Violation of Trade Secrets Disputes on Xiangsheng Co., Shanjue Mo, Rongbai Wu, Aiyuan Gu v. Haiying Co, Ltd.

Appellant (the defendant of the original trial): Wuxi Xiangsheng Medical Imaging Co. Ltd. (Hereafter referred to as "Xiangsheng Co.") conducting business at Shuofangtong Road, Wuxi New District, Jiangsu Province.

Legal Representative: Shanjue Mo, president of the Xiangsheng Co.

Entrusted Agent: Lixin Liang, Attorney of the Zhongren Law Office of Beijing.

Entrusted Agent: Difeng Xu, Attorney of the Zhongshan Law Office of Nanjing.

 

Appellant (the defendant of the original trial): Shanjue Mo, male, born on February 3, 1940, Han nationality, the president of Xiangsheng Co.

Place of Residence: Room 303, Xibeixincun 82, Wuxi.

Entrusted Agent: Minqi Wang, employee of Xiangsheng Co.

 

Appellant (defendant of the original trial): Rongbai Wu, male, born on July 28, 1939, Han nationality, employee of Xiangsheng Co.

Place of Residence: Room 507, Building 25 of dormitory of Haiying Enterprise Group Co. Ltd.

Entrusted Agent: Difeng Xu, Attorney of the Zhongshan Law Office of Nanjing.

 

Appellant (the defendant of the original trial): Aiyuan Gu, born on November 5, 1968, Han nationality, once worked for Xiangsheng Co.

Place of residence: Room 502, Dormitory No.87 at Haiying Enterprise Group Co. Ltd.

 

Appellee (the plaintiff of the original trial): Haiying Enterprise Group Co. Ltd (Hereafter referred to as Haiying Co. Ltd.) conducting business at Liangxi Road 20, Wuxi city, Jiangsu province.

Legal Representative: Yisheng Jiao, president of Haiying Co. Ltd.

Entrusted Agent: Dazhu Ji, Attorney of Huizhong Law office of Beijing.

Entrusted Agent: Xudong Wang, Attorney of Zhishi Law office of Nanjing.

 

Jiangsu People's High Court rendered its civil lawsuit decision (1997) Su Zhi Chu Zi No.3 regarding the violation of trade secrets disputes on Xiangsheng Co., Shanjue Mo, Rongbai Wu, Aiyuan Gu v. Haiying Co. Ltd. Appellant Xiangsheng Co., Shanjue Mo, Rongbai Wu, Aiyuan Gu are not satisfied with the first instance court's decision and appealed to the Supreme Court of China. The Supreme Court formed an collegial panel and opened an court session not publicly. Appellant Xiangsheng Co. and its authorized agent Lixin Liang and Difeng Xu, appellant Aiyuan Gu, appellee Dazhu Ji and Xudong Wang, authorized by Haiying Co. Ltd participated the court session and made their arguments. This case is decided now.

 

The first instance Court identified facts by trial as follows: Haiying Co. Lth is an speciality factory, focusing on developing and manufacturing of water-acoustic electronic equipment. In 1984, Shanjue Mo, who worked for Haiying Co. Ltd at that time, was arranged by his company to make a technical topic task paper on B ultrasonic prober. Science and Technology Committee of Wuxi, entrusted by Science and Technology Committee of Jiangsu province, held a technical conference with Medical Parent Company of Jiangsu province in Haiyng Co. Ltd on April 25, 1987. The conference was about an "B Ultrasonic Xianzhen Prober" of the key technical development project participated by experts. The development project plan of the 3.5MHZ prober product was affirmed by the conference. On July 30, 1989, the project was appraised by the Science and Technology of Jiangsu province as follows: After two years of hard-working, the developers of the Haiying Co. Ltd completed the key technical development project (No. 87034), the seven key technology completed were listed below: the design and manufacturing of the acoustics material and acoustics device, the precision processing of highly thin long piezoelectricity ceramic chip, the veneering technology of super thin acoustical permeability glue layer, the slot cutting technology of narrow and deep object, the welding technology of the highly density electrode, the testing method studying of the prober acoustics parameter, and the establishment of the equipment and development of switch control interface circuits. By June 1989, 130 "probers" were trial produced. All the tested features of the prober met the industry standard specifications of Q/320000KFI-89 of the B Ultrasonic Xianzhen Prober. The technology of the prober, which is under strict security protection in the world, is the key technology of the B Ultrasonic. The 3.5 MHZ Xianzhen Prober was given the Second-class Award of Technology Achievement of 1989 by the government of Jiangsu province, and the 3.5 MHZ Xianzhen Prober technology along with the B Ultrasonic Host technology were given the Second-class Award of the National Technology Achievement. The recipient of all the awards is Haiying Co. Ltd. Haiying Co. Ltd produced B Ultrasonic Diagnostic Instrument of model 2031, 218, 220, 2032 and 2035 using the technology, and gained a good profit after selling the products.

 

In 1995, Haiying Co. Ltd. put forward the Simplified Xianzhen (i.e.218 B Ultrasonic Device) development project in its table of Trial-produce Products Schedule of April, and stated in the project task that the task was to complete the general design scheme first, and then complete the dividing plate design scheme. Also the Simplified Xianzhen development project was listed in the table of Trial-produce Products Schedule of May of the same year, in which stated in details that the task was to complete the drawings of the printed circuit and determine the structure design scheme. On October 10, 1995, Aiyuan Gu, who once worked for Haiying Co. Ltd as the deputy director of the No.2 Circuit Division of Medical and Electronic Branch of the Haiying Co. Ltd, wrote in the Report of the General Scheme of the Birth Control-used Simplified Xianzhen HY218 that we spent 3 months from May this year developing the Birth Control-used Simplified Xianzhen B Ultrasonic HY218 and completed the development project. Because of this, Aiyuan Gu was rewarded RMB 8,000 by Haiying Co. Ltd for his work. On October 10, 1995, Haiying Co. Ltd sold one of the B Ultrasonic HY218 device to Blood Epidemic Prevention Station of Liuhe town, Xiantao city, Hubei province.

 

Shanjue Mo began to work for Haiying Co. Ltd in April 1963, he participated in and also was responsible for the development of 3.5 MHZ Xianzhen Prober from 1984. He was dismissed by Haiying Co. Ltd on February 1, 1996, and at the time of his dismission, he was the director of the Prober Division. Rongbei Wu began to work for Haiying Co. Ltd in February 1959, and at the time of development of the 3.5 MHZ Xianzhen Prober, he was responsible for the process design of the project. He was dismissed by Haiying Co. Ltd. on January 16, 1996, at the time of dismission, he undertook the making of the Energy Exchanger. Aiyuan Gu began to work for Haiying Co. Ltd in August 1991, and was responsible for the development of the HY 218 B Ultrasonic Host from April 1995, He left Haiying Co. Ltd in January 1996, at the time of leaving, he was the deputy director of No.2 Circuit Division of Medical and Electronic Branch of the Haiying Co. Ltd. Xiangsheng Co. held the first shareholder meeting in Shuofang Town, Wuxi New District on January 6, 1996, Shanjue Mo, Rongbei Wu and Aiyuan Gu were elected as the director of the company, also other supervisors were elected at the meeting.

 

On January 30, 1996, Xiangsheng Co. formally registered with registered capital of RMB 500,000 in which Shanjue Mo accounted for 29.10%, Rongbei Wu accounted for 9.70% and Aiyuan Gu accounted for 6.06%. After establishment, Xiangsheng Co. began the developing and manufacturing of the Xiangsheng Model 500 B Ultrasonic device. The total sale takings of Xiangsheng Model 500 B Ultrasonic device from July 1996 to September 15, 1998 came to RMB 12,197,081. Haiying Co. Ltd. brought a sue against Xiangsheng Co. to Jiangsu People's High Court, claiming that 9 prober technologies of the underlay material, the veneering of the wafer-underlay "thin layer", the manufacturing of matching layer of double layers, the cutting of narrow and deep slot, the slot filling, the making of sound lens, the electrode laying and drawouting, the overall processing of energy exchanger and the prober control circuit, and the 3 Host technologies of the memory structure, the function of system control software, the function of two chips programmable gate array as the trade secret of Haiying Co. Ltd., and that the appellee Xiangsheng Co., Shanjue Mo, Rongbei Wu, Aiyuan Gu violated the trade secret mentioned above, and should be ordered by Court to stop the violation, pay economic lose of RMB 3,100,1000 to appellant, apologize, bear the liabiltiy of keeping the trade secret of the appellant and be charged with all the legal cost.

 

The first instance Court also identified facts by trial as follows: the Acoustic Institution of Nanjing University signed an agreement with Xiangsheng Co. on the development of the new generation of ultrasonic energy exchanger on February 15, 1996, Nanjing University signed an contract with Xiangsheng Co. on the Technology Transferring of the Medical Ultrasonic Energy Exchanger in March 1996. After the signing of the agreement in February 1996, professor Rongan Shui of the Acoustic Institution of Nanjing University submitted the technical report of "Medical Imaging Ultrasonic Energy Exchanger Array" to Xiangsheng Co., and two reports of "Acoustics Design of B Ultrasonic Prober" and "The Design and Requirement of B Ultrasonic Xianzhen Prober Processing Flow" were completed by Mingqi Wang and Rongan Shui in March 1996.

The Security Committee of Haying Co. Ltd determined that the manufacturing and processing technology of 3.5 MHZ Xianzhen Prober were of secret and should be kept in secrecy for 10 years in its <Notification of the Strict Enforcement of National Secret Items Based on Law>. The notification was reported to Shanghai Shipping Industry Corp. and was ratified by Acceptance Checking Team of Secrecy in 1993. The notification was then reported to Security Committee of China Shipping Industry Corp. and was ratified, and received Eligibility Certificate of Secrecy in May 1994. Haiying Co. Ltd drew up the <Notification of Strengthening Security Measure in the Process of Signing the Labor Contract> on October 20, 1995, and the overall device system software, digital circuit board, transmission circuit board and receiver circuit board were listed as the secret technology in the notification. The security measure of this technology must be carried out as the administration program and measure stipulated in the Haiying Si (95) No.59 <Exclusive Technology Documentation Administration System (Trial Version)>. In addition, Haiying Co. Ltd issued <Security System> on August 7, 1992. The <Temporary Stipulation of Keeping Trade Secret and Protecting the Profit of Our Company> was passed by the 11th Staff Representative Convention of Haiying Co. Ltd. on October 11, 1995.

During the first instance court trial, Jiansu Technical Appraisal Committee was entrusted to conduct the technical appraising of the Haiying Model HY218 Medical-used B Ultrasonic device and Xiangsheng Model 500 Medical-used B Ultrasonic device. The results of the appraisal were as follows:

1.    The technologies used in the 3.5 MHZ Xianzhen Prober, including the underlay material, the veneering of the wafer-underlay "thin layer", the manufacturing of matching layer of double layers, the cutting of narrow and deep slot, the slot filling, the making of sound lens, the processing of energy exchanger and the prober control circuit were nonpublic-known, the electrode laying and drawouting was public-known technology.

2.    The technologies used in Haiying HY218 B Ultrasonic Host, including electronic components and parts (gate array, memory) and programming language were public-known. However, the technologies required to construct the control system hardware and software using these programming language, gate array, memory and other electronic components and parts, so that the control system could complete the whole function of the B Ultrasonic device were non-public-known.

3.    The content of technical document transferred is only about the progress and design principle of medical ultrasonic energy exchanger array technology, the overview of study of composite material. None of the content is related to concrete processing technology, and could not produce Xiangsheng Model 500 B Ultrasonic Prober based on this document.

5.The Prober and Host of the Xiangsheng Model 500 B Ultrasonic device and HY218 B Ultrasonic device have no essentially differences.

 

According to the facts above, the first instance court held:

The technologies used in 3.5 MHZ Xianzhen Prober, including underlay material, the veneering of the wafer-underlay "thin layer", the manufacturing of matching layer of double layers, the cutting of narrow and deep slot, the slot filling, the making of sound lens, the overall processing of energy exchanger, and the technologies required to construct the control system hardware and software using programming language, gate array, memory and other electronic components and parts are exclusive technical information owned by Haiying Co. Ltd., and these technologies are under appropriate security protection by the appellant, so should be regarded as trade secret of the appellant, and should be protected by law.

 

Defendant Shanjue Mo, Rongbei Wu and Aiyuan Gu were the main technical personnel of the B Ultrasonic device development project when they worked for Haiying Co. Ltd, they hold the trade secrete mentioned above, which could be used to produce B Ultrasonic device, and have the obligation to keep the secrecy. After their departure from Haying Co. Ltd., they established Xiangsheng Co. and produced Xiangsheng Model 500 B Ultrasonic device using the same technology as the trade secret of the plaintiff without permission from the plaintiff, and also could not adduce evidence to prove that the technologies they used are from legal source. They put their products into market and gained profit. Their action violated the trade secrete of the plaintiff, was an unfair competition behavior and caused economic loss of RMB 3,100,000 to plaintiff. They should bear legal duty of stopping violation, compensating the economic loss and making apology according to law. So the assertion of the plaintiff could be supported, but the assertion of the defendant that the technology of plaintiff were public-known, and that their technologies were from transference and development did not conform to facts, and could not be supported.

 

According to the stipulation of Article 10 Section 1 Provision (2) and Article 20 of < Law of the People's Republic of China for Countering Unfair Competition>,the first instance Court ordered as follows:

1.    The defendant should stop using the trade secret of the plaintiff, including the technologies used in 3.5 MHZ Xianzhen Prober of underlay material, the veneering of the wafer-underlay "thin layer", the manufacturing of matching layer of double layers, the cutting of narrow and deep slot, the slot filling, the making of sound lens, the overall processing of energy exchanger, and the technologies required to construct the control system hardware and software using programming language, gate array, memory and other electronic components and parts, and should bear the liability to keep the trade secret mentioned above, until the technology expire the validity period.

2.    The defendant pay RMB 3,100,000 economic loss to the plaintiff, and the payment should be paid only within 10 days after this judgement comes into force. Xiangsheng Co., Shanjue Mo, and Aiyuan Gu bear the joint and several liability.

3     The defendant should publish a statement (the content must be approved by this court) that making apology to plaintiff in <China Population Newspaper> only within 10 days afer this judgement comes into force. The court fee of RMB 25,510, the property preservation fee of RMB 5,520 and technical appraisal fee of RMB 40,000 add up to RMB 71,030, should be paid by Xiangsheng Co.

Xiangsheng Co., Shanjue, Rongbei Wu and Aiyuan Gu did not satisfied with the judgement and appealed to this court, asserted that there were mistakes in the ascertainment of facts of the first judgement and the first court applied the law inappropriately. Requested as follows:

1.    Quash the first instance court judgment according to law, overrule the lawsuit request of Haiying Co. Ltd.

2.    Re-appraise the B Ultrasonic device of the two products, and judge that the trade secret of Haiying Co. Ltd does not exist, Xiangsheng Co. did not violate any trade secret.

3.    Order Haiying Co. Ltd. compensate the commercial reputation and economic loss of Xiangsheng Co.

4.    Order Haiying Co. Ltd. clarify the facts, eliminate the impact on Xiangsheng Co., make apology to Xiangsheng Co. publicly, pay all the lawsuit fees of the first trial and this trial.

The reasons are as follows:

1.    The first instance court should not make its judgement base on the important evidence provided by Jiangsu Technical Appraisal Committee in its Ji Jian Zi (98) No.2 "Appraised results", in which there are large number of errors. First, the technical documents provided by Haiying Co. Ltd. did not reflect the actual facts, and should not be used as the object of technical appraisal. Second, the appraisal avoided the essential problem, and decided that the prober and host of the two products had not essential differences base on the appearance, display format and size of the two devices. Third, the appraising procedure did not comply with law, the important evidences were not be cross-examined, the persons participated in the appraisal have close relation with Haiying Co. Ltd., and also lacked the speciality background required to perform the appraising task.

2． There are no factual evidence that the first instance court trial judged Xiangsheng Co. "Use the same technology as the trade secret of plaintiff in its Xiangsheng Model 500 B Ultrasonic device.

3.    Haiying Co. Ltd. took no security measure for its claiming secret because of its own faults, the so-called "national secret" determined by Haiying Co. Ltd. were already exposed to public in 1995, the exclusive technology items did no include B Ultrosonic Prober technology. After the first instance appraisal, Haying Co. Ltd. included the system software, digital circuit board, transmission circuit board and receiver circuit board, which not be claimed by Haiying Co. Ltd. previously, into the arrange of its claiming trade secret， and provided false evidence to court.

4.    When Haiying Co. Ltd. carried out the National Labor Contract System, Shanjue Mo, Rongbei Wu and Aiyuan Gu did not sign the inequity labor contract and insisted their legal right, so they were fired by Haiying Co. Ltd.. However, their job-hopping were not motivated by self-interest.

5.    The first instance judgement that ordered Xiangsheng pay RMB 3,100,000 to Haiying Co. Ltd. had insufficient facts and lacked law basis.

6.    The first instance judgement that judged Shanjue Mo, Rongbei Wu and Aiyuan Gu bear the joint and several liability had insufficient facts and lacked law basis.

 

Haiying Co. Ltd. argued that the ascertainment of facts of first instance court were clear, and applied law properly, the appeal reason of appellant had no factual evidence, and ask this court to reject the appeal of the appellant. The reasons are as follows:

1.    The first instance court entrusted Jiangsu Technical Committee to appraise in accordance with law, the whole appraising process and procedure complied with <Technical Appraising Rule of Jiangsu People's Court>, the resulting conclusion was rational with no partiality.

2.    Shanjue Mo, Rongbei Wu and Aiyuan Gu were responsible for the development of Haiying B Ultrasonic device when working for Haiying Co. Ltd., they held all the technology secret of Haiying Co. Ltd. After their departure, they produce the same B Ultrasonic product as the appellee's in Xiangsheng Co. within only 3 months. And the appellant could not adduce evidence to prove that the technologies they used are from any real legal source. So the facts mentioned above prove that Xiangsheng Co. "Use the same technology as the plaintiff's trade secret on its Xiangsheng Model 500 B Ultrasonic device" judged by the first instance court has factual evidence.

3.    The series documents passed in the Staff Representative Convention, the specially establishment of security committee and the concrete management work of the appellee prove that the appellee have already taken secure measure. And what the appellant have claimed that the "National Secret" was exposed to public in 1995, the assertion that appellee provided false evidence to court have no factual evidence.

4.    Xiangsheng Co. use the technology secret of the appellee illegally, and the direct economic loss caused is more than RMB 3,100,000. So the first trial judgement that ordered Xiangsheng pay RMB 3,100.000 to Haisheng Co. Ltd. have factual evidence and law basis.

5.    According to the stipulation of Article 20 of <Law of the People's Republic of China for Countering Unfair Competition>, Article 103 of <General Principles of the Civil Law of the People's Republic of China>, the first instance court judged that Xiangsheng Co., Shanjue Mo, and Aiyuan Gu bear the joint and several liability, the judgemeng also has factual evidence and law basis. During the late phase of the second trial, appellee filed an application for adding action, claimed that the second instance court should also judge that Model 500A in the 500 series of Xiangsheng B Ultrasonic device, all the Model 500A and Model 300 as infringing products, and requested adding the amount of compensation.

 

This court ascertained that: all the facts ascertained by the first instance court, except for technical appraisal and the sale income of the Xiangsheng Model 500 B Ultrasonic device produced by Xiangsheng Co., are basically in accordance with actual situation. However, there is one clerical error that the date should be May 20, 1992, at which Haiying Co. Ltd. drew up <Notification of the Strict Enforcement of National Secret Items Based on Law>, instead of March 6, 1992. Also ascertained that: the Article 1 of <Notification of Strengthening Security Measure in the Process of Signing the Labor Contract> of Haiying Co. Ltd. prescribe: "The 15 national secret items listed in the Bao Zi (92) No.146 document <Notification of the Strict Enforcement of National Secret Items Based on Law> should be explained clearly to the related staff, and should become the object under protection."

 

During the second instance trial, this court entrusted Technical Appraisal Experts Committee of China Science Legal Academy to appraise the related technical problem according the appellant's The Petition for Re-appraising Jiangsu Technical Appraisal Committee Ji Jian Zi (98) No.2 "Appraised results", the conclusion are as follows:

1.    The form and content of the technical documents provided by two sides are both have some defects, but the Appraising Experts Team consider that the content of technical documents provided by two sides approximately reflect the actual technical status by comprehensive analyzing and by associating with appraised sample device, so could be affirmed.

2.    The HY218 B Ultrasonic device is developed from public-known technology, but the 9 technologies below become the non-public-known technology compared to the public technology: the veneering of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers , the cutting order of narrow and deep slot, the slant cutting, the overall processing of energy exchanger, the prober control circuit, the circuit line implementation of memory, the system control software function and the content of gate array programming.

3.    Xiangsheng Model 500 B Ultrasonic device is inherited from HY128 B Ultrasonic device of Haiying Co. Ltd., and is improved on this basis. Xiangsheng Co. could not produce Model 500 B Ultrasonic device within 3 months based on the 3 technology sources it provided. The appearance and structure of Xiangsheng Model 500 B Ultrasonic device and Haiying HY 218 B Ultrasonic device are similiar. Xiangsheng Model 500 B Ultrasonic device uses 5 technologies (i.e. underlay material formula, the veneering of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers, the slant cutting and the system control software function) that are non-public-known technology owned by Haiying Co. Ltd. However, M type and other features are added to Model 500 B Ultrasonic device compared to HY218 B Ultrasonic device, also there are some improvements on circuit. Furthermore, the formula and manufacturing technology of the different components of the prober differ from HY218 B Ultrasonic device. This indicates that Xiangsheng Model 500 B Ultrasonic device basically adopts the technology used in Haiying HY218 B Ultrasonic device, but it does not simply duplicate the technology, it has made several improvements.

4.    Although the overall processing of energy exchanger and the control circuit of the prober are non-public-known technology, the Experts Appraising Team decided not to make any conclusion on these due to both Haiying Co. Ltd. and Xiangsheng Co. fail to provide corresponding technical documents and also could not directly obtain from the appraising sample devices.

5.    The structure of memory is public-known technology, but the concrete implementation method of circuit line is non-public-known technology. Haiying Co. Ltd. has provided two sets of drawing, one of which was planned and fulfilled after the establishment of Xiangsheng Co. on January 30, 1996. Another one completed in 1995 is for experimenting and testing, the memory 6264 in this drawing is not used in the sample device, also there are some differences between this drawing and the sample device. Xiangsheng Co. does not provide corresponding drawing. So, the Experts Appraising Team could not compare the difference between the two sample devices on this part.

6.    The gate array series are public-known components and parts that can be bought from market, but the programming contents of different products are non-public-known technology for their manufacturers. The two sides fail to provide concrete programming contents, which could not be verified from the realities. So, the Experts Appraising Team could not compare the difference between the two sample devices on this part.

 

The appellant has following objections after cross-examining the appraised results mentioned above:

1.    Fail to verify the authenticity of the technical documents provided by Haiying Co. Ltd.

2.    For the formula, thickness and processing technology of matching layer of double layers, the veneering of the wafer-underlay "thin layer" and the slant cutting, the appellant has already provided Japan patent J60-31397, Japan patent J58-118739 and J-61-113400 which are supplemented later, to prove that these three technologies are public-known, so the appraised results that affirmed these three technologies as non-public-known is wrong.

3.    For the underlay material technology, "does not have essential difference" concluded by the appraised results on the underlay material of two sides does not have objective standards, so this court could not draw conclusion based on this appraised results.

4.    For system control software function, the appraiser compared the parts of software data of two sides provided by Haiying Co. Ltd., this result cannot be used as evidence of this court. The appellee made no argument on the appraising result mentioned above, its main written objections are: 1. The manufacturing technology of the sound lens is considered as public-known technology in the appraised results, but did not present the public technical documents that were based on. However, this same content was determined by the first instance court as non-public technology. So, this technology could not legally be judged as public-known. 2. For the filling technology in the slot, appraised results draw an conclusion of "The filling method using vacuum perfusion is public-known technology." But in fact, the technology scheme adopted by Haiying Co. Ltd. is the filling method of "non-vacuum perfusion". Actually, Xiangsheng Co. also uses this method. The appraiser consider that the appraising expert could not analyze various parameters and material on the hardware because of the limited condition, the appraised results are comprehensive decision made by the Appraising Experts Team based on the documents and oral statement supplied by the parties of the two sides, on the experts experience and brainstorming, through comparing the sample devices, so the conclusion is a matter of fact.

 

During the appealing trial, this court entrusted Huajian Accountant Office to audit the profit from selling the Xiangsheng Model 500 B Ultrasonic device from July 1996 to December 1999, its overhead expenses and financial affair expenses, the results are as follows: During the period mentioned above, sales profit of Xiangsheng Model 500 B Ultrasonic product is RMB 2,605,798.63, the related overhead expenses is RMB 1,723,323.99, the related financial affair expenses is RMB 365,508.78, the net income (subtract the related overhead expenses and financial expenses from the sales profit) is RMB 516,965.86.

 

The appellant has followings objections after cross-examining the audited result mentioned above: 1. The RMB 417,042.92 pre-drawing of 1999 should be reckoned in the pre-drawing service expense column in appendage 4 of the auditing report. This expense actually was drew out in advance in December 1999, and was defrayed to salesmen after Spring Festival. 2. The 1999 fiscal year sales taxes and add-ons column in appendage 2 of the auditing report should reckon in educational add-on fee of RMB 50,808.13 for this year, this expense actually is "town planning fee".

In contradicting, auditors believe: 1. The pre-drawing service expense is similar to the nature of bonus, it usually could not be drew out in advance, and could only be drew out based on actual fact. The Accounting System also prescribes that the pre-drawing expense usually should not be preserved for the next year. So, the pre-drawing service expense should not be reckoned in the expense of 1999 fiscal year. 2. The educational add-on fee described by Xiangsheng Co. and the educational add-on fee that should include the sales taxes and add-ons according to Accounting System are two different concepts. The educational add-on fee of Xiangsheng Co. should be paid according to the stipulation of local government, the amount is 0.5% of sales income. So, this expense itself should be included in "town planning fee". And the educational add-on fee in the sales taxes and add-ons should be paid according to stipulation of our country, the amount is 3% of value-added-tax, consumption tax and sales tax. So, theses two fees are totally different.

 

The objections of appellee are as follows: 1. It's possible that Xiangsheng Co. included the sales income from 1999 into the account of 2000, and it's also possible that Xiangsheng Co. did not enter the drawing-in cash from the sold products into account, so failing to check the inventory would affect the profit of the audited results. 2. This auditing should include the rationality of the expenses, the irrational expenses such as the remuneration of the appellants, attorney fees and legal fare should not be listed in the cost. 3. Some detail sub-items in the overhead and sales expense do not conform to the stipulation of financial system, so should not be listed in the cost. In contradicting, the auditors believe: 1. If the account numbers does not equal to the actual one when checking the inventory, this can only affect the profit by the date of checking the inventory, cannot thereby determine the impact on the profit of 1999 fiscal year. The auditing can only be done according to the financial statistics supplied by Xiangsheng Co., if there is no other evidence, the problem that drawing-in cash does not be entered into account could not be found. 2. There is "other expense" item in the overhead and sales expenses of <Industry Enterprise Financial System>, the purpose of this is for other expenses that do not listed under the detail expenses, therefore whether the detail expenses should be listed in the cost cannot rely on the detail expense itself.

 

This court holds: Our country protects trade secret owned by market participants, prevents other participants from using illegal unfair competition method to violate the legitimate rights and interests of the right owner of the trade secret. The disputes of the two parties focus on: Whether the technologies claimed by the appellee are in line with law composing essentials of trade secret; Whether the appellant has used the trade secret of the appellee, Whether the behavior of appellant involved in this case is illegal and whether it's appropriate that the first instance court investigated into the legal duty of the appellant. In order to clarify these facts that caused disputes from the two parties, this court entrusted technical specialists and auditors in the related field to appraise and audit the related professional and financial problems. This court also notified the appraiser and auditor to appear in court to accept enquiry, and thoroughly cross-examined the appraising and audited results, also consulted related experts about the Japan patent documents supplemented by the appellant after the technical appraisal. The collegial panel draws following conclusions by fully cogitating the claim and pleadings of the two parties and by serious analyzing and diagnosing:

1.    Among the 12 technologies claimed by the appellee, 9 of them, which are the veneering of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers , the cutting order of narrow and deep slot, the slant cutting, the overall processing of energy exchanger, the prober control circuit, the circuit line implementation of memory, the system control software function and the content of gate array programming, meet the requirement of trade secret stipulated in Article 10 Section 3 of <Law of the People's Republic of China for Countering Unfair Competition>. So, the 9 technologies have already become trade secret and should be protected by law.

 

First, the appraising result that the 9 technologies mentioned above are appraised as non-public-known by the second technical appraisal should be adopted. This appraising result, which came out through comprehensive analyzing and diagnosing, indicates that the contents of the technical documents of Haiying Co. Ltd. basically reflect the actual technical status. Because there is insufficient evidence to support the first objection made by appellant for the second appraising result, this rejection is not tenable.

 

The appraised results concluded that the formula, thickness and processing technology of matching layer of double layers is the non-public-known technology of Haiying Co. Ltd. In comparison, although Japan patent J60-31397 provide some optional type of material and the roughly range of the sound impedance rate of various lays, it do not provide the concrete raw material, formula, sound impedance rate, thickness and detail processing procedure, it does not include all the matching layer of double layers technology of Haiying Co. Ltd.; The appraised results concluded that the technology Haiying Co. Ltd. usesto dispense the veneering material with the same sound impedance rate as the underlay material using special formula, to eliminate the echo wave from the underlay, is non-public-known. In comparison, Japan patent J58-118739 uses the same material as the underlay material as binding agent to make the sound impedance rate of these two materials identical, in order to eliminate the echo wave from the underlay, this technology is different from what the Haiying Co. Ltd. uses; The appraised results concluded that the cutting order of narrow and deep slot and the slant cutting technologies are non-public-known. In comparison, the cutting depth "changing in linearity" called by Japan patent referred to as slant cutting, but the patent does not provide the concrete cutting order, location, width and angle, also does not include the total slant cutting technology of Haiying Co. Ltd. So, the second objection of the appellant is not sufficient enough to overturn the appraised results.

 

Besides the appraised results of first instance, the appellee has no other evidence to prove that the sound lens manufacturing technology is non-public-known, therefore the first objection made by the appellee is not tenable. Next, Haiying Co. Ltd. had already taken security measure to protect its claimed trade secret. The security measure can be seen in the stipulation of Article 1 of <Notification of Strengthening Security Measure in the Process of Signing the Labor Contract> on October 20, 1995. Haiying Co. Ltd. had already included the key manufacturing technology and processing technology into the range of protection items, therefore, whether or not the B Ultrasonic Prober technology as the national secret was exposed to public, the fact is that the B Ultrasonic Prober technology is certainly be listed as secret technology by Haiying Co. Ltd. The appellant asserts that the appellee provides false evidence, and takes no security measure to protect its claimed trade secret, therefore the trade secret of the Haiying Co. Ltd. does not exist at all. So, the assertion of the appellant cannot be supported, the judgement of the first instance is correst.

2.    According to the second instance trial's technical appraised results and the facts investigated and verified by this court, the 4 technologies used by Xiangsheng Co., which are the formula underlay material, the veneering technology of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers and the slant cutting technology, are the same as the non-public-known technologies owned by Haiying Co. Ltd.

First, the appraisers made their decision through analyzing the documents and statements provided by the two parties, comparing the sample devices and the experience and expertise of the experts. The method the appraisers use is conform to the actual situation of this case. The appellant has no evidence to prove that their formula of underlay material is different from that of the appellee. Therefore the third objection of the appellant cannot be supported, the technical appraisal should be adopted; This court investigates by cross-examining that the appraiser fails to disassemble the system control software code of the Xiangsheng Model 500 B Ultrasonic device when compared the control system software of the sides, instead, the appraiser used the documents provided by Haiying Co. Ltd., therefore the compared result could not be adopted. The fourth objection of the appellant is supported by this court. Next, what Haiying Co. Ltd. uses is the vacuum perfusion, which is written in the main technical documents <The Report of Xianzhen Prober Technology> submitted by appellee for appraising. The appellee also has no evidence to prove what the Xiangsheng Co. uses is not vacuum perfusion. Therefore, the second objection against the appraised results of the second instance trial put forward by appellee has no factual evidence, and cannot be supported.

3.    Appellant Shanjue Mo, Rongbei, Wu and Aiyuan Gu once were the workers of the appellee, they were in charge of the B Ultrasonic Prober and Host technology, and held the trade secret of the appellee mentioned above, they have the liability to keep those trade secret. But they permitted Xiangsheng Co. to use the four of the trade secrets, which are underlay material formula used in 3.5 MHZ Xianzhen Prober of the Haiying Co. Ltd., the veneering technology of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers and slant cutting technology. The behavior of the 3 appellant already infringe the trade secret of the appellee according to the stipulation of Article 10 Section 1 provision (3) of <Law of the People's Republic of China for Countering Unfair Competition>. They should bear the civil liability for infringement.

 

The appellant Xiangsheng Co. should be aware of the illegal act of the three appellants, but still used the trade secret, Xiangsheng Co. should bear the joint and several liability for its behavior of infringement with the three appellants according to the stipulation of Article 10 Section 2 of <Law of the People's Republic of China for Countering Unfair Competition> and Article 130 of <General Principles of the Civil Law of the People's Republic of China>. The claim of the appellant that quash the first instance court judgment, overrule the lawsuit request of Haiying Co. Ltd. and their behavior did not infringe the trade secret do not be supported by this court. However, the first instance court referring to the stipulation of Article 10 Section 1 Provision (2) of <Law of the People's Republic of China for Countering Unfair Competition> is inappropriate, and should be corrected.

4.    During cross-examination of audited results, the auditor explained the objections made by the two parties respectively through using the accountant system of our country, the explanation should be adopted by this court. The objections of both appellant and appellee have not sufficient factual evidence, therefore the audited results should be adopted. Because the loss of the appellee caused by the infringement of appellant is difficult to calculate, the appellee also did not claim right of the rational expense of investigation, according to the stipulation of Article 20 of <Law of the People's Republic of China for Countering Unfair Competition>, this court should regard the profit that appellant got within the period of infringement as the amount of compensation. The infringing profit is referred to as actual profit that infringer obtained during the period of infringement, and should be calculated base on the net income.

 

According to the technical appraised results, while Xiangsheng Co. basically followed the technology of the appellee, it also made several improvements. Thereby, a reasonable number should be deducted from the amount of compensation paid by the appellant. However, the audited results does not include the net income that Xiangsheng Co. got by selling the infringing products from the end of auditing day till now. Thereby, a reasonable number should be added to the compensation calculated by the audited results. So, this court counteract these two parts. The RMB 3,100,000 compensation that must be paid by the appellant as a result of the judgement of the first instance is greatly larger than that of the audited results, the facts it bases on is also insufficient, thereby, the amount of compensation should be corrected. The appeal reason of the appellant about the compensation is tenable, and is supported by this court.

 

For the requests appealed by appellant to order Haiying Co. Ltd. compensate the commercial reputation and economic loss of Xiangsheng Co, clarify the facts and make apology, do not fall in the try of this court because the appellant did not counterclaim in the first instance at this point, therefore these requests should not be supported by this court. For the application of appellee for adding action during the second instance trial, because the first instance of this case aimed at the Xiangsheng Model 500 B Ultrasonic device, the first try and judgement are based on this device, and appellee did not file this application for adding action during the first instance, but requested the second instance court to judge the new infringing fact in the second instance trial, therefore, according to the stipulation of Article 151 of <Civil Procedure Law of the People’s Republic of China>, the application of the appellee for adding action does not fall in the scope of second instance trial of this case, it cannot be supported by this court. For this part, the appellee can bring another lawsuit.

 

In summary, according to the stipulation of Article 130 of <General Principles of the Civil Law of the People's Republic of China>, Article 10 Section 3 provision (2), (3) and Article 20 of <Law of the People's Republic of China for Countering Unfair Competition> and Article 153 Section 1 Provision (2), (3) of <Civil Procedure Law of the People’s Republic of China>, it ordered as follows:

1.    No.1 provision of (1997) Su Zhi Chu Zi No.3 civil judgement of Jiangsu People's High Court is corrected as: Appellant Xiangsheng Co., Shanjue Mo, Rongbei Wu and Aiyuan Gu stop using the 4 trade secrets immediately, which are underlay material formula used in 3.5 MHZ Xianzhen Prober of the Haiying Co. Ltd., the veneering technology of the wafer-underlay "thin layer", the formula, thickness and processing technology of matching layer of double layers and slant cutting technology, and bear the liability of keeping trade secret mentioned above.

 

2.    No.2 provision of (1997) Su Zhi Chu Zi No.3 civil judgemeng of Jiangsu People's High Court is corrected as: Appellant Xiangsheng Co., Shanjue Mo, Rongbei Wu and Aiyuan Gu pay RMB 526,965.86 and its interest calculated from January 1, 2000 according the same period, same category loan interest rate of the People's Bank of China to appellee Haiying Co. Ltd, the money must be paid within 15 days from the date of service. Xiangsheng Co., Shanjue Mo, and Aiyuan Gu bear the joint and several compensation liability.

 

3.    Affirm No.3 provision of (1997) Su Zhi Chu Zi No.3 civil judgement of Jiangsu People's High Court.

 

The total trail fee is RMB 51,020 in which the first instance court fee is RMB 25,510 and the second instance courts is RMB 25,510. Xiangsheng Co., Shanjue Mo, Rongbei Wu and Aiyuan Gu should be account for RMB 38,265, and Haiying Co. Ltd. should be account for RMB 12,755. The total number of RMB 196,538, in which the property preservation fee is RMB 5,520, technical appraising fee is RMB 40,000, the second instance trial appraising is RMB 73,318, auditing fee is 70,200, consulting fee and other legal cost is 7,500, should be paid by Xiangsheng Co., Shanjue Mo, Rongbei Wu and Aiyuan Gu.

 

This judgemeng is fainal.

 

 Presiding Judge: Zhipei Jiang

 

Alternate Judge: Hui Zhang

Alternate Judge: Rongchang Wang

 February 23, 2001

 Clerk: Zhonglin He (pluralism)