Landmark Trade Secret Case Signals Shift in Chinese IP Enforcement
In Episode Seven of the Reasonable Measures Podcast, hosts Tim Londergan and Chris delve into a recent groundbreaking case in China that underscores the growing importance of intellectual property (IP) protection within the Chinese legal system. The case, Chengdu versus Wei, set a new record for trade secret misappropriation judgments in China, awarding 640 million RMB (around 88 million USD) in damages. This decision marks a significant milestone as it is the largest purely domestic trade secret judgment in China to date. Tim and Chris compare it to previous landmark cases in China, highlighting a clear trend toward recognizing the economic impact of trade secret theft and valuing IP more highly within the local legal landscape.
Patterns in Trade Secret Theft and Patent Strategy
The fact pattern of Chengdu versus Wei echoes similar cases in the United States. It involved the wholesale transfer of 40 employees from one Chinese electric vehicle company to another. Shortly after joining their new employer, this team filed multiple patent applications, clearly based on proprietary knowledge from their previous company. This kind of wholesale employee movement has raised suspicions in other cases, and Tim and Chris discuss how this case exemplifies a common pattern in trade secret litigation, where the rapid development of competitive products often suggests misappropriated trade secrets. The Chinese court saw this accelerated product timeline as circumstantial evidence of trade secret theft, aligning with similar reasoning used in the U.S.
An interesting twist in this case was the court’s handling of the newly filed patents. Since trade secrets are meant to remain confidential, publishing them as patents effectively makes the secrets public. The court’s solution was to invalidate some of these patents or consider transferring ownership back to the original company. While this doesn’t restore the trade secret status, it offers a degree of compensation and protection to the original owner, helping them retain some control over their intellectual property despite the disclosure.
Tim and Chris also highlight a major shift in the driving forces behind China’s IP reforms. Contrary to the perception that international pressure spurred these changes, they point out that domestic companies are pushing for stronger protections as they compete with both local and international players. This internal pressure for a robust IP system reflects the growing maturity of Chinese industries and their desire for a fair playing field. The hosts see this trend as a promising sign for future IP enforcement in China, suggesting that the country’s intellectual property law and legal system is evolving to support both domestic and foreign companies more equitably.
Overall, this episode paints a compelling picture of the changing IP landscape in China. Through discussions of trade secret litigation, damages awarded, and systemic reforms, Tim and Chris demonstrate how China’s legal infrastructure is progressively aligning with global standards to support innovation and fair competition.
収穫：
- The recent record-breaking trade secret misappropriation case in China highlights the increasing recognition of the value of trade secrets and the protection of companies from misappropriation.
- The case involved the wholesale movement of employees from one company to another, resulting in the filing of patent applications by the new company.
- Factors such as the quick release of products and the publication of patents can be used as evidence to establish the misappropriation of trade secrets.
- Enforcing judgments and recovering damages in trade secret cases can be challenging, and it remains to be seen how the parties involved in this case will navigate the process.
- The evolving legal landscape in China demonstrates the country’s commitment to improving its intellectual property protection and enforcement mechanisms.
Transcript:
Tim Londergan (00:01.806)
“Reasonable Measures Podcast, episode number seven. We’re back, Chris. Good to see you.”
Chris (00:07.65)
“Fantastic, Tim. Good to be here. Good morning.”
Tim Londergan (00:09.872)
“You know, I was thinking, man, we’ve got to take another step in professionalism here. We need a jingle. So, need to jump onto Upwork or Fiverr, find a jingle maker, and come up with something snappy that’s got a trade secret essence to it.”
Chris (00:29.932)
“Yeah, where’s our animated intro? Let’s do it right.”
Tim Londergan (00:33.254)
“Exactly. All right. So, today we are talking about China: Chengdu versus Wei, which was a big deal about a month ago. This decision came down, and it was significant because it is now the largest trade secret misappropriation judgment in China to the tune of 640 million RMB, which is about 88 million US dollars. Big deal. To put that in historical perspective, when we were just getting started a few years ago, there was a case in 2021 involving synthetic vanilla—a chemicals food ingredient manufacturing case. That was a 25 million USD case.”
“At the time, it was huge. It was also purely domestic, right? Two Chinese companies. Then, fast forward to 2024, not too long ago, there was another chemicals case which just surpassed it slightly, around 28 million USD. And now, you’ve got an 88 million decision. Things are changing, huh?”
Chris (01:57.634)
“Yeah, it’s amazing. I mean, this is four times the previous record holder. So, it’s not just an incremental movement; it’s a massive jump in the damages awarded. And as you said, this is purely domestic—a Chinese company versus a Chinese company. There’s no international multinational involved. For me, it’s really encouraging to see that the Chinese legal system is recognizing trade secrets as super valuable and helping companies that are losing them to misappropriation. This is awesome.”
Tim Londergan (02:37.478)
“Yeah, the fact pattern of this case—I’ll let you dive into some details—reminds me of a handful of cases we’ve seen in the US over the past few years where there’s a wholesale movement of people. In this case, it was 40 people. So, guess what might happen, huh?”
Chris (03:00.376)
“Yeah, that’s right. An entire team moved from one Chinese electric vehicle company to another as a group. This wasn’t just one or two people changing jobs for a promotion; it was a wholesale team move. Immediately, the new company filed 12 patent applications on things this team had been working on previously.”
“You and I often get asked, ‘How do you know or get evidence that your trade secrets were stolen?’ Trade secrets aren’t visible by definition, but if you wait 18 months, guess what happens to those patent applications? They publish. So, keeping an eye on competitors’ patent activity is actually a way to monitor potential trade secret loss.”
Tim Londergan (04:07.472)
“Yeah, especially when a competitor has recently hired your entire engineering team.”
Chris (04:11.47)
“Exactly. The court also noted that the new company released products too quickly—faster than would normally be possible. We’ve seen similar cases in the US medical field, where courts considered how quickly a company released a product. The idea is, the only way to have released a product that quickly is by using trade secrets. It’s indirect evidence, but courts in both China and the US consider it.”
Tim Londergan (04:54.768)
“So, most of the secret information is now effectively in the public domain, published in a patent. One of the review points suggested that the courts deemed these patents invalid, right? That makes sense.”
Chris (05:09.112)
“Correct.”
Chris (05:20.974)
“One option was transferring the patents back to the first company. There was a sort of threat in the case that if the second company abandoned or otherwise let these patents go, there would be significant penalties. The court recognized that these patents had published and that the original company might not recover the trade secret’s full value, but transferring the patents is an attempt to mitigate the damage.”
Tim Londergan (06:02.016)
“Interesting.”
Chris (06:18.894)
“Yeah, it’s a clever way to preserve some value for the original trade secret holder, even if the full trade secret protection is lost.”
Tim Londergan (06:31.674)
“Back to damages. Essentially, this speaks to the concept of ‘negative know-how.’ When you do research, you learn both what works and what doesn’t. By stealing the information of what works, you’re also gaining knowledge about what not to do—saving time and resources. This short-circuits the R&D process, right?”
Chris (07:18.062)
“Exactly.”
Chris (07:30.318)
“That’s why we’ve seen cases where releasing a product unusually fast is a red flag. If it would normally take a year but was done in four months, you likely bypassed failures and optimizations. Commercially, that speed can be a huge advantage.”
Tim Londergan (08:03.098)
“It’s an elegant way for courts to say, ‘How did you do this so quickly?’ And the answer sometimes is, ‘We stole your stuff.'”
Chris (08:09.57)
“Yep.”
Chris (08:49.434)
“When you combine fast releases with patent publications that appear just after hiring an entire team, it builds a compelling case for the original trade secret owner.”
Tim Londergan (09:40.674)
“Exactly. We’ve also done some work at Tangibly to track that movement of information between companies. When people leave one company, join another, and suddenly start filing patents, it creates an obvious paper trail.”
Chris (09:40.674)
“Yes, people usually aren’t very creative in how they misappropriate trade secrets, and cases like this are common. The scale here is what’s different. In our last podcast, the ex-student-professor case was unusual, but this one is factually normal, just large.”
Tim Londergan (10:19.366)
“Very normal, except for the scale—40 people, right?”
Chris (11:56.182)
“Right. Winning a lawsuit is often the beginning of the journey; actually collecting the money can be just as hard.”
Tim Londergan (12:25.498)
“True. Seeing the Chinese system award a massive amount in a purely domestic case is remarkable. This shift is happening right before our eyes.”
Chris (13:18.458)
“A lot of the improvements in China’s IP system came from domestic pressure, not from multinationals.”
Tim Londergan (13:31.17)
“Absolutely. Well, as IP nerds, this is humongous news. Super cool. Do we have a topic for the next podcast?”
Chris (13:48.526)
“Not yet. I have a couple in the hopper, so we’ll pick a good one and come back.”
Tim Londergan (13:53.392)
“All right, sounds good. See you, Chris. Thanks, man. Take it easy.”
Chris (13:56.972)
“Thanks, Tim. Catch you later.”
