China rules on its first trade secret case in the AI sector

In a recent legal decision, China has concluded its first case involving the theft of trade secrets in the artificial intelligence (AI) industry, according to news released earlier this month.

A Shanghai court sentenced Guo, a co-founder and shareholder of a local high-tech company specializing in AI chip development, to two years in prison with a suspended sentence of the same duration. Additionally, Guo was fined RMB 100,000.

The case originated in November 2022 when the tech company, referred to as "Company A," discovered an unauthorized computer in its server room. An internal investigation revealed that, starting in mid-2022, vast amounts of sensitive data, including the core code for the company's AI chips, had been clandestinely copied and transferred to this computer before being uploaded to cloud storage. Guo, one of the company's co-founders, was identified as the perpetrator.

Initially, Guo defended his actions by claiming he was merely backing up the company's data and that he had the authority to do so. However, Company A considered this a serious breach of its stringent security protocols, which are designed to prevent unauthorized access to confidential information.

Company A promptly reported the incident to the procuratorate organ in Shanghai Pudong New Area, leading to an in-depth investigation. The investigation concluded that Guo had indeed violated the company's confidentiality protocols by secretly transferring core technological data to his personal cloud storage. His justification of data backup was found to be unfounded, as the company already had automated backup systems in place.

Further evidence revealed that during the same period Guo was transferring the data, he had also been involved in promotional activities and fundraising efforts for another tech firm, referred to as "Company B".

Confronted with the mounting evidence, Guo eventually confessed, admitting that his actions were intended to strengthen his bargaining position with Company A by leveraging the stolen information.

The Procuratorate concluded that Guo’s actions represented a severe breach of trust and amounted to the theft of trade secrets. The stolen data was valued at over RMB 2.3 million based on reasonable licensing fees, leading to Guo being formally charged with trade secret infringement.

Recently, the court handed down a two-year prison sentence, suspended for two years, and imposed a fine of RMB 100,000 on Guo.