The Determination of Loss in Trade Secret Infringement Case related to Client List

Recently, a criminal case has aroused widespread concern on the infringements of Trade Secret (“TS”), in which a former employee abused the former employer’s client list. 4 former employees obtained the client list of Company A(“A”) by improper means, established a new company, and sold the similar equipments amount to a huge gross income to the overseas clients by pretending to be the branch of A. Eventually, Zhuhai Intermediate People’s Court in the second instance judgment determines that the defendants’(2 companies and 4 individuals) acts have caused loss to A amount to 22,700,000 Yuan(in the first instance judgment, the loss was determined as 23,200,000 Yuan). This judgment is the unprecedented case related to the infringement of client list which the loss is determined according to the economic loss of the victim.

“Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition”, Article 17 has stipulated that the determination of damages for the acts infringing on TS …… may be governed by the methods of determining damages for patent infringements by analogy.……In case a tort causes any TS to be known by the public, the damages shall be determined according to the commercial value of this TS. The commercial value shall be determined according to the research and development costs, the proceeds from implementing this TS, possible benefits, and the time for maintaining the competitive advantage to this TS, etc.

In practice, a tort causes any TS to be known by the public is rarely, so for the majority of this kind of cases, the economic loss (corresponding to the amount of damages) may be governed by the methods of determining damages for patent infringements by analogy. According to “Several Issues Concerning the Application of Law in the Trial of Patent Infringement Dispute Cases”, the calculation methods of damages for patent infringements mainly include: (a) the loss of victim; (b) the gains of infringer; (c) a reasonable license fee. In addition, according to the relevant judicial interpretations, where the calculation methods hereinabove cannot be applied, the statutory compensation shall be applied, which said that based on various factors, the court shall have the right to determine compensation, and the amount shall not exceed 500,000 Yuan.

For these client list cases, since the client list licensing means that the obligee may loss clients or market share, the reasonable license fee may not be applied normally. Because the client list could not be applied in the infringing products directly like the technical secrets, and its value will be reflected in the sale process, it is difficult for the victim to calculate its loss. It is also difficult to prove the gains of the infringer, because of the difficulties in proving the corresponding relationship between the gains of the infringer and the application of client list, and collecting the relevant evidence. In this case, because the infringer pretended to be the branch of the victim and sold similar equipments to the clients listed in the client list, the clients shall be deemed as willing to do business with the victim, in view of this, the gains of the infringer shall be deemed as the profits belong to the victim.

However, for most of TS infringement cases related to client secret, the loss are determined by the court at its own discretion, which has taken the infringer’s subjective fault, tort duration, scope and consequences, the impact of market share into consideration.

For the amount of statutory compensation, the local courts have different opinions. Take Shanghai for example, Shanghai Higher People’s Court has stipulated the range of the specific compensation amount in all IP infringement cases, and the statutory compensation could be 2 to 3 times of the reasonable license fee. Some factors may affect the discretion of the courts, such as the social impact of the infringement, means and circumstances, duration and scope, the infringer’s subjective fault, the emotional damages and damages to the business reputation of the victim and etc.. Therefore, in order to obtain the support of the court, except those evidence related to the victim’s loss and the infringer’s gains, the victim shall also prepare the evidence related to those factors hereinabove.