Guiding Case No. 220: Jiaxing Zhong[REDACTED] Chemical Co., Ltd., Shanghai Xin[REDACTED] New Technology Co., Ltd. v. Wang[REDACTED] Group Co., Ltd., Ningbo Wang[REDACTED] Technology Co., Ltd., et al.
(dispute over infringement of technical secrets) 

Keywords：Civil, Infringement of technical secrets, Use of trade secrets, Intentional infringement of trade secrets, Calculation of damages.

Key Points of Judgement

1. Where the lawful holder of trade secrets proves that the alleged infringer has illegally obtained the technical secrets such as complete product process flows, complete sets of production equipment materials, and has produced identical products, the court may presume that the alleged infringer utilized all technical secrets, unless the alleged infringer rebuts it with contrary evidence.

2. For intentional infringement of trade secrets, damages shall be calculated based on profits gained by the alleged infringer from infringing products. Where the selling profits are unascertainable, damages may be determined by multiplying the lawful holder’s product price by the alleged infringer’s sales volume and the lawful holder’s profit margin.

Basic Facts

Jiaxing Zhong[REDACTED] Chemical Co., Ltd. (hereinafter referred to as "Jiaxing Zhong[REDACTED] Chemical Compay") is a major global manufacturer of vanillin with strong technical advantages. Shanghai Xin[REDACTED] New Technology Co., Ltd. (hereinafter referred to as "Shanghai Xin[REDACTED] Company") was established on November 5, 1999, with its business scope including technical services, technical consultation, technical development, technical transfer in the professional fields of biology and chemical industry, and development of new products. Since 2002, Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company have jointly developed a new process for preparing vanillin by the glyoxylic acid method, including reaction processes such as condensation, neutralization, oxidation, and decarboxylation, as well as recycling processes of guaiacol, toluene, copper oxide, and ethanol. The technical secrets claimed by Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company include six secret points, and the carriers of these technical secrets are 287 equipment drawings (including main drawings and component drawings) involving 58 non-standard equipment, and 25 process piping and instrument diagrams (3rd edition). The "Technology Development Contract" "Technology Transfer Contract", and "Special Contract for Long-term Cooperation between Enterprises" signed between Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company all contain confidentiality clauses.

Starting from the year of 1991, Fu [REDACTED]gen has been working in Jiaxing Zhong[REDACTED] Chemical Company and he served as the deputy director of the vanillin workshop responsible for the maintenance of vanillin production equipment since 2008. Jiaxing Zhong[REDACTED] Chemical Company has successively formulated documents such as the Document Control Procedure, Record Control Procedure, Manual for Food Safety, Quality and Environmental Management, and Equipment/Facility Management Procedure since 2003 and trained its employees on these internal management regulations. Fu [REDACTED]gen participated in management system training, environmental management system training, publicity and education training, and standard implementation training in 2007. On March 25, 2010, Jiaxing Zhong[REDACTED] Chemical Company formulated the "Archive and Information Management Security and Confidentiality System". Since April 2010, Jiaxing Zhong[REDACTED] Chemical Company has signed confidentiality agreements with its employees, which stipulate the scope of trade secrets and the confidentiality obligations of employee. Fu [REDACTED]gen refused to sign the confidentiality agreement on the grounds that he was resigning.

Wang[REDACTED] Group Co., Ltd. (hereinafter referred to as "Wang[REDACTED] Group") was established on June 8, 1995, with its business scope including R&D and production of food additive potassium sorbate, manufacturing and sales of chemical products (excluding dangerous chemicals), etc., and Wang [REDACTED]jun serves as a supervisor. Ningbo Wang[REDACTED] Technology Co., Ltd. (hereinafter referred to as "Wang[REDACTED] Technology Company") was established on October 21, 2009, jointly funded by Wang [REDACTED]jun and Wang[REDACTED] Group, with Wang [REDACTED]jun as the legal representative. Ningbo Wang[REDACTED] Flavors and Fragrances Co., Ltd. was established on November 20, 2015, with Wang[REDACTED] Technology Company contributing 80 million yuan in kind, and its business scope includes R&D and production of practical flavors and fragrances (food additives), with vanillin as its main product, and Wang [REDACTED]jun as the legal representative. In 2017, the name of Ningbo Wang[REDACTED] Flavors and Fragrances Co., Ltd. was changed to [REDACTED]fushi Wang[REDACTED] Flavors (Ningbo) Co., Ltd. (hereinafter referred to as "[REDACTED]fushi Wang[REDACTED] Company").

Around the Spring Festival of 2010, Feng [REDACTED]yi, Fu [REDACTED]gen, and Fei [REDACTED]liang began to negotiate and seek opportunities to trade vanillin production technology. On April 12 of 2010, the above-mentioned three went to Wang[REDACTED] Group to negotiate vanillin production technology cooperation with Wang [REDACTED]jun, and then signed the "Vanillin Technology Cooperation Agreement" with Jiaxing Zhi[REDACTED] Engineering Technology Consulting Co., Ltd. (hereinafter referred to as "Jiaxing Zhi[REDACTED] Company") as Party A and the Vanillin Branch of Wang[REDACTED] Group as Party B. On the same day, Wang[REDACTED] Group issued a bank draft of 1 million yuan to Jiaxing Zhi[REDACTED] Company. Feng [REDACTED]yi obtained a cash check of 1 million yuan after endorsement and transfer, from which he paid 400,000 yuan to Fu [REDACTED]gen and 240,000 yuan to Fei [REDACTED]liang. Subsequently, Fu [REDACTED]gen gave Feng [REDACTED]yi a USB flash drive containing 200 vanillin production equipment drawings, 14 process piping and instrument diagrams, lists of main equipment and other technical materials, which Feng [REDACTED]yi transferred to Wang [REDACTED]jun. On April 15, 2010, Fu [REDACTED]gen submitted a resignation report to Jiaxing Zhong[REDACTED] Chemical Company, and left the company in May 2010, immediately joining Feng [REDACTED]yi and Fei [REDACTED]liang to work in the vanillin workshop of Wang[REDACTED] Technology Company.

On March 15, 2011, the Ningbo Municipal Environmental Protection Bureau of Zhejiang Province approved the environmental impact report of Wang[REDACTED] Technology Company's construction project for the production of vanillin, etc., approving an annual vanillin output of 5,000 tons. In June of the same year, Wang[REDACTED] Technology Company began to produce vanillin. [REDACTED]fushi Wang[REDACTED] Company has continuously used the vanillin production equipment contributed by Wang[REDACTED] Technology Company as equity to produce vanillin since its establishment.

Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company filed lawsuit in the High People’s Court of Zhejiang Province, claiming that Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, Fu [REDACTED]gen, and Wang [REDACTED]jun infringed their technical secrets for vanillin.

Judgment

The High People’s Court of Zhejiang Province rendered civil judgment (Case No. (2018) Zhe Min Chu No. 25) on April 24, 2020 ruling as follows: 1. Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, and Fu [REDACTED]gen shall immediately cease the infringement of the technical secrets involved, i.e., cease illegally obtaining, disclosing, using, and allowing others to use the technical secrets recorded in the equipment drawings and process piping and instrument diagrams involved; the period of ceasing infringement shall last until the technical secrets involved become known to the public. 2. Wang[REDACTED] Group, Wang[REDACTED] Technology Company, and Fu [REDACTED]gen shall, within ten days from the date of entry into force of this judgment, jointly and severally compensate Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company for economic losses of 3 million yuan and reasonable rights protection expenses of 500,000 yuan, totaling 3.5 million yuan; [REDACTED]fushi Wang[REDACTED] Company shall bear joint and several liability for 7% of the total, i.e., 245,000 yuan. 3. Dismiss other claims of Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company.

All parties involved except Wang [REDACTED]jun appealed to the Supreme People's Court. The Supreme People's Court rendered civil judgment (Case No. (2020) Zui Gao Fa Zhi Min Zhong No. 1667 ) on February 19, 2021 ruling as follows: 1. Reverse the civil judgment (Case No.(2018) Zhe Min Chu No. 25) rendered by the High People’s Court of Zhejiang Province. 2. Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, Fu [REDACTED]gen, and Wang [REDACTED]jun shall immediately cease the infringement of the technical secrets of Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company, i.e., cease illegally obtaining, disclosing, using, and allowing others to use the technical secrets recorded in the equipment drawings and process piping and instrument diagrams involved; the period of ceasing infringement shall last until the technical secrets involved become known to the public. 3. Wang[REDACTED] Group, Wang[REDACTED] Technology Company, Fu [REDACTED]gen, and Wang [REDACTED]jun shall, within ten days from the date of entry into force of this judgment, jointly and severally compensate Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company for economic losses of 15,582,9455.20 yuan and reasonable rights protection expenses of 3,492,216 yuan, totaling 15,932,1671.20 yuan; [REDACTED]fushi Wang[REDACTED] Company shall bear joint and several liability for 7% of the total, i.e., 1,115,2516.98 yuan. 4. Dismiss other claims of Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company. 5. Dismiss the appeals of Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, and Fu [REDACTED]gen.

Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, Fu [REDACTED]gen, and Wang [REDACTED]jun simultaneously filed for retrail to the Supreme People's Court.

The Supreme People's Court rendered the civil ruling (Case No. (2021) Zui Gao Fa Min Shen No. 3890) on October 19, 2021 and dismissed the retrial applications of Wang[REDACTED] Group, Wang[REDACTED] Technology Company, [REDACTED]fushi Wang[REDACTED] Company, Fu [REDACTED]gen, and Wang [REDACTED]jun.

Judgment’s Reasons 

The Supreme People's Court held that: The alleged infringers such as Wang[REDACTED] Group have actually manufactured vanillin products, so they must have complete process flows and corresponding equipment for manufacturing vanillin products. The technical secrets claimed by Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company include six key points, involving 287 equipment drawings of 58 non-standard equipment and 25 process piping and instrument diagrams. The carriers of the alleged infringing technical information are 200 equipment drawings and 14 process flow diagrams obtained by Wang[REDACTED] Group and other alleged infringers. After comparison analysis, it is found that 184 of the equipment drawings are identical to those of the technical secrets involved in terms of structure type, size, design parameters, and manufacturing requirements, with the same equipment name and equipment number, drawing number, and drawing unit, involving 40 non-standard equipment; 14 process flow diagrams are identical to Jiaxing Zhong[REDACTED] Chemical Company's process piping and instrument diagrams in terms of equipment location and connection, material and medium connection, control content and parameters, among which some drawings have the same drawing name, project name, and design unit as marked.

At the same time, the toluene removal condenser equipment drawings provided by Wang[REDACTED] Technology Company to Zhejiang Hang[REDACTED] Container Co., Ltd. (hereinafter referred to as "Hang[REDACTED] Company") and the oxidation process flow diagram of the oxidation unit attached to Wang[REDACTED] Technology Company's environmental impact report, although not included in the drawings submitted by Feng [REDACTED]yi, all belong to the scope of the technical secrets involved. In view of the fact that Wang[REDACTED] Technology Company has used them in equipment processing and environmental impact assessment declaration, it can be confirmed that Wang[REDACTED] Technology Company has obtained these two drawings.

In this case, the carriers of the technical secrets involved are 287 equipment drawings and 25 process piping and instrument diagrams, and the alleged infringers such as Wang[REDACTED] Group have illegally obtained 185 of them and 15 process flow diagrams. Considering that the alleged infringers such as Wang[REDACTED] Group could make targeted modifications after obtaining the drawings of the technical secrets involved, although there are slight differences between 4 items and the corresponding technical information in the technical secrets involved, according to the specific infringement situation in this case, it can be fully determined that these differences are caused by the evasive or adaptive modifications made by the alleged infringers such as Wang[REDACTED] Group after obtaining the technical secrets involved, so it can be determined that these 4 items still use the technical secrets involved.

On this basis, it can be further determined that the alleged infringers such as Wang[REDACTED] Group have actually used all the 185 equipment drawings and 15 process flow diagrams they obtained. The specific reasons are as follows:

First, vanillin production equipment and processes are usually complementary, and their production processes and related devices are relatively clear and fixed. The alleged infringers such as Wang[REDACTED] Group have actually built a vanillin production line and carried out large-scale production, so they must have complete process flows and corresponding equipment for manufacturing vanillin products.

Second, the alleged infringers such as Wang[REDACTED] Group refused to provide effective evidence to prove that they have conducted research, development, and tests on the complete process flow and corresponding equipment of vanillin products, and they launched the vanillin production line and put it into production in a very short time. It only took about one year for Wang[REDACTED] Technology Company's vanillin production line from start-up to mass production. In contrast, it took Jiaxing Zhong[REDACTED] Chemical Company at least four years to develop the technical secrets involved and build the production line.

Third, the alleged infringers such as Wang[REDACTED] Group failed to submit effective evidence to prove that they have conducted small-scale and pilot tests on the alleged technical solutions and related equipment, and they illegally obtained the technical drawings involved. At the same time, Wang[REDACTED] Technology Company has used the illegally obtained equipment drawings and process flow diagrams in its environmental impact report and in the process of purchasing equipment from Hang[REDACTED] Company. Considering the characteristics of technical secret cases and the actual situation of this case, combined with the fact that the alleged infringers such as Wang[REDACTED] Group failed to submit effective contrary evidence, it can be determined that the alleged infringers such as Wang[REDACTED] Group have used all the technical secrets they illegally obtained.

Fourth, although there are slight differences in individual aspects between the vanillin production process flow and corresponding equipment of Wang[REDACTED] Group and Wang[REDACTED] Technology Company and the technical secrets involved, they failed to submit evidence to prove that such differences are caused by their own technical research and development or technical achievements obtained through other legitimate channels. At the same time, the existing evidence shows that the alleged infringers such as Wang[REDACTED] Group began to set up factories to produce vanillin products after obtaining the technical secrets involved, that is, they could completely make evasive or adaptive modifications to certain production processes or individual accessory devices according to the technical secrets involved after obtaining them. Such modifications are also one of the ways to actually use the technical secrets involved.

To sum up, it is determined that the alleged infringers such as Wang[REDACTED] Group have actually used all the technical secrets involved illegally obtained from Jiaxing Zhong[REDACTED] Chemical Company, i.e., 185 equipment drawings and 15 process flow diagrams.

Fu [REDACTED]gen has worked in Jiaxing Zhong[REDACTED] Chemical Company for a long time, responsible for equipment maintenance in the vanillin workshop, and had access to the technical secrets involved. On April 12, 2010, Feng [REDACTED]yi, Fu [REDACTED]gen, and other two persons negotiated vanillin production technology cooperation with Wang [REDACTED]jun in Wang[REDACTED] Group and quickly concluded the "Vanillin Technology Cooperation Agreement", stipulating that Feng [REDACTED]yi, Fu [REDACTED]gen, and others would invest in the Vanillin Branch of Wang[REDACTED] Group with new vanillin technology. Fu [REDACTED]gen obtained consideration of 400,000 yuan in accordance with the agreement, and then handed over the USB flash drive containing the technical secrets involved to Wang [REDACTED]jun through Feng [REDACTED]yi. After resigning from Jiaxing Zhong[REDACTED] Chemical Company, Fu [REDACTED]gen immediately joined Wang[REDACTED] Technology Company and was responsible for the construction of the vanillin production line. Wang[REDACTED] Technology Company completed the construction of the vanillin production line in a very short time and carried out industrial production, fully using the equipment drawings and process flow diagrams of Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company.

The above facts are sufficient to prove that Fu [REDACTED]gen has committed acts of obtaining and disclosing the technical secrets involved to Wang[REDACTED] Group and Wang[REDACTED] Technology Company and allowing them to use the technical secrets involved. Wang[REDACTED] Group and Wang[REDACTED] Technology Company both engaged in production and sales of vanillin, and have a direct competitive relationship with Jiaxing Zhong[REDACTED] Chemical Company. They should have known that Fu [REDACTED]gen, as an employee of Jiaxing Zhong[REDACTED] Chemical Company, does not have legal rights to the vanillin production equipment drawings and process flow diagrams of the company. However, Wang[REDACTED] Group directly obtained the technical secrets involved of Jiaxing Zhong[REDACTED] Chemical Company by signing the "Vanillin Technology Cooperation Agreement" and paying remuneration to Fu [REDACTED]gen, Feng [REDACTED]yi, etc., and disclosed them to Wang[REDACTED] Technology Company. Wang[REDACTED] Technology Company employed Fu [REDACTED]gen and utilized the illegally obtained technical secrets for production, and then disclosed and allowed [REDACTED]fushi Wang[REDACTED] Company to continue using the technical secrets involved through equipment investment. All the above acts have infringed the technical secrets of Jiaxing Zhong[REDACTED] Chemical Company and Shanghai Xin[REDACTED] Company. [REDACTED]fushi Wang[REDACTED] Company has continuously used the vanillin production line contributed by Wang[REDACTED] Technology Company as technical investment since its establishment, which constitutes infringement of the technical secrets involved.

Considering the abominable offence of the alleged infringers’ illegally obtaining, continuously and extensively utilizing of high-value technical secrets, their willfulness of the misappropriation and the potential threat to the global vanillin market, and the fact that Wang[REDACTED] Group obstructed the presentation of evidence and violated the principle of good faith in litigation, and that the Wang[REDACTED] Group/ Wang[REDACTED] Technology Company/ [REDACTED]fushi Wang[REDACTED] Company/ Fu [REDACTED]gen refused to obey the first-instant court’s order on behavior preservation, the Supreme Court decided to calculate the amount of infringement damages in this case based on the alleged infringer’s selling profits. Since Wang[REDACTED] Group, Wang[REDACTED] Technology Company, and [REDACTED]fushi Wang[REDACTED] Company refused to submit account books and materials related to the infringement in this case, the court could not directly calculate the sales profit based on their actual sales data. Considering that the selling price and sales profit rate of Jiaxing Zhong[REDACTED] Chemical Company's vanillin products can be used as a reference for determining the relevant selling price and sales profit rate of Wang[REDACTED] Group, Wang[REDACTED] Technology Company, and [REDACTED]fushi Wang[REDACTED] Company, in order to severely punish malicious infringement of technical secrets and fully protect the legitimate rights and interests of the lawful holders, the court decided to calculate the amount of damages in this case based on the sales profit rate of Jiaxing Zhong[REDACTED] Chemical Company's vanillin products from 2011 to 2017, that is, to calculate the amount of compensation by multiplying the output quantity of vanillin produced and sold by Wang[REDACTED] Group, Wang[REDACTED] Technology Company, and [REDACTED]fushi Wang[REDACTED] Company from 2011 to 2017 by the selling price and the profit rate of Jiaxing Zhong[REDACTED] Chemical Company's vanillin products.

Relevant Provisions

Article 1168 of the Civil Code of the People's Republic of China (This case applies Article 8 of the Tort Liability Law of the People's Republic of China, which came into force on July 1, 2010).

Articles 9 and 17 of the Anti-Unfair Competition Law of the People's Republic of China (revised in 2019) (This case applies Articles 9 and 17 of the Anti-Unfair Competition Law of the People's Republic of China, revised in 2017).