Measures for success in trade secret lawsuits

By Sun Jinlin, Jincheng Tongda & Neal
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China has developed a comprehensive legal system composed of laws, regulations and judicial interpretations to protect trade secrets. Right holders may protect their interests through administrative complaints, civil actions or even criminal prosecution, but it is not easy to apply these laws in practice, mainly because trade secret infringement is highly concealed, and China has no evidence discovery system like that of the US, making it quite difficult for right holders to obtain evidence of infringement. However, if the right holders can make full use of existing coercive measures under China’s legal system, they may still achieve the desired results.

Application of evidence preservation. An evidence preservation system can help the plaintiff to obtain evidence required by the lawsuit with the power of the court. However, given the complexity of trade secret cases, Chinese courts are quite cautious about evidence preservation in such cases, and not all applications will be approved. According to the author’s experience, the following conditions often need to be met in order to successfully preserve the evidence:

  1. There are clear and specific contents of the trade secret to be protected. The review conducted by the court mainly focuses on the content of the trade secrets. Two issues are particularly important: first, the contents and carriers of the secret should be distinguished; and second, the scope of the secret should be made clear.
  2. The evidence to be preserved must not exceed the content and scope of the trade secrets.
  3. The plaintiff has provided prima facie evidence of the defendant’s infringement. The judge will review the evidence and determine whether the prima facie evidence is sufficient. The criterion of probability and advantage evidence is often adopted at this stage.
  4. The plaintiff is willing and able to provide certain forms of guarantee.
  5. Evidence to be preserved should be the evidence that cannot be obtained by the plaintiff.
Sun Jinlin, Partner, Jincheng Tongda & Neal
Sun Jinlin
Partner
Jincheng Tongda & Neal

Generally, Chinese courts will not proactively seek implementation clues at the evidence preservation stage. Instead, they will require the plaintiff to specify the scope and location, etc., of the evidence to be preserved. So the plaintiff needs a thorough investigation of the infringement before applying for evidence preservation, and may seek help from law firms or professional investigation companies to collect evidence.

On the other hand, in order to avoid the inadequate preservation of evidence due to the lack of professional background of the judge, the plaintiff may take the initiative to request to be present at the time of evidence preservation, or even engage technical experts, or its own technical staff, to assist the judge with the preservation of technical evidence.

Application of a temporary injunction. This can stop the infringement in time and avoid an increase in the loss of the right holders due to lengthy litigation procedures. Especially in trade secret cases, the disclosure or use of secrets may lead to the complete loss of the competitive edge of the right holders, so a temporary injunction can play a more important role. Articles 100 and 101 of the Civil Procedure Law (2012) provide a clear legal basis for the application of a temporary injunction in trade secret cases. In the trade secret infringement case of Eli Lilly and Company v former employees, Shanghai No.1 Intermediate People’s Court approved and granted the first temporary injunction for trade secret infringement lawsuits, in August 2013, since the implementation of the new law.

To apply for a temporary injunction, two prerequisites shall be met: first, the plaintiff has evidence to prove that others are infringing upon, or are about to infringe upon, its trade secrets; and second, it will cause irreparable damage to the lawful rights and interests of the plaintiff if the infringement is not promptly stopped.

Proof and explanations are required to obtain a temporary injunction successfully. First of all, the trade secrets alleged by the plaintiff should be in compliance with the statutory elements. It can be proved mainly from the following aspects: the specific content of the trade secret; its difference with the publicly known technology; reasonable and appropriate non-disclosure measures that have been taken, etc.

The second requirement is evidence of the defendant’s infringement. This is a proof of the “likelihood of success on the merits”, which is even more demanding than that of evidence preservation. It requires “great likelihood of success on the merits”.

However, there are no quantitative standards. The judges make different judgments on the cases, mainly based on their experience and discretional evaluation of evidence. In practice, the right holders may apply for evidence preservation and a temporary injunction at the same time, or may apply for evidence preservation first, according to the specific circumstances of the case, and then apply for an injunction based on the evidence preserved, so improving the possibility of success.

Finally there is proof and explanation of “irreparable damage”. In general, it is supposed that damage caused by the mere continuation of a tort can be indemnified by economic compensation via litigation, and cannot be regarded as irreparable damage. The plaintiff may explain from the following aspects: (1) the occurrence or continuation of the infringement will result in great depreciation of the value of the plaintiff’s intellectual property, and the loss of its competitive edge; (2) the occurrence or continuation of the infringement will reduce the market share of the plaintiff significantly; (3) it will seriously expand the scope of the infringement and the consequences of the damage if the infringement cannot be stopped; and (4) evidence shows that the defendant is insolvent.

A temporary injunction becomes enforceable upon its issuance. Where the defendant does not take the initiative to stop the infringement, the court may take measures of seizure, detention, freezing of assets, etc., to stop and restrain the defendant from the transfer and transaction of relevant products or rights.

Despite the great difficulty in trade secret infringement litigation, there are also many cases in which the legal rights were protected successfully through civil and criminal proceedings in China. The granting of evidence preservation and temporary injunctions, to some extent, depends on the initial impression of the judge on the case, before the formal trial. Therefore, it is crucial to communicate with the judge effectively, which may help the judge to understand the case. Of course, effective communication is inseparable from adequate pre-trial preparation and solid evidence basis.

Sun Jinlin is a partner in the Shanghai office at Jincheng Tongda & Neal

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