*AI-generated translation, for reference only.

Keywords: Civil; Misappropriation of Technical Secrets; Use of All Technical Secrets; Intentional Misappropriation of Technical Secrets; Amount of Damages

[Judgment Digest]

1. Where the right holders provide evidence proving that the alleged infringers illegally obtained technical secrets such as a complete product process flow and complete sets of production equipment materials, and have actually produced identical products, the people's court may determine that the alleged infringers used all the technical secrets, unless the alleged infringers provide counter-evidence sufficient to rebut such determination.

2. Where the alleged infringers constitute intentional misappropriation of technical secrets, the people's court may calculate the amount of damages on the basis of the sales profits from the alleged infringers' relevant products. Where sales profits are difficult to determine, the amount of damages may be calculated on the basis of the right holders' sales prices and sales profit margin for the relevant products multiplied by the sales quantity of the alleged infringers' relevant products.

[Case Facts]

Jiaxing Zhong [REDACTED] Chemical Co., Ltd. (hereinafter referred to as "Jiaxing Zhong [REDACTED] Chemical Company") was one of the major vanillin manufacturers in the world and possessed relatively strong technical advantages. Shanghai Xin [REDACTED] New Technology Co., Ltd. (hereinafter referred to as "hanghai Xin [REDACTED] Company") was established on November 5, 1999, with a business scope covering technical services, technical consulting, technology development, technology transfer, and research and development of new products in the fields of biology and chemicals. Beginning in 2002, Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company jointly developed a new process for preparing vanillin by the glyoxylic acid method, including reaction processes such as condensation, neutralization, oxidation, and decarboxylation, as well as the recycling processes of guaiacol, toluene, copper oxide, and ethanol. The technical secrets claimed by Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company included six secret points. The carriers of the aforesaid technical secrets were 287 equipment drawings involving 58 items of non-standard equipment, including main drawings and component drawings, and 25 process piping and instrumentation flow diagrams, third edition. The Technology Development Contract, Technology Transfer Contract, and Special Contract on Long-Term Enterprise Cooperation entered into between Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company all contained confidentiality clauses.

Fu [REDACTED] Gen joined Jiaxing Zhong [REDACTED] Chemical Company in 1991 and, beginning in 2008, served as deputy director of the vanillin workshop, mainly responsible for the repair and maintenance of vanillin production equipment. Beginning in 2003, Jiaxing Zhong [REDACTED] Chemical Company successively formulated documents such as the document control procedure, record control procedure, food safety, quality and environmental management manual, and equipment/facility management procedure. Jiaxing Zhong [REDACTED] Chemical Company provided training to its employees on its internal management rules, and Fu [REDACTED] Gen attended management system training, environmental management system training, publicity and education training, and standards-implementation training in 2007. On March 25, 2010, Jiaxing Zhong [REDACTED] Chemical Company formulated the Archive and Informatization Management Security and Confidentiality System. Beginning in April 2010, Jiaxing Zhong [REDACTED] Chemical Company successively entered into confidentiality agreements with its employees, stipulating the scope of trade secrets and the employees' confidentiality obligations. Fu [REDACTED] Gen refused to sign the confidentiality agreement on the ground that he intended to resign.

Wang [REDACTED] Group Co., Ltd. (hereinafter referred to as "Wang [REDACTED] Group Company") was established on June 8, 1995, with a business scope including research and development and production of the food additive potassium sorbate, and manufacture and sale of chemical products, excluding hazardous chemicals, among others. Wang [REDACTED] Jun served as supervisor. Ningbo Wang [REDACTED] Technology Co., Ltd. (hereinafter referred to as "Wang [REDACTED] Technology Company") was established on October 21, 2009, jointly funded by Wang [REDACTED] and Wang [REDACTED] Group Company, with Wang [REDACTED] serving as legal representative. Ningbo Wang [REDACTED] Flavors and Fragrances Co., Ltd. was established on November 20, 2015, with a capital contribution in kind of RMB 80 million by Wang [REDACTED] Technology Company. Its business scope included research and development and production of practical flavors and fragrances, namely food additives, and its main product was vanillin. Wang [REDACTED] Jun served as legal representative. In 2017, the enterprise name of Ningbo Wang [REDACTED] Flavors and Fragrances Co., Ltd. was changed to [REDACTED] Fushi Wang [REDACTED] Fragrance (Ningbo) Co., Ltd. (hereinafter referred to as "[REDACTED] Fushi Wang [REDACTED] Company").

Around the Spring Festival of 2010, Feng [REDACTED] Yi, Fu [REDACTED] Gen, and Fei [REDACTED] began to discuss and seek transaction opportunities for vanillin production technology. On April 12 of the same year, the three went to Wang [REDACTED] Group Company to discuss cooperation in vanillin production technology with Wang [REDACTED] Jun, and entered into the Vanillin Technology Cooperation Agreement, with Jiaxing Zhi [REDACTED] Engineering Technology Consulting Co., Ltd. (hereinafter referred to as "Jiaxing Zhi [REDACTED] Company") as Party A and the vanillin branch factory of Wang [REDACTED] Group Company as Party B. On the same day, Wang [REDACTED] Group Company issued a bank draft of RMB 1 million to Jiaxing Zhi [REDACTED] Company. After endorsement and transfer, Feng [REDACTED] Yi withdrew RMB 1 million by cash check, from which RMB 400,000 was paid to Fu [REDACTED] Gen and RMB 240,000 to Fei [REDACTED]. Thereafter, Fu [REDACTED] Gen handed Feng [REDACTED] Yi a USB flash drive containing technical materials such as 200 vanillin production equipment drawings, 14 process piping and instrumentation flow diagrams, and a list of main equipment, which Feng [REDACTED] Yi then transferred to Wang [REDACTED]. On April 15 of the same year, Fu [REDACTED] Gen submitted a resignation report to Jiaxing Zhong [REDACTED] Chemical Company, and in May of the same year, Fu [REDACTED] Gen resigned from Jiaxing Zhong [REDACTED] Chemical Company and immediately entered the vanillin workshop of Wang [REDACTED] Technology Company together with Feng [REDACTED] Yi and Fei [REDACTED]. On March 15, 2011, the Environmental Protection Bureau of Ningbo, Zhejiang Province issued an approval agreeing to the environmental impact report for Wang [REDACTED] Technology Company's construction project for the production of vanillin and other products, approving an annual vanillin output of 5,000 tons. In June of the same year, Wang [REDACTED] Technology Company began producing vanillin. Since its establishment, [REDACTED] Fushi Wang [REDACTED] Company has continuously used the vanillin production equipment contributed by Wang [REDACTED] Technology Company as equity investment to produce vanillin.

In 2018, Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company filed a lawsuit with the Higher People's Court of Zhejiang Province, asserting that Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, Fu [REDACTED] Gen, and Wang [REDACTED] Jun had misappropriated their vanillin technical secrets.

[Judgment Result]

On April 24, 2020, the Higher People's Court of Zhejiang Province rendered Civil Judgment (2018) Zhe Min Chu No. 25:

1. Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, and Fu [REDACTED] Gen shall immediately cease the acts of misappropriating the technical secrets at issue, namely, cease obtaining by improper means, disclosing, using, and permitting others to use the technical secrets recorded in the equipment drawings and process piping and instrumentation flow diagrams at issue; the cessation of infringement shall continue until the technical secrets at issue have become known to the public.

2. Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, and Fu [REDACTED] Gen shall, within ten days from the effective date of this judgment, jointly and severally compensate Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company for economic losses of RMB 3 million and reasonable rights-protection expenses of RMB 500,000, totaling RMB 3.5 million; [REDACTED] Fushi Wang [REDACTED] Company shall bear joint and several liability for 7% thereof, namely RMB 245,000.

3. The other claims of Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company are dismissed. Except for Wang [REDACTED] Jun, all parties to this case were dissatisfied with the first-instance judgment and appealed to the Supreme People's Court.

On February 19, 2021, the Supreme People's Court rendered (2020) SPC IP Civil Final 1667:

Civil Judgment (2018) Zhe Min Chu No. 25 rendered by the Higher People's Court of Zhejiang Province is revoked.

Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, Fu [REDACTED] Gen, and Wang [REDACTED] Jun shall immediately cease the acts of misappropriating the technical secrets of Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company, namely, cease obtaining by improper means, disclosing, using, and permitting others to use the technical secrets recorded in the equipment drawings and process piping and instrumentation flow diagrams at issue; the cessation of infringement shall continue until the technical secrets at issue become known to the public.

Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, Fu [REDACTED] Gen, and Wang [REDACTED] Jun shall, within ten days from the effective date of this judgment, jointly and severally compensate Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company for economic losses of RMB 155,829,455.20 and reasonable rights-protection expenses of RMB 3,492,216, totaling RMB 159,321,671.20; [REDACTED] Fushi Wang [REDACTED] Company shall bear joint and several liability for 7% thereof, namely RMB 11,152,516.98.

4. The other claims of Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company are dismissed.

5. The appeal claims of Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, and Fu [REDACTED] Gen are dismissed. After the second-instance judgment was pronounced, Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, Fu [REDACTED] Gen, and Wang [REDACTED] Jun were dissatisfied and applied to the Supreme People's Court for retrial.

On October 19, 2021, the Supreme People's Court rendered Civil Ruling No. (2021) SPC IP Civil Shen 3890: the retrial applications of Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, Fu [REDACTED] Gen, and Wang [REDACTED] Jun were dismissed.

[Judge's Opinion]

The Supreme People's Court held that Wang [REDACTED] Group Company and the other alleged infringers had actually manufactured vanillin products, and therefore they necessarily possessed a complete process flow and corresponding equipment and devices for manufacturing vanillin products. The technical secrets claimed by Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company included six secret points, involving 287 equipment drawings for 58 items of non-standard equipment and 25 process piping and instrumentation flow diagrams. The carriers of the accused infringing technical information were the 200 equipment drawings and 14 process flow diagrams obtained by Wang [REDACTED] Group Company and the other alleged infringers. Upon comparison, among them, 184 equipment drawings were identical to the equipment drawings among the technical secrets at issue in terms of structural form, dimensions, design parameters, and manufacturing requirements, and were also identical in equipment names and numbers, drawing numbers, drawing entity, and other respects, involving a total of 40 items of non-standard equipment. Fourteen process flow diagrams were identical to Jiaxing Zhong [REDACTED] Chemical Company's process piping and instrumentation flow diagrams in terms of equipment positions and connection relationships, material and medium connection relationships, control contents and parameters, and other respects, and the drawing names, project names, and design entities marked on some of the drawings were also identical. Meanwhile, although the de-toluene condenser equipment drawing provided by Wang [REDACTED] Technology Company to Zhejiang Hang [REDACTED] Vessel Co., Ltd. (hereinafter referred to as "Hang [REDACTED] Company") and the oxidation process flow diagram of the oxidation unit in Appendix 15 to Wang [REDACTED] Technology Company's environmental impact report were not included in the drawings submitted by Feng [REDACTED] Yi, they both fell within the scope of the technical secrets at issue. Given that Wang [REDACTED] Technology Company had used them in equipment processing and environmental impact assessment filing, it could be determined that Wang [REDACTED] Technology Company had obtained those two drawings. In this case, the carriers of the technical secrets at issue were 287 equipment drawings and 25 process piping and instrumentation flow diagrams, and Wang [REDACTED] Group Company and the other alleged infringers illegally obtained 185 of the equipment drawings and 15 of the process flow diagrams. Considering that Wang [REDACTED] Group Company and the other alleged infringers could have made targeted modifications after obtaining the drawings of the technical secrets at issue, although four items had slight differences from the corresponding technical information among the technical secrets at issue, based on the specific infringement circumstances of this case, it could be fully determined that such differences were caused by evasive or adaptive modifications made by Wang [REDACTED] Group Company and the other alleged infringers after obtaining the technical secrets at issue. Therefore, it could be determined that those four items still used the technical secrets at issue. On this basis, it could further be determined that Wang [REDACTED] Group Company and the other alleged infringers actually used all 185 equipment drawings and 15 process flow diagrams that they had obtained. The specific reasons are as follows:

First, vanillin production equipment and process flows are usually coordinated, and the production process and related devices are relatively clear and fixed. Wang [REDACTED] Group Company and the other alleged infringers had actually completed the construction of the vanillin project production line and carried out large-scale production, and therefore they necessarily possessed a complete process flow and corresponding equipment and devices for manufacturing vanillin products.

Second, Wang [REDACTED] Group Company and the other alleged infringers refused to provide valid evidence proving that they had conducted research, development, and testing of the complete process flow and corresponding equipment and devices for vanillin products, and they launched the vanillin project production line and actually put it into production within an extremely short period of time. Wang [REDACTED] Technology Company's vanillin production line took only about one year from initiation to mass production. By contrast, Jiaxing Zhong [REDACTED] Chemical Company's technical secrets at issue took at least more than four years from research and development to completion of the production line.

Third, Wang [REDACTED] Group Company and the other alleged infringers submitted no valid evidence proving that they had conducted laboratory-scale or pilot-scale tests of the accused technical solution and relevant equipment. In addition, they had illegally obtained the technical drawings at issue, and Wang [REDACTED] Technology Company had used the equipment drawings and process flow diagrams illegally obtained by it both in its environmental impact report and in the process of purchasing equipment from Hang [REDACTED] Company. Considering comprehensively the characteristics of technical secret cases and the actual circumstances of this case, and in light of Wang [REDACTED] Group Company and the other alleged infringers' failure to submit valid counter-evidence, it could be determined that Wang [REDACTED] Group Company and the other alleged infringers had used all the technical secrets illegally obtained by them.

Fourth, although the vanillin production process flow and corresponding equipment and devices of Wang [REDACTED] Group Company and Wang [REDACTED] Technology Company differed slightly from the technical secrets at issue in individual respects, they submitted no evidence proving that such differences resulted from their own technological research and development or from technological achievements obtained through other legitimate means. At the same time, existing evidence showed that Wang [REDACTED] Group Company and the other alleged infringers began to establish a factory to produce vanillin products only after obtaining the technical secrets at issue. Therefore, it was entirely possible that, after obtaining the technical secrets at issue, they made evasive or adaptive modifications to certain production processes or individual component devices by reference to those technical secrets. Such modifications themselves were also a form of actual use of the technical secrets at issue.

In conclusion, it was determined that the technical secrets at issue illegally obtained by Wang [REDACTED] Group Company and the other alleged infringers from Jiaxing Zhong [REDACTED] Chemical Company, namely 185 equipment drawings and 15 process flow diagrams, had all been actually used.

Fu [REDACTED] Gen had long worked at Jiaxing Zhong [REDACTED] Chemical Company, was responsible for equipment maintenance in the vanillin workshop, and had access to the technical secrets at issue. On April 12, 2010, Feng [REDACTED] Yi, Fu [REDACTED] Gen, and another person went to Wang [REDACTED] Group Company to discuss cooperation in vanillin production technology with Wang [REDACTED] Jun, and quickly reached the Vanillin Technology Cooperation Agreement, agreeing that Feng [REDACTED] Yi, Fu [REDACTED] Gen, and others would contribute the new vanillin process technology as equity to the vanillin branch factory of Wang [REDACTED] Group Company. Fu [REDACTED] Gen received consideration of RMB 400,000 under the agreement, and thereafter transferred the USB flash drive containing the technical secrets at issue to Wang [REDACTED] through Feng [REDACTED] Yi. After resigning from Jiaxing Zhong [REDACTED] Chemical Company, Fu [REDACTED] Gen immediately joined Wang [REDACTED] Technology Company and was responsible for construction of the vanillin production line. Wang [REDACTED] Technology Company completed construction of the vanillin production line and conducted industrial production within a very short period of time, comprehensively using the equipment drawings and process flow diagrams of Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company. The above facts were sufficient to prove that Fu [REDACTED] Gen committed acts of obtaining and disclosing the technical secrets at issue to Wang [REDACTED] Group Company and Wang [REDACTED] Technology Company and permitting them to use the technical secrets at issue. Both Wang [REDACTED] Group Company and Wang [REDACTED] Technology Company were enterprises engaged in the production and sale of vanillin, and were in direct competition with Jiaxing Zhong [REDACTED] Chemical Company. They should have known that Fu [REDACTED] Gen, as an employee of Jiaxing Zhong [REDACTED] Chemical Company, did not enjoy lawful rights to that company's vanillin production equipment drawings and process flow diagrams. Nevertheless, Wang [REDACTED] Group Company directly obtained the technical secrets at issue of Jiaxing Zhong [REDACTED] Chemical Company by entering into the Vanillin Technology Cooperation Agreement and paying remuneration to Fu [REDACTED] Gen, Feng [REDACTED] Yi, and others, and disclosed them to Wang [REDACTED] Technology Company for use. Wang [REDACTED] Technology Company employed Fu [REDACTED] Gen and used the technical secrets illegally obtained by him for production, and later disclosed the technical secrets at issue to [REDACTED] Fushi Wang [REDACTED] Company and permitted it to continue using them through capital contribution in the form of equipment. All of the above acts infringed the technical secrets of Jiaxing Zhong [REDACTED] Chemical Company and Shanghai Xin [REDACTED] Company. Since its establishment, [REDACTED] Fushi Wang [REDACTED] Company continuously used the vanillin production line contributed by Wang [REDACTED] Technology Company as technological capital contribution, constituting misappropriation of the technical secrets at issue.

Wang [REDACTED] Group Company and the other alleged infringers illegally obtained and continuously and extensively used the technical secrets at issue, which had relatively high commercial value. Their means were egregious, and they had malicious intent in infringement. Their acts impacted the global vanillin market. In addition, Wang [REDACTED] Group Company and the other alleged infringers had circumstances such as obstruction of evidence and bad-faith litigation, and Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, [REDACTED] Fushi Wang [REDACTED] Company, and Fu [REDACTED] Gen refused to perform the effective act preservation ruling of the court of original instance. Based on the above facts, the Court decided in accordance with law to calculate the amount of infringement damages in this case according to sales profits. Because Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, and [REDACTED] Fushi Wang [REDACTED] Company refused in this case to submit account books and materials related to the infringing acts, the Court could not directly calculate sales profits based on their actual sales data. Considering that the sales prices and sales profit margin of Jiaxing Zhong [REDACTED] Chemical Company's vanillin products could serve as a reference for determining the relevant sales prices and sales profit margin of Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, and [REDACTED] Fushi Wang [REDACTED] Company, and in order to severely punish malicious misappropriation of technical secrets and fully protect the lawful interests of the technical secret right holders, the people's court decided to calculate the amount of damages in this case based on the sales profit margin of Jiaxing Zhong [REDACTED] Chemical Company's vanillin products from 2011 to 2017, namely, by multiplying the vanillin output produced and sold by Wang [REDACTED] Group Company, Wang [REDACTED] Technology Company, and [REDACTED] Fushi Wang [REDACTED] Company during the period from 2011 to 2017 by the sales prices and sales profit margin of Jiaxing Zhong [REDACTED] Chemical Company's vanillin products.

Relevant Legal Provisions

1.Article 1168 of the Civil Code of the People's Republic of China. Article 8 of the Tort Liability Law of the People's Republic of China, which came into force on July 1, 2010, applied in this case.

2.Articles 9 and 17 of the Anti-Unfair Competition Law of the People's Republic of China, as amended in 2019. Articles 9 and 17 of the Anti-Unfair Competition Law of the People's Republic of China, as revised in 2017, applied in this case.