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Trade secrets are the driving force of competitiveness for enterprises, particularly if technology-based. Guarding against infringement of trade secrets is therefore a key concern. A recent trade secrets infringement case before Shanghai Pudong New Area People¡¯s Court involving a mysterious extra computer in a server room provides lessons for employers, including how to respond on discovering infringement by an employee.

This was also the first case in China of trade secret infringement in the artificial intelligence (AI) field.

Case overview

Company A is a high-tech enterprise engaged in the research, development and sale of AI chips, and a person surnamed Guo (the full name was not disclosed by the court) was one of its founders and chief operating officer.

In November 2022, staff checking the company¡¯s server room found an extra computer. On extracting the server logs and electronic data, they discovered a large quantity of confidential data, such as core technical code stored in the company¡¯s servers, had been copied, transferred to the computer in question and uploaded to the cloud since the middle of 2022.

These operations were all completed via Guo¡¯s account.

Guo admitted that he had copied and uploaded the technical code from servers in the company¡¯s server room to his personal Baidu Netdisk, a cloud storage service platform.

But he claimed that as the company¡¯s chief operating officer he had super administrator privileges, and that he did so to back up the company¡¯s data purely for normal work needs.

The core focus of the case lay in whether Guo¡¯s acts constituted infringement of trade secrets.

The court held that, firstly, the company had designed an automatic backup server to create automatic data backups.

Considering the times, means, frequency and content of the code accessed by Guo, and the necessity of doing so, his claim ¡°to back up the company¡¯s data¡± was untenable.

Second, company A had formulated a confidentiality system, set up the relevant server security policies and prohibited copying of the core technology code on the company¡¯s servers and downloading or uploading it to the internet.

Accordingly, as a core member of the company¡¯s personnel, Guo was required to strictly abide by the prohibition.

Third, while well aware that copying and downloading the core technical code could expose the company to major risks, Guo nonetheless exploited his super administrator account while serving as chief operating officer to bypass the server security management settings.

Copying confidential data such as the core technical code stored on the company¡¯s servers to a local computer, then uploading it to his personal Baidu Netdisk, constituted an illegitimate means of obtaining trade secrets.

Finally, the court held that Guo had also breached the company¡¯s non-compete regulations.

Investigation determined that he was involved in external financing activities in his capacity as core personnel of technology company B, and even appeared in its promotional materials.

It was further found there was a striking overlap between the timing of the theft of company A¡¯s trade secrets and his involvement in the financing and promotional activities of company B.

After ultimately pleading guilty, the Pudong court sentenced Guo to two years¡¯ imprisonment, suspended for two years, and imposed a fine of RMB100,000 (USD14,130).

Takeaway

Employers are advised to strengthen protection of their trade secrets in the following ways:

• Establish a sound system for the protection of trade secrets while additionally expressly providing confidentiality terms in employment contracts, or separate confidentiality agreements with employees, and regularly training employees on the protection of trade secrets to enhance their awareness of confidentiality;
• Strengthen technical measures for protecting trade secrets, and subject confidential information and confidential spaces to management by classification and rank; and
• Real-time monitoring and regularly reviewing records of accessing and using trade secrets to ensure that data records relating to them are traceable and matters are promptly dealt with in the event that irregularity is discovered.