December 2022
Jane Tsai, Jack Hsieh, and Julian Lai
1. Legislative history and purpose:
The Intellectual Property Case Adjudication Act (hereinafter, the “Act”) was previously amended on May 20, 2014 with the addition of Article 10-1, which provides: “In trade secret misappropriation cases, if a party has made a preliminary showing that his/her trade secret has been or is likely to be misappropriated, and the other party denies such an allegation, the court shall order the other party to raise a specific defense as to the reasons for the denial.” The legislative reasons stated that: “…In civil cases involving trade secret misappropriation, it is often difficult for one of the parties to collect evidence for the facts of misappropriation and the scope of damage, and if the opposing party cannot be compelled to submit evidence to the court while the party asserting facts of trade secret misappropriation or potential misappropriation is required to assume all burden of proof for the facts of misappropriation and the scope of damage, it will be difficult for a victim to obtain the due remedies. Therefore, it is specifically stipulated in Paragraphs 1 and 2 that if the party asserting facts of trade secret misappropriation or potential misappropriation has elucidated the facts while the opposing party denies the assertion, the court shall order the opposing party to provide an defense along with specific reasons concerning the facts so denied within a stated period (e.g., the acquisition sources of the trade secrets, the scope of use, etc.) instead of just denying the allegations plainly. If the opposing party fails to provide an defense or provides an unspecific defense without justification, the court may, at its discretion, recognize the content of the asserting party’s elucidation as true, so as to encourage the parties to assist the court in making a proper decision….”
Accordingly, this article seeks to reduce a victim’s burden of proof and to order the perpetrator to respond specifically to the facts so denied. However, in practice, to ascertain how to determine that the victim “has provided the elucidation” in practice, this article attempts to briefly analyze the status of the current practice based on a number of cases below.
2. Practical cases:
(1) Transmission of emails outside of the company by an outgoing engineer (the 106-Tai-Shang-55 Civil Decision of the Supreme Court)
The defendant, a senior engineer in charge of developing cell phone products, was sued for infringing the plaintiff’s trade secrets by sending the company’s trade secrets by email to a private mailbox before he left his employment, while the defendant argued that the email was sent outside the company for overtime use during his employment. The defendant employee argued that he worked overtime, but did not specify the circumstance under which he worked overtime, and even argued that it was so long ago that he could not remember the files he sent home to work on and the date of his transmission during his employment. Unfortunately, both the courts of first and second instances believed that the defendant’s overtime assertion was not unacceptable, and that the plaintiff company was required, instead, to assume the burden of proof to substantiate facts such as the employee’s act of sending emails outside of the company for his/her own interest or for the interest of any third party or the delivery of the materials of the appellant company to locations outside of the company not due to business needs.[1]
The Supreme Court challenged the first instance and second instance decisions and stated that: “After the appellee (i.e., the defendant in the original trial and the outgoing engineer) applied to leave his employment, why did he still need to send any email outside the company, and if he had done so for overtime work, it only makes sense that he should have sent the work results back to the company.” Therefore, the Supreme Court cited Article 10-1, Paragraphs 1 and 2 of the Act and held: “It is not without doubt that the appellant has not fulfilled its obligation to elucidate the facts of the appellee’s infringement of trade secrets. If the appellant is determined to have fulfilled the elucidation obligation while the appellee (i.e., the plaintiff in the original trial) denies it, the appellee shall certainly be ordered to declassify files and specify the situation about the handling of the overtime work to fulfill the obligation to provide a specific defense. The original trial court was questionable when it jumped to the conclusion, simply because the appellant failed to submit evidence, that the files at issue were not trade secrets and were for overtime use without exploring this matter in depth.[2]
The case was reversed and remanded to the court of second instance, where the company invited the head of cybersecurity to testify that the company prohibits sending outgoing mails and that overtime work must be performed by applying for a remote connection, so that the relevant files generated by the employees’ overtime work will remain within the company and not at the employees’ homes. The court of second instance also cited Article 10-1, Paragraphs 1 and 2 of the Act and held that since the witnesses testified after taking an oath, and that the admissibility of their testimonies should not be denied simply because they were the plaintiff’s employees. In addition, since the defendant failed to provide concrete evidence sufficient to prove that the witnesses’ statements are not consistent with the facts, the defendant’s argument was found unacceptable.[3]
(2) Use of the trade secrets of the original company concerning the research and development of machines by former employees at the new company (the 107-Min-Ying-Shang-1 Civil Decision of the Intellectual Property and Commercial Court)
The plaintiff company asserted that the former employees joined the defendant company and used the plaintiff’s trade secrets as the basis for the research and development of automated machines. The plaintiff company proved that the defendant company started to develop and use the automated machines involving the trade secrets at issue after the plaintiff’s former employees began to work for the defendant company. Although the defendant company argued that it developed the automated machines on its own, still it failed to present evidence to show that the defendant company had used the trade secrets at issue before the plaintiff’s former employee worked for the defendant company and developed the trade secrets at issue on its own. Therefore, citing Article 10-1 of the Act, the Court held that since the defendants “obviously could not specifically explain the reasons why the design of the appellant company’s machines involves the trade secrets at issue, then the fact that the automated machines were not used and developed by the defendants until the four appellants switched to the company can certainly serve as evidence that proves that the appellant company did misappropriate and use the trade secrets at issue.”
(3) Business trade secrets such as a list of customers and price quotations that were stolen by outgoing employees (the 109-Lao-Su-115 Civil Decision of the Shihlin Court of Taiwan)
The plaintiff company asserted that the defendants had worked for 29 months and left the company for poor health after learning about the company’s customer list, quotations, and other operating secrets, and then jumped ship a few months later to the company not a party to the lawsuit that ran the same business. The plaintiff company learned from its customers that the defendants solicited business from the plaintiff company’s customers, and that the distribution of the same products as the plaintiff company’s on the website of the company not a party to the lawsuit indeed began after the defendants started their employment. The court held that the elucidation referred to in Article 10-1 of the Act is sufficient only if the court has formed a generally justified inner conviction as to the existence of certain facts, which is different from the requirement that the truthfulness of a party’s assertion can be upheld if the evidentiary materials submitted by the party are sufficient to cause the court to form a solid inner conviction. However, the plaintiff in this case only presented the information on the website of the company not a party to this lawsuit and did not present any other evidence that proves that the defendants stole and used the plaintiff’s trade secrets, and the information on the website of the company not a party to the lawsuit could only explain that the company not a party to this lawsuit provided such products and services. Are such products and services identical to the plaintiff’s? Did the defendants indeed use the plaintiff’s list of customers, product prices, and cost analysis at the company not a party to the lawsuit? Since the court still could not form a generally justified inner conviction, it could not be concluded that the content of the plaintiff’s elucidation is true.
3. Conclusion:
In the above cases to which Article 10-1 of the Act applies, the first two cases depict more typical situations where the content of the plaintiff’s elucidation was upheld if the plaintiff has “elucidated” the facts of misappropriation while the defendant failed to provide a concrete defense, while the court in the last case held that since the plaintiff did not fulfill the “elucidation” duty, the defendants’ specific elucidation obligation was not explored any further.
As pointed out in the legislative reasons of Article 10-1 of the Act, a civil case involving trade secret misappropriation is often characterized by the difficulty of evidence collection facing one of the parties with respect to the evidence for the facts of misappropriation and the scope of the damage. Therefore, properly reducing the victim’s burden of proof and imposing an obligation to provide an defense on the defendant in this article are critical provisions in trade secret civil cases. Since Article 10-1 of the Act was implemented in 2014, the Supreme Court and the Intellectual Property and Commercial Court have gradually established a standard for the defendant’s duty to collaborate in litigation by providing a specific answer, which can be used as a reference for future court decisions on trade secret misappropriation cases.
The proposed amendments to the Act currently under review not only retain this provision, but also further extends the application of this article to cases of patents and computer program copyrights, and require that the opposing party should mount a specific defense over the facts and evidence so denied.[4] If the draft is adopted smoothly, relevant practical cases are expected to accumulate rapidly with the extension of the scope of application to cover patent and computer program copyright cases, and the court will be prompted to more effectively apply the provisions of Article 10-1 of the Act to further achieve the legislators’ legislative purposes of addressing the hidden nature and unbalanced burden of proof in trade secret misappropriation cases, reducing the extent of substantiation by the rights holder, and imposing a duty of collaboration to provide a specific answer on the perpetrator by adding Article 10-1 of the Act.
[1] See the 102-Zi-4 Decision of the Tainan District Court of Taiwan and the 103-Min-Ying-Shang-3 Decision of the Intellectual Property and Commercial Court.
[2] See the 106-Tai-Shang-55 Civil Decision of the Supreme Court.
[3] See the 106-Min-Ying-Shang-Keng-(1)-1 Civil Decision of the Intellectual Property and Commercial Court.
[4] See Article 36 of the draft Amendments to the Intellectual Property Adjudication Act.
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