The Supreme Court of the P.R. China recently announced the decision of an appeal case1 involving a dispute over patents and technology secrets related to new energy vehicle chassis technology between two well-known domestic car companies, Ji Group and Wei Group.
The case was triggered by the job-hopping of nearly 40 employees from Ji Group to Wei Group in a short period. These employees, including senior management and technical personnel, had access to technical secrets in new energy vehicle chassis technology at Ji Group. After their move, they exploited these secrets while working for Wei group. In addition, Wei Group applied for and was granted 12 utility model patents using these technical secrets.
Ji Group filed a lawsuit against Wei Group, alleging infringement of its technical secrets, among other charges. The first-instance court ruled in favor of Ji Group and found Wei Group liable, ordering Wei Group to return the 12 utility model patent to Ji Group and compensate Ji Group RMB 5 million (about USD 692,521) for economic losses and RMB 2 million (about USD 277,008) for reasonable expenses incurred in rights protection. Dissatisfied with the first-instance decision, Ji Group appealed to the Supreme Court.
The Supreme Court significantly increased the compensation awarded to Ji Group and imposed substantial punitive damages against Wei Group. The court ruled that, given the malicious nature, large scale, and severe consequences of Wei Group's infringement, as well as the potential for continued infringement and expanded damage, it was necessary to implement practical, effective, and reasonably feasible measures to ensure comprehensive and effective prevention of Wei Group's infringing behavior.
China Supreme Court's judgment
Key aspects of the Court's judgment in Ji Group v Wei Group include:
- In addition to compensation for actual damages, the judgment imposes double punitive damages and reasonable expenses for the plaintiff's rights protection, resulting in total compensation of RMB 640,000,000 (approximately USD 88,047,546). This is the highest compensation awarded in IP-related lawsuits in China.
- Wei Group shall not implement the 12 patents in any way and is obliged to ensure that the 12 patents remain valid and be returned to Ji Group, the rightful owner, upon request in the future.
- Specific penalties for non-compliance:
- If Wei Group does not stop using the technology involving the technical secrets, they shall pay the plaintiff RMB 1 million (approximately USD 137,574) per day as a surcharge for delay of compliance.
- If Wei Group disposes of the 12 utility model patents without authorization from Ji Group, a one-time payment of RMB 1 million (approximately USD 137,574) should be made for each patent.
Implications for IP protection in China
The court decision in this lawsuit regarding IP infringement has attracted widespread attention and will surely have a far-reaching impact on IP protection in China, especially in the following aspects:
- Comprehensive measures to prevent
infringement
The Supreme Court's detailed measures to prevent further infringement include: stopping the use of the technology secrets, ensuring the validity and eventual return of the utility model patents to the rightful owner, and imposing significant financial penalties for non-compliance. - Enhanced judicial enforcement
The introduction of a daily surcharge for delayed compliance and hefty one-time penalties for unauthorized patent dispositions demonstrates an enhanced judicial commitment to enforcing intellectual property rights. - Implications for corporate behavior
This landmark judgment sends a clear message to companies about the severe consequences of intellectual property theft. It underscores the importance of ethical business practices and the need for robust controls to protect trade secrets and proprietary technologies. - Impact on innovation and competition
By imposing stringent penalties for intellectual property infringements, the judgment encourages fair competition and innovation within the industry. Companies are incentivized to invest in original research and development rather than resorting to unethical practices to gain a competitive edge. - Legal precedent and guidance
The case serves as a valuable legal precedent for future intellectual property disputes. It provides clear guidance on the calculation of damages, the application of punitive damages, and the enforcement of non-monetary obligations, which can be referenced in similar cases going forward.
How we can assist
Our teams in Hong Kong and Beijing assist many clients globally to both secure and defend their IP rights in China, where considerable strides have been made in recent years to enhance legal protection mechanisms.
For overseas clients in particular, we streamline the patent filing process to alleviate potentially unfamiliar formality issues and take a proactive approach when communicating with Examiners.
Footnote
1(2003) Zui Gao Fa Zhi Min Zhong No. 1590(2023) 最高法知民终1590号 ↩︎