The Rise of Preliminary Injunctions in Chinese Trade Secret Infringement Cases

 The Rise of Preliminary Injunctions in Chinese Trade Secret Infringement Cases

Eight years ago a Chinese court granted what, according to Zhang Danian, was the country’s first preliminary injunction (PI) on the basis of a trade secret infringement in 2013. Has the practice of granting PIs become a common and useful tool against the infringement of trade secrets in China for foreign companies since then and has there been any further development?

This landmark PI was granted by the Shanghai First Intermediate People's Court in July 2013, when it barred an ex-employee at a Chinese subsidiary of Eli Lilly – a multinational pharmaceutical giant – from using, revealing or sharing documents related to research into diabetes medicines. They included trade secrets and had been downloaded illegitimately from an Eli Lilly database. Notably, pending the case’s final judgement, the PI froze the alleged trade secrets infringer’s assets.

This PI was considered a monumental case in China. As Zhang Dainan has argued, once the amended Civil Procedure Law of China took effect on 1 January 2013, PIs became an option in all civil cases but were predominantly applied in trademark, patent and copyright infringement cases. Furthermore, the injunction decision in favour of Eli Lilly was granted before the infringer began disclosing or using the trade secrets. Notably, it was not a pre-litigation PI, as it was issued after the main litigation began (slightly different rules apply in such cases), and was not granted ex-parte. Nevertheless, it set the tone that trade secrets may be protected through injunctions on par with trademarks, on the prerequisite that the following questions are answered affirmatively:

a) Is there a substantial likelihood of success in the litigation of the plaintiff? This means that the infringement shall already be clearly established, so the judge would support the infringement claims of the plaintiff in a future decision. In the Eli Lilly case, the court issued its main litigation verdict in favour of Eli Lilly in December 2013 (Civil Judgment (2013) Hu Yi Zhong Min Wu (Zhi) Chu Zi No.119). 

b) Will the plaintiff suffer irreparable damage without a PI? Pharmaceutical companies, like Eli Lilly, can normally prove its R&D investment on a specific project and the potential losses caused by unauthorised disclosure. The court supported the arguments of Eli Lilly in this regard. 

c) Have the parties interests been considered equally? This includes the question of whether public interests would be violated. In this aspect, the court considered that the damage for the plaintiff would be much bigger than any potential damage to the defendant, were a PI to be granted. 

d) Has the plaintiff provided enough security bonds? 

In 2014, the same court in Shanghai issued another PI in a trade secret infringement case of Novartis against a former employee who had started working for a new company (see court decision (2014) Shanghai Yizhong Minbaozi No. 1). Some practitioners considered this China’s first pre-litigation PI in a trade secret infringement case. The court considered the urgency of the Novartis case: the infringer had already obtained the trade secret and had the opportunity to disclose it, which would have caused irreparable damage to Novartis. This situation was regarded by the judge as urgent. In this aspect, the Chinese court did not set a fixed time, as would be required in German or Swiss PI proceedings, where urgency would be denied if the plaintiff failed to file the PI request within one or two months after the plaintiff received knowledge of the infringement. 

In the following years, until 2019, there have only been five other PI  orders in Chinese trade secret cases. One reason is that despite the large number of IP infringement cases in China, there are fewer infringement cases regarding trade secrets, at least based on published leading court cases. Interestingly, with the exception of Eli Lilly and Novartis, most plaintiffs were Chinese local companies. Another important reason may be that plaintiffs in trade secret infringement cases normally have difficulties to proactively prove the infringement in a way that fulfils the requirements mentioned above during the pre-litigation phase. Moreover, it would also become critical for the plaintiff to disclose the substantial trade secret to the court already in a pre-litigation PI proceeding. Finally, plaintiffs and lawyers often prefer to use criminal law measures, which are usually less costly and time consuming (but with the disadvantage of having no damage compensation). 

New developments in China

There is hope that the new legislative developments of 2019 and 2020 will make PIs in China more attractive and efficient for plaintiffs. This is because of the amendment of Anti-Unfair Competition Law on April 23, 2019, and the new provisions in Fashi [2018] No.21, and, in particular, the new provisions in Fashi [2020] No. 7 of the Supreme People’s Court in September 2020 (The Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in Hearing Civil Cases of Trade Secret Infringement came into force on September 12, 2020). 

Specifically, according to Article 15 of Fashi [2020] No. 7, a court may order preservation measures (including PIs), if the defendant has attempted or attempts to obtain, disclose, use or allow others to use the trade secrets claimed by the rights holder. Furthermore, this must be in a situation where the absence of preservation measures will hinder the enforcement of court judgments or cause other damage to the parties, or cause irreparable damage to the rights holder. If the situation is urgent in terms of Article 100, 101 of the Civil Procedure Law, the court shall issue the order within forty-eight hours.

We recognise that such rules are familiar to practitioners in this field, however, it will be interesting to further observe the application of this new law in court practice in 2021.   

The Swiss Perspective

Swiss law allows for interim measures pursuant to Art. 261 et seqq. Swiss Civil Procedure Code (CPC). Accordingly, interim measures, such as a PIs, if deemed as measure suitable to prevent any imminent harm (Art. 262 CPC), will be ordered if the plaintiff’s rights have been violated or if violations are anticipated and threaten to cause the plaintiff harm that is not easily repairable (Art. 261 CPC). The specific requirements for provisional measures have been further developed by Swiss doctrine and case law. 

Similar to Chinese law, it is possible to request the order of interim measures within hours.  In Switzerland there are court decisions where a party attempted to obtain a PI against a previous employer based on a potential disclosure of a trade secret (Decision of Federal Supreme Court of December 2, 2019, 4A_381/2019). Importantly, under Swiss law, relevant confidentiality obligations can arise not only from corresponding contractual confidentiality obligations, but also from statutory employment law and competition law, under Art. 321a of the Swiss Code of Obligations and  Art. 6 of the Federal Act Against Unfair Competition. Furthermore, Swiss law provides for the possibility of arbitration for all claims over which the parties may freely dispose (Art. 354, CPC). This includes claims based on the violation of employee obligations with respect to trade secrets. However, this depends on the specific case if arbitration is the appropriate proceeding once a breach of confidentiality obligations is assumed. 

One advantage of dealing with such matters in front of an arbitral tribunal is, among other things, that such proceedings are not public. Disclosure of the trade secret to the public can thus be avoided. There is thus a major difference between Chinese and Swiss law in this respect. 

Image credit: Ferdinand Feng, under Pixabay licence.

Dr Zhuomin Wu, Dr Brigitte Bieler, Dr Philipp Marchand & Donglai Xu

Dr iur Zhuomin Wu (Directing Counsel), Dr iur Brigitte Bieler (Swiss attorney-at-law), Dr rer nat Philipp Marchand (Partner in the Swiss office) and Mr Donglai Xu (Manager of China Desk) work at Vossius and Partners, a leading IP law firm in Europe and Switzerland. For more information, visit www.vossius.eu.

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