The Case of Company X v. Mr. Y and Company Z for Trade Secret Infringement
The Case of Company X v. Mr. Y and Company Z for Trade Secret Infringement
[Keywords]
Civil case, intellectual property, trade secrets, value
[Key points]
The name, address, contact information, type of product traded, and price are ordinary customer information; the requirements on product brand, certification, parameters, documents, price preference (acceptable price), payment methods and other trading habits are in-depth customer information, which cannot be obtained unless the right holder makes contact, conduct negotiation and input costs, and should be considered as confidential. This part of the information, besides, may give the customer competitive edge and help the right holder build a stable partnership with the customer, and therefore should be considered as of value.
[Applicable laws]
The Anti-Unfair Competition Law of the People’s Republic of China, Articles 9 & 17, the Stipulations of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Civil Trade Secret Infringement Cases, Articles 1 (2) & (3), 3, 6, 7 (1) & 20 (2).
[Basic facts]
Company X’s business scope covers the operation and agency of import & export business, API and FDF of chemical drugs, veterinary chemical drugs, etc. In October 2017, Mr. Y joined Company X and signed on the first day a Confidentiality Agreement, and the confidential information as agreed in the Confidentiality Agreement includes but is not limited to the list of customers, purchase intentions, prices of deals concluded and under negotiation, the company’s detailed customer data, etc. The term of confidentiality is the term of the labor contract plus three years after the termination of the labor contract. In case of breach of the Confidentiality Agreement, Mr. Y shall, based on the circumstance, compensate 10,000 – 200,000 yuan to Company X. Mr. Y and Company X signed a Labor Contract, in which both parties agreed to abide by the Confidentiality Agreement. In 2019, Company X installed a computer system for the management of customer data, in which the relevant staffs need an account number and password to log in the system, and a salesman can only access the customers and their data within his responsible region, and cannot access the customers and their data of any other regions. While working as salesman with Company X, Mr. Y negotiated business with Companies A, B, C & D, communicated with these customers on product specifications, quotations, packages, samples, etc., and concluded more than USD4,000,000 of deals in total with these four companies. In June 2020, Mr. Y terminated the labor contract with Company X, and in May 2022 joined Company Z. Company Z’s business scope covers wholesale of drugs, import & export of drugs, operation of veterinary drugs, etc. Since May 18, 2022, Mr. Y, in the capacity of Company Z’s salesman, has begun to contact the staffs of Companies A, B, C & D, telling them that he used to work with Company X, so he knew their requirements, and he supplied them with his product catalogues, quotation lists and the offer of O/A services. Since June 2022, the four companies above have begun to deal with Company Z and concluded in total more than USD700,000 of business. Company X then brought a lawsuit to the court, requesting that Mr. Y and Company Z cease the infringement upon its trade secrets (data of the four customers above), destroy the media carrying such trade secrets, apologize to Company X, and compensate 700,000 yuan for its damages and 56,000 yuan for reasonable expenses on safeguarding its lawful rights and interests.
[Judgement]
Qiongshan Primary People’s Court, Haikou, made out the (2023) Qiong 73 Min Zhong No. 332 Judgement: The request of Company X is rejected. Company X refused the judgement and lodged an appeal. Hainan FTP IP Court made out the (2023) Qiong 73 Min Zhong No. 332 Judgement: First, the first instance judgement is revoked; second, Mr. Y and Company Z jointly shall compensate Company X 160,000 yuan for economic losses and reasonable expenses within ten days of the Judgement comes into force; and third, any other requests of Company X is rejected.
[Rationale]
Hainan FTP IP Court considers that trade secrets should be confidential, valuable and subject to security measures. Company X claims that its trade secrets are confidential information for business operation, i.e., customer data, including customer name, address, contact information, types of products purchased, document requirements, operational instructions and requirements, price preference, payment method, etc. While customer name, address, contact information, quantity of products purchased, unit price and other ordinary customer information involved in this case can be queried on internet platforms, the customer’s trading habits, including the customer’s requirements on product certifications, product specifications, product brands, invoices, documents, operational instructions, price preference (acceptable price), payment method and other special customer data, in general, cannot be obtained via commonplace channels. And Company X has submitted its emails with customers, sales contracts, PIs, declaration documents for export goods and other evidence, proving that the data above have been obtained during transactions or at the conclusion of deals after continuous communications and exchanges, and cannot be obtained publicly by anyone other than those who are involved in the negotiations. Therefore, the customer data involved in the case are confidential. Company X, when doing sales business and making decisions, uses customer data as basis and reference, and has spent labor and money on such data, and it has done more than USD4,000,000 of business with the four companies, therefore, such customer data shall be of business value. Company X and Mr. Y have signed a confidentiality agreement, and their labor contract has provided that the confidentiality agreement shall be part thereof, and Company X has installed a computer system for management of customer data, therefore, the customer data involved are under security measures. According to the confidentiality agreement, the term of confidentiality for Mr. Y shall be within three years after the termination of the labor contract. Since the two parties terminated the labor contract in June 2020, therefore, the term of confidentiality for Mr. Y shall expire in June 2023. Mr. Y, however, after joining Company Z in May 2022, contacted the customers involved in this case, and offered to quote interesting products and provide O/A services to them. All these are purposeful acts to create business opportunities for Company Z and to obtain economic benefits. Therefore, Mr. Y’s act is a breach of confidentiality agreement, and the act of gaining profits for Company Z by using the customer data in his control has infringed upon Company X’s trade secrets. Between Company X and Company Z, their business scopes overlap and there is competition. Company Z knows that Mr. Y used to work with Company X, and Company Z had never done any business with the four customers above before Mr. Y joined it. And after Mr. Y joined it, Company Z soon concluded big deals with the four customers, therefore, Company Z should know that Mr. Y has made use of the customer data that he had acquired from Company X to do the business between Company Z and the four customers, therefore, Company Z has infringed up Company X’s trade secrets. Before the judgement is made out, however, Mr. Y’s term of confidentiality has already expired, and there will be no point to order the cease of infringement and the destruction of the media carrying such customer data if the necessity and timeliness are considered, therefore, Company X’s request of ceasing infringement and destroying media is not backed. However, in consideration of the business value of the trade secrets in Company X’s customer data, the seriousness of the purposeful wrongdoings of Mr. Y and Company Z, the nature, circumstance, duration and consequence of the unfair competition, and the penalty for breach of agreement as provided in the contract between the two parties, Mr. Y and Company Z should jointly compensate Company X 160,000 yuan for economic losses and reasonable expenses spent on stopping the infringement.
