2016 EU-Taiwan Seminar on Trade Secrets
Taipei, 21 September, 2016
The European Economic and Trade Office (EETO), under the framework of the European Business and Regulatory Cooperation (EBRC) programme co-hosted the seminar together with the Taiwan Intellectual Property Office (TIPO), under the Ministry of Economic Affairs (MoEA).
The seminar brought together 190 experts from Europe and Taiwan to discuss trade secret disputes, with the aim of enhancing public understanding of legislation and practices in the EU and Taiwan, and to further foster mutual understanding through discussions.
The seminar was organised in response to the new challenges of protection and enforcement of trade secrets and the recognition that the risk of infringements of trade secrets has risen with the growth of globalisation and the mobility of information, digital technology and human resources. In addition, there is growing awareness that the disclosure of trade secrets may severely endanger companies’ R&D output, create unfair competition and distort markets. Hence, there have been adjustments in legislation around the world designed to effectively prevent infringements of trade secrets. The seminar provided an overview of legislative measures in the EU and Taiwan and insights into how authorities in Taiwan and EU Member States are working to enforce their laws.
Guests of honour
Ms HONG Shu-Ming, Director General, TIPO, MoEA
Ms Viktoria Lövenberg, Deputy Head, EETO.
Mr Jorg WEBERNDORFER, Policy officer, DG TRADE, European Commission
Ms WANG Yu-Chiung, Executive Officer, Legal Affairs Office, TIPO, MoEA
Mr Jan ØSTERGAARD, Head Prosecutor, Denmark
Ms Elizabeth JONES, Copyright & IP Enforcement Directorate, United Kingdom Intellectual Property Office (UKIPO)
Mr TSAI Chiou-Ming, Director, Department of International and Cross-Strait Legal Affairs, Ministry of Justice (MoJ)
Ms Sylvia FANG, Vice President and General Counsel, TSMC & Chairperson, Taiwan Association for Trade Secrets
Ms Gloria LU, Partner, Lee and Li Attorneys-at-law
Ms Heather HSIAO, Senior Associate, Eiger
Mr Reinout van MALENSTEIN, IP Expert, China IPR SME Helpdesk
In her remarks, Ms Hong noted that the success of SMEs in Taiwan, especially companies in the ICT sector, depends heavily on trade secrets. Following several cases of trade secret thefts, which had a serious impact on Taiwan’s economy, the Trade Secrets Act was amended in 2013 to incorporate criminal liabilities and impose heavier punishments of up to 10 years’ imprisonment for trade secret misappropriation in foreign jurisdictions. She said that she hoped that the seminar would increase mutual understanding of trade secret legal regimes and practices in the EU and Taiwan and lead to a consensus on how to create order in terms of fair competition in the global market.
In her remarks, Ms Lövenberg pointed out that dialogue and exchanges between the EU and Taiwan had been going for many years through the EU-Taiwan IPR Working Group and seminars. She added that in the working group, officials from both sides provide updates and replies to the questions raised by stakeholders. The last IPR Working Group took place just the day before the seminar, reconfirming the strength and usefulness of continuous cooperation and exchanges.
She went on to say that an appropriate protection of trade secrets is needed for incentivizing investments in the creation of valuable intangible goods and that this is particularly important for SMEs and start-ups, which often do not have the means to protect their intangible assets with IP registrations at the national or international level. Solid protection of trade secrets is also needed to avoid any “free riding” on valuable undisclosed information of citizens and companies to the benefit of foreign competitors. This is a common challenge and a shared economic interest of Taiwan and the EU. With these considerations in mind, three months ago the EU adopted, for the first time, a Directive on trade secrets protection. EU Member States are at a very early stage in harmonising the different laws. She concluded that the seminar provides a useful forum for Taiwanese and European experts to share experiences, recommendations and pending questions about trade secrets.
An overview of trade secrets legislation in Taiwan and the EU
This session featured two presentations.
1. Topic: The harmonisation of trade secrets laws in EU Member States
Speaker: Mr Jorg WEBERNDORFER, Policy officer, DG TRADE, European Commission
While the EU does not have a general competence for unfair competition matters, treaties give the EU competence to adopt measures for approximation of national law, if the differences obstruct fundamental freedoms of movement and have a direct effect on the functioning of the internal market.
The EU has three types of binding legislative acts: Regulations, Directives and Decisions. Directives, such as the new Directive 2016/943 on the Protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, are legislative acts that set out goals that all EU Member States must achieve. However, it is up to them to devise their own laws on how to reach the goals.
The rationale for the new Directive is based on the main results of an impact assessment in 2012 which found that:
· Knowledge and information are ever more central to the performance of the EU economy
· The exposure to misappropriation of trade secrets has been increasing
· Member States have very different legal approaches and the overall picture is fragmented and opaque with important shortcomings
· This state of affairs is impairing the EU's innovation (and therefore economic) performance.
The Directive covers civil law remedies only, which means that the Directive does not call for criminal prosecutions or sanctions (this is left up to the discretion of national legislators of EU Member States). Under Article 1(2) and (3) of the Directive, there is a negative list of affected areas (freedom of expression and information, EU and national rules requiring or allowing disclosure, autonomy of social partners and mobility of employees). Member States have two years to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive (the deadline is 9 June 2018).
The Directive is a TRIPS-compliant text comprising the following:
1. Scope of protection: Definition of trade secrets and unlawful acquisition, use and disclosure of trade secrets.
2. Civil law measures, remedies and procedures defining what trade secret holders can obtain from the court in cases of unlawful acquisition, use or disclosure of trade secrets.
3. Preservation of confidentiality of a trade secret during and after litigation.
4. Assurance of proportionality and safeguards against abusive litigation and barriers to trade.
The Directive’s definition of a trade secret copies, word-for-word, Article 39(2) of TRIPS which sets out three cumulative requirements (in short):
· Information must be not generally known (including within the specialized circles)
· Information must have a commercial value
· Reasonable steps must have been taken to keep it secret/confidential.
Article 2(3) defines an ‘infringer’ as any natural or legal person who has unlawfully, acquired, used or disclosed trade secrets while Article 2(4) defines ‘infringing goods’ as goods whose design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed.
Article 3 defines lawful acquisition (or not qualifying as a trade secret) as independent discovery or creation, reverse engineering, the exercise of the right of workers’ representatives to information and consultation in accordance with union and national law and/or honest commercial practices and the acquisition of the trade secret by honest practices.
The Directive also provides exceptions to unlawful conduct when exercising the right to freedom of expression and information, whistleblowing, information passed from workers to their representatives as part of the legitimate exercise of their representative functions and the protection of legitimate interests recognised by EU or national law.
Under the Directive Member States have a general obligation to provide measures, procedures and remedies against the unlawful acquisition, use and disclosure of trade secrets, which are fair and equitable, effective and dissuasive.
Under Article 10 Member States are obliged to ensure that competent judicial authorities may order provisional and precautionary measures against the cessation, use or disclosure of the trade secret, against the production, offering, market placing or use, import, export or storage of infringing goods and the seizure of delivery of the suspected infringing goods.
Articles 8 and 15 oblige Member States to set limitation periods applicable for substantive claims and actions (the duration of the limitation periods shall not exceed 6 years), ensure that the competent legal authority may order, at the request of the applicant and at the expense of the infringer, appropriate measures for the dissemination of the information concerning the decision, including publishing in full or in part.
Articles 12 and 14 oblige Member States to ensure that competent judicial authorities may, at the request of the applicant, order: a) injunctions (such as provisional or precautionary measures and the destruction or delivery to the applicant of any document, material, file, (etcetera) containing the trade secrete at the expense of the infringer; b) corrective measures (such as recalls or destruction of infringing goods at the expense of the infringer); c) damages (appropriate to actual prejudice suffered). The limitation period for filing applications shall not exceed 6 years.
According to Article 7, measures, procedures and remedies shall be applied in a manner that is proportionate, avoids creation of barriers to legitimate trade in the internal market and provides for safeguards against their abuse. There shall be appropriate measures imposing sanctions on the applicant if the applications against unlawful acquisition, use or disclosure of a trade secret is manifestly unfounded, made abusively or in bad faith.
The competent legal authorities of Member States are obliged to take into account specific circumstances of cases, including, where appropriate, the value and specific features of trade secrets, protective measures, the conduct of infringers, the impact of use/disclosure, the legitimate interests of parties, the public interest and the safeguarding of fundamental rights. In addition, preliminary or precautionary measures may be dependent on lodging adequate security for any prejudice suffered and be revoked after the lapse of time set for launching proceedings on merits. Instead of injunctions and corrective measures, the competent legal authority may order pecuniary compensation in cases where the concerned person neither knew nor ought to have known about the trade secret infringement and the execution of the measures would cause disproportionate harm, and pecuniary compensation appears reasonably satisfactory to the injured party.
2. Topic: Introduction to the legal framework of trade secrets in Taiwan
Speaker: Ms WANG Yu-Chiung, Executive Officer, Legal Affairs Office, Taiwan Intellectual Property Office (TIPO)
Ms Wang gave an overview of Taiwan’s Trade Secrets Act. The Act was first introduced in 1996 but substantial amendments were made (and became effective in February 2013) on the grounds that R&D information leakage not only compromises corporate interests but national security, the advancement of internet technology makes it easier to steal or leak trade secrets, Taiwan’s criminal code at the time was not sufficient and penalties were too light and because a sound IPR regime is a key incentive to attract foreign investments to Taiwan.
Taiwan’s definition of a trade secret is virtually identical to the EU’s (and TRIPS). The three essential “elements” are 1) secrecy (it is not known to persons generally involved in information of this type), 2) it has economic value and 3) the owner has taken reasonable measures taken to maintain its secrecy.
However, unlike EU Directive 2016/943, the act provides for both civil and criminal liability. It covers both the acts of acquiring a trade secret by improper means or acquired legitimately, but used or disclosed improperly as well as the exercise of rights and damages.
Acts deemed as a misappropriation (unlawfully acquired, used or disclosed, unauthorized reproduction, use, or disclosure, failure to delete or destroy a possessed trade secret, or disguising it) may be subject to criminal penalties for the malicious acquirer of up to a maximum of five years’ imprisonment, in addition to a fine between NT$1 million and NT$10 million. For serious offences, fines may be increased to up to three times the gain.
When crimes are committed for the purpose of using the trade secret in foreign jurisdictions, mainland China, Hong Kong or Macau, much stiffer penalties may be imposed (imprisonment of up to 10 years and fined of between NT$3m and NT$50m or up to 10 times of the gain. Besides the representative of a juristic person, the agent, employee or any other staff, the juristic person or natural person may also be subject to punishment. The juristic person may be liable unless they have “exerted every possible effort to prevent a crime”.
Besides unlawfully acquiring a trade secrete (through theft embezzlement, fraud or a threat), the act covers the lawfully acquired but unauthorized usage or disclosure of a trade secret. Even the act of failing to destroy a possessed trade secret as the trade secret holder orders or disguising it is regarded as a violation.
Ms Wang admitted that there are many difficulties in enforcing the law. In particular, it is difficult to determine what qualifies as a trade secret. Moreover, gathering evidence is difficult because enforcement officers lack the necessary technical background or if crimes are committed overseas (it is difficult to extradite criminals). It is also difficult to calculate the gains of the infringer.
Ms Wang concluded that the protection of trade secret faces new challenges. In particular, the growth of international trade and globalization has increased the mobility of people, who can change jobs easily while the improvement of digital technology and the increasing use of the internet make it much easier to store and disseminate trade secrets.
Focus on Implementation of practices involving trade secrets (I)
1. Topic: Non-competition agreements
Speaker: Mr Jan ØSTERGAARD, Head Prosecutor, Denmark
Mr Østergaard said that not many trade secret cases have gone to criminal courts in Denmark since criminal cases need a very clear definition of trade secrets and processes. Otherwise one cannot present evidence and prove the case.
Non-competition or non-compete agreements are very common in civil law as a tool for employers to bind employees with the aim of protecting a product, a favourable market and the company’s core customers or buyers.
He went on to outline the case of Danish company that produced insect nets for export, mainly to Africa and Asia. At the time, the production of insect nets was a developing market with very few competitors and therefore high profits. In the case in question, two employees (a technical manager and a sales and marketing manager) resigned from their company and joined a competitor, who was an inventor and had acted as a consultant to the Danish company.
The new company proceeded to invent a new type of net, which was less polluting and longer-lasting than those produced by the original company. The original company claimed that the new nets used chemical ingredients and processes developed together with the technical manager, which was in breach of a three-year non-competition agreement. The indictment was supported by evidence of 56,000 files found on the personal computer at the home of the technical manager. The court found that the files were indeed “partly confidential” and belonged to the original company, that the non-competition agreement was legal, and therefore the engineer violated the agreement by using the information to make a new net. However, the court also found that the content of the agreement was too strict and the period of three years was too long. Moreover, the new net was produced using another technique. For these reasons the court ruled that it could not punish the defendant.
This case is instructive in illustrating the problems involved in trade secret cases. It took eight years to investigate the case and it was suspended on two occasions because prosecutors did not know how to proceed. It is also difficult to strike the right balance between the interests of the parties involved. On the one hand, there is a consumer benefit from producing better nets and protecting the free market. On the other hand, there is a need to protect the investments of the original company.
Speaker: Ms Elizabeth JONES, Copyright & IP Enforcement Directorate, United Kingdom Intellectual Property Office (UKIPO)
There is no commonly-accepted definition of a non-compete clause and it is not a term used in UK statute law. It is subject to the common law principle of ‘restraint of trade’ which provides that workers should be free to follow and use their skills without undue interference unless the clause is: a) designed to protect legitimate business interests; and b) is no wider than reasonably necessary.
Examples of non-competition clauses often include restrictions on working for a competing business (including one the employee establishes themselves), restrictions on dealings with the employer’s customers or clients, restrictions on hiring workers of the former employer and restrictions on setting up a business in a geographical location that would disadvantage their ex-employer.
When judging cases, UK courts will consider whether the non-compete clause protects “legitimate business interests” and is no wider than reasonably necessary. Legitimate business interests may include protecting trade connections (with customers, clients or suppliers), goodwill, trade secrets and other confidential information and maintaining the stability of the workforce. In the UK courts consider each dispute on case by case basis, and consider the circumstances of each worker.
Trade secrets are considered legitimate business interests that are protected under the laws of equity in England and Wales. Protection under the laws of equity applies to confidential information generally and is not limited to trade secrets. The legal test is established in common law. Employees cannot be found to be in breach of the law unless they are informed and aware of it beforehand.
In the Vestergaard versus Bestnet case, the court found a violation of a breach of confidence but because the salesperson was unaware that the new project was developed using secrets, she was not liable. Ms Jones emphasized that non-competition agreements should not prevent former employees from competing with former employers. She noted that the case was conducted in private.
2, Topic: Criminal practice of the Trade Secret Law in Taiwan
Speaker: Mr TSAI Chiou-Ming, Director, Department of International and Cross-Strait Legal Affairs, Ministry of Justice (MoJ)
Taiwan’s high tech industry is facing severe global competition while local enterprises are becoming prey to head hunters and the targets of plotted trade secret thefts. Besides competition, Taiwan is vulnerable in a geopolitical context on account of its uneasy relations with mainland China. Theft of trade secrets from China usually involves very large private or state-run enterprises. Mr Tsai hopes that enhanced criminal sanctions introduced in the Trade Secrets Act will serve as a deterrent.
He went on describe some recent cases of trade secret thefts by insiders who were formerly employees of some of Taiwan’s well-known tech companies. Some of the cases were successful and others not.
In a 2012 case involving TFT-LCD panel company AUO, two senior engineers from the company were accused of stealing important trade secrets related to high-end monitor manufacturing before starting to work for a Chinese competitor. The theft resulted in hundreds of millions of US dollars in losses. They were both indicted but later acquitted.
In a case involving TSMC, the director of the R&D department resigned from the company and went to work for South Korean competitor, Samsung. TSMC filed a civil litigation in 2012 and successfully obtained three injunctions against the director in 2015.
In a case involving Mediatek, the general manager was suspected of misappropriating trade secrets before being hired by a company from mainland China. However, he not indicted due to a lack of evidence.
In another case involving AUO in 2011, the company’s deputy R&D manager resigned to join a PRC competitor. He was indicted, convicted and sentenced to two years in prison for carrying stolen crucial know-how with which he applied for and was awarded two patents in China.
Mr Tsai mentioned two other cases involving Mediatek and HTC where former employees have been indicted for stealing trade secrets or taking kickbacks, but where decisions are still pending.
He went on to describe the legal framework and prosecutorial system for protecting trade secrets in Taiwan. Both criminal and civil liabilities are possible for the misappropriation of trade secrets. Criminal cases start in district prosecutors’ offices while civil cases go straight to the IP court. Very few cases go to the supreme court.
Cases commence when reports are brought to the prosecutor’s office. The prosecutor then starts an investigation and building a case with the help of complainants. Hearings are held behind closed doors. Dossiers and evidence are not disclosed until a final decision is made, which is either a formal accusation/indictment, deferred prosecution or non-prosecution (which can be contested by complainants and sent back to prosecutor for further investigation). Deferred prosecution can be commuted to a fine or community service. Prosecutors need to produce written decisions.
Local cases are characterized by a large amount of data. Often elements of the alleged trade secret need to be further clarified to be sure that they are legitimate or to prove the economic value of secrecy or that sufficient measures were taken to keep it secret. Moreover, economic damages are often difficult to estimate. Many cases also involve breach of trust offenses while, as alluded to previously, many involve PRC enterprises. Complainants can help their cases by providing related business records to help establish economic value and by extending documents of confidentiality, non-disclosure agreements or non-competition agreements.
Although it has only been three years since the act was passed, Taiwan has strict requirements of admissibility of evidence and a high burden of proof, which is why trails can be lengthy and conviction rates are relatively low. Some cases have been pending for several years after indictments. Collateral civil suits are available but the damages granted are usually meagre. This is why some companies pursue their cases in other countries where they can try to claim higher damages. Another factor to consider is that companies may not wish to file criminal proceedings because they are afraid that disclosing the secrets necessary to prove their cases will leak out somehow, even if protective orders during trial proceedings are in place.
Despite the difficulties, there has been some success since the passage of the Trade Secrets Act. According to Mr Tsai, a shrinking yield rate at a PRC high tech company since the act was implemented can be attributed to the act.
Companies can do themselves a favour by recording the title and detailed contents of the violated trade secret, the types/forms of the trade secret, ownership or authorized/licensed rights, estimated value, explanation on the secrecy of the trade secret, putting in place and being able to verify reasonable protection measures (including physical and network security measures) and by having confidentiality agreements, non-disclosure agreements and conducting exit interviews with employees.
Session 2 Q&A I
Mr Tsai noted that problems arise when dealing with cases involving state-owned enterprises in China. Collecting evidence in such cases is very difficult. There is often no response from authorities in China.
On the question of reverse engineering, reverse engineering is not prohibited under the EU Directive and panelists are not aware of any national law that does not allow reverse engineering.
Afternoon session – Session 2 continued
3, Topic: Challenges facing Taiwan companies in protecting corporate trade secrets
Speaker: Ms Sylvia FANG, Vice President and General Counsel, TSMC & Chairperson, Taiwan Association for Trade Secrets
Up until recently trade secrets were not the subject of formal legal proceedings and were confined to the inner workings of companies and did not attract much media attention. Now, it is increasingly important for companies and they are taking action to keep secrets besides patents.
According to the MoEA, Taiwan’s spending on R&D has been increasing steadily and was close to 3% of GDP or equivalent to US$15.34 billion in 2014. According to the MoEA, this percentage is higher than it is in mainland China (2.1%), the US (2.7%) and Germany (2.8%) but less than Japan (3.6%) and South Korea (4.3%). The top five R&D spenders in Taiwan are all tech companies (namely, TSMC, Hon Hai, Mediatek, Pegatron and Delta). While there is no way to calculate trade secrets for obvious reasons, patent filings give a good indication of the degree of R&D that is regarded as needing protection.
While Taiwan has had legislation in place to protect trade secrets since 1996, before 2014 there were very low penalties for misappropriation of secrets. However, regulatory amendments made in 2013 and 2014 brought Taiwan’s legal protection of trade secrets in line with global benchmarks by enabling criminal penalties for misappropriation of trade secrets (under the Trade Secret Act), permitting the use of electronic surveillance during investigations of suspected criminal trade secret activities (under the Communication Security & Surveillance Act) and by giving the Intellectual Property Court jurisdiction to adjudicate criminal trade secrets cases (under the Intellectual Property Case Adjudication Act) and by introducing incentives for co-conspirators to cooperate with prosecutors (under the Witness Protection Act).
The challenges facing Taiwan, although of course not unique to Taiwan, include increased mobility of people and sophisticated digital means to steal secrets.
Trade secrets are normally protected by Taiwanese companies, such as TSMC, through confidentiality agreements (with employees or with third parties), non-compete agreements with selected employees, sophisticated information classification and limiting access to information to personnel on a need-to-know basis, awareness training for employees, prohibiting smart devices with recording or camera functions on company premises and regularly monitoring emails and conducting security checks.
Despite these measures it is a challenge to protect secrets given that many employees travel a lot, especially across borders and there are many ways to copy or transfer data digitally. Moreover, according to Ms Fang, a lot of younger employees do not value loyalty. An additional threat comes from hackers trying to breach the companies’ network. For these reasons, IT security is a big challenge. An additional complication is that many companies operate internationally and enforcement in foreign countries is difficult. She cited a case of an employee in mainland China who tried to sell the company’s secrets on the internet. He was caught by IT and security and the company planned to file a complaint with local police. However, in mainland China, before you go to the police, you need to prepare an appraisal report, including details of the secret, compiled by an expert recognized by the police department. This is a complicated and expensive process, which can take months.
Based on TSMC’s experience in Taiwan, gathering evidence is difficult because authorities in Taiwan are reluctant to issue search warrants for trade secrets compared to patents, making it hard to collect real evidence. Moreover, many trade secret owners are unwilling to pursue cases for fear of disclosing secrets during litigation. Another difficulty is assessing and establishing value. Taiwan courts don’t tend to grant reasonable awards.
Ms Fang concluded that understanding trade secrets requires more than knowledge of the law. It is also about the evolving technologies, social norms, politics and other factors that shape the use and misuse of trade secrets. While Taiwan may have good law enforcement officers, they may lack understanding of the tech industry. Therefore, more training is needed.
4, Topic: How to determine the secrecy of trade secrets
Speaker: Ms Elizabeth JONES, Copyright & IP Enforcement Directorate, UKIPO
The judicial system in England and Wales is based on principles of common law. Judicial precedents are binding where there has been no major codification of the law. Judges need to explain the reasons for their decisions. Legal costs in England and Wales normally paid for by the losing side. Virtually all civil litigation damages are compensatory, not punitive.
There is currently no statutory protection of trade secrets in the UK. Trade secrets are regarded as an equitable right, rather than a property right under English law. Protection under laws of equity applies to confidential information generally and is not limited to trade secrets. It is also protected under contract law. There are only civil remedies and no criminal sanctions.
The law cannot prevent employees from using knowledge or experience they have acquired. It is not desirable to place restrictions on an individual’s ability to earn a living. Cases can be held in private to protect the parties involved.
The definition of a trade secret can be traced back to two cases. The 1969 Coco v A N Clark (Engineers) Ltd  RPC 41) sets out three elements which will normally be required: 1) The information must be of a confidential nature; 2) The information must have been communicated in circumstances importing an obligation of confidence and 3) There must be an unauthorised use of the information to the detriment of the person communicating it. These have become the legal test to qualify as a breach and all three elements have to be met. There are many other cases that follow this precedent.
The 1991 Lansing Linde Ltd v Kerr  WLR 251 case described ‘trade secrets’ as information which is used in a trade or business, which if disclosed to a competitor would be likely to cause real or significant damage to the owner and whose dissemination must have been limited by the owner, or at least, whose dissemination must not have been encouraged or permitted on a widespread basis. The EU’s new Directive, therefore, provides a definition which is very similar to UK law.
Speaker: Ms Gloria LU, Partner, Lee and Li Attorneys-at-law
Ms Lu reiterated the three requirements already mentioned by previous speakers to qualify as a trade secret: 1) secrecy, 2) economic value and 3) reasonable measures to maintain its secrecy. She noted that criteria in Taiwan are not always clear and are decided on a case by case basis. She noted that courts tend to conflate criteria 1 and 3. If, for example, an owner fails to take sufficient measures to protect the secret, they may regard the secret as having been destroyed and therefore no longer warranting legal protection.
In a case mentioned by Ms Lu, a district court held that a client list could qualify as meeting the secrecy criterion if such information is derived under significant efforts and costs and cannot be obtained from the public domain. The price of goods does not qualify because this can be obtained in the market although the actual base price of a product may qualify because it is not easily disclosed. Cost analysis can also qualify if it involves analysis.
In a case involving specialty, the secrecy criterion was denied because the plaintiff failed to prove that a formula was developed from its own resources.
Typical measures recognized by Taiwan courts to protect secrets include:
1) Marking documents “confidential” or using similar words, keeping confidential documents in a restricted area, company policy or work rules to limit the access, use and transfer scope of confidential information and confidentiality obligations (prohibiting unauthorised disclosure or use), limiting the number of individuals allowed to access the information, signing non-disclosure agreements (NDAs) with business partners, signing confidentiality agreements with employees, security controls at business premises, access and delivery controls in document management and e-mail systems, employee training and employee departure processes (return or destruction of proprietary information).
Courts will ask for evidence of protection such as documents with special markings and how access has been restricted. Judges may deny cases if there are no NDAs. Training is also important to inform employees what information is secret.
Ms Lu concluded that companies don’t have to do everything but that they should at least have reasonable protective measures and it is important to be able to prove that NDAs have been used and reasonable measures have been adopted.
5, Topic: Damages and remedies
Speaker: Elizabeth JONES, Copyright & IP Enforcement Directorate, UKIPO
The remedies available under English and Welsh law, which apply to confidential information and other IP rights, include injunctions, destruction, delivery up, damages and account of profits.
Injunctions are used to prevent use or disclosure of trade secrets and, in many cases, is the major remedy sought. They are discretionary and the decision to grant injunctions is influenced by factors such as the defendant’s actions, and whether the injunction is necessary and an effective remedy. It may be available even after information has become public.
Courts can make an order to prevent infringing goods or material getting to, or remaining on the market. The defendant may be required to ‘deliver-up’ material (such as books of formulas to the claimant). The defendant may undertake (or be ordered) to destroy infringing material themselves or to deliver it up for destruction. The “clean hands” doctrine applies. If there is evidence that the plaintiff is acting unethically or has acted in bad faith, the remedy will not be granted.
When it is too late for an injunction, damages for misuse of confidential information could be granted. Damages are compensatory. Courts will consider a range of issues and factors to come to an assessment. It is sometimes difficult but where information disclosed could have been subject to a licence fee or products or services would have been sold, the calculation of damages is more straight-forward.
In the case of Vestergaard Frandsen v Bestnet Europe, damages were based on a loss of profit to the claimant. Regarding a second product which was produced using secrets from the claimant, damages were based on a “quasi” consultancy fee because new investments were involved in addition to the secret. The court concluded that only a small percentage of profits could be attributed to the secret and awarded only £25,000 in damages.
Finally, the court can order the defendant to account for all or some of the profits made through a breach of confidence. This may be beneficial where information has been exploited commercially.
Ms Jones cited a case of a bra maker who was accused of using confidential information to make a new bra. The defendant was asked to account for the profits from the new bra. While the defendant held that the confidential information was only a small part of the design and therefore should account for a small part of the profits, the court determined that the defendant would not have profited had they not breached the trade secret and consequently awarded a large portion of the profits to the claimant.
Speaker: Ms Heather HSIAO, Senior Associate, Eiger
Taiwan’s legal system allows for three remedies: civil, criminal and administrative. Under the Trade Secrets Act there are four civil remedies available:
1. The right to claim damages (Article 12.1)
2. The right to ask for the removal of an infringement (Article 11.1)
3. The right to apply for the prevention of an infringement if there is a likelihood of an infringement (Article 11.1)
4. The right to request the destruction or disposal of products or items resulting from an infringement (Article 11.2).
A party who intentionally or negligently infringes another’s trade secret shall be liable for damages. There are two methods for calculating the statute of limitations: either from the time of discovery or from the time the first infringement occurred.
Discovery is defined as when the claimant has knowledge of the act and who is responsible. The court requires actual knowledge of discovery, not just suspicion.
There are difficulties in calculating the amount of damages, especially for intangibles which do not have a market price. Moreover, market value is determined by other variables. For example, it may have only been used for short time or real profit may not yet have been realized. Causation is also a variable factor. For example, the owner’s loss could be attributed to an infringement of a trade secret but it may also be attributed to other unrelated factors.
There are five types of calculations for damages:
1. Compensation for losses.
2. Compensation for loss of profit.
3. Disgorging of profits earned by the infringer.
4. Amount of total sales.
5. Punitive damages.
Compensation for loss is calculated by adding the actual injury to lost interests. To compensate for the loss of profit, Article 13.1.1 states that if the injured party is unable to prove the amount of damages, the party may take as damages the amount of profit normally expected from the use of this particular trade secret minus the amount of profits earned after the infringement. Since it is difficult to calculate future expected profits, this is usually only used in cases where the secret has been used for a period of time.
To disgorge profits earned by infringer, the infringer is required to prove how much they spent on input costs. The claimant will be awarded an amount of total sales minus the infringers’ cost input. If the infringer is unable to prove or ascertain the costs involved in producing the infringed products, then the total sales gained from selling the infringed products shall be deemed as the profit to be claimed.
Punitive damages may be awarded but must first be preceded by calculating other damages. Punitive damages are capped at a maximum of 3 x ascertained damages. However, if actual damages are very low the court may be reluctant to grant punitive damages.
Session 2 Q&A II
On a question on the burden of proof, panelists answered that in Taiwan the burden of proof is born by the plaintiff, which has to prove that the trade secret meets the three requirements. If the counterparty can prove that the secret is in the public domain, then it can no longer be regarded as a secret.
A question was asked as to whether stamping or labelling a document “confidential” is regarded as a sufficient measure to protect the secret. Ms Jones answered that in the UK, the court would look at the specifics of each case, not just the stamp but also how the plaintiff had protected the secret. Other panelists expressed the view that a stamp is a basic requirement but definitely not sufficient. TSMC, for example, has three or four categories of confidential information and guidelines on how each category of information should be treated and handled. Some information may not be sent via email or copied or access is limited to people who need to know.
Session 3: Implementation of practices involving trade secrets (II)
1, Topic: Legal threshold for issuing a search warrant
Speaker: Mr Jan ØSTERGAARD, Head Prosecutor, Denmark
In Denmark the burden of proof is solely on the claimant. There is no formal legal threshold in Denmark
The strength of suspicion is a decisive factor. The police can take the initiative to start a case but this is rarely done.
Denmark has strict legislation. It is possible to get search warrants or wire taps and have people taken into custody. Convicted offenders can be sentenced up to six years in prison.
Education of the police is important. This has been a problem in Denmark. If the police do not understand the problem they may not pursue the case. It is also important to know who to contact in the police. Some officers do not have the correct knowledge or expertise but there are others who are skilled and knowledgeable. You need to know where to take your case.
You also need to know how to present your case. The way the case is framed is a decisive factor. Denmark does not have a dedicated IP court. Prosecutors need to know if evidence is strong enough to investigate the case. Another common mistake is a lack of objectivity. One cannot only look at complainant’s side. The position of the other party also needs to be understood.
It is very difficult for prosecutors to pursue a case if the complainant is not able to explain the trade secret and how it was violated. Complainants have to prove that the secret was used in another technique to produce another product. The case has to be persuasive and obvious. This requires specialist skills. Legislation makes it possible to request specialists but this not been used much yet. To proceed with prosecution, you need a clear infringement. Prosecutors should also be informed if the same cases are proceeding simultaneously in other countries.
Expert witnesses can be useful to help judges to understand the trade secret violation. If the prosecutor cannot explain, experts should be brought in. It is important for open dialogue between prosecutors, investigators and reviewers since evidence can change during the course of the case.
2, Topic: Maintaining confidentiality throughout the entire course of prosecution and trial - The approach of the EU Directive
Speaker: Mr Jorg WEBERNDORFER, Policy officer, DG TRADE, European Commission
If confidentiality is not guaranteed infringed persons will not be willing to come forward. The prospect of losing the confidentiality of a trade secret in the course of legal proceedings often deters trade secret holders from initiating legal proceedings to defend their secrets, thus jeopardising the effectiveness of the measures, procedures and remedies provided for.
Subject to appropriate safeguards ensuring the right to an effective remedy and to a fair trial, it is necessary to establish specific requirements aimed at protecting the confidentiality of litigated trade secrets in the course of legal proceedings. The purpose of Article 9 of the Directive is to preserve the confidentiality of trade secrets in the course of legal proceedings. A lot of companies complain about trade secrets being breached but are afraid of giving details out of fear of damage to their reputations or brands.
Confidentiality should apply not just to the time of proceedings but remain in force after the legal proceedings have ended, as long as the trade secret is not in the public domain.
Article 9 Paragraph 1 sets out the obligations of participants in procedures. Member States are obliged to ensure that any persons participating in legal proceedings related to trade secret infringements are not permitted to use or disclose any trade secret that the competent judicial authorities have identified as confidential. The obligation remains in force after the judicial proceedings have ended and shall cease to exist where it is discovered that the requirements of a trade secret are not met or where, over time, the information has become generally known or readily available within the circles normally dealing with this kind of information.
Paragraph 2 sets out access questions. Member States shall ensure that the competent judicial authorities may take specific measures necessary to preserve the confidentiality of the trade secret. These measures shall at least include the possibility of: a) restricting access to any document containing trade secrets to a limited number of persons; b) restricting access to hearings, when trade secrets may be disclosed, and the corresponding record or transcript of those hearings to a limited number of persons; c) making available to any person other than those limited number of persons a non-confidential version of any judicial decision, in which the passages containing the trade secrets have been removed or redacted.
The limited number of persons shall be no greater than necessary to ensure compliance with the rights of the parties to an effective remedy and to a fair trial, and shall include at least one natural person and one lawyer or representative on each side.
Speaker: Mr Jan ØSTERGAARD, Head Prosecutor, Denmark
It is necessary to strike the right balance between maintaining trade secrets and the public interest.
In Denmark the investigation of cases is kept secret. During court trials, the media can be told a little about the process (but not about the trade secrets). Trials may be public unless minors are involved. However, you can’t keep the whole case secret. The public needs to understand the verdict. For this reason, after a judgement has been made, there is a short period of publicity, after which important secrets can be safeguarded by rules of access. For the system to work, judges and prosecutors need to be well-educated and understand the implications of their cases.
3, Topic: How SMEs can protect and enforce their trade secrets in mainland China: A practical experience of the differences between the EU and mainland China
Speaker: Mr Reinout van MALENSTEIN, IP Expert, China IPR SME Helpdesk
The speaker shared practical experience of mistakes made by SMEs doing business in China. He remarked that it is possible to protect your IPR in China but it takes effort.
A trade secret is non-public information providing a competitive advantage and kept confidential by its holder. It is not the same as patent, which is a monopoly right, which will be disclosed to the public after 20 years. A trade secret, on the other hand, does not have a time limit.
Reverse engineering is legal in the EU and Europe so a trade secret is not enough to protect some devices. However, if there is software inside, it may be able to keep it secret.
Examples of trade secrets are processes, methods, recipes, undisclosed inventions, undisclosed designs, marketing strategies, customer lists and materials. For example, coca cola’s recipe is a trade secret.
Mr Van Malenstein offered some case studies from China. A company named Neoplan registered its bus design as a design patent, which was awarded. A local competitor put a similar bus on the market. Neoplan started legal proceedings against the company in 2006 and was eventually successful and awarded damages of 21.16 million renminbi (RMB). While this looked like a successful case, in 2012 the Beijing High Court overruled the previous decision on the grounds that the patent was invalid. This was because Neoplan had published the design in a magazine in Germany. The lesson from this case is that you have to register your design patent in China before you disclose your design patent anywhere in the world. The same issue could be facing Rover because it has displayed a car (the design of which has been copied) in a car show. So you need to keep it secret and keep it safe. This practice differs from that of the EU whereby if a patent is not registered, it will get automatic protection for three years. After it is registered, it will get 25 years of protection.
The law in China provides some protection of trade secrets. It is not allowed to: 1) Obtain trade secrets by theft or other illegal means; 2) Disclose, use, or allow others to use trade secrets acquired by theft or other illegal means; 3) Disclose, use or allow others to use a trade secret whilst breaching an agreement or confidentiality obligation. If you have contracts in place, you can add protections. 4) There is also third-party liability applying to those who knew or should have known that a trade secret has been misappropriated.
There are three ways to protect secrets: physical measures, technological measures and contractual measures. While protection does not have to be 100%, reasonable measures must be taken.
Physical measures should include marking documents as confidential, introducing access restrictions (for example to facilities) and tracing systems, limiting access to classified information and disclosing it only on a need-to-know basis.
Technological measures should include separating manufacturing and assembly steps, using special fonts, such as micro text (which are copier and scanner-proof), adopting passwords or codes, using locking systems on the confidential information, monitoring electronic transmissions and not connecting computers with trade secrets to the internet or fitting them with USB ports.
Contractual measures should include confidentiality and non-competition agreements with employees (in Chinese and English and the local language) and preparation and procedures for when employees depart. Contracts must specify what may and may not be done in a way that employees understand. Training should be comprehensive in explaining to employees what is secret and what will happen if the secret is disclosed, such as they may be subject to prosecution and 3-7 years in prison. It is also important to ask employees to sign acknowledgement of receiving access to confidential information, before granting them access.
Contracts with employees should specify that ownership of any intellectual property created by the employee during her employment, is assigned to the company. That said, employers are obliged to give employees rewards for their contributions of RMB3,000 per invention patent and RMB1,000 per utility model or design. If they do not do this, employees may sue them for a percentage of profits (a minimum of 2% per year) from the profits generated from the exploitation.
When employees leave, it is important to conduct exit interviews to remind them of the obligation not to disclose trade secrets, get written acknowledgment of access to certain confidential information and attach a list of such information, return all electronic storage devices, such as USB drives (and get written acknowledgement that all equipment has been returned) and end electronic access to premises and data systems.
In terms of enforcement, if something goes wrong, evidence needs to be notarised by a Chinese notary public. Otherwise, it will not accepted by courts and administrative authorities. Source codes, for example, can be notarized with a notary public.
There are other enforcement options. Administrative enforcement is fast, cheap and reasonably efficient. It can result in confiscation, destruction or fines but no damages or compensation.
Civil enforcement before the People’s Court is advisable for more difficult cases. While compensation can be awarded, this method is time-consuming and more expensive.
Mr Van Malenstein summed up that it is important to protect your trade secrets with physical, technological and contractual measures, register your IP as soon as possible, always sign NDAs and confidentiality agreements before disclosing trade secrets and include confidentiality provisions in all employee contracts.