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First case in Shanghai under Chinese criminal law

On April 26, 2024, the Shanghai Pudong Court released the “Typical Cases of Intellectual Property Judicial Services by the Shanghai Pudong New Area People’s Court to Ensure High-Quality Development of New Productivity” (上海市浦东新区人民法院知识产权司法服务)保障新质生产力高质量发展典型案例), which included a criminal case involving a newer provision of Chinese criminal law somewhat analogous to the US Economic Espionage Act. This is believed to be the first case in Shanghai to fall under this provision and may be related to last year’s police raids on Bain and/or Capvision, although the Court has not released any information on the identities of the entities involved.

As explained by the Shanghai Pudong Court:

Case 12

Determination of the elements of the crime of illegally providing trade secrets to a foreign country – the first case of espionage and illegally providing trade secrets to a foreign country in Shanghai

Summary of judgment

Article 219-1 of the Criminal Code states that “the crime of spying and illegally providing commercial secrets abroad” must be determined on the basis of the following elements: first, the object of the perpetrator’s infringement is a trade secret that is protected by Chinese criminal organizations. law; second, the perpetrator objectively spied and illegally provided commercial secrets; third, the commercial secrets were spied on and provided to foreign institutions, organizations and personnel, and the perpetrator knew it. Foreign institutions and organizations include not only institutions and organizations located in other countries or regions abroad, but also their branches (representative) institutions and industry associations located in China, as well as institutions and organizations in Hong Kong, Macau and Taiwan. If the perpetrator is not clearly informed that the commercial secrets are being spied on and provided to foreign countries, but subjectively should know this and adopts a laissez-faire attitude, there is knowledge.

Basic facts

From August 2017 to 2020, Defendant Zheng worked as a thin-film equipment engineer at a storage company. He signed the “Employment Agreement” and the “Confidentiality Agreement upon Dismissal” and promised to keep the company’s trade secrets confidential. In August 2021, Defendant Zheng accepted an invitation from an information company and became the company’s industry expert advisor. From October 2021 to the time of the incident, suspect Zheng violated the confidentiality agreement with the storage company where he originally worked, used the information he mastered and spied on the employees of the storage company, and accepted the information company’s arrangement. often on behalf of an expert from the storage company to provide paid consultancy services to companies with similar or competing activities as the storage company. Among them, Zheng accepted a telephone interview with the consulting company (whose shareholders are foreign companies) in February 2022. Knowing that the actual consulting party was a foreign organization, he still illegally provided the trade secrets of the storage company he spied on. and learned to contact foreign organizations and personnel through the information company, and illegally made a profit of 2,062.40 RMB. On September 17, 2022, Defendant Zheng was detained and summoned by the Shanghai National Security Bureau. After being brought to trial, he truthfully confessed to the main facts of the crime and, with the help of his family, surrendered the illegal profits of RMB 2,062.40.

Judgement

After the trial, the Pudong District Court ruled that the commercial information about the relevant products accused by the prosecution was the result of the creative labor of a warehousing company and embodied the wisdom of many R&D personnel. The above-mentioned trade secrets have a significant impact on the company’s competitiveness and future development in international and domestic industries. The company has never released it publicly, and Defendant Zheng has also confirmed that the above information is among the company’s secret information. Therefore, this information is not widely known and not easily accessible to relevant personnel in the field. The storage company has taken reasonable confidentiality measures for the commercial information involved by formulating the “Policy for the Protection of Confidential Information” and signing the “Employment Agreement” and the “Resignation Confidentiality Commitment Letter” with Defendant Zheng. Therefore, the commercial information involved is company trade secrets. After Defendant Zheng resigned, he violated the trade secret retention agreement with the storage company and the company’s confidentiality system. Knowing that the consulting party was a foreign organization, he nevertheless provided the consulting party with the trade secrets involved in the case that he had illegally discovered from his former colleagues, together with the trade secrets he possessed. His conduct constitutes the crime of overseas espionage and illegal disclosure of trade secrets. Based on this, the court sentenced defendant Zheng to two years and six months in prison and a fine of RMB 10,000 for espionage and illegally providing trade secrets abroad; the illegal profits were confiscated.

After the judgment in the first instance, defendant Zheng did not appeal and the Public Prosecution Service did not lodge a protest. The judgment is now in effect.

Typical meaning

This case is the first accepted by the Shanghai court for the newly added crime of “stealing, spying, purchasing and illegally providing trade secrets to foreign countries” since the implementation of the Criminal Law Amendment (XI). These are former employees of key companies in China’s high-tech sector, who, in the name of expert consultation, leaked important trade secrets they spied on and taught to foreign organizations through consulting firms and made profits, causing serious damage to development and the economy. interests of the companies. The verdict in this case strictly covers the constituent elements of the crime, cracks down on commercial espionage crimes committed by foreign organizations against key high-tech enterprises in China, protects the independent intellectual property rights of Chinese companies in accordance with the law, helps enhance international competitiveness and protect China’s national security and national interests.

The original text (with 14 other typical case summaries) is available here (in Chinese only).

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