Jin Bingyi (Chinese Lawyer, Partner at Shanghai Runyi Law Firm)
Xu Tian (Chinese Lawyer, Consultant at Egger Feng Law Firm)

I. Introduction

With the rapid development of China's mainland economy and the continuous increase in foreign investment, how to protect a company's trade secrets and how to hold infringers legally accountable when the company's trade secrets are infringed upon has gradually become a thorny issue for many foreign enterprises that have achieved success in China. For foreign enterprises planning to enter the Chinese market, fully understanding this issue and establishing an effective set of protection and response measures will achieve twice the result with half the effort for the enterprise. This article explores the protection of customer information, which constitutes an extremely important part of trade secrets, through a highly representative case. The judgment was ultimately included in the Supreme People's Court of the People's Republic of China Gazette Case Collection.

II. Case Summary

Yanshengji Company is a professional enterprise financial and management consulting services company.

Zhao was originally a founding shareholder and director of Yanshengji Company, with authorized access to the internal DN88 management system (which records a large amount of customer information and other business information).

Subsequently, Zhao suddenly left Yanshengji Company on the grounds of needing to emigrate abroad. However, in reality, after leaving the company, Zhao did not emigrate but instead established Jieshengbei Company, which engages in exactly the same business as Yanshengji Company, competing with Yanshengji Company in the same industry.

In the competition, Jieshengbei Company promoted Yanshengji Company's clients as its own clients, exaggerating its reputation and service standards. At the same time, Jieshengbei Company utilized the customer information that Zhao had obtained at Yanshengji Company to seize Yanshengji Company's customer resources at slightly lower service prices.

In this situation, Yanshengji Company had no choice but to engage lawyers to file a trade secret infringement lawsuit against Zhao and Jieshengbei Company at Shanghai First Intermediate People's Court.

After trial, the court finally determined that the actions of Zhao and Jieshengbei Company constituted trade secret infringement against Yanshengji Company, and ordered both defendants to cease infringement and compensate for losses.

III. Determination of Customer List as Trade Secret

The biggest focus issue in this case is whether Yanshengji Company's customer list constitutes its trade secret.

According to the Anti-Unfair Competition Law of the People's Republic of China, trade secrets have the following three attributes:
1. Not being generally known to the public;
2. Capable of bringing economic benefits to the rights holder and having practical utility;
3. The rights holder has taken relevant confidentiality measures.

In this case, Yanshengji Company's customer information is the company's core confidential information, capable of bringing competitive advantages to Yanshengji Company, and undoubtedly has practical utility and can bring economic benefits to it. Yanshengji Company provided invoices, payment vouchers, and customer information to prove that the 7 clients currently listed on Jieshengbei Company's website were originally Yanshengji Company's clients.

The confidentiality measures taken by Yanshengji Company for its customer information are demonstrated as follows: the DN88 management system with access control, the company's confidentiality rules and regulations, and the labor contract between Yanshengji Company and Zhao containing confidentiality clauses. Through the above evidence, the court determined that Yanshengji Company had taken appropriate confidentiality measures for its customer information.

However, the defendants argued in court that Yanshengji Company's customer information had been published on its company website and had already become public information, thus not constituting Yanshengji Company's trade secret. After examination, the court believed that the defendants' defense was not valid: "Although the customer names have been published on Yanshengji Company's website, the evidence shows that the customer names on its website are only abbreviated customer names, and detailed customer information such as contact methods, transaction conditions, transaction practices, and transaction intentions have not been disclosed. Therefore, it cannot be proven that this customer information has been made public, and the commercial information of the 7 customers involved belongs to Yanshengji Company's trade secret."

This case is the first time Shanghai courts have explicitly recognized in judicial precedent that customer information can be identified as a trade secret and thus protected by law. However, a customer list that can be identified as a trade secret cannot be a simple enumeration of customer names that can be easily obtained by the general public, but rather special customer information that is distinguished from publicly known information. Precisely because it meets the above specific requirements, Yanshengji Company's customer information was identified by the court as a trade secret.

IV. Determination of Trade Secret Infringement and Burden of Proof

In judicial practice, Chinese courts have consistently adopted the "access + similarity" rule to allocate the burden of proof for trade secret infringement, meaning that when there is evidence proving that the alleged infringer had the opportunity to obtain the rights holder's trade secrets and disclosed or used "substantially similar" trade secrets, infringement can be determined, except when the alleged infringer can prove a legitimate source.

The burden of proof in trade secret infringement cases is divided into phases and appropriately shifted. In the trial of this case, the court did not require Yanshengji Company to provide direct evidence proving that the defendant Zhao had obtained, disclosed, used, or allowed others to use the trade secrets in his possession through improper means.

In this case, Yanshengji Company provided printed copies of the DN88 system login interface and the instructions for Zhao's interface operations after login. This evidence proves that Yanshengji Company's DN88 system stored a large amount of customer information, and the system could only be accessed with a password, with different data accessible through different permission levels. Zhao's permission level was set as partner, thus enabling him to access all of Yanshengji Company's customer information.

The system shows that since 2005, Yanshengji Company had provided financial consulting services to companies such as Alcatel, Estée Lauder, GE East, Lisaijia, Praxair, and China Unicom, and received corresponding service fees. During this period, Yanshengji Company also provided services to 14 other companies including Lucait Company, and Zhao, in his capacity as partner, approved these in the company's internal "Employment and Work Information Form." This company's internal information system proves that Zhao had the conditions and behavior to "access" Yanshengji Company's trade secrets.

Meanwhile, the defendant Jieshengbei Company claimed on its website that companies such as China Unicom, Lucait, Estée Lauder, and General Electric were all its clients. The appendix of the "Professional Service Proposal" used by the defendant also listed Alcatel, Estée Lauder, General Electric, Praxair, China Unicom, and others as its clients. Based on this, the court determined that Jieshengbei Company had business relationships with the original clients of Yanshengji Company.

Through the above evidence, it is proven that the defendant Zhao, on the basis of having full capability to access Yanshengji Company's customer information, established Jieshengbei Company, whose clients overlapped with those of Yanshengji Company, and the customers of both parties constituted "substantial similarity." Therefore, the court determined in its judgment that both defendants infringed upon Yanshengji Company's legitimate rights to its customer information as a trade secret. The defendant Zhao, without the permission of Yanshengji Company, disclosed Yanshengji Company's customer information, and the defendant Jieshengbei Company used this information. Their combined actions jointly caused damage to Yanshengji Company and should jointly bear civil liability for ceasing infringement and compensating for losses.

V. Conclusion

When establishing an effective mechanism for protecting trade secrets, companies should consider the attributes of trade secrets and the rules that courts typically apply when trying trade secret infringement cases, including the requirements for the burden of proof.

Like other types of civil litigation, any party can only win a lawsuit if they have strong evidence and claims or defenses. However, compared with other types of civil litigation, collecting evidence and organizing a coherent and persuasive evidence chain in trade secret infringement cases is relatively more difficult.

Furthermore, due to the highly varying profit models and degrees in many business sectors and the differing discretion exercised by courts in different regions when trying cases, it is generally difficult to predict the amount of compensation the court will award in such cases when the facts are clear. In practice, the amount of compensation awarded by courts is likely to be influenced by the persuasiveness of the claims/defenses of both parties and the quality of evidence.