Publication Date

8-2013

Abstract

[Excerpt] On July 31, 2013, the Shanghai No. 1 Intermediate People’s Court, before a trial on the merits of the case, issued a preliminary injunction order against a former employee of the Chinese subsidiary of a U.S.-based pharmaceutical company. The injunction order restrained him from disclosing, using, or allowing others to use certain documents containing trade secrets that he downloaded from the company’s database without authorization. In addition, the court also issued an asset preservation order to freeze the ex-employee’s real property and bank account pending the trial.

The former employee admitted he downloaded valuable, highly confidential information to his personal USB drive and personal computer. The downloading of such information was not justified by work-related needs, and violated his confidentiality agreement and the company policies. He later refused to cooperate with the company to delete such information from his personal device and computer. The company terminated his employment, and filed a civil action against him. The court acknowledged that there was a threat of irreparable damage to the company in the event of an unauthorized disclosure or misuse of the alleged trade secrets, and that preliminary injunction and asset preservation remedies were therefore warranted in this case.

This is a landmark case as, according to Chinese media, it is the first case anywhere in China where a party successfully obtained a preliminary injunction and asset preservation order in a trade secrets dispute since the newly amended PRC Civil Procedure Law took effect on January 1, 2013. The amended Civil Procedure Law specifically allows for preliminary injunctions and asset preservation relief in all civil cases. In the past, such remedies were only specifically allowed in patent, trademark and copyright infringement cases. Trade secrets were therefore not well protected under the previous judicial practice, since companies would have to wait until they actually suffered harm before they even had a basis for bringing a claim, and then would have to wait for final judgment (which could be up to one year or more later if all appeals are exhausted) before obtaining any relief. This case thus sets a milestone for trade secrets protection (or breach of confidentiality) cases. It remains to be seen whether the court would enforce the same measures in a non-compete case, which is another type of employer-employee dispute in which preliminary injunctive relief would help the employer prevent further damage resulting from the employee’s alleged breach of duties.

From an employee management perspective, employers should pay more attention to their company policies and agreements related to protection of confidential information as robust company policies and agreements may help the company seek injunctive relief even before the trial on the merits commences.

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Copyright by Baker & McKenzie. Document posted with special permission by the copyright holder.

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