Abstract: The correct trial of this case plays a vital role in unifying adjudication standards of former employees' using the original company's customer information to infringe on trade secrets, improving the rules of evidence application, hearing civil cases of infringement of trade secrets in a fair manner in accordance with the law, and creating a legalized business environment. The case mentioned in this article was selected as one of the top ten typical cases of unfair competition in Shenzhen court "I Do Practical Things for the Masses" campaign in 2021, which achieved a good expectation of political, legal and social effects.

[Abbreviature of Adjudication]

The people's court shall hear the case of infringement of trade secrets by the former employees using the original company's customer information in violation of the confidentiality agreement, based on the characteristics and actuality of the case, adhere to the problem-oriented application of the rules of evidence, fully comply with the general rule of "burden of proof borne by the claimant". The right holder shall bear the burden of proof for the main facts such as "customer information has taken the corresponding confidentiality measures, the former employees used the aforementioned information, its use of the relevant information and the right information constitute the same or substantially the same as the rights information". Under the premise of not violating the statutory rules of evidence, through the transfer, distribution, exemption of the burden of proof, to appropriately reduce the burden of proof of the rights holder, which effectively increases the protection of trade secrets, strengthens the construction of trade secret litigation integrity system.

[Case Introduction]

No. of First Instance: Civil Judgment No. 21439[2020], First, Civil Division, 0303,   Guangdong

Case No. of Second Instance: Civil Judgment No. 25614[2020], Final, Civil Division, 03, Guangdong

Appellant (Plaintiff in first trial): Shenzhen Hengshi Amber Jewelry Company Limited (hereinafter: Hengshi Company)

Appellant (Defendant in first trial): Guo

Hengshi Company accused Guo of infringing its trade secrets and requested to stop the infringement and compensate for economic losses of RMB 3 million and reasonable expenses for the protection of rights of 54,887 yuan.

On July 9, 2018, Guo joined Hengshi Company and signed Labor Contract, stipulating that the contract period is from July 10, 2018 to July 11, 2020; Guo works as a Goods Commissioner in Songgang station; Guo promises to keep corporate secrets and not to disclose, inform, release, publicize, publish, transfer or any other way to let a third party know what belongs to Hengshi Company or what belongs to others but Hengshi Company promises to have the obligation of confidentiality, and it is not allowed to use this secret information and other intellectual property rights of Hengshi Company outside the performance of duties; Hengshi Company’s customer and supplier information belong to the scope and content of confidentiality, etc.

In the course of the second trial, the company fixed in court its claim of trade secrets as the mobile phone numbers, names, transaction records and other customer information of the four customers "Furong Mama 9872, Wtt3747, Xiaoma and Yixin". The actual name of "Furong Mama 9872" is Bao,  "Wtt3747" is Wang, "Xiaoma" is Ma, and "Yixin" is Qiu. Hengshi Company  submitted a CD-ROM and WeChat chat records during the first trial to prove that the electronic data stored in the CD-ROM are the excel form summary of customer orders exported from the "Customer Housekeeper" cloud, which recorded the customer information formed through long-term transactions between June 2018 and April 2020, constituting its trade secrets.

Guo registered WeChat account "Ben489687" (WeChat name "Hupowuyu") with his real name, and he repeatedly added Hengshi Company's customers' WeChat accounts through mobile number searching and  recommended jewelry, jade, and other products to these customers.

Luohu District People's Court of Shenzhen Municipality made the first-instance judgment on August 21, 2020: (a) Guo shall immediately stop infringing on the trade secrets of Hengshi Company; (b) Guo shall compensate Hengshi Company for economic losses and reasonable expenses of RMB 80,000 for stopping the infringement within ten days from the effective date of the judgment; (c) Rejecting other litigation requests of Hengshi Company against Guo; (d) Rejecting all litigation requests of Hengshi Company against Qiu  (because Qiu, the other defendant in this case, does not constitute infringement, for the sake of the relevance and concentration of case analysis, the part of Qiu is omitted in this article).

After the trial of the first instance was pronounced, Hengshi Company and Guo refused to accept and filed an appeal. On 29 February 2021, Shenzhen Intermediate People's Court of Guangdong Province issued a second-instance judgment on 29 February 2021: dismissing the appeal and upholding the original judgment.

The court ruled that: Hengshi Company submitted the summary form of customer information stored on CD-ROM, the WeChat chat records of "Xiao Luo Meimei" and the Confidentiality Agreement in the first trial, and submitted "Furong Mama 9872, Wtt3747, Xiaoma and Yixin", four customers’ order records in the second trial as evidence. The summary form, WeChat chat records, order records are all electronic data, and the key to determining the facts is to verify the authenticity of electronic data. Because all the data recorded in the customer orders were recorded and saved in the cloud of the third-party platform "Customer Housekeeper", and the court verified in the second trial that the customer's name, mobile phone number, order number and other information could not be modified, the court then confirmed the authenticity of the above-mentioned order records. According to the evidence submitted by Hengshi Company, the above-mentioned four customer information shall be deemed to constitute trade secrets of Hengshi Company for the following reasons: (1) The aforementioned information is not disclosed to the public. The order record is saved in the "Customer Housekeeper" cloud, which records Bao's real name, mobile phone number, address, order, and other detailed customer information and the other three people. There are dozens of transaction records for each customer.  The aforementioned information is the business information formed by the long-term transaction of Hengshi Company. Guo stated that as an employee, he cannot be directly accessible to them during routine work and that the relevant public is more difficult to obtain. That is, the aforementioned information is not disclosed to the public. (2) It has commercial value. The information, as mentioned earlier, can bring trading opportunities and profits to Hengshi Company and has commercial value.  (3) Hengshi Company has taken corresponding confidentiality measures. The company and Guo signed Labor Contract and Confidentiality Agreement, clearly agreed on confidentiality obligations. Accordingly, the company’s claim that the aforementioned customer information constitutes its trade secrets, which has a factual basis, and the court accepted it.

Regarding whether Guo constitutes infringement, the court held that: Hengshi Company submitted Guo's WeChat account "Hupowuyu" and 4 customers' WeChat chat records as evidence in the first instance, claiming that Guo used the customer's mobile phone number to add their WeChat account, that is, Guo violated the confidentiality agreement and used the trade secrets held by Hengshi Company. Guo's role in the company is to go to the market to find the raw gemstone based on customer needs. He does not directly contact customers and does not have the right to use the "Customer Housekeeper" system. It should be impossible for him to obtain the aforementioned customer information, but he did add WeChat accounts of four customers and had direct business communication with them. Because Guo did not explain the process of adding customer's WeChat accounts, nor did he submit evidence to prove how to add their WeChat accounts, Hengshi Company accordingly claimed that Guo used the customer's mobile phone number to search and add their WeChat accounts, which was in accordance with the rules of evidence, and the court confirmed it. Guo violated the confidentiality obligation agreed in the Labor Contract and Confidentiality Agreement, and used the mobile phone number and WeChat accounts of the customers of Hengshi Company to contact the customer, which infringed the trade secret of Hengshi Company. In view that both parties did not submit evidence to prove the actual losses suffered by the right holder due to the infringement and the benefits obtained by the infringer due to the infringement, the court of first instance applied discretionary compensation amount of statutory compensation to determine the amount of compensation, which complies with the law.

[Typical Meaning]

General Secretary Xi Jinping emphasized in his keynote speech at the opening ceremony of the Second Belt and Road International Cooperation Summit Forum, "improve the protection of trade secrets and crackdown on intellectual property infringement in accordance with the law". In recent years, with the rapid development of new technologies, new models and new business formats, the importance of trade secrets in the legal system of intellectual property rights has been rising. The people's courts should implement the decision and deployment of the Chinese Communist Party, serve innovative and high-quality development, strengthen judicial protection of trade secrets, encourage legitimate competition, and actively respond to social concerns. In many industries with extremely loyal customers, such as jewelry sales, exclusive customer information has become the "lifeblood" of an enterprise. Constructing rules of evidence in line with the characteristics of trade secret cases, balancing the right holder and the infringer's ability to prove play important roles in solving the problem of "difficult proof" in the determination of rights and infringement, reducing the cost of rights protection, improving the quality and effectiveness of trade secret protection, and increasing protection and promoting the creation of a market-oriented, legalized, and internationalized business environment.

(i) For fully complying with the general rules of evidence, the plaintiff should bear the burden of proof of the main facts such as the composition of the right and the establishment of the infringement

In the trial of trade secret cases, the application of the rules of evidence should be problem-oriented, following general rules of civil litigation evidence, based on the characteristics and actuality of the cases, guiding the parties to follow the principle of honesty and integrity, providing evidence actively, comprehensively, correctly and honestly in accordance with the provisions of the law and judicial interpretation.

1. Rights

The customer information that the plaintiff claims to protect should meet the statutory elements of a trade secret.

(1) Formal (specific) elements

Carriers: client lists, client rosters, specific clients, etc.

Specific content: the name, address, and contact information of the customer, as well as information on trading habits, intentions, and content. In practice, it is easy for the plaintiff to confuse the carrier of the trade secret with the specific content. The plaintiff will generally submit a lot of transaction information as evidence, but does not summarize, refine, and generalize the specific content, rather let them scatter in the evidence, resulting in the lack of focus and concentration of litigation. The court needs to let the plaintiff clearly fix the specific content of the rights of the customer information it seeks to protect. The more specific and refined, the easier it will be to compare. As in this case, the first and second trial crossed the old and new judicial interpretation, in the case of the plaintiff's first trial claim customer list, the court of second trial should explain to the plaintiff again, so that to clarify which item or several items of the client's information belong to the fixed rights.

(2) Substantive (abstract) elements

Non-publicity: i.e. not generally known to the public. When the alleged infringement occurs, the information requested for protection is not generally known to the relevant personnel in the field, and is not easily accessible to the relevant personnel in the field. Given that non-publicity is a negative fact and difficult to prove, usually the right holder proves that it has taken appropriate (reasonable) confidentiality measures [1], then the relevant information can be prima facie found to be non-public. If the new information formed by collating, improving and processing the information known to the public but not generally known to the relevant personnel in the field to which it belongs and not easily accessible to the relevant persons in the field to which it belongs, the new information shall be deemed not to be known to the public. As in this case, the plaintiff claims to protect the mobile phone numbers, WeChat accounts and other contact information of multiple customers. The contact information of a single customer may not be difficult to obtain, but given that the plaintiff has aggregated and organized the contact information of multiple customers, it is difficult for relevant personnel in the jewelry sales industry to become generally know and obtain. Guo's easy use of the aforementioned customers' relevant information without any intellectual effort is extremely unfair to the plaintiff who has put in the time and effort to maintain the customers.

Commercial value. If the information requested by the right holder for protection has real or potential commercial value because it is not known to the public, the people's court may, upon examination, determine that it has commercial value. Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets directly correlate the commercial value of trade secrets with non-public knowledge, and customer information with non-public knowledge shall generally be deemed to have commercial value.

2. Facts of the infringement

(1) The subject information of the accused infringer.

(2) The infringed information and the trade secret constitute the same or substantially the same (no substantial difference). Customer information is generally not difficult to compare, and the accused infringer usually uses the right information directly.

(3) The accused infringer committed the relevant trade secret infringement. [2]

(ii) Appropriately reduce the burden of proof on the right holder [3], and effectively increase the protection of trade secrets

Trade secrets have been elevated to statutory rights, and their protection should be stronger than when they were previously belonged to unfair competition. "True rights" should be "truly protected", "high rights" should be "strictly protected". Appropriately reduce the burden of proof for the right holder, that is, to increase the effective path of trade secret protection.

1. Transfer of the burden of proof

Non-public knowledge, commercial value belong to the substantive elements of trade secrets, and the right holder has the obligation to prove according to the  law. In view of the fact that non-public knowledge is a negative fact, it is difficult to prove. Usually the right holder to prove that it has taken the corresponding confidentiality measures, can be initially determined that the relevant information is non-public. The burden of proof should be then transferred to the accused infringer for positive facts that the relevant information is publicly known and known to the public. In this case, because the plaintiff has signed a confidentiality agreement with the employee, the relevant customer mobile phone numbers, WeChat names and other contact information are stored in the third-party platform. Once the data is formed, it cannot be modified, only some employees, such as finance-related employees, have the right to view. The plaintiff has taken corresponding and reasonable confidentiality measures. Guo used the aforementioned information, but did not provide evidence on statutory matters such as whether the relevant information is already known to the public. Therefore, it should be found that the relevant information is non-public and can bring competitors trading opportunities, and thus has commercial value.

2. Allocation of the burden of proof

Considering the difficulty of proving the infringement of trade secrets stipulated in Article 9 of the Anti-Unfair Competition Law, the right holder can often prove only the accused infringer obtains, discloses and uses the relevant information. In addition, it is difficult for the right holder to retrospectively provide evidence for the methods and processes used by the accused infringer to obtain information. The accused infringement act is also difficult in providing evidence in trade secret cases. The burden of proof can be directly assigned to the accused infringer for proving that the relevant information is properly obtained, the use of the relevant information has a legal source and reasons, etc. If the accused infringer cannot prove this, it may be presumed to have obtained the information through the implementation of infringing acts. There is a view that this allocation of the burden of proof is essentially the reverse onus, and the reverse onus should be statutory. If it is directly applied in a case, it may violate the statutory rules of evidence. In this regard, the author believes that reverse onus must be statutory, and its essence is to invert the matter that the plaintiff should have provided to the defendant. However, in the case of trade secrets, the plaintiff is not obliged to prove the fact that "the relevant information is properly obtained and the use of the relevant information has a legal source and reasons by the accused infringer". If the defendant directly defends, according to the general rules of evidence, the defendant directly bears the obligation of proof; if the defendant does not defend, according to the degree of difficulty of proof, the burden of proof of the aforementioned matters can be directly assigned to the defendant. The reasons are as follows: 1. As mentioned above, it is difficult for the right holder to prove the means and process by which the accused infringer obtained the information retroactively; 2. If the defendant has legal sources and reasonable grounds, it is extremely easy to prove; 3. The burden of proof and fact-finding is a whole, and an appropriate increase in the burden of proof of the defendant will correspondingly reduce the burden of proof of the plaintiff.

3. Exemption of the burden of proof

For the case where the accused infringer is a former employee of the plaintiff’s company, the author believes that the third paragraph of Article 9 of the Anti-Unfair Competition Law "disclosing, using or allowing others to use trade secrets that he has obtained by breaking an engagement or disregarding the requirement of the owners of the rights to maintain the trade secrets in confidence" can be applied. Therefore, the plaintiff’s burden of proof that the defendant used improper means to obtain trade secrets and other matters can be exempted from the application of other provisions, so as to effectively reduce the burden of proof of the plaintiff. The plaintiff only needs to prove: 1. the relevant information has taken the corresponding confidentiality measures; 2. employees disclose, use or allow others to use trade secrets (there is no need to provide separate evidence to the possession, and the premise of disclosing and using trade secrets must be that the employees have that in possession). In this case, Guo argued that he was only responsible for finding products and did not contact customers, but did not explain the process of adding customers’ WeChat accounts, nor did he submit evidence to prove the facts of how to add these WeChat accounts. When he was at work, he had many opportunities and a high probability of obtaining the aforementioned customer information. As for how Guo obtained and whether he obtained by improper means, the plaintiff did not need to prove.

The correct trial of this case plays a vital role in unifying adjudication standards of former employees' using the original company's customer information to infringe on trade secrets, improving the rules of evidence application, hearing civil cases of infringement of trade secrets in a fair manner in accordance with the law, and creating a legalized business environment. The case mentioned in this article was selected as one of the top ten typical cases of unfair competition in Shenzhen court "I Do Practical Things for the Masses" campaign in 2021. It has achieved a good expectation of political, legal and social effects, which will help increase the protection of the legitimate rights and interests of market entities in accordance with the law, strengthen the protection of trade secrets in new fields and new industries, and create a rule of law engine for the construction of a new development pattern.

Reference:

1 Article 6 of Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets.

2 Article 9 of the Anti-Unfair Competition Law.

3 On November 16, 2020, when the Supreme People's Court issued Several Provisions on Evidence in Civil Litigation on Intellectual Property Rights, it explicitly stated that "the burden of proof on the right holder shall be appropriately reduced".