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At an IP strategy forum held by the Taiwanese Society of International Law, Taiwan Intellectual Property Court judge Hsiung Sung-mei looked back at some of the major trade secret cases that have driven improvements in trade secret legislation in Asia and Taiwan, grabbing headlines in the process.

Trade secret cases in Taiwan are all handled by the Taiwan Intellectual Property Court and can be appealed upon approval at the Supreme Court level. Although there are less trade secret cases in Taiwan than other forms of intellectual property litigation, this figure has risen since 2012, according to Hsiung.

Japanese Amendment to Trade Secret Guidelines:

Judge Hsiung cited two trade secret cases that were influential in driving the Japanese government to change the guidelines for management of trade secrets in 2015. The main thrust of the revisions lowered the requirements for what was considered protected information and detailed the labeling and access requirements for what constitutes a trade secret. This also spurred changes to guidelines in Europe and the US as well as having a ripple effect across Asia.

Case 1: Nippon Steel vs. POSCO
(And POSCO vs Baoshan Steel and Iron Co.)

In 2007, during a criminal investigation by South Korea’s Daegu District Prosecutor’s Office into a former employee of South Korean steelmaker POSCO who had leaked trade secrets back in 2006– relating to grain oriented electrical steel –to China’s Baoshan Steel, it came to light that the trade secrets in question had been illegally obtained from Japanese steelmaker Nippon Steel, now Nippon Steel & Sumitomo Metal. The employee – Mr Lee – used this in his defense, but he was found guilty and jailed notwithstanding. However, the name of a former Nippon Steel employee was mentioned in the final judgment of the case. Nippon Steel launched an investigation into the leak of trade secrets to POSCO in 2008, filing suit with the Tokyo District Court on April 19, 2012 and in the US on April 25, 2012, after confidential Nippon Steel documents were reportedly found at the residence of the former Nippon Steel employee in the autumn of 2011. POSCO launched a countersuit in South Korea, while applying to nullify patents associated with the steel with both the Korean Intellectual Property Office and the United States Patent and Trademark Office. KIPO announced that four of Nippon Steel’s patents were null due to prior art. POSCO and Nippon Steel & Sumitomo Metal finally reached a ¥30 billion (US$294 million) settlement on September 30, 2015, at the Tokyo District Court and agreed to halt cases in South Korea and the US.

Case 2: Toshiba Co vs. SK Hynix Inc.
(And SanDisk vs. SK Hynix Inc.)

Japanese semiconductor firm Toshiba filed a lawsuit against South Korean chip maker SK Hynix in March 2014, shortly following the arrest by Tokyo police of a former employee of Toshiba’s US partner SanDisk, who had gone on to work for the Korean company. The employee was alleged to have disclosed trade secrets concerning NAND flash memory technology which had been licensed to the US company by Toshiba in order to improve his contract terms with the South Korean firm. SanDisk launched a parallel lawsuit in the US on March 13, 2014. Although Toshiba initially sought ¥109.2 billion (US$1.1 billion) and the destruction of all information on the technology, as well as an end to production and sales of products which used the technology, the suit was settled at the end of 2014 for ¥33 billion (US$323 million) as part of a cross-licensing agreement. SanDisk also dropped its lawsuit in exchange for a cross-licensing agreement.

International Trade Secret Cases Involving Taiwan:

Judge Hsiung also listed several cases involving Taiwan that have been very influential in shaping trade secret legislation in Taiwan and the way companies draft employment contracts.

Case 3: TMSC vs. Samsung

This case involved a non-compete clause enforced by Taiwan Semiconductor Manufacturing Company (TSMC) on their former head of R&D Liang Mong-song, who had subsequently gone on to work for the company’s South Korean rival Samsung. After leaving TSMC in February, 2009, Liang went on to hold a teaching position at National Tsing Hua University. Six months later he started a new job teaching at Samsung’s partner university Sunkyungkwan University in Seoul in South Korea. He is believed to have leaked trade secrets to Samsung before he was hired by the company at the beginning of 2011, when the non-compete clause expired. TSMC filed suit in an attempt to stop him from working at the South Korean firm. They filed a preliminary injunction as well as civil litigation in May 2014. Although the preliminary injunction failed, the Taiwan IP Court ruled in the second instance that he could not work for Samsung. This ruling was later upheld by the Supreme Court in Taiwan in January 2015, which forbade him from working for Samsung until the end of 2015.

Trade Secret Battles in Taiwan and China:

The close nature of cross-strait ties and an increasing flow of employees between companies in China and Taiwan means that there have also been quite high-profile trade secret lawsuits across the Taiwan Strait, said Judge Hsiung.

Case 4: Hon Hai vs Perlos

This case involved a non-compete clause enforced by Taiwanese chip maker Hon Hai, better known in China by its trade name Foxconn, on a former employee surnamed Lin who went on to work at handset casing manufacturer Perlos, which was acquired by Taiwan’s Lite-On Technology in 2007. Hon Hai filed suit against the employee in Taipei District Court in 2010, but failed in the suit because the non-compete clause they drafted was too restrictive and would have forbidden him to work even as a garbage collector, according to the ruling, handed down on July 26, 2010.

The Taipei District Court was of the opinion that the clause constituted a violation of public order and good morals and declared the clause void. They subsequently appealed the ruling, however, in the end they withdrew the case and revised the non-compete clause, specifying what kind of work an employee was limited from pursuing.

Criminal Liability in Taiwan:

Although there was criminal liability for violating the Trade Secret Act previously, the criminal liability was less than one year. Many companies felt it was not enough to punish or prevent the leaking of trade secrets, according to Judge Hsiung. She stated that there are many disadvantages of trade secret wars in the civil court. Firstly, she pointed out, it is hard to prove the secret infringing act and damages. She also stated that many foreign companies complain that there is no discovery system in Taiwan. She stated that Taiwan does have a preservation of evidence order that can be filed in advance of litigation.

Case 5: AU Optronics vs China Star Optoelectronics

A former executive of Taiwanese electronics firm AU Optronics, Hsu Tsung-yi, was sentenced by the Hsinchu District Court to six months imprisonment in December 2015, with permission for prosecutors to use their discretion in offering to commute the sentence to a fine of NT$180,000 (US$5,540). Hsu was appointed as deputy head of R&D for AU Optronics’ technology department in 2008. He is said to have passed secrets relating to the AMOLED production process and the structure of the firm’s thin film transistors (TFT) to Shenzhen-based rival firm China Star Optoelectronics in May of 2011. At the end of February 2012, Hsu left AU Optronics and was appointed head of the China Star Optoelectronics R&D center, where he reportedly passed on more of the Taiwanese firm’s trade secrets to the Chinese firm. The case is currently pending at the Taiwan Intellectual Property Court where Hsiung presides as a judge.

Case 6: MediaTek vs MStar

According to Judge Hsiung, this case was influential in Taiwan changing its Trade Secret Law. This case dragged out from 1998 until 2012. MediaTek brought the case against a former employee, but in the end the employee was only fined money and served no time in prison. The case ignited industry debate over the vulnerability of Taiwanese trade secrets, due to the lax punishments violators face.

Trade Secret Act Amendment:

In response to urging by the IC industry, Taiwan added an amendment to the Trade Secret Act on January 11, 2013, that came into effect on February 1, 2013, upping the punishments for trade secret violations, with a jail sentence of five years for domestic violations, and a sentence of 1-10 years for the misappropriation of trade secrets outside of Taiwan (including China, Macao and Hong Kong). This act used the US Economic Espionage Act of 1996 as a reference, said Judge Hsiung. There have only been two cases in front of the Taiwan Intellectual Property Court after the amendment, casting doubt on the usefulness of criminal liability, according to Hsiung.

Case 7: HTC vs Mr Chien

This is the first trade secret case to be prosecuted after the amendment to the Trade Secret Act. The Taipei District Prosecutor’s Office filed charges against Chien Chih-lin, a designer from Taiwanese phone maker HTC in December 2013. Chien, who then served as the deputy head of the design department, along with the head of the industrial design department Wu Chien-hung, was accused of attempting to lure their subordinates at the company into founding another company, of disclosing HTC trade secrets to others in Beijing in advance of founding a company there with Wu and of taking part in illicit transactions by taking a kickback totaling over NT$33.5 million (US$1 million). This case is still underway at the Taipei District Court and there has been no verdict yet.

Case 8: MediaTek vs Mr Yuan

MediaTek filed two kinds of litigation against a former executive of the company Yuan Ti-wen, who left his job at the company and went to work for Beijing-based firm Tsinghua Unigroup, which is affiliated with Tsinghua University in Beijing. The first was a preliminary injunction. The final judgment was made on February 10, 2014. The civil court said that Mr Yuan could not work for the competing company during the term of the non-compete clause. However, no criminal investigation was conducted, likely due to a lack of evidence.

Ministry of Justice Issues Instructions:

The Ministry of Justice recently issued a notice to all prosecution offices on how to investigate trade secret cases on April 19, 2016, according to Judge Hsiung. Taiwan also set up a Taiwan Trade Secret Protection Association in April 2016.

Author: Conor Stuart Current Post: Senior Editor, IP Observer Education: MA Taiwanese Literature, National Taiwan University BA Chinese and Spanish, Leeds University, UK Experience: Translator/Editor, Want China Times Editor, Erenlai Magazine

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