First China Trade Secret Litigation Injunction Ends in Favor of Eli Lily and Company

1(By You Yunting) We have introduced that Shanghai court issued the first trade secret litigation injunction in China pursuant to the new Civil Procedure Law. Recent, Shanghai No. 1 Intermediate People’s Court made a judgment in favor of U.S. drug maker Eli Lily and Company and Eli Lily (China), determining that the defendant must cease infringing the trade secret of the plaintiff. In today’s post, we will introduce the abstract the judgment following with our comments.

Introduction to the Case:

Plaintiff: Eli Lily and Company, and Eli Lily (China)

Defendant: Huang Mengwei (the “Huang”)

Court of first instance: Shanghai No.1 Intermediate People’s Court  No.: (2013)沪一中民五(知)初字第119号

The plaintiff Eli Lily and Company is the world’s tenth largest pharmaceutical company and Eli Lily (China) is a research institute and branch of Eli Lily and Company. In May 2012, Huang signed an employment contract and a non-disclosure agreement with Eli Lily China, agreeing that Huang had an obligation of confidentiality to the plaintiff during his tenure, and never disclose to any other person or organization any trade secrets gained and obtained during his tenure at the research institute, including employment information, proprietary information, and any information related to the plaintiff’s sales and marketing strategies.

In January 2013, Huang, without plaintiff’s prior authorization, downloaded the company’s confidential files from plaintiff’s server. Afterwards, Huang refused to delete the confidential files and proposed to resign from the plaintiff. As such, the plaintiff sued Huang, requesting the court to order Huang to immediately stop ceasing infringement on plaintiff’s trade secrets, and provide indemnity in the amount of RMB 20 million for the plaintiff’s losses and reasonable expenses used to stop Huang’s infringement. At the moment, the plaintiff applied for litigation preservation, claiming that the court would prohibit Huang from disclosing, using or allowing any third party to use the 21 documents that were protected as trademark secrets by plaintiff, and providing RMB 100, 000 as vouchers.

Shanghai No.1 Intermediate People’s Court, upon its review, immediately issued a preservation ruling, prohibiting Huang from disclosing, using or allowing any third party to use the 21 documents. Thereof, the case was entered into litigation procedure. Recently, Shanghai No.1 Intermediate People’s Court made the judgment in the following.

  1. Defendant Huang violated Eli Lily (China)’s rules through downloading the confidential files and transferring it to his personal electronics without prior authorization, and then unfulfilled its obligation of deleting the confidential files. As such, his conducts made the confidential files at risk of disclosure and thus the defendant Huang shall be considered as trade secret infringement.
  2. With regard to the compensation of RMB 20 million claimed by the plaintiff, the court dismissed the amount of compensation by virtue of lack of evidences. However, considering that the lawyer’s fees, notarization fees and translation costs were the necessary expenses for investigating the trade secret infringement, existing direct relationship with what the defendant Huang had conducted, in the combination of various factors, including the complexity, difficulties of investigation, notarization fees and translation costs, the court decided that the amount of reasonable compensation shall be RMB 120,000.

For these reasons, Shanghai No.1 Intermediate People’s Court made the judgment, deciding that the defendant shall cease infringing the trade secret, delete the 21 documents, and be prohibited from disclosing, using or allowing any third party to use the confidential information thereof in the case of being publicly known. In addition, the court requested the defendant to compensate RMB 120,000 for the plaintiff and then rejected the other claims of the plaintiff.

Lawyer’s Comment:

According to Chinese laws and regulations, trade secret protection could use three methods, i.e., administrative proceeding, criminal litigation and civil lawsuit, to prevent from being infringed. Chinese enterprises that had a good relationship with local governments may choose criminal litigation to protect their trade secrets through reporting the case to the police, saying the theft of commercial trade secrets constituted the offence of infringing trade secret. Criminal litigation has its advantage over sufficient crackdown and convenient investigation in trade secret protection.

However, the difficulty of criminal litigation is to prove the theft of commercial trade secrets leading into losses and damages more than RMB 500,000. In most situations, it is hard for the victim to prove the losses and damages of RMB 500,000. For instance, in this case, the defendant Huang was just copied the trade secret never putting into use so that the plaintiff is hard to fulfill the burden of proof. As such, the police may reject to accept the case by virtue of lacking of preliminary evidences.

Foreign-funded companies in China may choose using civil lawsuits to protect their trade secrets in most cases. Civil lawsuits have disadvantages over difficult investigation and insufficient crackdown. Despite these disadvantages, the benefit is that the victim could entrust lawyers to file a lawsuit, with less governmental association. Expect civil lawsuit, we suggest that foreign-funded companies may take administrative proceeding to protect their rights and interests, such as reporting infringement to the administration for industry and commerce.

Comparing to criminal litigations, it is of great advantage in administrative proceedings without proving losses and damages of RMB 500,000. When compared with civil lawsuits, the administrations have the power to investigate the enterprises and personnel who infringe the trade secret, thus considering high sufficiency in ceasing infringement at a faster pace.

Pursuant to the Anti-Unfair Competition Law and the Certain Regulations of the State Administration for Industry and Commerce on Prohibiting Infringements upon Trade Secrets, the administration for industry and commerce may order it or him to desist from return the confidential files, software and others information to the right holder, and may impose on it or him a fine of more than RMB 10,000 but less than RMB 200,000. Besides, in the event that the infringing party has put the trade secret into manufacturing or market which may disclose the trade secret, the administration for industry and commerce shall supervise it or him to destroy the products.

 Lawyer Contacts

You Yunting86-21-52134918

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