How to Define Losses in Trade Secret Criminal Cases?

By Luo Yanjie

With the rapid economy development in mainland China, we also see an increase of infringements against industrial property right, especially those trade secret cases uncovered by traditional IPR laws. For those trade secret cases we have participated, the most head aching part shall be the crime liability establishment of the trade secret infringement in Chinese laws, for it could only be decided when the right owner suffers the losses of more than 500, 000 yuan. Today, we would like to share our opinions on the conviction of trade secret infringement as follows.

I. The standard of crime case filing of trade secret infirngement

Article 219 of Criminal Law of PRC has regulated several conditions of trade secret infringement, and they could be concluded as the misconduct of “to acquire the trade secret through intentional improper means and thereby cause a major loss”. Also the Interpretation on Several Issues concerning Law Application on Hearing the Criminal Cases of IPR Infringement by the Supreme People’s Court and the Supreme Procuratorate provides a corresponding article in its Article 7 that

“Any losses of more than 500, 000 yuan from misconduct regulated in Article 219 of the Criminal Law should be the ‘major losses occurred to trade secret owner’”.

That means the suspect could only be convicted when his/her misconduct has caused the loss of or more than 500, 000 yuan.

II. The definition standard of losses from trade secret infringement in practices

For the definition of losses from trade secret losses, so far we have found no specific regulation in Chinese laws, and also no adopted standard in practices has been widely followed. But the general means may be the following ones:

1. the economic losses suffered by trade secret holder for the infringement

Such a calculation method is mostly adopted in cases of technology trade secret, for the trade secrets in such cases are valuable and may bring the monopoly position to the holder, and moreover the evaluation of the losses may find a clear standard. But what shall be made clear is that the losses hereby referred to shall only include those direct losses, and for the indirect losses which is more difficult to evaluate, it still remains arguing whether shall include it into the criminal cases. For this, I prefer to hold a conservative attitude that normally it shall not be counted in the scope of criminal cases for to prevent the abuse use of power by some large-scale entities.

2. The losses could be calculated by the gains from the infringement when the suffers of the infringed is not available.

The so-called gains from the infringement may refer to the following benefits: the fees paid to the infringing party for the acquisition of the trade secret; the direct gains from the operation with the using of the trade secret; the license fee collected by the infringing party for the “grant-use” to any third parties. Although it seems to be many sorts of gains, the practical use of such methods may still be difficult, such as no gains has been made by the infringer, or the trade secret has been transferred to a third party of free or on a law price.

3. Shall the calculation in civil lawsuits be the basis of crime case filing?

As provided in Article 17 of Interpretations on Several Issues concerning Law Application in Hearing the Unfair Competition Civil Cases by the Supreme People’s Court, the value of the trade secret could be assessed by “the trade secret’s development cost, the gains from the implement of the trade secret or its foreseeable gains, the period of advantage supported by the trade secret and other elements”. In my opinion, such elements shall also be considered in trade secret crime. Despite foreseeable benefits, advantage period and other elements refer to the future benefits that may come from the trade secret, they also influence the current value of the trade secret, and therefore to calculate the losses to the right holder by them shall be fairly reasonable.

III. To choose which method, the civil lawsuit or the criminal one?

Currently, the foreign companies are also puzzled with the releasing of their trade secret, and their interests could not be fully protected in China through civil lawsuit. For example, as reported (the link is in Chinese), Shanghai Pudong People’s Court released a report, indicating that the plaintiff in the trade secret case enjoys a low rate of victory in the lawsuits in recent 10 years, among which more than 60% are refused for their action. And that makes the victim more likely to take the criminal way to protect their trade secret, but surely, for the demands from the police department for the assistance in evidence collection in the criminal investigation, the company may still spent a lot of funds and human resources. So that may still be a difficult problem, and trouble all the high-tech companies operating in a country of low human resource cost and IPR protection.

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