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This is an informal case summary prepared for the purposes of facilitating exchange during the 2024 WIPO IP Judges Forum.

Session 3: Confidential Information and Trade Secrets

Supreme People’s Court of China [2020]: Atlantic Company v Song Zuxing

Date of judgment: September 24, 2020

Issuing authority: Supreme People’s Court of China

Level of the issuing authority: Final Instance

Type of procedure: Judicial (Civin( �/span>

Subject matter: Undisclosed Information (Trade Secrets)

Plaintiff: Atlantic Company

Defendant: Song Zuxing

Keywords: Trade secret protection, Competition mechanism, Criminal protection, Civil protection

Basic facts: In this case, Song Zuxing signed a “Post Resignation Obligation Agreement” with Atlantic Company, which stipulated the non-competition and confidentiality obligations after his resignation.  Later, Atlantic Company believed that Song Zuxing had provided registered capital and technical support for Hengrui Valley Company, revealing Atlantic Company’s trade secrets and violating the Post Resignation Obligation Agreement in the process.  Atlantic Company filed a lawsuit in court, demanding that Song Zuxing bear corresponding legal responsibilities.  In addition, based on the prosecution of the Procuratorate, the People’s Court of Jiang’an District, Wuhan City, ruled that the acts of Hengrui Valley Company and its legal representative Yang Yuxiang constituted the crime of trade secret infringement.

The courts of first and second instance held that the criminal case against Hengrui Valley Company and Yang Yuxiang, brought by the prosecutor’s office on accusations of trade secret infringement, did not involve Song Zuxing.  Having found there to be no facts indicating that Song Zuxing infringed Atlantic Company’s trade secrets, the first and second instance judgments rejected Atlantic Company’s claim against Song Zuxing.

Held: The Supreme People’s Court revoked the first and second instance judgments, determining that Song Zuxing’s acts constituted civil trade secret infringement.

The Supreme People’s Court held that because the criminal prosecution did not charge Song Zuxing, the resulting criminal judgment did not involve the determination of whether Song Zuxing participated in the criminal act, whether it constituted the crime of trade secret infringement, or whether Song Zuxing’s behavior violated the Post Resignation Obligation Agreement.  Therefore, as the preliminary criminal lawsuit did not examine the fact of whether Song Zuxing is related to Hengrui Valley Company, it does not constitute a preliminary fact in the preliminary criminal lawsuit.  Moreover, it cannot be directly determined that Song Zuxing is not related to Hengrui Valley Company in subsequent civil lawsuits.  Based on the facts identified during the retrial procedure before the Supreme People’s Court, it can be determined that Song Zuxing is the actual investor of Hengrui Valley Company.  He secretly formed Hengrui Valley Company, which has a competitive relationship with Atlantic Company in the same industry, within two years of his resignation, in violation of relevant agreements.  As such, the Supreme People’s Court found that Song Zuxing should bear corresponding civil liability.

Relevant holdings in relation to confidential information and trade secrets: In its judgment, the Supreme People’s Court clarified the criteria for determining and proving facts in overlapping civil and criminal cases involving intellectual property rights, as applied to an allegation of trade secret infringement. 

In civil and criminal cross-disciplinary cases, the facts determined in criminal proceedings generally have a preliminary effect on subsequent civil litigation.  However, the determination of innocence in preliminary criminal cases requires distinguishing specific circumstances.  If innocence is determined due to insufficient evidence, unclear facts, etc., the criminal and civil judgment results may differ due to different standards of proof.  The criminal determination of innocence does not necessarily lead to the determination of nonexistence of infringement or breach of contract in civil cases.  Whether such behavior exists must still be adjudicated and determined based on the evidence.

Here, the Supreme People’s Court held that because the criminal judgment did not examine and confirm the relationship between Song Zuxing and Hengrui Valley Company, the question of whether there existed a relationship between the parties could not be treated as a predetermined fact in corresponding civil proceedings.  Further, the criminal judgment should not serve as the basis for concluding that Song Zuxing lacked involvement with Hengrui Valley Company and the alleged trade secret infringement.

Relevant legislation: Anti-Unfair Competition Law of the People’s Republic of China; Criminal Law of the People’s Republic of China