Looking Back to History of MU | No Compromise: Confront the Infringers of Business Secrets

Editor's note:

Business secret is an important intellectual property and intangible assets that embody the intellectual achievements of companies in social activities. It is not only crucial for the survival and development of a company but also for fair competition within the industry. Protecting business secrets is essential to prevent harm and losses to the original employer when valuable information, obtained through significant investment of resources, is unlawfully disclosed to a new employer by a departing employee. If such unethical and illegal behavior becomes rampant, it undermines the orderly, stable, and healthy development of an industry. Despite the challenges in filing cases, gathering evidence, and winning lawsuits related to business secret protection, we will not compromise and must take decisive action!

4 years ago, MU Group achieved victory in a business secret case, effectively defending our rights and upholding fairness and justice. Below is an interview with??Susan Shan, a specialized consultant on intellectual property at the MU Group and Beijing Dentons LawOffice, and colleagues from?LATIN AMERICA DIVISION OF GU?and MU Group's Legal Department.?Let us review this issue together.

Conscience Can Hide, Law Is Hard to Escape

Regarding the details of this business secret case, can you briefly introduce it to us?

The defendant, S, was a former employee of the subsidiary company?General Union of MU group. She joined the group in July 2010 and left in November 2017. Her primary responsibilities involved handling exports and procurement for the Latin American division. She was the main point of contact for the three clients involved in this case and had access to undisclosed business secrets such as client lists, contact information, price quotations, transaction habits and preferences, as well as business operation models.

On the day of resignation, S joined B Import and Export Co., Ltd. (hereinafter referred to as Company B), and Company B started trading with the three client companies involved in this case two months after S joined the company, and obtained stable orders.?Through litigation strategy analysis and more than half a year of evidence collection, we have obtained certain evidence to prove that S contacted the clients after leaving the company, and infringed MU Group’s business secrets together with Company B, then we sued her to Yiwu People's Court according to the law.

We proposed in the trial that "the two defendants jointly compensate the plaintiff for economic losses of 438,900.64 CNY", but the court believed that even if the client still cooperates with us, its specific business volume is still uncertain and does not necessarily bring corresponding "losses". Taking various factors into consideration, the court finally determined the amount of compensation to be 130,000 CNY and ordered the defendant to stop the infringement immediately.

In fact, in business secret rights protection cases, the most important purpose is to determine that the other party has constituted an infringement and order to stop the infringement, so as to prevent the other party from continuing to contact relevant customers. On this basis, it is the icing on the cake to obtain a certain amount of compensation.

This type of business secret case is actually a typical case that many companies often encounter, but it is very difficult to solve. Generally speaking, business secret cases usually involve two types of core personnel:?one is core technical personnel, who understand the company’s technical secrets;?the other is marketing or sales personnel, who have specific business information such as company customer information. If these two types of personnel resign to work in other companies or start their own businesses, there is a risk of the business secrets of the original company being infringed, which should be taken seriously.

It is said that the proportion of business secret infringement cases can be successfully filed is very low, and it is even more difficult to win; If it is a criminal case and wins, it can be said that it is "difficult to go to the sky." What do you think of this case?

Indeed, only 20% of disputes related to business secrets can meet the filing standards. In recent years, there have also been some huge commercial secret cases,?such as the Huawei commercial secret case, in which 6 resigned Huawei employees used a number of public technologies to recombine circuit diagrams that constituted infringement, causing huge losses to Huawei, which was very serious. Finally, they were all punished criminally.

So how to judge whether a case involving business secret infringement is a criminal case or a civil case? The key lies in the seriousness of the consequences of the infringement:

First, the amount of illegal income that constitutes the infringement of business secrets.?The difference in the amount is the most basic point. After the new judicial interpretation was introduced in 2020,?the standard amount for criminal prosecution has been reduced from the previous 500,000 CNY to 300,000 CNY.?This is a move to increase the protection of business secrets.

Second, there are differences in torts.?Such as obtaining the obligee's commercial secrets by theft, inducement, coercion or other improper means; disclosing, using or allowing others to use the obligee's commercial secrets obtained by the previous means, etc. These will all involve bearing criminal responsibility.

MU Group also won a business secret criminal case before: the employee resigned and took away a client, which constituted a business secret infringement, causing a total direct economic loss of more than 5.77 million CNY to the company. The relevant infringer was sentenced to 4 years in prison and a fine of 4 million CNY, which is very regrettable. This employee paid a heavy price, which was worthy of warning for all employees!

What do you think are the key factors in winning the case? Can you talk about the process of proving that the defendant violated trade secrets?

In business secret cases, a basic rule of judgment is followed, which is?"access + substantial similarity - lawful source".

This means that the infringing party had access to the business secret of the rights holder and the information they used is substantially similar to the rights holder's information. Unless the infringing party can prove that the information they used has a lawful source, such as obtaining it through legitimate means like trade shows, and there is a logical connection between the initial contact with customers and the subsequent expansion of customers, it will constitute infringement. In this case, the infringing party failed to prove the lawful source of the information. Therefore, when S continued to use the customer information obtained through cultivating provided by MU Group for business activities and profits after leaving the company, it constituted infringement.

The time and situation are both in favor of our company.?At that time, there was a very favorable change in the laws and regulations. During the revision of the "Anti-Unfair Competition Law of the People's Republic of China" in 2019, an important modification was made to the section on business secrets: the burden of proof in civil cases involving trade secret infringement was rearranged. After the trade secret holder provides preliminary evidence, the corresponding burden of proof is shifted to the alleged infringer.

First, we have a labor contract and confidentiality clauses with S; secondly, as a former employee, S is responsible for customer development and follow-up business, and the relevant documents contain her information, which is enough to prove that she has access to relevant trade secrets.

The above fully demonstrates that the rights holder has invested a significant amount of costs in expanding these customers, showcasing how the rights holder develops and forms unique customer resources that are not easily accessible through public means. This is sufficient to constitute "business secrets" and to prove that S had access to business secrets. After S's departure, the customer orders maintained by S sharply declined, and there was no further business interaction with the rights holder.

After we, as the plaintiff, provide preliminary evidence, the burden of proof shifts to the defendant. This shift involves two aspects: first, the defendant must refute the plaintiff's claim that the business secrets do not belong to real business secrets; second, the defendant must prove that she did not infringe upon business secrets.

There is nothing new under the sun, and facts cannot be altered or negated.?Due to suspicion, we seek verification; through verification, we obtain truth. This requires lawyers and various departments within the company, including finance, operations, and intellectual property, to organically integrate these scattered pieces of evidence, like puzzle pieces, and assemble them into a complete picture that can be presented to the judge, forming a clear chain of evidence.

How is a business secret determined? We need to consider a fundamental principle, which is that business secret meets?"three criteria":?firstly, non-public,?meaning that the information is not known to the public;?secondly, valuable,?meaning that it can bring economic benefits to the rights holder;?thirdly, confidentiality,?meaning that the rights holder has taken active measures to protect the information.

Therefore, it is crucial to establish a system for business secret protection and provide education and training. In fact, upon hearing cases involving criminal liability, employees will exercise greater caution in handling affairs. This caution can even prevent employees from crossing legal boundaries and engaging in risky behavior that may involve business secret infringement.

Abyss Has a Bottom, But Human Heart Is?Unfathomable

Apart from the lawyer Shan, the colleagues who know the most and have the deepest feelings about this case are undoubtedly Latin America Division’s colleagues. As a former colleague of S, how do you feel when you know that the business secrets have been infringed? How does this incident affect the company?

Feng Tang said that humans always struggle to control themselves in the face of temptation.

When you gaze at temptation, temptation also gazes at you. It seizes your mind, obscures your vision, and influences your choices. Only tremendous temptations can make you willingly abandon your conscience and shake your principles.

I worked with defendant S for many years. Initially, I had a good impression of her. Even today, there are still apprentices she once mentored striving in the company. I remember when she had just returned from maternity leave, the business volume declined sharply. Some clients had issues with non-delivery and payment, but everyone thought she left for personal reasons. Due to poor collection of the clients she was responsible for, some of her performance bonuses were not paid out upon her departure. However, we empathized with her family situation and still fought for some compensation for her.

Therefore, my initial reaction was not anger, but "heartache and distress"! Compared to the material loss, the "emotional detachment and strangeness" caused a tremendous impact and sense of oppression for me.

Generally, apart from clients with large shipment volumes who receive special attention, there is usually some customer attrition every year, so our company did not initially notice.?From the bottom of my heart, it's not that I don't feel sorry for losing the clients, but I think it's more about trust!

So, what's more dramatic is that it wasn't even our colleagues who first discovered that she took the clients, we were suddenly informed by the suppliers. One day, the person in charge at the factory said, "Mr. Hong, why did your client place an order with Company B?" At first, we didn't realize what was happening, but later we checked and found out that S left in October, and Company B started paying social insurance for her afterwards. In the process of gathering evidence, a series of information emerged that made me astonished: she and the person in charge of Company B were classmates, and they both used to work at MU Group together - they knew each other and had a good relationship before!

Initially, when we discovered this matter, we thought if she could come back and apologize, and compensate for some of the losses, we would let the matter rest. After all, the business volume was not particularly large, and we had worked together for many years, there was also an emotional connection. However, she was extremely arrogant and did not respond at all, let alone apologize! The company had previously failed to win lawsuits over business secrets for various reasons, including when the person in charge of Company B left and took clients, they did not face any legal consequences, so they seemed to think that MU Group had no recourse.

We often talk about “success is the sum of small efforts repeated day in and day out”, which is our company value. From this perspective, compromising and indulging infringers is the greatest harm to honest people and strugglers, and it is a violation of our values:

This is a disregard for the law, a stain on conscience, and a trampling on the labor and efforts of colleagues!

What problems did you encounter in the process of resorting to law? How was it resolved?

The defendant's attorney argues that this information does not qualify as business secrets. For example, when we cooperate with clients and provide products, we attach a small adhesive label with the client's information. They claim that this information is publicly available: "If you, Latin America Division, can cooperate, then our company can also cooperate."

Time is the fairest judge.?It is well known that long-term and stable trading relationships between foreign trade companies and clients are not formed simply through general yellow page searches. Developing a client takes more than a month or two. In addition to continuous time investment, it requires human, material, and financial resources, as well as efficient operation of various departments such as documentation, finance, administration, and logistics, and long-term careful maintenance. Company B has failed to prove that they obtained the business information through legal and public channels, nor have they provided evidence of their investment in manpower and resources to establish trading relationships with the clients involved in the case.

Some people may think it's normal for customers to follow salespeople and believe that it's the salesperson who maintains the customer relationship and earns their trust.

However, they fail to realize that behind the salesperson, there is the company that nurtures and supports them. Without the company providing the platform and opportunities, the salesperson wouldn't even have a chance to interact with the customers initially!

Through this incident, many colleagues have gained a deeper understanding of trade secrets. Almost the entire Latin America Division was mobilized, with many colleagues involved in translating materials. The printed documents were stacked thick, and to save money, we translated them ourselves before getting them notarized. Despite winning the lawsuit and receiving compensation the next day, when we calculate the costs, we may have still ended up losing money!?If we look at it purely from a cost-benefit perspective, it may seem like a futile endeavor. However, all of this is still so worthwhile.

The significant investment of time and effort is to defend our values, protect MU Group’s legitimate rights and make the infringing party understand deeply: infringing upon business secrets should come with consequences and must be paid for!

Consequences of Infringement

The group has always advocated for "strictly keeping the company's trade secrets confidential to the outside while being willing to share internally," and it is listed as one of the "eight key points." Today's case is also the first time that a "case analysis based on legal principles" has been conducted for all colleagues. Can you be more specific about the possible legal consequences of infringing a company's trade secrets?

First, there is a breach of contract liability.?The company may include confidentiality provisions and specify corresponding breach of contract liabilities in contracts with employees, suppliers, service providers, agents, and other partners. Therefore, the party that discloses or improperly uses the company's trade secrets may be held liable for breach of contract as stipulated in the agreement.

Second, there is liability for infringement.?As in this case, the departing employee and their new company were found jointly liable for infringement. In addition to immediate cessation of the infringing activities, they were also ordered to bear a certain amount of compensation for damages. It's worth noting that?the Civil Code of the People's Republic of China, which came into effect in 2021, further clarifies the application of punitive damages for severe intellectual property infringements.

Third, there is administrative liability.?Infringement of trade secrets is considered unfair competition. According to Anti-Unfair Competition Law of the People's Republic of China, operators, individuals, legal entities, and non-legal entity organizations that infringe trade secrets may face penalties such as being ordered to stop the illegal activities, confiscation of illegal gains, and fines ranging from 100,000 to 5 million RMB.

Lastly, if the infringement of the company's trade secrets is severe enough, it may constitute a criminal offense, leading to criminal liability for the infringer, including the loss of personal freedom and experiencing the pain of imprisonment.

In fact, the scope of trade secrets and corresponding confidentiality obligations are clearly stated in the labor contracts and confidentiality agreements signed between the company and its employees. It is hoped that colleagues will strictly fulfill their confidentiality obligations, adhere to professional ethics, refrain from infringing company rights, and avoid crossing legal boundaries.

Never compromise and stand up against those who infringe upon trade secrets! Victory belongs to everyone who contributes to protecting trade secrets: whether it's the lawyers who fight in the courtroom or the colleagues who diligently gather evidence and provide support in the background, they are all indispensable keys to this victory. This is not just a battle, but also a symbol of a company's adherence to its values. We believe that only by steadfastly upholding the path of trade secret protection can we truly forge long-term prosperity for a company and even an entire industry!