Unitalen Client Nuctech Won Second - Instance Trade Secret Dispute vs. Powerscan

October 31, 2017

As a large security products and service provider, Nuctech Company Limited (hereinafter referred to as Nuctech) provides products and services to more than 150 countries and regions. Since 2003, Nuctech has been cooperating with several companies in Malaysia, among which, Pan Asiatic Technologies Sdn Bhd (hereinafter referred to as PAT) became their exclusive agent in Malaysia.


Starting to work for Nuctech since 1998, Xiaoming Sun was once in the position of General Manager of International Business, responsible for sales in Malaysia and participating in liaison and negotiation with Malaysian Customs. In April 2011, Sun resigned from Nuctech, and established Powerscan Co. Ltd. (hereinafter referred to as Powerscan) in May of the same year as the legal representative. The business scope of Powerscan is manufactory and sales of security products as well.


Back in 2010, 4 sets of Nuctech fast inspection devices recommended through PAT to Malaysian Customs and Ministry of Finance’s CIQ project were approved by the Malaysian government. But in 2011, Nuctech lost the opportunity as a CIQ project supplier, while on September 19, 2011, Powerscan, the new company created by ex-employee Sun, signed a contract with PAT for 2 sets of fast inspection devices to be supplied to Malaysian Customs. In 2013, Powerscan and PAT supplied another 4 sets of fast inspection devices to Malaysian government. Nuctech believed that Powerscan has taken advantage of Nuctech’s marketing information in acquiring the sales contract with PAT, and hence initiated a lawsuit against Powerscan for trade secret infringement and unfair competition.


In 2014, Beijing First Intermediate People’s Court issued first-instance judgement, which ordered Powerscan and Xiaoming Sun to jointly pay 4.4 million RMB Yuan to Nuctech as compensation for economic loss, plus 600,000 Yuan for reasonable litigation costs, with other claims of Nuctech rejected. In disagreement, both parties appealed to Beijing Higher People’s Court. Accepted on May 2, 2017, the case was heard by the collegial panel of Beijing Higher People’s Court in the private session as requested by the parties concerned due to the trade secret involved. Beijing Higher People’s Court of the second instance dismissed the appeal request and sustained the original ruling.


Typical Significance


Factors to be considered in determining whether an agent is a special customer with a long-term stable trade relationship


In this case, PAT involved in the CIQ project was the agent of Nuctech in Malaysia. although Nuctech doesn’t sell fast inspection devices through PAT every year, in view of that the devices are not fast consuming products and the potential demand of Malaysian Customs, combined with Nuctech’s sales performance during 2003 and 2009, it shall be determined that PAT is a customer that has sustained a long-time stable trade relationship with Nuctech. When Sun was with Nuctech, he had not only acquired the knowledge PAT’s trading preference but also the actual sales prices and configuration of the products sold to Malaysian Customs as well as the actual demand of the end user, which can hardly be known to other people in the field. The above-mentioned was determined, by the court of the first instance, as constitution of trade secret that enabled Sun and his Powerscan company to acquire de facto and potential competitive advantages when competing for the Malaysian sales opportunity against Nuctech.


With Sun being the legal representative of Powerscan, the company should have known that Sun’s behavior is of infringement nature while they used the information acquired by Sun. Therefore, Powerscan shall also be held liable for infringing the trade secret of Nuctech.