The Supreme People's Court (SPC) has ruled in the trade secret action brought by Jiaxing Zhonghua Chemical Co., Ltd. (Jiaxing Zhonghua) and Shanghai Xinchen New Technology Co., Ltd (Xinchen) against Wanglong Group Co., Ltd. (Wanglong Group) and a former Ziaxing Zhonghua employee. The Court ordered Wanglong Group to pay compensation of 159 million yuan (approx. USD 24.3 million) for trade secret infringement. The trade secret involved related to a process for the production of vanillin, a widely used food additive. Prior to the infringement, Jiaxing Zhonghua had been the world's largest vanillin manufacturer.
Jiaxing Zhonghua and Shanghai Xinchen New Technology Co., Ltd., jointly developed a new process for the production of vanillin and protected it as a trade secret. A former employee of Jiaxing Zhonghua, Fu Xianggen, subsequently received payment to disclose the trade secret to Wanglong Group and joined a Wanglong company as an employee. The Wanglong company began to produce vanillin, and in a short time became the world's third largest vanillin manufacturer, reducing Jiaxing Zhonghua's market share and causing it serious economic loss. Jiaxing Zhonghua filed a lawsuit with the Zhejiang Higher People's Court, which found in its favour and ordered the Defendant to cease the infringement and compensate the Plaintiff for economic loss of RMB 3 million (approx. US$ 458,575) and reasonable costs of RMB 500,000 (approx. USD 76,429). All parties, other than an individual Wanglong director, appealed to the Supreme People's court.
The IP Court of the Supreme People's Court held: (1) the infringement was serious, the subjective intention of the infringer obvious, the period of infringement long; (2) the purpose of the establishment and operation of the Wanglong company concerned was, essentially, to use other people's trade secrets to produce vanillin; (3) as a result of the infringement, the price of the Plaintiff's products has declined sharply, and the company's market share has been greatly reduced, resulting in huge loss. Because the Defendants had refused to submit account books, the Court chose to determine the amount of compensation on the basis of the profits that would have been derived by the Plaintiff, using its pricing and profit margins, on 2,000 tons i.e. the Defendants' sales volume from 2011 to 2017.
On this basis, the IP Court of the Supreme People's Court ordered the infringers to pay compensation of RMB 159million (approx. US$ 24.3 million), including reasonable costs of RMB 3.49 million (approx. US$ 533,476).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
