Supreme People’s Court redefines use in trade secret infringement case with record-breaking damages award 

On 14 June 2024 the Supreme People's Court’s IP Tribunal issued a final judgment in Geely v WM Motor. The plaintiff was awarded with damages of up to 640 million yuan (US$91.4 million), setting a record for damages in trade secret infringement cases in China. This case highlights new trends in the judicial process when it comes to trade secrets.

Case background

Since 2016, nearly 40 senior executives and technical personnel from Geely Group have left to go and work for WM Motor and its affiliated companies. In 2018, Geely found that WM Motor had cited these departing employees as inventors in applications for 12 utility model patents using the relevant new energy vehicle chassis technology, 12 sets of automotive chassis component drawings and digital technology secrets obtained from Geely. WM Motor also manufactured and launched EX-series electric vehicles in a short period of time without a legal technical source – so it was suspected of infringing Geely's technical secrets. 

Geely filed a lawsuit with the Shanghai High Court, requesting that WM Motor cease infringement on its technical secrets and compensate for its economic losses and reasonable expenses for enforcement – 2.1 billion yuan (US$0.3 billion).

According to the court’s first-instance judgment on 5 September 2022, WM Motor was required to pay Geely 7 million yuan (US$1 million), made up of 5 million yuan in economic losses and 2 million yuan in reasonable attorney costs. The second-instance judgment directly increased the damages by more than 90 times, and the reasonable costs increased to 2.5 times the original amount.

Inference on infringement 

This judgment demonstrates China’s new judicial practice when it comes to determining trade secret infringement. According to Article 32 of the Anti-Unfair Competition Law, a trade secret owner only needs to provide preliminary evidence to indicate that their information may have been infringed and prove that the accused infringer has carried out the infringing acts. In this case, it was the accused infringer that had to bear the burden of proving noninfringement. The Supreme People’s Court reasoned that if the accused infringer manufactured products related to the secret in a significantly shorter period of time than what is reasonably required for independent R&D, and if it had access to channels or opportunities to obtain the technical secret, then – due to the high probability of infringement – the burden of proof on the trade secret owner should be minimised. It could also be directly inferred that the alleged infringer did in fact infringe the technical secrets.

Considering that multiple employees who possessed Geely's technical secrets collectively transferred to WM Motor in a short space of time and that WM Motor quickly launched new energy vehicles closely related to Geely's technical secrets, the Supreme Court held that WM Motor was likely to be infringing the rights. This logic significantly reduced the burden of proof on Geely. It also provides new ideas for ruling on trade secret infringement cases and reflects the Supreme Court’s strong protection of the legitimate rights and interests of trade secret rights holders.

A broad definition of use 

This judgment provides a comprehensive and detailed definition of the use of trade secrets. It clearly demonstrates that use is not limited to direct replication but also includes the modification and optimisation of the original trade secrets, as well as the action of selecting or adjusting the direction and method of technological R&D based on the information. This clarification not only significantly expands the scope of identifying trade secret infringement but also provides more comprehensive legal protection for rights holders. It reflects the court’s commitment to stronger protection of trade secrets and its severe crackdown on infringement.

Good faith in litigation has positive impact on damages

In the first instance, WM Motor had raised a defence of legitimate technological sources but chose to abandon it in the second instance due to insufficient evidence. The Supreme Court held that this reflects WM Motor’s objective evaluation of the evidence and a shift towards good faith, and the court considered this as a factor in reducing its liability when determining damages. This highlights the importance of good faith in litigation and provides clear guidance on how accused infringers in similar future cases in might approach their defence. Good faith in litigation helps to improve the company’s reputation and may bring substantial benefits.

Determination of damages

The Supreme Court used the sales data of WM Motor’s EX-series models (including EX5, EX6 and E5) of electric vehicles from September 2018 to the first quarter of 2022 (total sales quantity of 81,733 vehicles) as the basis for calculating its infringing profits. According to the average selling price (175,200 yuan) and a 20% profit margin, the contribution rate of Geely’s technical secrets to the total vehicle sales profit is 8%. 

WM Motor’s infringement profits before April 2019 were 24,872,793.6 yuan (175,200 yuan / vehicle x 8,873 vehicles x 20% x 8%). The infringing profit from May 2019 to the first quarter of 2022 was 204,241,152 yuan (175,200 yuan / vehicle x 72,860 vehicles x 20% x 8%). Twice the punitive damages were applied to this part of the profits, resulting in a total economic loss of 637,596,249.6 yuan. In addition, a reasonable expense of 5,000,000 yuan was awarded for enforcement.