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Does Collective Poaching of Key Cadres Inevitably Infringe on Trade Secrets?

Hsiu-Ru Chien/Elina Yu


On April 11, 2019, the Supreme Court issued the 2018 Tai Kang Zi No. 94 ruling (hereinafter called “this ruling”) on a case concerning a petition for injunction maintaining the temporary status quo, rejecting the petitioner’s request bindingly.  The petitioner of this case is an electronic component manufacturer (Company A) in Taiwan, who, on the grounds that his counterpart (Company B) maliciously poached its employees and that Company B therefore illegally obtained and used all its trade secrets, petitioned the court for an injunction maintaining the temporary status quo of the said case to stop Company B's production lines and the sale of the related products, so as not to continue to infringe upon its trade secrets.

 

Company A alleged that starting from the end of November 2013, a total of 12 department heads as well as other high-ranking cadres left their posts within one month successively, and transferred to the comparable positions of Company B; and 6 more key cadres were poached by Company B in the following 2 years, during which Company B revealed an unusual technological leap in a very short period of time.  As a result, company A first filed a criminal suit against Company B.  Afterwards, the prosecutors and police searched company B and detained 42,990 files owned by company A, of which 19,117 were trade secrets.  Company A stated that the etchant seized in Company B, not commonly used in the industry, was introduced in cooperation with Company C, the third party of the said suit; in addition, Company A and Company C also signed a confidentiality agreement. Company A alleged also that its trade secrets management is extremely strict, and the secrets were obtained because those former employees poached by Company B had the permissions of top administrators.

 

Despite the aforesaid facts, the court (in the said case’s historical rulings) still held that Company A explained as well as proved that neither the said infringed data as its trade secrets, nor the truth that Company B did infringe on, its trade secrets.

 

On the aspect of whether or not the said infringed data were trade secrets, the court of this original ruling indicated: "The so-called confidentiality measures refer to those reasonable confidentiality measures taken by the owner of trade secrets.  The appellant alleged that all of the said 19,117 files, having been tabulated and checked by the appellant, complied with the requirements of the Trade Secrets Act.  However, when it comes to considering the category content alleged by the appellant, even though the information had actual or potential economic value, and was not known to the persons generally involved in the information of this type due to its secretive and economic natures, it remains to be clarified whether the information that is not known to the public was protected by means of the methods or technologies commonly available in society with respect to the appellant’s manpower and financial resources, and whether such information was duly categorized, rated, and acquired by staff members with different levels of permissions.  The said appellant did not bear its responsibility of explaining as well as proving the confidentiality measures taken for the alleged trade secrets.

 

As for the aspect of the act of infringing on trade secrets, the court also held that because of the different machine designs used by the production lines of both parties respectively, Company A did not provide evidence to justify the fact that Company B did use the trade secrets-in-litigation.  The former employees’ resignation to work for Company B may involve the "Inevitable Disclosure Principle," which points out the difficulties for the former employees to distinguish between the specific knowledge of their inherent knowledge, and experience gained from their former employer.  They will inevitably disclose the trade secrets of their former employer when engaging in the same or similar work in the competitor, causing the former employer irreparable losses.  Therefore, the former employer may request that the court issue an injunction order to prohibit their former employees from working for the competitor within a certain period of time, or even permanently prohibit the former employees from disclosing trade secrets. However, the court of the original ruling also specifically indicated that Business information is the knowledge generally known to the practitioners of the industry.  Even though business entities may consider the said knowledge confidential and undertake relevant measures for protection, such knowledge may not necessarily acquire the right of trade secrets.  This is because the principle of inevitable disclosure influences the freedom of competition and circulation in the market to a considerable extent, where the said principle favors the fact of the former employer.  Therefore it is the employer who should bear the burden of proof to justify the following items: 1 the former employees know the trade secrets of the former employer; 2 the quantity scope of the former employees before and after their leaving is roughly the same or similar; 3 the former employer's trade secrets known by the former employees are of considerable economic value to the new employer; 4 the former employer's trade secrets are inevitably used by the former employees in the new work place; and 5 the former employees performed misconduct contrary to good faith.  Accordingly, it is the duty of the Court to examine whether or not the trade secrets alleged by the appellant belong to inherent knowledge, or the experience gained from the appellant’s premise."  The court of the original ruling ultimately held that Company A did not bear the responsibility of explaining as well as proving in this regard.

 

The above opinion was finally and bindingly upheld by the Supreme Court ruling.

 

In this case, when the court considered a petition on injunction maintaining the temporary status quo, the court seemed to demand a higher degree of certainty for the party whose rights were allegedly infringed upon.  Even though the said party’s key cadres were collectively poached, such fact may not necessarily be used as a basis for explaining as well as proving the trade secrets infringement.  This case deserves the attention of enterprises in formulating their litigation strategies for similar cases.

 



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