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Eli Lilly and Company and Lilly China Research and Development Co., Ltd V . Huang Mengwei (2013) HYZMW(Z) CZ No. 119, Shanghai No. 1 Intermediate People’s Court

Cause of action: Dispute over infringement of trade Secrets

Collegial panel members: Tang Zhen | Chen Yaoyao | Chen Rongxiang

Keywords: infringement of trade secrets, preliminary injunction

Relevant legal provisions: Civil Procedure Law of the People’s Republic of China (as amended in 2012), article 100

Basic facts: On July 2, 2013, Eli Lilly and Company (hereinafter “Eli Lilly”) and Lilly China Research and Development Co., Ltd. (hereinafter “Lilly China”) filed a lawsuit with Shanghai No. 1 Intermediate People’s Court against Huang Mengwei for infringing technological trade secrets and applied to the court for an injunction, asking the court to order Huang Mengwei not to disclose, use or allow others to use the 21 confidential documents that Eli Lilly and Lilly China alleged he had stolen from them.

 Eli Lilly and Lilly China affirmed that Huang Mengwei joined Lilly China in May 2012 as a chief chemistry researcher. Lilly China signed a confidentiality agreement with Huang and provided corresponding training. In January 2013, Huang downloaded 48 documents owned by Eli Lilly and Lilly China from Lilly China’s server (including 21 core confidential documents) and stored the documents in his own device without authorization. Upon mediation, Huang Mengwei signed a letter of consent in February 2013, admitting to Eli Lilly and Lilly China that he had “downloaded thirty-three (33) confidential documents belonging to the company from the company’s server …” and undertaking to:

 … allow the company or persons designated by the company to check the first-hand device not belonging to the company and the second-hand device not belonging to the company to determine that I did not forward, modify, use or print any company document. If the company or persons designated by the company find any document or information of the company in the device not belonging to the company, I authorize the company or persons designated by the company to delete such document or information. …

 After that, Eli Lilly and Lilly China designated persons to contact Huang Mengwei and require him to delete the confidential commercial documents. Eli Lilly and Lilly China also designated persons to check and confirm whether the confidential commercial documents had been deleted. However, Huang repeatedly ignored the mediation agreement and the companies’ efforts, and refused to perform the obligations to which he had agreed in the letter of consent. Because Huang had seriously violated Lilly China’s rules and regulations, Eli Lilly and Lilly China sent him a letter on February 27, 2013, announcing the termination of his employment contract. Eli Lilly and Lilly China held that the 21 core confidential commercial documents that Huang had downloaded without authorization were their trade secrets, and that Huang Mengwei knew and had admitted as much in the letter of undertaking. Huang’s failure to fulfill his undertaking had exposed trade secrets to risk of a leak, whether or not he disclosed or used them or permitted others to use them, and this would cause Eli Lilly and Lilly China irreparable harm. Therefore, in accordance with the law, Eli Lilly and Lilly China asked the court to order Huang Mengwei not to disclose, use or allow others to use the 21 trade secret documents that he had stolen from them. To support their application, Eli Lilly and Lilly China provided the court with the names and contents of the 21 trade secret documents involved, Huang Mengwei’s letter of undertaking, the certificate of notarization, a table of information devices allocated to employees, the notice terminating Huang’s contract of employment, the statistical statement of direct and indirect costs, and other evidentiary materials. Eli Lilly and Lilly China also deposited RMB100,000 with the court as a security bond in support of the injunction application.

Held: Shanghai No. 1 Intermediate People’s Court granted an injunction prohibiting Huang Mengwei from disclosing, using or allowing others to use the 21 documents claimed by Eli Lilly and Lilly China as protected trade secrets. Because Huang Mengwei did not apply for a review within the time limit specified by the court’s order, that injunction came into force.

Reasoning: As the first in which an injunction was applied to a trade secret dispute under the new Civil Procedure Law (as amended in 2012), this case highlighted the practical efforts made by the courts in the new era to comply with societal needs and to strengthen the judicial protection of intellectual property rights according to law. During the course of proceedings, the court considered the following main factors.

I. Factors to be considered for injunctions in trade secret infringement cases

 In trade secret infringement cases, a preliminary injunction plays an important role in protecting the interests of right holder in a timely and effective manner. However, as a special relief, preliminary injunctions can not only ensure the smooth enforcement of the upcoming effective judgment, but also enable its claimant to obtain, in advance, all or part of the interests of the final remedy. Therefore, in judicial practice, the court shall not enter an injunction simply when there exist general possibilities of unauthorized disclosure or use. Before entering an injunction, the court shall usually consider such factors as the substantial possibility of the claimant winning the case, the substantial danger of irreparable harm that would be caused if the injunction were to be denied, the possibility of harm to the respondent outweighing any potential harm to the claimant and non-infringement of the public interest. The following factors made this case unusual.

(a) Huang Mengwei had confirmed that he had downloaded 33 confidential documents belonging to the companies (including 21 documents for which they claimed trade secret protection) in violation of the companies’ rules and regulations, and had undertaken to authorize persons designated by the companies to delete such documents. It was therefore obvious that Huang Mengwei had obtained by illegal means the confidential documents for which Eli Lilly and Lilly China claimed trade secret protection.

(b) A trade secret, once lost, is lost forever. The commercial documents involved were already under Huang Mengwei’s control. Once he disclosed such electronic documents, their content may be known to competitors or may enter the public domain and then lose its confidentiality, leaving Eli Lilly’s and Lilly China’s interests irreparably harmed.

(c) Based on the facts of this case, Huang Mengwei, as a natural person in contrast with companies Eli Lilly and Lilly China, would not be harmed if he were to be prohibited from disclosing, using or allowing others to use the commercial documents. In addition, Eli Lilly and Lilly China had deposited a security bond with the court to cover the risk that any damage might be incurred as a result of the injunction.

Based on these facts, the court granted an injunction against Huang and informed him of the time limit within which he must apply for a review to facilitate the exercise of his right to a defense.

II. Key points to be considered for injunctions in trade secret infringement cases

As the first case in which an injunction was applied within a trade secret infringement case, there was no precedent for the court to follow with respect to the application of law. During the trial, the court considered the following key points.

(a) Consistency between Eli Lilly’s and Lilly China’s claims and the application for injunction When filing the lawsuit, the companies asked the court to order Huang Mengwei to cease infringing their trade secrets and, specifically, to order Huang to delete and not to disclose, use or allow others to use the 21 commercial documents involved. The court held that its review of an injunction application shall be limited to the claims of the case without allowing additions and shall be in line with consideration of trade secret infringement as provided for in article 10 of the Law against Unfair Competition (as published in 1993). Huang was therefore ordered “not to disclose, use or allow others to use the 21 documents involved”.

(b) Relationship between the preliminary injunction and the final judgment When the case proceedings were under way, it was pending whether the documents involved constituted trade secrets and belonged to the category of legal interests protected by the Anti-Unfair Competition Law. As a temporary measure, an injunction shall be free from the potential danger of conflicting with the final judgment. The judgment was therefore worded as “prohibiting Respondent Huang Mengwei from disclosing, using or allowing others to use the 21 documents claimed by Eli Lilly and Company and Lilly China Research and Development Co., Ltd. as protected trade secrets”, which meant that the 21 documents involved were identified only as documents over which the companies claimed trade secret protection, not as information finally confirmed to be such by the court upon review under law.

(c) Balance between trial and enforcement Because the content of the 21 documents involved was not clear in the body of the judgment, the department tasked with enforcing the order would lack actionable detail. The court therefore appended to its judgment a list naming the 21 documents involved. This suggested that although Huang Mengwei had downloaded 33 documents in violation of the companies’ rules and regulations, he was to be held liable only in the event that he disclosed, used or allowed others to use the 21 documents in violation of the judgment.

III. Enforcing an injunction in trade secret infringement cases

An injunction is about the court ordering a party to engage or not to engage in a certain activity. Different from a freezing order, an injunction is enforced against a person’s behavior, instead of property as such. Because of these special characteristics, enforcement of the injunction requires the party’s cooperation. Moreover, enforcement is more difficult when the injunction orders the party not to do something than when it orders someone to do something because a positive action by a party is perceivable from outside and sometimes accomplishable instantaneously, while the prohibition of a party’s behavior depends on that party’s conscientiousness, which is not objectively perceivable by the enforcement staff of the court and makes the enforcement of court orders less certain. The court held that such negative injunctions mainly depend on the deterrent force of effective legal instruments. Only by strengthening the deterrent force of effective legal instruments can the parties’ conscientious compliance with court orders be ensured. Therefore, after entering the judgment in this case, the court not only serviced the legal instrument, but also summoned Huang Mengwei to the court and informed him of the content of the order and of the consequences of violating it. In fact, in the event that a party refuses to comply with effective court judgments or orders, the court may, in accordance with article 111 of the Civil Procedure Law, fine or detain that party based on the severity of circumstances and may even hold them criminally liable if a crime is committed. It is fair to say that, in this case, the warning generated good legal effect. In the court, Huang Mengwei undertook in writing that he was willing to comply with the court order and then represented in later submission to the court that he had destroyed the hard disks that stored the downloaded documents, attaching photos to corroborate his representations.