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SPC Awards Largest Compensation in Vanillin Trade Secret Case

Sat, 24 Apr 2021
Categories: China Legal Trends

On 26 Feb. 2021, the SPC rendered the judgment, (2020) Zui Gao Fa Zhi Min Zhong No. 1667, of the appeal case concerned with technical secrets infringement of Jiaxing Zhonghua Chemical Co., Ltd. et al. v. Wanglong Group Co., Ltd. et al., ordering Wanglong Group and other accused infringers to jointly compensate the technical secret rights holders in the amount of CNY 159,000,000.

This case witnesses the largest compensation that Chinese courts have ever awarded in trade secret infringement disputes.

Vanillin is a kind of spice widely used all over the world. In this case, the plaintiff, Jiaxing Zhonghua and Shanghai Xinchen New Technology Co., Ltd. (Shanghai Xinchen) jointly developed a new process for vanillin production, which was protected as a technical secret.

In 2010, Wanglong Group paid the defendant Fu Xianggen (a former employee of Jiaxing Zhonghua) to obtain the technical secret of Jiaxing Zhonghua, the vanillin production technology, and disclosed the vanillin production technology to Wanglong Technology Co., Ltd. (Wanglong Technology). Wanglong Technology hired Fu, and later disclosed the alleged technical secrets involved in the case to Xifushi Wanglong Spice (Ningbo) Co., Ltd. (Xifushi Wanglong) to produce vanillin. After Wanglong Group and Wanglong Technology illegally obtained the technical secret, the vanillin production technology, they have been continuously producing vanillin since June 2011.

As Wanglong Group and Wanglong Technology illegally obtained the technical secrets involved in the case, there was no substantial investment in research and development costs, and they were able to sell vanillin products at lower prices, which had a great impact on the international and domestic market share of Jiaxing Zhonghua.

In 2018, Jiaxing Zhonghua and Shanghai Xinchen filed a lawsuit with the Zhejiang High People’s Court, holding that the defendants such as Wanglong Group had infringed on their technical secrets, the vanillin production technology, and asked the court to order the said defendants to stop the infringement and make compensation of CNY 502 million.

The court of first instance held that Wanglong Group and other defendants had infringed some of the technical secrets involved in the case and ordered them to stop the infringement, make a compensation of CNY 3 million for economic losses and RMB 0.5 million for reasonable expenses.

Some defendants, in this case, refused to accept the first-instance judgment and appealed to the SPC.

The Intellectual Property Tribunal of the SPC found that the defendants such as Wanglong Group had infringed all the technical secrets involved in the case. On the ground of relevant data on economic losses provided by the right holder, after comprehensively considering the factors such as the severity of the infringement, the huge commercial value of the technology secret, and the fact that Wanglong Technology and other infringers refused to obey the binding behavior preservation ruling, the court of second instance rendered that the first-instance judgment shall be revoked and the above-mentioned infringers shall jointly and severally compensate the technical secret right holders CNY159 million (including reasonable expenses for rights protection in the amount of CNY 3.49 million). 

Contributors: CJO Staff Contributors Team

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