Protecting trade secrets — the meaning of company control

Source: Beijing Docvit Law Firm  Time: 2020-09-16 10:12:25  Author: The dispute resolution team

In 2013, a well-known American investor Aileen Lee took the lead in referring to startups with a valuation of more than $1 billion in private equity and public markets as "unicorns". The notable characteristic of "unicorn" companies is that they are in their infancy stage. Not well-known, but almost dominates the market it belongs to. With the rapid development of China’s socialist market economy, unicorn companies including Ant Financial and Didi Chuxing have emerged one after another. The dispute resolution team of Beijing Docvit Law Firm launched the "Unicorn The“legal service product line of animal enterprises” came into being under this background. This article is the second in a series of articles about the game of company control of the product line of the unicorn enterprise. Through in-depth and simple demonstrations of the market status, legal principles and judicial practice, the article will provide a message to help the rise of the "unicorn".

1. A glimpse of the current market situation VS a list of difficulties in rights protection

Recently, Tesla's case against Xiaopeng Motors has been raging. On April 25, 2020, Xiaopeng Motors issued a statement stating that after Tesla sued its employee Cao, who had switched to Xiaopeng Motors, it also asked Xiaopeng Motors to disclose all the unreasonable actions of the autonomous driving source code as an unreasonable request. It is claimed that this is Tesla's obvious bullying behavior against a young competitor. So, why Xiaopeng Motors made this statement. Whether Tesla deceived too much or Xiaopeng Motors was suspected of stealing secrets. There were various opinions for a while. After investigation and retrieval, the author learned that the incident was as follows:

Before he left Tesla, he downloaded the source code information of autopilot-related technical documents, including Autopilot and other repositories, to his personal computer, and uploaded more than 300,000 documents to his personal iCloud account. In January 2019, Cao officially left Tesla to join Xiaopeng Motors and is responsible for its autonomous driving visual perception related business. Later, Tesla filed a lawsuit against it for "commercial theft" and forcibly ordered Xiaopeng Motors to cooperate with Tesla to submit investigation materials [Tesla Xiaopeng "Commercial theft" new development: Xiaopeng will cooperate with a third party to investigate , Link New Energy, June 1, 2020.

The focus of the latest dispute between Xiaopeng Motors and Tesla is that the two sides have different understandings of the scope of the investigation data submitted by Xiaopeng Motors. In Tesla's latest investigation request, Tesla asked Xiaopeng Motors to disclose nearly 30 items such as the source code of autonomous driving, computer file backups of all employees of Xiaopeng Motors, and relevant information of some core employees. In view of this, Xiaopeng Motors reasonably suspected that the scope of the investigation set by Tesla has crossed the boundary, exposing the maliciousness of Tesla's bullying is obvious and heinous, and filed an objection to the court. On May 27, 2020, US local court judge Vince Chhabria approved part of the content of Xiaopeng Motors’opposition motion.

In addition, Xiaopeng Motors responded to the public saying that its position has always been to agree to provide the source code and insist on investigation by a neutral third party. Before Xiaopeng Motors raised the objection motion, the two parties had reached an agreement on the neutral third party to investigate the source code. Later, because of Tesla's obvious cross-border request, Xiaopeng Motors refused to disclose the source code in the objection motion.

There are two focal points of dispute between Tesla and Xiaopeng Motors: one is whether the technical files downloaded to the personal computer by the job-hopping employees are commercial secrets; the other is whether the scope of investigation data provided by Tesla ordered Xiaopeng Motors to show fairness, and This involves the distinction and definition of trade secrets and employees’ knowledge and experience, which is also a difficulty in protecting rights in trade secret infringement cases.

The distinction between trade secrets and employee knowledge and experience is clear in theory, but it is difficult to distinguish in detail in practice. In cases, judges often decide cases based on a certain degree of free judgment based on the consideration of the balance of interests. In principle, when there is no substantial or significant harm to the employer's interests, it is permitted by the market and the law for the former employee to use the trade secrets that he acquired during the work of the previous employer and integrate his knowledge, skills and experience to compete. The argument is based on the fact that in this case, the behavior of the employee who has quit will not cause significant harm to the former employer.

2. The scope of trade secrets vs. civil liability

(1) What is a trade secret

In order to avoid disputes between enterprises and natural persons due to trade secrets, our country’s legislator has been listed in the "Labor Contract Law of the People's Republic of China" and "The People's Republic of China Anti-Unfair Competition Law" and other laws, regulations, judicial interpretations and administrative regulations. Relevant provisions are regulated. For example, Article 23 of the "Labor Contract Law of the People's Republic of China" stipulates: "The employer and the employee may agree in the labor contract to keep the employer's business secrets and confidential matters related to intellectual property rights."

To resolve disputes such as the Tesla case, we must first define the concept of “trade secrets”. Article 9 of the“People’s Republic of China Anti-Unfair Competition Law” stipulates: “Trade secrets are those that are not known to the public, Technical information, business information and other commercial information that have commercial value and have been protected by the right holders.”The Supreme People’s Court recently issued the "Interpretation on Several Issues Concerning the Application of Law in the Trial of Civil Cases Concerning Trade Secret Infringement (Draft for Solicitation of Comments)" (Hereinafter referred to as the "Interpretation") The specific rules for determining the concept of "trade secrets" in the Anti-Unfair Competition Law are further refined as follows:

First of all, Article 2 of the "Interpretation" clearly defines the term "not known to the public" in the concept of "trade secrets": "The trade secret claimed by the right holder shall not be used when the alleged infringement occurs. If the relevant personnel in the field generally know and are not easily accessible, the people’s court shall determine that it is not known to the public as mentioned in Article 9 Paragraph 4 of the Anti-Unfair Competition Law. After sorting out and improving the information known to the public If the new information formed and the information disclosed in publications or through media, exhibitions, networks, etc., meet the provisions of the preceding paragraph, the people's court shall determine that the information is not known to the public."

Secondly, there is also a clear interpretation of the slightly abstract concept of "commercial value" in the definition of "trade secrets". Article 3 of the "Interpretation" stipulates: "Where the trade secret claimed by the right holder has actual or potential market value and can bring a competitive advantage, the people's court shall determine that it belongs to Article 9 Paragraph 4 of the Anti-Unfair Competition Law Have commercial value. If the staged results formed in production and business activities meet the provisions of the preceding paragraph, the people's court shall determine that the results have commercial value."

In addition, the "Interpretation" also defines "technical information" and "business information" in the concept of "trade secrets". Article 4 of the "Interpretation" stipulates: "Science and technology related structure, raw materials, components, formulas, materials, styles, processes, methods or their steps, algorithms, data, computer programs and related documents and other information can constitute anti- Technical information referred to in Article 9 Paragraph 4 of the Unfair Competition Law. Creativity, management, marketing, finance, plans, samples, bidding materials, data, customer information, etc. related to business activities can constitute the Anti-Unfair Competition Law The business information referred to in the fourth paragraph of Article 9." and the provisions of Article 5: "Customer information formed after sorting out the name, address, contact information, transaction habits, transaction content, specific needs and other information of specific customers , Can constitute the business information referred to in Article 9 Paragraph 4 of the Anti-Unfair Competition Law. The parties are only based on contracts, invoices, documents, vouchers, etc. with specific customers or only on the grounds of maintaining long-term stable trading relationships with specific customers , Claiming that the specific customer information is a trade secret, the people’s court will not support it."

Pre-judgmented a complete definition of trade secrets for entrepreneurs to invoke, and to a certain extent regulated the constituent elements of trade secrets, namely:

❶ Not known to the public ;

❷ It has commercial value; 

❸ The right holder has taken corresponding security measures for it. Therefore, it provides a solution to the focus problem raised in the first part of this article.

(2) The civil liability that the infringer/violator involved in the case will bear

The legal liability for infringement of trade secrets involves civil, administrative, criminal and many other fields. This article only demonstrates the most common civil liability in practice.

Article 17 of the Anti-Unfair Competition Law of the People’s Republic of China stipulates: “If an operator violates the provisions of this law and causes losses to others, he shall bear civil liability in accordance with the law. If the legitimate rights and interests of an operator are damaged by acts of unfair competition, they may File a lawsuit in the people’s court. The amount of compensation for an operator who has suffered damage due to unfair competition shall be determined according to the actual loss suffered by the infringement; if the actual loss is difficult to calculate, it shall be determined according to the profit obtained by the infringer due to the infringement. If the circumstances are serious, the amount of compensation may be more than one time and less than five times the amount determined in accordance with the above method. The amount of compensation should also include reasonable expenses paid by the business operator to stop the infringement. Articles 6 and 9 of this law stipulate that if the actual losses suffered by the right holder due to the infringement and the benefits obtained by the infringer due to the infringement are difficult to determine, the people's court shall award the right holder 5 million yuan based on the circumstances of the infringement. The following compensation."

According to the above-mentioned law, the main civil liability for infringement of trade secrets is compensation for losses. The amount of compensation shall first be calculated based on the actual loss of the right holder; if the actual loss cannot be considered, the calculation shall be based on the infringement income of the infringer; if the infringement income cannot be verified, the court may determine a statutory compensation of less than 3 million yuan.

For the civil liability for infringement of trade secrets, in addition to compensating for losses, the infringer should also bear the tort liability for stopping the infringement and eliminating the danger, that is, prohibiting the infringer from disclosing, using or allowing others to use the right holder’s trade secrets. But it should be noted that the premise of assuming the responsibility to stop the infringement and eliminate the danger is that the trade secret has not been disclosed or made public.

If the trade secret has been illegally disclosed, the secret no longer exists, and the right holder can request the court according to the commercial value of the trade secret (according to its research and development costs, benefits from the implementation of the trade secret, available and vested interests, and maintainable Factors such as the time of competitive advantage shall be determined) to determine the amount of compensation.

(3) Practical recommendations at the methodology level

"The life of law is not in logic, but in experience." The dispute resolution team of our firm has successfully handled many litigation cases, non-litigation projects and common law consultations involving trade secrets, and has accumulated rich experience in legal disputes involving trade secrets. In view of this, in addition to metaphysical legal theoretical evidence , The author also summarized some legal practical suggestions as follows:

Client companies should clearly define the scope of business secrets and establish and improve confidentiality management mechanisms. Article 7 of the Supreme Law "Interpretation" has provided specific ideas for right holders in practice: "The corresponding confidentiality measures taken by right holders may include the following situations:

❶ Sign a confidentiality agreement or stipulate confidentiality obligations in the contract;

❷ Propose confidentiality requirements through the articles of association, rules and regulations, training, etc.;

❸ Put forward confidentiality requirements for suppliers, customers, visitors, etc. who can contact and obtain trade secrets;

❹ Differentiate and manage trade secrets and their carriers by means of marking, classification, isolation, and sealing;

❺ Taking measures such as prohibiting or restricting access, storage, and copying of computer equipment, electronic equipment, network equipment, storage equipment, software, etc. that can access and obtain trade secrets;

❻ Require resigned employees to register, return, delete, and destroy the business secrets and their carriers that they have contacted or obtained, and continue to assume the obligation of confidentiality. "

Client companies can follow the legislative intent of the "Interpretation" of the Supreme Law and invoke the provisions of the "Interpretation" to establish a sound business secret management mechanism and improve the internal confidentiality system. In addition, when a dispute arises, the company involved in the lawsuit should produce detailed evidence to support its claim, rather than verbally bullying the small business like a large company.

(4) Conclusion

To sum up, although the protection of trade secrets itself is the meaning of the subject of controlling the company’s control, in practice, it should also be considered in combination with various factors such as actors, transaction scenarios and transaction matters, and protect the counterparties and parties in good faith transactions. Find a balance between slightly stronger companies. The above are some of the author's experience in the limited legal practice. Due to space limitations, I will not repeat the details one by one. I will give some suggestions here in order to provide methodological enlightenment for unicorn enterprises at the level of corporate control.

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