022, when Hebei Hua [REDACTED] Seed Company conducted an investigation at the alleged infringing plot, Zheng [REDACTED], Director of the Seed Station of the Municipal Bureau of Agriculture and Rural Affairs, confirmed that the alleged infringing plot was used for seed production commissioned by Changji Zhou Xi [REDACTED] Seed Company, with Ma [REDACTED] yu as the person in charge. On August 3, 2022, Zhang [REDACTED] peng, the agent of Hebei Hua [REDACTED] Seed Company, and Ma [REDACTED] yu, an employee of Changji Zhou Xi [REDACTED] Seed Company, conducted sampling at the alleged infringing plot under the witness of Zheng [REDACTED], Director of the Seed Station of the Municipal Bureau of Agriculture and Rural Affairs. The sample was tested by a certain Maize Seed Testing Center, and compared with the control sample "W68," the number of loci was 40, the number of differential loci was 0, and the conclusion was "extremely similar or identical."

The Urumqi Intermediate People's Court of Xinjiang Uygur Autonomous Region rendered the (2023) Xin 01 Zhi Min Chu No. 6 civil judgment on July 28, 2023, ordering: 1. Changji Zhou Xi [REDACTED] Seed Company to immediately cease the act of using the technical secret of "W68," the male parent of the new plant variety of maize "Wannuo 2000"; 2. Changji Zhou Xi [REDACTED] Seed Company to compensate Hebei Hua [REDACTED] Seed Company for economic losses in the amount of RMB 700,000 within ten days from the effective date of the judgment; 3. Rejection of Hebei Hua [REDACTED] Seed Company's other claims. Both Hebei Hua [REDACTED] Seed Company and Changji Zhou Xi [REDACTED] Seed Company refused to accept the judgment and filed appeals respectively. The Supreme People's Court rendered the (2023) SPC IP Civil Final 2562 civil judgment on October 8, 2024, ordering: 1. Affirmation of the first item of the (2023) Xin 01 Zhi Min Chu No. 6 civil judgment of the Urumqi Intermediate People's Court of Xinjiang Uygur Autonomous Region; 2. Revocation of the second item of the (2023) Xin 01 Zhi Min Chu No. 6 civil judgment of the Urumqi Intermediate People's Court of Xinjiang Uygur Autonomous Region; 3. Changji Zhou Xi [REDACTED] Seed Company to compensate Hebei Hua [REDACTED] Seed Company for economic losses of RMB 1,929,164.39 and reasonable expenses for rights protection of RMB 50,000, totaling RMB 1,979,164.39, within ten days from the effective date of the judgment; 4. Rejection of Hebei Hua [REDACTED] Seed Company's other claims.

[Reasons for Judgment]

One of the points of contention in this case was how to calculate the amount of compensation for the infringement in question, specifically including determining the area of the plot actually used by the infringer for seed production and determining the amount of damages per unit area.

1. Regarding the actual seed production area of Changji Zhou Xi [REDACTED] Seed Company. The "Maize Seed Production Contract" and the "Commitment Letter for Legal Production and Acquisition of Maize Seeds in 2022" filed with the seed station in the location of the plot in question mutually corroborated the relevant facts of the on-site sampling conducted by Hebei Hua [REDACTED] Seed Company. Moreover, the aforementioned production contract clearly stated that Changji Zhou Xi [REDACTED] Seed Company commissioned Wang [REDACTED] jun to produce seeds of only one variety in March 2022, a fact consistent with Wang [REDACTED] jun's statement during questioning by the court in another case. The production contract showed a filed seed production area of 1,000 mu, while Wang [REDACTED] jun stated during court questioning in another case that the area entrusted to him for seed production in 2022 was 890 mu. Hebei Hua [REDACTED] Seed Company claimed in this case based on the 882.63 mu measured during its notarized evidence collection. This area did not exceed the filed seed production area shown in the aforementioned contract or the entrusted seed production area stated by Wang [REDACTED] jun, and should be upheld.

2. Regarding the amount of damages per unit area for infringement of the technical secret of hybrid parent. In disputes over infringement of the technical secret of hybrid parent, since the hybrid parent is generally not sold in the market, there is a lack of a directly referable market price, making it difficult to calculate the actual loss or the benefits derived from the infringement through its sales price. In such circumstances, to calculate the specific amount of compensation that the infringer should bear for infringing the technical secret of the hybrid parent, comprehensive determination can be made by considering factors such as the breeding cost of the parent, its competitive advantages including characteristics and traits, its substitutability, and its contribution rate to the market benefits of the resulting hybrid. First, regarding competitive advantages such as the characteristics and traits of the hybrid parent. During the hybridization process, the traits of the parents are combined in the hybrid. The specific traits of the male and female parents largely determine the characteristics and traits of the hybrid, and their adaptability is also transmitted to the hybrid. For hybrids with excellent traits such as high yield and high quality, the combining ability of the male parent, as well as its genetic composition and genetic stability, have a significant impact on the hybrid. In this case, "W68" possesses outstanding excellent traits, and the outstanding excellent traits of the hybrid "Wannuo 2000," which is produced by using "W68" as the male parent and "W67" as the female parent, also reflect the competitive advantages of "W68." Second, regarding the market benefits of the resulting hybrid. The hybrid "Wannuo 2000" has an average yield of approximately 275 kg per mu, with a unit profit of RMB 19.87/kg. Changji Zhou Xi [REDACTED] Seed Company did not recognize the aforementioned evidence, nor did it submit relevant evidence regarding the sales profit of the varieties it actually produced. Therefore, when calculating the specific amount of compensation, a comprehensive assessment can be made based on the contribution rate of "W68" to the profit of the hybrid "Wannuo 2000." It is reasonably justified for Hebei Hua [REDACTED] Seed Company to claim the calculation of its actual loss or the infringer's profit derived from infringement based on the profit of "Wannuo 2000." Third, regarding the contribution rate of "W68" to the profit of the hybrid. According to the facts ascertained, the relevant industry practice in the seed sector regarding the distribution of proceeds from maize breeding achievements in the context of variety right transactions is as follows: the proceeds distribution ratio among the owner of the male parent, the owner of the female parent, and the breeder of the variety is set at 3:3:4. As an industry practice, the above proceeds distribution ratio does not violate the mandatory provisions of laws and regulations, and may serve as a reference when determining damages for infringement in the dispute over infringement of the maize parent in question. Given that in an infringement case, the alleged infringer did not obtain the right to use the protected variety through lawful and normal transaction negotiations, when determining the proceeds distribution ratio by reference to the above practice, the infringed party's proceeds ratio may be appropriately increased taking into account the circumstances of the infringement. In light of the actual circumstances of this case, including the relatively large scale of the alleged infringing production area, the contribution rate of "W68" was determined to be 40% of the profit of the hybrid "Wannuo 2000." Based on this calculation, Changji Zhou Xi [REDACTED] Seed Company should compensate Hebei Hua [REDACTED] Seed Company for economic losses in the amount of RMB 1,929,164.39 (RMB 19.87/kg × 275 kg/mu × 882.63 mu × 40%). For the reasonable expenses incurred by Hebei Hua [REDACTED] Seed Company to stop the infringing acts, RMB 50,000 was determined as appropriate.

[Judgment Digest]

In disputes over infringement of the technical secret of hybrid parent, where the parent is not sold in the market, making it difficult to calculate the right holder's actual loss or the infringer's profit derived from infringement based on its market sales price, the amount of damages for infringement may be determined according to law based on a comprehensive consideration of factors such as the breeding cost of the parent, its characteristics and traits, competitive advantages, substitutability, and its contribution rate to the market benefits of the hybrid. When determining the contribution rate to the market benefits of the hybrid, reference may be made to the customary industry practice concerning the distribution of proceeds from breeding achievements in the seed sector, and the rate may be appropriately increased in light of the specific circumstances of the infringement.

[Corresponding Index]

Anti-Unfair Competition Law of the People's Republic of China, Articles 9, 17, and 32

Several Provisions of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringement of Trade Secrets (Fa Shi (2020) No. 7), Articles 6 and 9

First Instance: Urumqi Intermediate People's Court of Xinjiang Uygur Autonomous Region (2023) Xin 01 Zhi Min Chu No. 6 Civil Judgment (July 28, 2023)

Second Instance: Supreme People's Court (2023) SPC IP Civil Final 2562 Civil Judgment (October 8, 2024)