Vanillin Trade Secret Case Makes 2021 Top Ten Chinese People’s Court Cases

China’s official People’s Court News (人民法院报) announced the top 10 Chinese People’s Court cases for 2021 on January 6, 2022, which included one intellectual property law case – a trade secret case in which China’s Supreme People’s Court awarded 159 million RMB (~$24.9 million USD) to the trade secret holder.  This is the largest ever trade secret misappropriation award reported in China. Other non-IP cases of note that made the list include the Lai Xiaomin case (who collected bribes totaling 1.788 billion RMB) and a securities class action (awarding investors 2.459 billion RMB for misrepresentations in an annual report). However, notably absent was the Sharp/Oppo case in which the Supreme People’s Court set worldwide licensing rates for standard essential patents.

The Supreme People’s Court announced a verdict on February 26, 2021 against Wanglong Group Co., Ltd. awarding Jiaxing Zhonghua Chemical Co., Ltd. (嘉兴市中华化工有限责任公司) and Shanghai Xinchen New Technology Co., Ltd. (上海欣晨新技术有限公司) 159 million RMB (~$24.5 million USD) in trade secret case relating to the manufacture of vanillin, a food flavoring.  This is the largest ever trade secret theft award reported in China.

The plaintiffs in this case, Zhonghua  and Xinchen,   jointly developed a new process for producing vanillin, and protected it as a trade secret. Before the trade secret theft in this case, Zhonghua  was the world’s largest vanillin manufacturer, occupying approximately 60% of the global vanillin market.

In 2010, the former employee of Zhonghua and defendant Fu Xianggen received remuneration from the defendant Wanglong Group, he disclosed the vanillin trade secret to the supervisor of Wanglong Group and Ningbo Wanglong Technology Co., Ltd.  Since June 2011, Wanglong  began to produce vanillin, becoming the third largest vanillin manufacturer in the world within a short period of time. In 2015, the defendant Xifu Lion King Dragon Spices (Ningbo) Co., Ltd. (喜孚狮王龙香料（宁波）有限公司) was established by Wanglong, and continued to use Wanglong’s vanillin production equipment to produce vanillin. After Wanglong illegally obtained the “vanillin” trade secret, they began to produce vanillin in June 2011 and continue to this day. The actual annual production of vanillin is at least 2,000 tons, accounting for 10% of the world market share. At the same time, the vanillin products produced by the defendants infringing the trade secrets involved in the case are sold in major markets around the world, and they are competing against the  Zhonghua  for customers and markets. Since Wanglong illegally obtained the technical secrets involved in the case, they had no substantial R&D cost investment and were able to sell vanillin products at lower prices, which formed a significant impact on the original international and domestic markets of Zhonghua. As a result, the global vanillin market share of Zhonghua fell from 60% to 50%.

In 2018, Zhonghua  and Xinchen filed a lawsuit at the Zhejiang Higher People’s Court, arguing that Wanglong Group Company, Wanglong Technology Company, Xifu Lion King Dragon Company, Fu Xianggen, and Wang Guojun infringed on the vanillin manufacturing trade secret. The plaintiffs requested the court to order the above-mentioned defendant to stop the infringement and compensate 502 million RMB. The court of first instance found that Wanglong Group Company, Wanglong Technology Company, Xifu Lion Wanglong Company, and Fu Xianggen stole trade secrets involved in the case, and ordered them to stop the infringement, and compensate 3 million RMB for economic losses and 500,000 RMB for costs related to stopping the infringement (e.g., court costs). At the same time, the court of first instance issued an injunction that that Wanglong Technology Company and Xifu Lion King Dragon stop using the trade secret related technology involved in the case to produce vanillin, but Wanglong Technology Company and Xifu Lion King Dragon did not actually stop their use.

Except for the defendant Wang Guojun, all parties in this case refused to accept the first-instance judgment and appealed to the Supreme People’s Court. In the second instance, Zhonghua  and Xinchen  reduced their claims for compensation to 177 million yuan (including reasonable expenses). The Intellectual Property Court of the Supreme People’s Court found in the second instance that Wanglong Group Company, Wanglong Technology Company, Xifu Lion King Dragon, Fu Xianggen, and Wang Guojun infringed all the trade secrets involved in the case. According to the economic loss related data provided by the rights holder, considering the serious circumstances of the infringement, the great commercial value of the trade secrets involved, and the refusal of the infringers such as Wanglong to stop their use of stolen trade secrets per the injunction, the judgment of the first instance was revoked and the judgment was changed. The infringers now must jointly compensate 159 million RMB to the trade secret right holder (including 3.49 million RMB for reasonable rights protection expenses). At the same time, the amount of damages claimed by the right holders in this case was only calculated until the end of 2017, and the law at that time did not provide for punitive damages. Therefore, punitive damages were not applicable to this case. However, the Supreme People’s Court pointed out to the right holders that each defendant continued to infringement after 2018 and plaintiffs may seek additional relief in accordance with the law.

In addition, because the infringement of trade secrets involved in the case has bad circumstances and serious consequences, and may be suspected of criminal offences, the Supreme People’s Court shall transfer relevant suspected criminal evidence to the public security department for prosecution.

The case number is （2020）最高法知民终1667号.

The full text of the top 10 cases with commentary is available from the Supreme People’s Court here (Chinese only).

 

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