1. Determination of the amount of compensation
2. The reasons for the increase in the amount of compensation in the second instance
III. Application of Punitive Damages
Fourth, summary and outlook
Preface. In a trade secret infringement lawsuit, when the infringement is found to be established in the first instance and the defendant is awarded compensation for losses, the defendant in the first instance will often file an appeal, hoping to bear no or less liability for compensation. However, in recent years, in some cases, the court of second instance has not only not reduced the amount of compensation, but has increased the amount of compensation. In the author's view, this situation sends a clear signal that the crackdown on trade secret infringement is constantly being strengthened.
In civil litigation, trade secrets are a kind of civil rights, which belong to a type of intellectual property, and usually include two categories: technical secrets and business secrets. The Civil Code stipulates the main ways to bear civil liability, and for cases of infringement of trade secrets, the infringer usually bears civil liabilities such as stopping the infringement and compensating for losses, while the case of infringement of trade secrets is a case where the law provides for punitive damages, and it is possible to bear punitive damages. It is usually relatively simple to stop the infringement, but for the compensation for losses, how to determine the amount of compensation has become one of the key issues in the case.
Different from types of intellectual property rights such as patent rights and trademark rights, trade secret rights do not need to be granted by state administrative organs, but the right holder takes confidentiality measures to make it eligible for the protection of trade secrets. In the civil legal system, the regulation of infringement of trade secrets is stipulated in the Anti-Unfair Competition Law. Article 9 of the Anti-Unfair Competition Law lists the acts of infringement of trade secrets that business operators are not allowed to carry out, and provides a definition of trade secrets.
Infringement of Trade SecretsArticle 17 of the Anti-Unfair Competition Law stipulates the liability for infringement of trade secrets. Among them, the first paragraph stipulates the consequences of violating the law, and stipulates that those who cause damage due to violations shall bear civil liability. Paragraph 2 provides for remedies whereby a person whose rights have been violated may bring a civil action. It should be noted here that the second paragraph is "may" rather than "shall", because according to the provisions of the Civil Code, the right holder can exercise civil rights according to his own wishes. The right holder may or may not prosecute, may file a civil lawsuit, may also apply for administrative investigation and punishment, and may also report to the public security organ for serious infringement of trade secrets. The third paragraph stipulates the determination of the amount of compensation, and the basis for determining the amount of compensation is that there is a priority, and according to the principle of filling in civil damages, the first priority should be the actual loss suffered by the infringement. When the actual loss cannot be determined, the amount of compensation can be determined according to the second priority: the benefits obtained by the infringer as a result of the infringement. The third paragraph also provides for two special circumstances, one is specifically for the malicious infringement of trade secrets, and the other is for the general situation, and the amount of compensation includes the reasonable expenses incurred to stop the infringement. Paragraph 4 stipulates the third priority for determining the amount of compensation, that is, the people's court shall determine the amount of compensation at its discretion, and the amount of compensation shall not exceed 5 million yuan.
The judicial interpretation provides supplementary provisions for the above-mentioned third priority, where the people's court has discretionary provisions. Article 19 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets provides that if a trade secret becomes known to the public as a result of the infringement, the people's court may consider the commercial value of the trade secret when determining the amount of compensation in accordance with law. In determining the commercial value referred to in the preceding paragraph, the people's court shall consider factors such as the cost of research and development, the benefits from the implementation of the trade secret, the benefits that can be obtained, and the time during which the competitive advantage can be maintained.
The above legal provisions clarify the method of determining the amount of compensation for trade secret infringement. According to the logic of determining the amount of compensation prescribed by law, in practice, cases in which the amount of compensation awarded in the second instance is higher than that in the first instance can be divided into two types.
The first type is when the court of first instance finds that it is not possible to pass the above-mentioned paragraph.
The amount of compensation was determined in the first and second priority and was determined in accordance with the third priority, and the court of second instance held that the above-mentioned paragraph could be adopted.
1. The amount of compensation shall be determined in the second priority.
For example, in the well-known "vanillin" case, the plaintiff of the first instance claimed that the amount of compensation should be determined based on the losses caused by the infringement of the technical secrets involved in the case, and provided three calculation methods according to operating profits, sales profits and erosion. The court of first instance held that the infringement was established, but when determining the amount of compensation, it held that the evidence submitted by the plaintiff was insufficient to prove the actual losses suffered by the plaintiff due to the infringement, and awarded the defendant a total of 3.5 million yuan in compensation including reasonable expenses in the form of statutory compensation. The court of second instance held that the plaintiff No. 1.
1. The second calculation method has evidence to prove that it is true and reliable, and the third calculation method has many factors that affect the accuracy and is for reference only. The court of second instance finally applied the actual losses suffered by the infringement in the first order, and determined the amount of damages according to the calculation method of sales profits claimed by the plaintiff 155829455$20 plus the above reasonable expenses 3492216 total is about $15.9 billion yuan [1]. This case was selected as one of the top 10 cases of the people's court in 2021.
In the melamine case, the plaintiff of the first instance claimed that the losses suffered by the defendant in the first instance as a result of the infringement in this case should be calculated based on the profits from the use of the technical secrets in question. Two methods were proposed to calculate the amount of compensation, one was calculated with reference to the gross profit margin of the organic amine of the defendant in the first instance, and the other was calculated with reference to the gross profit margin of melamine sold by an enterprise of the same size. The court of first instance held that it was difficult to ascertain the actual losses suffered by the plaintiff as a result of the infringement and the actual profits obtained by the defendant as a result of the infringement, so statutory damages were applicable in this case. However, the court of first instance held that the evidence submitted by the plaintiff could determine the profit range, which was far greater than the statutory compensation of 5 million yuan, so the discretionary compensation amount also exceeded the statutory compensation amount, and the compensation in the first instance was 50 million yuan. The court of second instance held that the defendant of the first instance could only determine the profit of infringement based on the evidence submitted by the plaintiff of the first instance if the defendant did not submit evidence to the contrary, and both calculation methods exceeded the claim of the plaintiff of the first instance, so the court of second instance fully upheld the amount of compensation claimed by the plaintiff of the first instance of 98 million yuan[2].
In the microbial oil and gas exploration case, the plaintiff in the first instance also claimed that the amount of compensation should be determined based on the benefits obtained by the defendant in the first instance due to the infringement. The court of first instance held that the plaintiff had only submitted the audit reports of the two projects, and the profits calculated by the plaintiff were sales profits, so it was difficult to determine that the profits claimed by the plaintiff were the reasonable profits of its projects. The court of first instance decided that the amount of compensation was 500,000 yuan. The court of second instance held that considering that the field in which the technical information involved in the case was applied was not an ordinary commercial field with sufficient market competition, it could be presumed that the defendant of the first instance improperly seized the transaction opportunity that originally belonged to the plaintiff of the first instance. In this case, whether the defendant in the first instance has maliciously bid at a low price, whether it has used other self-owned technologies in the project, and whether the technical contribution rate of the technical secrets used does not affect the calculation of the amount of compensation. The court of second instance confirmed that the plaintiff's profit from infringement calculated by the plaintiff in the first instance was higher than the amount of its claim, so it fully supported the plaintiff's claim and determined the amount of compensation of 2 million yuan and reasonable expenses of 5070,000 yuan [3].
The second type is that both the court of first instance and the court of second instance have determined the amount of compensation through the third priority, but the court of second instance has redetermined the amount of compensation based on the above-mentioned judicial interpretation and taking into account various factors.
For example, in the "Crawler Platform" case, the court of first instance decided to compensate 50,000 yuan for damages, including reasonable expenses paid to stop the infringement, taking into account the nature of the technical secrets involved in the case, the cost of research and development, the degree of innovation and the competitive advantages that it could bring, as well as the defendant's subjective fault, the nature and circumstances of the infringement. The court of second instance held that a confidentiality agreement was signed between the defendant and the plaintiff in the first instance, stipulating the amount of compensation. Therefore, when the defendant violates the relevant agreement in the first instance, the amount of infringement compensation agreed upon by both parties can be used as an important reference factor in determining the infringement damages. The court of second instance changed the judgment to compensate 250,000 yuan for economic losses and reasonable expenses50,000 yuan [4].
In the context of the country's continuous emphasis on the protection of intellectual property rights and the severe punishment of infringement, the punitive damages system has been introduced into China. The so-called punitive damages correspond to the compensation determined according to the principle of filling in the compensation. In order to increase the intensity of the crackdown on serious infringements, in addition to filling up the losses of the right holders, the infringers with serious circumstances are also made to bear several times the liability for compensation for the losses made up, so as to deter and deter the occurrence of infringements. The Anti-Unfair Competition Law, amended in 2019, clearly stipulates that if the infringement of trade secrets is serious, punitive damages of not less than one time but not more than five times may be imposed on the basis of the amount of compensation determined based on other methods. The Civil Code implemented in 2021 clearly stipulates that punitive damages can be claimed in cases of intellectual property infringement.
In the vanillin case mentioned above, the court of second instance held that punitive damages could have been applied to the infringement in question, but during the period when the plaintiff of first instance calculated the amount of compensation, the punitive damages system had not yet been implemented, and the plaintiff of first instance did not claim it. Therefore, punitive damages were not applied in this case[2].
In the Guiding Case No. 219 of the Supreme People's Court, the Supreme People's Court held that if a business operator maliciously infringes on the trade secrets of others, and the circumstances are serious, the right holder may request the infringer to bear punitive damages. This shows that the conditions for the application of punitive damages are that there is subjective malice and the circumstances are objectively serious, and in addition, the principle of request is also implied, that is, the right holder can request, and the court will decide whether to support the right holder's claim. In this case, the legal representative of the accused infringing company did not stop the sale of the infringing products even though he had already been investigated for criminal liability for infringing trade secrets, and there were circumstances such as obstructing the collection of evidence, and the subjective malice was obvious. Objectively, its sales scope is more than 20 countries and regions, and the circumstances are serious. Therefore, punitive damages were applied in this case, and the base amount of compensation was determined in the second instance to be 6 million yuan, and 30 million yuan was awarded after the punitive damages were applied[5]. In the second instance of this case, there were also differences between the method of determining the amount of compensation and that of the first instance, and the compensation base and multiples were adjusted, but the total amount of compensation did not change fundamentally, and a detailed analysis was not carried out due to space reasons.
In civil litigation, it is not uncommon for the infringer to be awarded a higher amount of compensation in the second instance. Such cases send a clear signal that China is continuously strengthening the judicial protection of trade secrets. We will not comment on the facts and fairness of individual cases, but from the perspective of the whole society, effective protection of intellectual property rights, severe crackdown on infringement, warning all legal operators, and deterring and deterring the occurrence of infringement are obviously conducive to encouraging the innovation and development of all kinds of innovation subjects, stimulating the vitality of social innovation, and making innovation a driving force for economic and social development.
References (scroll up and down).
1] Supreme People's Court, (2020) Supreme Law Zhi Min Zhong No. 1667 Civil Judgment.
2] Supreme People's Court, (2022) Supreme Court Zhi Min Zhong No. 541 Civil Judgment.
3] Supreme People's Court, (2021) Zui Gao Fa Zhi Min Zhong No. 1363 Civil Judgment.
4] Supreme People's Court, (2021) Supreme Court Zhi Min Zhong No. 1687 Civil Judgment.
5] Supreme People's Court, (2019) Supreme Law Zhi Min Zhong No. 562 Civil Judgment.
Author: Yu Chunbo.
Edited by Eleven