Court: This Constitutes a Crime of Encroachment upon Commercial Secrets

[Case Review]

From April 2012 to February 2014, Sha worked for Company A as a senior product engineer, participated in sunroof project work and related product development, and came in contact with the sunroof related technical information involved in the case. The relevant technical information was authorized by related parties for Company A¡¯s production and use, and Company A adopted corresponding confidentiality measures.

In March 2014, Sha job-hopped to Company B, in charge of the research and development of panoramic sunroof products. Company B and Company A are in the same industry and produce similar products. Shortly after taking the job, Sha informed Company B¡¯s legal representative Gu that someone had a set of sunroof design drawings for sale and could be used for product development. Gu agreed to purchase the design drawings and transferred RMB 250,000 to the account designated by Sha. Soon, this set of technical information data design drawings with Company A¡¯s logo and project code was used by Company B for product development and mass production. Afterwards, Sha and Gu, as co-inventors, applied for patents on some technologies.

In October 2015, Company A discovered that the patents applied by Company B contained many of its unpublished technical information. In August 2016, Company A reported to the police. In 2018, the police hunted down through the Internet and captured Sha who had left Company B.

After trial, it was found that part of the sunroof products, utility model patents and some electronic data in the computer of Company B are substantially the same or identical with the technical information involved in the case. The sunroof technical information involved in the case was a commercial secret protected by the Criminal Law of the People¡¯s Republic of China. Company B should have known that there may be illegal disclosure of the technical secrets of others, but it did not conduct any review out of prudence, and used relevant technical information and materials for the development, production and sales of related sunroof products. From September 2015 to June 2018, the net profit of the above related sunroof products reached more than RMB 12.98 million.

The Putuo District People¡¯s Court of Shanghai (hereinafter referred to as the ¡°Shanghai Putuo Court¡±) found that the defendants Sha, Gu, and Company B had committed the crime of encroachment upon commercial secrets, and sentenced the defendant Sha to five-years of fixed-termed imprisonment, with a fine of RMB 500,000, the defendant Gu to three years of fixed-term imprisonment, with a fine of RMB 350,000, and the defendant Company B to a fine of RMB 4 million.

[Case Study]

After trial, the Shanghai Putuo Court believed that the technical information involved are unknown to the public, can bring economic profits to the rightful owner, are functional, and the obligee Company A adopted corresponding confidentiality measures, which were enough to make it a commercial secret. Sha contacted the technical secrets involved in the case, violated the confidentiality agreement with the obligee, and disclosed, used, and allowed Company B to use the commercial secrets in his possession, which constituted an encroachment upon commercial secrets.

In the name of purchasing drawings from a party not involved in the case, Company B acquired them form the former employee of its competitor. In the actual transaction, the contract signing and payment did not conform to general business practices, and the carrier of the commercial secrets contained the business logo of its competitor, Company A. It can be concluded that Company B was aware of Sha¡¯s infringement, but still obtained, used and disclosed the commercial secrets involved in the case, which was subjectively intentional and constituted an act of encroachment upon commercial secrets.

The defendant Company B applied for patent protection for the commercial secrets of the obligee Company A, which caused the commercial secrets to become information known to the public and lost its secrecy, inevitably causing losses to the obligee. However, since the technical secrets involved in the case had gone through technology upgrades, it was difficult to accurately assess their value. Therefore, it was objective and reasonable to evaluate the amount from the perspective of the losses suffered by the obligee or the profits of the infringer. Considering the business scenario in this case, there was no evidence that Company B¡¯s customers overlap with that of the obligee, and the supply market of sunroof products was not exclusively owned by the obligee. Therefore, the court determined that there was not a direct replacement relationship between the infringing product and the product of the obligee, and it was more objective to adopt the calculation method based on the profits of the infringer.

 In view of the fact that the defendant Company B did not have the ability to produce corresponding sunroof products before illegally using the technical secrets concerned, it can be determined that the technical secrets were the core and constituted key components with the technical functions and effects of sunroof products. After appraisal, the infringing sunroof products covered all the technical secrets of the machinery group. Since the sunroof products involved were only sold as a whole, and would not be sold separately from the key components as glass, seals, wire harnesses and other parts, the court calculated the illegal amount of crime based on the overall net profit of the infringing sunroof products, which was more than RMB 12 million, and did proportional calculation based on the contribution and proportion no more..

In summary, the Shanghai Putuo Court made the above judgment.

(All names in the text are made-up.)

[Relevant Laws]

¢ñ.  Criminal Law of the People¡¯s Republic of China ¡¡¡¡

Article 219. Whoever engages in one of the following activities which encroaches upon commercial secrets and brings significant losses to persons having the rights to the commercial secrets is to be sentenced to not more than three years of fixed-term imprisonment, criminal detention, and may in addition or exclusively be sentenced to a fine; or is to be sentenced to not less than three years and not more than seven years of fixed-term imprisonment and a fine, if he causes particularly serious consequences:

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(3) disclose, use, or allow others to use, in violation of the agreement with the rightful owner or the rightful owner¡¯s request of keeping the commercial secrets, the commercial secrets he is holding.

Whoever acquires, uses, or discloses other people¡¯s commercial secrets, when he knows or should know that these commercial secrets are acquired through the aforementioned means, is regarded as an encroachment upon commercial secrets.

The commercial secrets referred to in this article are technical information and operation information that are unknown to the public, can bring economic profits to their rightful owners, are functional, and are kept as secrets by their rightful owners.

The rightful owners referred to in this Article are owners of the commercial secrets and users who have the permission of the owners.

Article  25 Paragraph 1. A joint crime is an intentional crime committed by two or more persons jointly.

Article 30. A company, enterprise, institution, organization, or group which commits an act endangering society that is considered a crime under the law shall bear criminal responsibility.
¡¡¡¡Article 31. A unit responsible for a criminal act shall be fined. The person in charge and other personnel who are directly responsible shall also bear criminal responsibility. Where there are other stipulations in the Special Provisions of this Law or other laws, those stipulations shall apply.
¡¡  Article 220. When a unit commits the crimes stated in Article 213 through Article 219, it is to be sentenced to a fine; its directly responsible person in charge and other personnel of direct responsibility should be punished in accordance with the stipulations respectively stated in these Articles of this section.

Article 52. In imposing a fine, the amount of the fine shall be determined according to the circumstances of the crime.
¡¡¡¡Article 53. A fine shall be paid in a lump sum or in installments within the period specified in the judgment. The person who fails to pay the fine in full upon the expiration of the period shall be compelled to pay. If the person sentenced is unable to pay the fine in full, the people¡¯s court may collect whenever the person is found in possession of executable property.

Where a person truly has difficulties in paying the fine because he or she due to irresistible calamity or any other reason, the people¡¯s court may render a ruling to postpone the payment of the fine, or grant a reduction or even exemption in light of the actual circumstances.

Article 64. All articles of property illegally obtained by the criminal element shall be recovered or he shall be ordered to make restitution or pay compensation for them. The legitimate property of the victims shall be promptly returned. Contraband and articles of the criminal¡¯s own property used for committing the crime shall be confiscated. Articles of confiscated property and fines shall be handed over to the national treasury and shall not be diverted or otherwise disposed of.

Article 67 Paragraph 1. The act of voluntarily giving oneself up to the police and giving a true account of one¡¯s crime after committing it is an act of voluntary surrender. Criminal elements who voluntarily surrender may be given a lesser punishment or a mitigated punishment. Those among them whose crimes are relatively minor may be exempted from punishment.
¡¡¡¡Article 72 Paragraph 1 & 3. Where a convict sentenced to criminal detention or imprisonment of not more than 3 years meets the following conditions, a probation may be announced, and a probation shall be announced if he is under the age of 18, is pregnant or attains the age of 75:

(1) The circumstances of the crime are minor;

(2) He shows repentance;

(3) He is not likely to commit any offense again; and

(4) Announcing the probation will not have any major adverse impact on the community where he lives.

...

If there is any accessory penalty imposed on a convict on probation, the accessory penalty must still be executed.

Article 73 Paragraph 2 & 3.

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The probation period for suspension of fixed-term imprisonment is to be not less than the term originally decided and not more than five years, but it may not be less than one year.

The probation period for suspension is to be counted as commencing on the date the judgment becomes final.

¢ò. Interpretation of the Supreme People¡¯s Court and the Supreme People¡¯s Procuratorate Concerning Some Issues on the Specific Application of Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights

Article 7 Paragraph 2. If the amount of losses caused to the commercial secret obligee is no less than 2,500,000 Yuan, he/it shall be deemed to have caused ¡°particularly serious consequences¡± as prescribed in Article 219 of the Criminal Law, and shall be sentenced to a fixed-term imprisonment of not less than three years but not more than seven years for the crime of infringing upon commercial secret, and shall be concurrently imposed upon a pecuniary fine.
¡¡¡¡¢ó. Interpretation II of the Supreme People¡¯s Court and the Supreme People¡¯s Procuratorate of the Issues concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights

Article 4 For a crime of infringement of intellectual property rights, the people¡¯s court shall impose a fine according to law by taking into consideration such comprehensive circumstances as the illegal proceeds of crime, amount of illegal turnover, damages to the right holder and degree of social danger. The amount of the fine shall usually be the amount of illegal income up to five times the amount of illegal income, or 50% of the amount of illegal turnover up to the amount of illegal turnover.
¡¡¡¡Article 6 The corresponding standards for conviction and sentencing of individuals set forth in the Interpretation of the Supreme People¡¯s Court and the Supreme People¡¯s Procuratorate of the Issues concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights and this interpretation shall apply to the conviction and sentencing of those organizations guilty of the crimes set forth in Articles 213-219 of the Criminal Law.

(Writer: Shi Di of Shanghai Putuo Court)