Judicial trends of trade secret and patent protection in China

Higher Damage Awards

In the last two years, the Chinese Supreme People’s Court has awarded damages in the total amount of more than RMB 532 million (US$28 million) in trade secret disputes.

?Comparing with the previous reluctance of awarding high damages in IP disputes, courts in China have consistently applied an approach that is more right owner–friendly. In a judgment dated November 24, 2020 regarding the misappropriation of trade secrets in the manufacturing of Carbomer products, the Chinese Supreme People’s Court awarded punitive damages of RMB 30 million (US$4.6 million). In its decision, SPC refused to adopt the lost-profit calculation proposed by the defendant, which consisted in estimating past and future price erosion based on the misappropriation. Instead, it took into account the defendant’s profits resulting from the infringement and the trade secret owner’s sales profit margin. Moreover, it doubled the multiplier factor applied with regard to the determination of damages.

On February 26, 2021, in the second-instance judgment of the Vanillin Dispute over the infringement of technical secrets involving the chemical vanillin, SPC awarded RMB 159 million (USD 24 million) in damages to the plaintiff. In determining damages, the judges also analyzed eight factors, including the high commercial value of the trade secrets and the impact of the infringement on the market.

Equal protection for foreign-invested enterprises

Historically, foreign investors often assumed that Chinese courts would be biased in favor of domestic companies, placing foreign companies at a comparative disadvantage. In early 2023, GES v. SHH Trade Secret final judgment was made public by the Supreme People’s Court of China (the “SPC”). GES, a foreign-invested enterprise, was granted enhanced remedies by the SPC, including increased damages and an injunctive order, with damage amount up to RMB 218 million (USD 33 million) to the plaintiff who was a foreign invested company. The defendant was a state owned company.

IP protection plays a key role in the country’s development, as it is stated in our President’s speech that “protecting intellectual property is protecting innovation.” Therefore it should come as no surprise that alleged IP infringers are now treated more harshly than ever before. The courts’ attempts to give greater effect to the interests of IP right owners means good news for innovators, for both domestic and foreign companies .