Compliance Investigation of Employee’s Business Secret Infringement Case

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2019-06-17 | 来源:劳动法苑


On 7th May 2019, the Jimo Division of the Qingdao Police Bureau made a substantial breakthrough in a trade secret infringement case, in which several research employees obtained the company's trade secrets and sold it to a competing company. The damage caused by the loss of the technology licensing fee alone reached over RMB 20 million yuan.

The consequences of trade secret infringement can be substantial. In practice, most trade infringement cases involve company employees. Faced with such cases, a company needs to collect adequate evidence to recover the loss and discipline the infringing employee. This article seeks to introduce how to plan an investigation, investigation methods and the types of evidence that should be collected in trade secret infringement cases.

I. Formulating a plan

Formulating an investigation plan based on ascertained goals before launching the investigation helps enhance its efficiency. Generally, the focus of the investigation should consider:

a. whether the information infringed has commercial value b. whether the information infringed is unknown to the public c. whether the company adopted protective measures.

According to Article 9 Item 4 of the Anti-unfair competition law, the characteristics of trade secrets include: 1)commercially valuable 2) not known to the public 3) protective measures were applied.

This means that if a company seeks legal protection of trade secrets, it has to prove that the information infringed possesses the above characteristics. Thus, to investigate and collect evidence with the above characteristics in mind is necessary.

Furthermore, in order to determine the investigation methods and emphasis, the actual behaviour of the employee should be predicted from the outset of the investigation. According to our legal practice and research of trade secret infringement case court rulings, there are several typical infringement behaviours:

  • Appropriating a company's trade secret (such as taking the mobile storage device containing trade secrets out of the company);

  • Sending trade secrets to external email addresses (including the employee's personal email)

  • Selling the trade secrets to a third party;

  • Divulging trade secrets to any third party despite the income;

  • Seeking external company benefit by taking advantage of the employer's trade secrets (such as introducing business opportunities to a third party);

  • Divulging the trade secrets to the public through social media or other channels.

Most trade secret infringement cases involve more than one type of behaviour. A company can employ multiple investigation methods to identify whether the above behaviour exists.

II. Major means of investigation

The means of investigation is to be chosen after the investigation plan has been formed. Choosing the appropriate investigation methods greatly enhance the investigation's value and efficiency. Usually one or several investigation methods can be adopted based on the anticipated infringing behaviour.

1.Reviewing written material

There are two types of written material. One type of material is the company's internal rules and regulations, agreements between the company and the employee regarding the protection of trade secrets. These materials are proof of the company's protection of trade secrets, and the basis on which the company disciplines the infringing employee.

The other type of material is the employee's personal file. In cases where an employee seeks external company benefits by taking advantage of the employer's trade secrets, these files may contain vital clues of the employee's connection with the external company.

Please note that the safekeeping of original documentation is crucial during this stage.

2.Conduct research via publicly available information

In the cases where an employee seeks external company benefits by taking advantage of the employer's trade secrets, publicly available information is an important source of clues.

For example, the business scope and shareholder information of an external company are available on the national enterprise credit information publicity system or other third party enterprise information systems. If an infringing company applied for patents or utility models with the State Intellectual Property Office (SIPO), the application information can be obtained from the SIPO website and be used to compare with the infringed trade secrets.

3.Digital forensics

Digital forensics is the investigation of the data retrieved from computers, cell phones, and Internet devices, conducted by professional facilities.

Most infringement cases are conducted via digital means by the employees, making it highly possible to detect traces of evidence on the company's computer or system. For example, if an employee sent the company's trade secrets to external email addresses, the email can be restored via professional digital forensics software even if it was deleted from the computer.

4.Onsite investigations

In the cases where an employee seeks external company benefits by taking advantage of the employer's trade secrets, an onsite investigation of the external company may prove fruitful. For example, the product catalogue of the external company can be collected and compared to the infringed trade secrets. The company can also contact the external company in order to obtain first hand commercial information.

5.Compliance interviews with the infringing employee

Even if a company has collected substantial evidence through a preliminary investigation, an interview with the infringing employee remains necessary. It is especially helpful if the employee identifies certain evidence, or even admits to the infringing conduct during the interview.

Leading questions are to be avoided during a compliance interview. An interview record should be kept and signed by the interviewee at the end of the interview.

6.File a complaint with the market regulation bureau / report the case to the police

As a company can only conduct investigation within the limits permitted by the law, it may consider filing a complaint with the bureau of market regulation/report the case to the police if the investigation ends up in a deadlock, and have the administration launch an investigation.

However, as the market regulation bureau and the police can decide whether they would accept the case or not based on the evidence submitted by the company, the following facts needs to be proven before the case is submitted:

The information infringed constitutes trade secrets;

The reporting company owns the trade secret;

Infringing behaviours actually exists.

In addition, the police may also require the company to submit evidences of losses.

III. Evidence collection during a trade secret compliance investigation

The ultimate purpose of a trade secret compliance investigation is to collect sufficient evidence for the company to prove the liability of the infringing employee and the unfair competing external company. We suggest that the company collect the following types of evidence during the compliance investigation.

1. Evidence which proves that the information infringed constitutes trade secrets

1) The information infringed brings economic benefit for the company

To prove that the information is unknown to the public, the following evidence may be collected: a. evidence of the formulation or collection of the commercial information; b. evidence of the development process of the technological information. Also, an unknown-to-the-public appraisal conducted by a competent judicial appraisal agency is necessary.

To prove that the information brings the company economic benefits, evidence such as sales contracts, product orders, or licensing agreements can be prepared.

2) Protective measures and rules applied by the company

'Protective measures' here refers to the trade secret protection rules and techniques. This encompasses the rules set forth in the labour contract, confidentiality agreement and so on. The techniques include the labelling, coding, and limited viewing of the protected information

2. Evidence which proves that the employee conducted infringing acts

To prove that an employee has access to the infringed information, the company can collect the employee's job description, viewing authorization of the documents containing the information, the entry pass authority etc.

To prove that an employee actually  an infringing act, a company can collect evidence concerning whether the employee committed the infringing behaviours mentioned in the beginning of this article.

3. Proof of the similarity between the information used by the employee and the trade secrets

To prove the similarity, the company need to compare the information. It is relatively easy to compare two client lists, but the comparison of technological information requires professional knowledge, and we suggest that the company entrust a competent judicial appraisal facility to conduct the comparison.

4. Proof of the loss the company suffered

In practice, the evidence of a company's loss includes: the drop in the sales volume of the infringed product, resulting in the reduction of revenue; the sales volume and revenue of the infringing product; the research and development cost to the company, and the profit the company would earn once the trade secret is implemented.

5. The precautions of evidence collection

No matter how a company conducts the trade secret compliance investigation, the whole investigation process must remain secret and the protection of the employees' personal information is not to be neglected.

To maintain the secrecy of the investigation, it is necessary to limit the investigation within necessary scope. Moreover, the evidence collected are to be stored properly.

Besides, as the regulations regarding personal information protection tighten, the company is to avoid infringement of an employee's privacy or illegal collection of personal information during the investigation process. For example, the company does not have the right to check an employee's personal computer or mobile phone, nor can a company conduct an investigation around an employee's house. Otherwise, the evidence collected via such means may be ruled as invalid. Moreover, the company may be held legally liable for such activities.

Evelyn Lee


Ariana Qi



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