(2017 Top Ten Typical Cases) Shanghai Mouqian Advertising Co., Ltd. vs. Jing’an Market Supervision and Administration over Refusing to Accept Administrative Penalty

Shanghai Mouqian Advertising Co., Ltd. vs. Jing’an Market Supervision and Administration over Refusing to Accept Administrative Penalty

- The approach of trade secret protection for computer software

 

[Case Brief]

Plaintiff (Appellee): Shanghai Mouqian Advertising Co., Ltd. (“Mouqian”)

Defendant (Appellant): Jing’an Market Supervision and Administration

Third parties (Appellant): Shanghai Shopex Network Technology Co., Ltd. (“Shopex”) and Kumei (Shanghai) Information Technology Co., Ltd. (“Kumei”)

In February 2012, the Defendant received a tip-off from twoThird Parties. They claimed that the Plaintiff maliciously poached their employees by offering high salaries to obtain their source codes and other trade secrets and made false publicity on the website. Therefore, they requested the court to investigate the Plaintiff. Upon the reception of this tip-off, the Defendant submitted the same to the Municipal Administration for Industry and Commerce which had the jurisdiction over this case. On March 20, Shanghai Administration for Industry and Commerce devolved the case to the Defendant for investigation of allegedly infringing acts. Afterwards, the Defendant visited the Plaintiff’s domicile to preserve and make a full image backup of data in all the computers including laptops at the site, print screenshots of relevant pages on the Plaintiff’s website, and perform other investigation activities. The case was then put on record.

On July 13, 2012, the Judicial Expertise Institution issued judicial authentication opinions for the matter entrusted, concluding that the “identifiable part” in the documents obtained from the computers and the staff’s laptops at the Plaintiff’s site were identical to four software codes including shopex485 provided by the Third Parties, which could  be regarded from the same source, and there were indeed some software development documents. A software industry association submitted a written response and statement as requested by the Defendant. According to the response and statement, the software source codes, development documents and so forth are main assets of a companyand can generate economic prfits; they are not published and inaccessible from public or other channels and are not be in the public domain. They meet the constitutive requirements of trade secrets, so they shall be deemed as trade secrets.

On June 25, 2015 after two hearings and postponements, the Defendant, holding that the Plaintiff made false publicity and infringed trade secrets, imposed administrative penalty on it and ordered the Plaintiff to stop infringement acts and pay a penalty of RMB 10,000 and RMB 20,000 respectively, totaling RMB 30,000. The Defendant held that the Plaintiff infringed the know-how of Third Parties, namely four source codes of network distribution software and some development documents, and the infringement specifically referred to the Plaintiff’s knowingly obtaining and use of know-how. The Plaintiff argued that the Defendant had no jurisdiction over the case, the administrative penalty imposed on the Plaintiff violated legal procedures, and the determination about Plaintiff’s infringement of trade secrets was not based on clear facts. Therefore, the Plaintiff filed this action.

 

[Adjudication]

After the trial, Shanghai Intellectual Property Court concluded that according to the reply of Shanghai Administration for Industry and Commerce, the Defendant had jurisdiction over the acts involved in the case under investigation, the administrative acts of the Defendant complied with legal procedures and the penalty for the Plaintiff’s false publicity was appropriate; however, there were no clear facts and sufficient evidence to substantiate the determination about Plaintiff’s infringement of trade secrets. Therefore, the court made a judgement to affirm the decision of administrative penalty made by the Defendant for the Plaintiff’s false publicity, but to withdraw the decision of administrative penalty for the Plaintiff’s infringement of trade secrets.

The Defendant and the Third Parties refused to accept the judgment made by the court and filed an appeal.

After full trial, Shanghai High People’s Court concluded that the judgement of the original court was justified and shall be affirmed; therefore, the court made the judgement to reject the appeal and affirm the original judgment.

 

[Comment]

In any case involving infringement of trade secrets, the scope of trade secret information and whether the involved information constitutes trade secrets need to be determined before the judgement on whether the acts infringe and to what extent infringes trade secrets.

Whether the information constitutes trade secrets shall be determined according to the constitutive requirements of laws and regulations, rather than being based on the agreement of the parties. In accordance with Clause 3 under Article 10 of the Anti-unfair Competition Law, trade secrets shall notbe in the public domain and have value and practicability with confidential measures taken. “Not in the public domain” refers to the state that the information is “not known or accessible to relevant persons in the field.” This means, on one hand, the scope of “known” is relative, i.e., even with confidential measures taken, the information is not absolutely “not known” to any person; on the other hand, the information constituting trade secrets shall not only be in general state of confidentiality, but also shall be difficult to acquire, i.e., the information that can be easily obtained through general association instead of certain creative efforts cannot be considered as trade secrets. When the parties make an agreement on keeping some information confidential, this is only a type of confidential measure, and the content kept confidential shall not naturally constitute a trade secret. Therefore, the alleged trade secrets in this case did not comply with the key requirement of “not in the public domain.”

Computer software may be subject to copyright protection and trade secret protection, but different objects are targeted under different legal systems. The copyright protection under the Regulations on Computer Software Protection covers the expression of software works instead of the idea of software; therefore, it is stated in Article 6 of the Regulations on Computer Software Protection that: “The protection of software copyright under the Regulations shall not be extended to cover the idea, processing, operation or mathematic concept, etc. used in the development of software.” The trade secret protection is provided according to the provisions concerning trade secrets in the Anti-unfair Competition Law, and cover the information that may exist in software programs and documents and constitutes trade secrets. In addition, it is the intangible information instead of the tangible carrier that is protected by laws; therefore, it is necessary to distinguish which information (or trade secret points) in the software programs and documents should be protected as trade secrets before analyzing and determining whether such trade secret points are “not in the public domain,” whether they have value and practicability, and whether the obligee has taken confidential measures. On this basis, the trade secret points shall be compared with those obtained, disclosed and used by the infringer to know if they are the same or similar to each other. Only in this way will the comparison have legal significance in determining the infringement of trade sects. 

In this case, the Third Parties did not point out which know-how information in their software is the secret points protected by them, and the Defendant did not distinguish and examine the information; they all made the mistake of treating the objects of copyright protection in software programs and documents as those of trade secret protection. The Defendant argued that the source codes and documents were “not known in the public domain” for the sole reason that they were kept confidential and were not disclosed, which violated the basic legal principle of determining the trade secrets according to constitutive requirements. In practice, it is probable that software source codes and documents contain know-how information, so they are usually carriers of trade secrets. However, carriers of trade secrets are not equivalent to trade secrets, in particular given that many network distribution software and third parties also provide open source software. Moreover, the category and amount of know-how information are also the premise and basis to determine the extent of infringement and the scope of infringement cessation.

Without identifying the protection scope of know-how information in the software and judging whether such information complied with constitutive requirements of trade secrets, the Defendant entrusted an expertise organization for the judicial expertise such as comparison of source codes, so such expertise conclusion had not practical significance for the judgement of trade secret infringement. As for the response and supplementary statement of a software industry association regarding the questions raised by the Defendant, which deemed the source codes and documents as trade secrets from the prospective of the general  importance and value to a software company, they were not specifically targeted and had no factual basis. The underlying assumption was that “not published” was equivalent to “not known in the public domain,” so the response and statement shall not be taken as the basis for determining whether the involved software programs and documents constituted trade secrets.

In conclusion, the Defendant did not determine the constitution of trade secrets by the law but directly equated the conclusion of confidential agreement with “not known in the public domain” and equated the possible carriers of trade secrets - source codes and documents with trade secrets; therefore, the determination about Plaintiff’s infringement of trade secrets was not based on clear facts and lacked sufficient evidence.

 

Index

First instance: Shanghai Intellectual Property Court (2016) H73MC No. 1

Members of collegiate panel: Li Shulan, Chen Huizhen, Dingxiaohua

Second instance: Shanghai High People's Court (2016) HHZ No. 738

Members of collegiate panel: Mao Ronghua, Wang Jing, Li Guoquan

Prepared by: Chen Huizhen

 

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