July 2026
A Study on the Determination Standards and Judicial Cases of Compensation for Infringement of Trade Secrets (Mainland China)
The determination of compensation for trade secret infringement is a complex issue in judicial practice. Although Chinese law has established a basic calculation framework, its application in specific cases still requires comprehensive discretion based on facts and evidence. In view of this, this article attempts to sort out the main standards and judgment approaches for determining compensation in such cases through a preliminary review of relevant legal provisions and judicial precedents.
The core of determining liability for trade secret infringement lies in the calculation of the amount of compensation. Article 22, Paragraph 3 of the Anti-Unfair Competition Law of the People’s Republic of China establishes the basic calculation method, which has been enriched by judicial practice through specific cases.
I. Cases Based on the Calculation of the Right Holder’s Losses
According to Article 22, Paragraph 3 of the Anti-Unfair Competition Law, the amount of compensation may be determined based on the actual losses suffered by the right holder as a result of the infringement. This principle was specifically applied in the judgment of (2016) Hu Min Zhong No.470. In this case, after confirming the establishment of the infringement, the court adopted the method of “number of reduced sales caused by the infringement × average sales profit per product” to calculate the actual losses suffered by the right holder. A notable point in the judgment is that the defendant appealed, arguing that “operating profit” rather than “sales profit” should be used for the calculation. In response, the Shanghai Higher People’s Court, as the court of second instance, clearly stated that the provision for calculating based on operating profit targets “the benefits obtained by the infringer,” whereas the calculation in the first-instance judgment was based on “presumed actual losses suffered by the right holder due to the infringement.” The two have different legal bases; therefore, the defendant’s argument was not accepted. This case clearly demonstrates that when calculating the actual losses of the right holder, an estimation method based on the sales profit of its own products may be adopted, which is distinct from the standard for calculating the profits obtained by the infringer.
II. Cases Based on the Calculation of the Infringer’s Benefits
Article 22, Paragraph 3 of the Anti-Unfair Competition Law also allows the determination of compensation based on the benefits obtained by the infringer due to the infringement. In the judgment of (2011) Hu Gao Min San (Zhi) Zhong Zi No.56, the court held that where the losses suffered by the right holder due to the infringing act are difficult to calculate, and given that the audit report issued by the accounting firm confirmed that the infringer obtained benefits of over RMB 930,000 from the infringing act, and the economic loss caused by the defendant to the plaintiff as identified in the criminal procedure was over RMB 970,000, the total compensation amount of RMB 1.05 million was determined at its discretion, taking into account the reasonable expenses paid by the right holder to stop the infringement. This case illustrates how the court exercises discretion in determining compensation based on the audit conclusion of the infringer’s benefits when the right holder faces difficulties in proving its losses.
III. Reference to License Fees, Statutory Compensation, Punitive Compensation, and Other Special Considerations
Where both the actual losses and the benefits obtained by the infringer are difficult to determine, reference may be made to the license fee for the trade secret. For example, in the judgment of (2015) Ning Zhi Min Zhong Zi No.140, the court of second instance took the license fee agreed upon in the technical contract previously signed between the plaintiff and the defendant as the calculation basis and ordered the defendant to compensate for the corresponding economic losses.
If none of the above methods can be applied, the court shall exercise its discretion to determine the amount within the statutory limit for compensation. At this time, as stipulated in Article 20 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringement of Trade Secrets, the court shall comprehensively consider factors such as the nature and commercial value of the trade secret, the research and development costs, the degree of innovation, the competitive advantage it may bring, as well as the subjective fault of the infringer, the nature, circumstances, and consequences of the infringing act. Numerous cases indicate that factors such as the nature and duration of the infringing act, and the proportion of the trade secret in question to the overall product or process, are all key considerations in determining the amount of compensation. For instance, in the judgment of (2013) Hu Gao Min San (Zhi) Zhong Zi No.134, the court held that the technical secret in question was only part of the overall production process and its proportion was difficult to determine; therefore, it did not support the plaintiff’s claim for compensation based on the overall profit of the infringing product, and ultimately awarded compensation at its discretion.
Regarding punitive compensation, Article 22, Paragraph 3 of the Anti-Unfair Competition Law provides that where a business operator intentionally commits an act of infringement of trade secrets and the circumstances are serious, the amount of compensation may be determined at not less than one time but not more than five times the amount determined by the above method. This reflects the punitive orientation towards serious infringements, but its application in judicial practice is usually cautious, requiring the right holder to provide sufficient evidence to prove that the infringer acted with “malice” and that the circumstances reached a “serious” degree.
Through the analysis of the above cases, it can be seen that the calculation of compensation for trade secret infringement is not a single, rigid process. Rather, it is the result of flexible discretion exercised by the court within the statutory framework, based on the claims chosen by the right holder and the evidence and specific circumstances of the case. Whether calculated based on the losses of the right holder or the profits obtained by the infringer, both rely on relatively complete and reliable financial or audit evidence. In practice, due to the covert nature of trade secret infringement, right holders often face difficulties in adducing evidence, leading a large number of cases to ultimately resort to statutory compensation.
The core of determining liability for trade secret infringement lies in the calculation of the amount of compensation. Article 22, Paragraph 3 of the Anti-Unfair Competition Law of the People’s Republic of China establishes the basic calculation method, which has been enriched by judicial practice through specific cases.
I. Cases Based on the Calculation of the Right Holder’s Losses
According to Article 22, Paragraph 3 of the Anti-Unfair Competition Law, the amount of compensation may be determined based on the actual losses suffered by the right holder as a result of the infringement. This principle was specifically applied in the judgment of (2016) Hu Min Zhong No.470. In this case, after confirming the establishment of the infringement, the court adopted the method of “number of reduced sales caused by the infringement × average sales profit per product” to calculate the actual losses suffered by the right holder. A notable point in the judgment is that the defendant appealed, arguing that “operating profit” rather than “sales profit” should be used for the calculation. In response, the Shanghai Higher People’s Court, as the court of second instance, clearly stated that the provision for calculating based on operating profit targets “the benefits obtained by the infringer,” whereas the calculation in the first-instance judgment was based on “presumed actual losses suffered by the right holder due to the infringement.” The two have different legal bases; therefore, the defendant’s argument was not accepted. This case clearly demonstrates that when calculating the actual losses of the right holder, an estimation method based on the sales profit of its own products may be adopted, which is distinct from the standard for calculating the profits obtained by the infringer.
II. Cases Based on the Calculation of the Infringer’s Benefits
Article 22, Paragraph 3 of the Anti-Unfair Competition Law also allows the determination of compensation based on the benefits obtained by the infringer due to the infringement. In the judgment of (2011) Hu Gao Min San (Zhi) Zhong Zi No.56, the court held that where the losses suffered by the right holder due to the infringing act are difficult to calculate, and given that the audit report issued by the accounting firm confirmed that the infringer obtained benefits of over RMB 930,000 from the infringing act, and the economic loss caused by the defendant to the plaintiff as identified in the criminal procedure was over RMB 970,000, the total compensation amount of RMB 1.05 million was determined at its discretion, taking into account the reasonable expenses paid by the right holder to stop the infringement. This case illustrates how the court exercises discretion in determining compensation based on the audit conclusion of the infringer’s benefits when the right holder faces difficulties in proving its losses.
III. Reference to License Fees, Statutory Compensation, Punitive Compensation, and Other Special Considerations
Where both the actual losses and the benefits obtained by the infringer are difficult to determine, reference may be made to the license fee for the trade secret. For example, in the judgment of (2015) Ning Zhi Min Zhong Zi No.140, the court of second instance took the license fee agreed upon in the technical contract previously signed between the plaintiff and the defendant as the calculation basis and ordered the defendant to compensate for the corresponding economic losses.
If none of the above methods can be applied, the court shall exercise its discretion to determine the amount within the statutory limit for compensation. At this time, as stipulated in Article 20 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringement of Trade Secrets, the court shall comprehensively consider factors such as the nature and commercial value of the trade secret, the research and development costs, the degree of innovation, the competitive advantage it may bring, as well as the subjective fault of the infringer, the nature, circumstances, and consequences of the infringing act. Numerous cases indicate that factors such as the nature and duration of the infringing act, and the proportion of the trade secret in question to the overall product or process, are all key considerations in determining the amount of compensation. For instance, in the judgment of (2013) Hu Gao Min San (Zhi) Zhong Zi No.134, the court held that the technical secret in question was only part of the overall production process and its proportion was difficult to determine; therefore, it did not support the plaintiff’s claim for compensation based on the overall profit of the infringing product, and ultimately awarded compensation at its discretion.
Regarding punitive compensation, Article 22, Paragraph 3 of the Anti-Unfair Competition Law provides that where a business operator intentionally commits an act of infringement of trade secrets and the circumstances are serious, the amount of compensation may be determined at not less than one time but not more than five times the amount determined by the above method. This reflects the punitive orientation towards serious infringements, but its application in judicial practice is usually cautious, requiring the right holder to provide sufficient evidence to prove that the infringer acted with “malice” and that the circumstances reached a “serious” degree.
Through the analysis of the above cases, it can be seen that the calculation of compensation for trade secret infringement is not a single, rigid process. Rather, it is the result of flexible discretion exercised by the court within the statutory framework, based on the claims chosen by the right holder and the evidence and specific circumstances of the case. Whether calculated based on the losses of the right holder or the profits obtained by the infringer, both rely on relatively complete and reliable financial or audit evidence. In practice, due to the covert nature of trade secret infringement, right holders often face difficulties in adducing evidence, leading a large number of cases to ultimately resort to statutory compensation.
The contents of all newsletters of Shanghai Lee, Tsai & Partners (Content) available on the webpage belong to and remain with Shanghai Lee, Tsai & Partners. All rights are reserved by Shanghai Lee, Tsai & Partners, and the Content may not be reproduced, downloaded, disseminated, published, or transferred in any form or by any means, except with the prior permission of Shanghai Lee, Tsai & Partners.
The Content is for informational purposes only and is not offered as legal or professional advice on any particular issue or case. The Content may not reflect the most current legal and regulatory developments. Shanghai Lee, Tsai & Partners and the editors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The contributing authors' opinions do not represent the position of Shanghai Lee, Tsai & Partners. If the reader has any suggestions or questions, please do not hesitate to contact Shanghai Lee, Tsai & Partners.
