Lusheng Law Firm, Rouse’s strategic partner, has successfully secured a significant victory for a long-established IP licensing agent in China (the “plaintiff”) in a complex unfair competition dispute concerning trade secrets.
The case concerned the protection of commercially valuable client and licensing information that underpinned the plaintiff’s competitive position in the IP licensing industry.
The plaintiff had been operating as a licensing agent for more than 20 years. The dispute arose after a key employee of the Japanese rights holder, the individual defendant, who was one of the core personnel responsible for reviewing and approving the plaintiff’s licensing applications, later established his own company in the China market, entering into direct competition with the plaintiff.
Despite its limited capital and short operating history, the defendant company quickly became involved in a number of significant licensing projects. The plaintiff alleged that, in six of those projects, the terms later agreed by the defendant company were substantially similar to those previously submitted by the plaintiff for approval.
The plaintiff further contended that the misconduct went beyond the misuse of its confidential information. It was alleged that the individual defendant used his position in the licensing approval process to selectively delay certain applications beyond the agreed review period, whilst simultaneously contacting the plaintiff’s clients privately, encouraging them to switch to the defendant company and raising concerns about the stability of the plaintiff’s licensing authorisation.
Lusheng framed the case as more than ordinary market competition, arguing that the defendants had gained an unfair commercial advantage by misusing the plaintiff’s confidential information and damaging its reputation.
To support this position, Lusheng organised and presented evidence showing the defendants’ access to the plaintiff’s confidential submissions, their knowledge of the confidential nature of that information, and their subsequent involvement in diverting related business opportunities.
Lusheng also established that the plaintiff had taken reasonable measures to protect its trade secrets, and carried out a detailed comparison between the plaintiff’s licensing submissions and the goods later licensed by the defendants across six projects, demonstrating substantial similarity in customer, products and transaction terms.
The Court accepted the arguments advanced by Lusheng, holding that the information contained in the plaintiff’s licensing submissions qualified as protectable trade secrets. As the defendants failed to provide evidence of either independent development or a lawful source for the information, the Court concluded that they had used the plaintiff’s trade secrets.
The Court also rejected the defendant’s argument that a non-exclusive licensing arrangement precluded a finding of infringement. Whilst lawful competition was permissible, the use of confidential materials to obtain a competitive advantage was not, nor could the defendants rely on the internal decisions of the IP rights holder to avoid liability for their unlawful conduct.
The defendants were subsequently ordered to cease the infringing conduct and jointly pay the plaintiff RMB 4.7 million in compensation, a significant outcome that reflected the value of the diverted commercial opportunities, the plaintiff’s long-term investment in developing the business and the harm caused to its reputation.
The decision draws an important distinction between lawful competition under a non-exclusive licensing arrangement and unlawful competition based on the misuse of confidential information.
It confirms that client and transaction information developed by a licensing agent may constitute the agent’s own protectable trade secrets, rather than information that automatically belongs to the upstream rights holder.
It also highlights the risks inherent in IP licensing approval chains, demonstrating that IP licensors and their employees may themselves incur liability if they misuse the information contained in licensing application submissions.
Lusheng team: Carol Wang, Heidi Feng, Susie He
