Taiwan IP Court Highest Ever Trade Secret Damages Award Indicates New Trend Favoring Innovators
【Lung-Sheng Chen／Associate Professor, National Chung Hsing University】
On December 6, 2017, the Taiwan Intellectual Property Court (the IP Court) handed down its first-instance decision in a trade secret misappropriation case (Intellectual Property Court 102 Min Yin Su Zi No. 6). The IP Court held for the plaintiff, Largan Precision Co. Ltd. (Largan), awarding the company enhanced damages of NT$1,522,470,639 (approximately US$50.7 million). This might be the largest damage award for a trade secret misappropriation case in the court’s history.
Definition of a Trade Secret
Taiwan’s Trade Secret Act was enacted in 1996. Unlike other intellectual property rights such as patents and trademarks for which the right holders have to file an application to the government before the rights are granted, trade secrets are protected without any governmental approval or registration. As provided in Article 2 of Taiwan’s Trade Secret Act, a trade secret is defined as “a method, technique, process, formula, program, design, or other information that may be used in the course of production, sales, or operations.” For a secret to be eligible for trade secret protection, the secret has to meet the following requirements:
- the secret should not be known to persons who are generally involved in the same field;
- the secret should have economic value, actual or potential, due to its secretive nature; and
- the secret owner should have taken reasonable steps and measures to maintain its secrecy.
Remedies for Trade Secret Misappropriation
Before it was amended in 2013, Taiwan’s Trade Secret Act only provided civil remedies for secret owners whose secrets were misappropriated. In order to enhance protection for trade secrets, Taiwan amended the act in 2013 to include criminal liability provisions. Therefore, anyone misappropriating trade secrets is subject to both civil liability and criminal liability under Taiwan’s current Trade Secret Act.
Article 10 of the act sets out five categories of actions that are deemed as misappropriation of a trade secret:
- to acquire trade secrets by improper means;
- to knowingly (or unknowingly due to gross negligence) acquire, use, or disclose trade secrets;
- to knowingly (or unknowingly due to gross negligence) use or disclose a trade secret previously acquired by improper means;
- to use or disclose by unjust means a trade secrets previously acquired from a lawful source; or
- to use or to disclose without due cause a trade secret to which the law imposes a duty to maintain its secrecy.
In other words, misappropriation occurs when someone improperly acquires, discloses or uses a trade secret without the trade secrets holder’s consent, or if at the time of disclosure or use, they knew or had reason to know that the trade secret had been acquired by someone else by mistake or by accident.
The criminal liability provisions are set forth in Article 13 bis and Article 13 ter. Article 13 bis of the act provides that a person will face criminal penalties including jail time of up to five years and a fine ranging from NT$1 million (US$34,350) to NT$10 million (US$343,495) if the person in question:
- acquired trade secrets by improper means,
- reproduced, misappropriated or disclosed trade secrets without authorization, or
- had been requested by the trade secret owner to destroy the confidential information, but failed to destroy the confidential information as requested.
In addition, if the misappropriation or disclosure of the trade secret occurs outside Taiwan, under Article 13 ter of the Act, the defendant is subject to enhanced criminal penalties including jail time of up to ten years and a fine ranging from NT$3 million (US$103,050) to NT$50 million (US$1.7 million).
Injunctive relief is also available under Article 11 of the act when a trade secret owner establishes actual or threatened misappropriation. With regard to monetary damages, the Trade Secret Act expressly permits (1) actual damages; (2) unjust enrichment damages; and (3) enhanced damages. Article 13 of the act sets forth methods in calculating monetary damages that a trade secret owner may recover for injuries resulting from trade secret misappropriation. The trade secret owner may choose any of the following methods to calculate the damages they suffered from the trade secret misappropriation:
- make a claim based upon their actual damages in light of Article 216 of the Civil Code. However, if the trade secret owner is unable to prove the actual amount of damages, the owner may request the infringing party to compensate the amount of profits normally expected from the use of the trade secret minus the amount of profits earned after the misappropriation; or
- request the profits earned through the act of misappropriation from the party who misappropriated. However, if the party who misappropriated is unable to prove the costs or the necessary expenses, the total income gained from the act(s) of misappropriation shall be deemed the profits.
Further, for willful and intentional misappropriation, the plaintiff may also request enhanced damages not in excess of three times the amount of compensatory damages.
If two or more parties jointly misappropriate trade secrets, they are jointly and severally liable for monetary damages under Article 12 of the act.
The Issue at Bar
The secrets at issue in the Largan case are Largan’s lens manufacturing processes. Largan never intended to sell or license these technologies. According to the press release of the IP Court (Chinese-language only), four Largan employees quit their jobs and moved to new positions at Ability Opto-Eletronics Technology Co. Ltd. (AOET). These four departing employees were suspected of having leaked Largan’s trade secrets to AOET. After the four departing employees started to work for AOET, AOET filed two patents allegedly based on Largan’s lens manufacturing processes. After the two patents were granted and published by the Taiwan Intellectual Property Office, Largan began to suspect that its trade secrets had been unlawfully acquired by AOET. Largan thus filed a civil action against AOET and these four employees.
The IP Court issued its first instance decision on December 6, 2017. The IP Court first found that Largan’s lens manufacturing process technologies met the requirements set forth in Article 2 of the Trade Secret Act and therefore qualified for trade secret protection. The IP Court further found that the four departing employees and AOET willfully misappropriated Largan’s trade secrets.
The IP Court awarded Largan an enhanced damages award of NT$1,522,470,639 (approximately US$50.7 million). The IP Court reasoned that because Largan had invested at least NT$600 million (US$20.6 million) in the research and development of its lens manufacturing processes, R&D costs should be considered as part of the harm Largan has suffered from the misappropriation. In other words, the IP Court accepted Largan’s methods of calculation of actual loss based on the investment value of its trade secrets. The IP Court noted that the plaintiff’s investments in know-how were not in vain but for the defendant’s illegal and willful misappropriation of the trade secrets at issue. Consequently, the IP Court, pursuant to Article 13 of the Trade Secret Act, held for the plaintiff and issued enhanced damages, three times the established damages.
This is an important case that has been closely observed for years by Taiwan’s IP community. One of the important aspects of the IP Court’s decision lies in how the IP Court calculated the trade secret owner’s damages. The trade secret owner in this case is well noted for its excellent financial performance and for its high stock price in Taiwan’s publicly-traded stock market. As such, Largan might not be able to claim that it has suffered any financial difficulties due to AOET’s misappropriation. When determining the amount of damages for an intellectual property infringement, the IP Court’s case law indicates a trend focusing on the financial loss of the right owners or the infringers’ actual profits derived from the infringing activities. However, the IP Court’s 2017 Largan decision suggests a different approach to calculating the amount of damages. This new approach that focuses on the right owner’s investment in research and development of the technologies will encourage technology companies to invest more in new and creative technologies. Of course, the IP Court’s huge damage award in the Largan case will be a message sent to innovators that they may consider protecting their know-how by fulfilling the requirements of the Trade Secret Act.
[Views expressed in in this article are exclusively those of the author and do not necessarily reflect views of NAIP or any of its affiliates.]