Welcome to Legal +
kittykim@hiwayslaw.com
+86 139 1742 1790
  • 中文
  • 日本語
  • The Trade Secrets Has not Been Used By the Tortfeasor, Can I Ask For the Loss?

    The Trade Secrets Has not Been Used By the Tortfeasor, Can I Ask For the Loss?

    Mr. Wong was the technical department manger at Company A. One day, he downloaded Company A’s food formula and the entire process drawings into his personal computer, which had violated the company’s confidentiality provisions. After that, he resigned with the reason that he would go back to his hometown. Later, Company A was informed that Wong was working at Company B, who was the competitor of Company A. After investigation, Company A found that Company B was planning to use the new technology brought by Wong to build a new production line. Company A reported to the police quickly. But the police refused to investigate, because Company B had not used the technology yet, Company A could not prove its heavy loss. According to the relevant laws and regulations, the police could only initiate the criminal investigation based on the statutory amount of the loss.
    If Company A files a civil lawsuit later on, even though the formula, process and other issues could be identified as the trade secrets, but without the evidence to prove its loss, it may not obtain the support of the court.
    It is difficult for the plaintiff to prove its loss, while the plaintiff’s trade secrets has been obtained by the tortfeasor with the unfair method, but has not been used yet. Although paragraph 1, Article 10 of the “Anti-Unfair Competition Law” has stipulated that to use unfair method to obtain the other’s trade secrets shall be deemed as an independent category of the trade secrets infringement action, there is still no judgments which support the plaintiff’s claim. There are two reasons: 1) the trade secrets has not been used, so there is no loss; 2) the plaintiff could not prove the loss.
    We don’t agree with the first reason. The core of the trade secrets is the competitive advantage, which could be demonstrated as a positive effect, such as the trade secrets could be used to produce the competitive products; or a negative effect, such as the trade secrets could be used to save time and cost for the competitors. Once the trade secrets has been infringed, the consequence is irrecoverable, because the tortfeasor could not delete the competitive advantage that it has obtained. The root reason is that the tortfeasor has absorbed the trade secrets as its own skills, which could not be deleted from its original knowledge, and nobody could guarantee that the torfeasor would not use the trade secrets in the future. For the plaintiff, its competitive advantage has been relatively narrowed down, so it shall be entitled to ask for compensation. On the other side, in order to punish those unfair competition actions, the tortfeasor shall pay for such infringement, otherwise it would be unfair.
    However, it is difficult to deal with the second reason. We suggest that the plaintiff could pay attention to the following aspects:
    Firstly, the value of the trade secrets. For example, the development cost, the period to maintain the competitive advantage, the time and manpower for the tortfeasor to achieve such competitive advantage, and etc.. In a trade secrets infringement case, the plaintiff could use reasonable calculation logic to prove that the tortfeasor might inevitably obtain benefits due to the negative effect of the trade secrets, even the tortfeasor has been ordered to stop the infringement.
    Secondly, the reasonable license fee of the trade secrets. In a trade secrets infringement case, the loss shall be identified based on the loss of the plaintiff, the benefits of the defendant, or a reasonable license fee. Because the trade secrets could not be recovered once it has been infringed, the tortfeasor may inevitably “use” the trade secrets (such as the trade secrets has become part of the tortfeasor’s skills), then it would be reasonable for the tortfeasor to pay the license fee. In addition, there is a special occasion in the specific industry, in which the plaintiff has a few competitors. If the plaintiff plans to transfer or authorize the trade secrets to a third party, once the trade secrets has been infringed, the third party would bargain over the transition price. And then the gap between the two prices shall be deemed as the loss of the plaintiff.
    To sum up, we recommend the plaintiff to choose the appropriate method to prove its loss case by case.