For many years, intellectual property (IP) protection in China has evolved gradually, often presenting challenges for foreign companies entering the market. These enterprises have had to balance the vast opportunities China offers with concerns about enforcing their IP rights effectively. Recently, however, there has been a significant shift. Chinese courts, especially specialized IP courts and the Supreme People’s Court (SPC), are issuing rulings that not only align with international standards but, in some cases, provide even stronger protections for innovators.
A key milestone in this development is the SPC’s recent final judgment in the case between Beijing Jingdiao Technology Group Co., Ltd. (Jingdiao) and a former employee, Mr. Tian, along with a Shenzhen-based company case number (2023) Zui Fa Min Min Zhong No. 2039. The court ordered compensation totaling 381.63 million RMB (approximately 53 million USD). While the amount is remarkable, the ruling’s true importance lies in the court’s reasoning. It established that when a systematic and holistic technical secret is infringed, courts should not limit damages by applying a “low contribution rate.” Instead, they should presume a 100% technical contribution rate, reflecting the overall value of the trade secret and the comprehensive nature of the infringement.
For foreign companies involved in high-tech manufacturing, engineering, and R&D in China, this judgment is a crucial indicator. It shows that the Chinese judiciary is moving away from a fragmented, component-based valuation toward a holistic understanding of integrated technological systems. This article examines this landmark case, explores the legal shift from restrictive protection to holistic recognition, and offers strategic guidance for foreign enterprises seeking to protect their competitive edge in this evolving legal environment.
Part I: Case Overview – From Component-Based Assessment to Systemic Valuation
To appreciate the significance of this judicial shift, it is important to review the case details and the differing views at trial and appellate levels.
Background
Beijing Jingdiao Technology Group is a leading national high-tech enterprise specializing in CNC machine tool R&D, where precision and accumulated technical data are critical to market leadership. Mr. Tian, a former employee, systematically misappropriated Jingdiao’s proprietary information by copying 37,340 design drawings and technical documents, encompassing a comprehensive technical database covering 27 series and 160 machine tool models. Essentially, he stole the core intellectual foundation of the company’s operations. Immediately after resigning, Mr. Tian joined a Shenzhen-based company with no prior R&D experience in this field. This company quickly developed and sold glass machine products closely resembling Jingdiao offerings, effectively “springboarding” off Jingdiao’s hard-earned data to accelerate its market entry.
Trial Court Decision: The Limitations of Contribution Rate
The trial court confirmed the infringement but applied a traditional, conservative approach to damages. It viewed the “machine bed”—the component embodying the technical secrets—as just one part of the entire machine tool. Based on this fragmented perspective, the court assigned a 15% contribution rate to the technical secret’s role in the infringing product’s profits. Even after applying a statutory punitive multiplier of five, damages were capped at 12.8 million RMB.
While mathematically consistent, this outcome was commercially disappointing for Jingdiao. It implied that stealing the core technology essential for product functionality warranted compensation based on only a fraction of the product’s value. This “low contribution rate” approach has long been criticized by IP owners, especially in complex manufacturing sectors where the value of the whole depends on the integration of its parts.
Supreme People’s Court Reversal: Recognizing 100% Contribution
On appeal, the SPC fundamentally overturned the lower court’s reasoning, reflecting a deeper understanding of modern industrial integration and technological assets. The court emphasized two key points:
- The trade secrets were not isolated pieces but a comprehensive technical database developed over two decades, whose value is synergistic and indivisible. Dividing this integrated system to assign a “contribution rate” unfairly penalizes innovation and diminishes the value of integrated technology.
- The infringing company’s rapid product launch, despite lacking prior R&D experience, demonstrated “holistic use” of Jingdiao’s trade secrets. The court held that when an infringing product relies entirely on the rights holder’s technical secrets, a 100% contribution rate should be presumed.
- Additionally, the court considered the defendants’ bad faith conduct, including evidence destruction, and imposed punitive damages at three times the infringing profit base, resulting in the total award of 381.63 million RMB.
Part II: Judicial Reasoning – The Importance of “Systematic” Trade Secrets
The shift from a 15% to a 100% contribution rate represents a significant doctrinal change, addressing the imbalance between the high cost of innovation and the fragmented valuation of infringement. For foreign businesses, understanding this “Holistic Recognition” principle is vital for managing IP portfolios in China.
Moving Beyond Fragmentation in Complex Manufacturing
Traditional legal analyses often mirrored mechanical engineering’s component-based view, valuing secrets based on individual parts. However, modern manufacturing—especially in CNC machinery, aerospace, and electronics—relies on system integration, where performance depends on the precise interaction of numerous elements. By recognizing Jingdiao’s technical database as “indivisible,” the SPC acknowledged that the competitive advantage lies in the technology architecture, not just its individual components. Stealing this architectural blueprint equates to stealing the product’s entire commercial viability. Therefore, compensation based on a single component’s value is unjust. The court’s ruling mandates evaluating the product as a whole, preventing infringers from minimizing liability by claiming they only took a part.
The Holistic Usage Concept and Evidentiary Presumptions
Proving which specific part of a trade secret was used in each infringing product is often impractical. The Jingdiao case offers a pragmatic alternative by considering the infringer’s timeline and capabilities.
- Timeline: The defendant entered the market immediately after hiring the former employee.
- Capability: The defendant had no prior R&D experience in the relevant field.
- Result: A full product launch.
From these facts, the court inferred that the stolen system formed the foundation of the infringing products, allowing it to presume holistic usage and bypass the difficult task of separating stolen from independent value. For foreign companies, demonstrating that their trade secrets constitute a comprehensive system and that competitors rapidly launch similar products after hiring former employees strengthens the case for a 100% contribution rate, avoiding dilution of damages.
Part III: Deterrence – Punitive Damages and Bad Faith Conduct
Beyond contribution rates, the SPC application of punitive damages signals a strong deterrent stance. Drawing from models like those in the United States, China’s legal system is increasingly imposing penalties designed to exceed mere compensation. In this case, the court applied a threefold multiplier due to:
- The large scale of theft (over 37,000 files).
- The employee’s immediate move to a competitor, indicating premeditation.
- Attempts to destroy evidence during litigation.
This approach sends a clear message: courts will not tolerate bad faith or deliberate infringement. The shift from compensatory to punitive damages raises the financial risks for infringers significantly, enhancing legal protections for proprietary technology.
Part IV: Strategic Recommendations for Foreign Enterprises
The Jingdiao ruling offers valuable lessons for multinational companies operating in China. To maximize protection under this evolving legal framework, companies should consider the following:
Documenting the “Systematic” Nature of Trade Secrets
- Avoid treating trade secrets as isolated files; maintain clear documentation of how different components and data interact to form an integrated system.
- Keep detailed R&D records demonstrating continuous, cumulative innovation.
- Implement strict access controls to distinguish core from peripheral information, facilitating claims of systemic theft.
Guarding Against “Springboarding” by Former Employees
- Conduct thorough exit interviews and ensure the return of all digital assets.
- Perform forensic audits on devices used by departing key personnel.
- Enforce non-compete agreements and broad NDAs covering technical information.
- Monitor competitors who hire former employees, especially if they quickly release similar products.
Litigation Strategy: Emphasizing Holistic Claims
- Frame claims around the integrated technological platform rather than isolated secrets.
- Argue against any reduction in contribution rates in cases of systemic theft, citing the Jingdiao precedent.
- Leverage the court’s current favorable stance to seek full damages reflecting the value of the entire stolen system.
Part V: Broader Implications – Building Confidence in the Chinese Market
This ruling matters beyond the machine tool industry. It addresses a longstanding concern among foreign businesses about the enforceability and adequacy of IP protection in China. The substantial damages awarded and the court’s sophisticated reasoning demonstrate that:
- Chinese courts appreciate the complexities of modern technology and distinguish between minor and systemic theft.
- There is a strong commitment to deterrence through punitive damages and rejection of undervaluing infringements.
- Both domestic and foreign companies can rely on a more mature legal environment that upholds the rule of law in commercial disputes.
This judicial maturity signals China’s progression toward a high-standard protection era, offering foreign investors greater assurance that their core R&D and technical assets can be effectively safeguarded.
Conclusion
The Beijing Jingdiao case represents a landmark development in China’s trade secret jurisprudence. By rejecting the mechanical application of low contribution rates and affirming holistic recognition of systematic technical secrets, the Supreme People Court has strengthened remedies for innovators. This shift from viewing technology as isolated parts to recognizing it as an integrated ecosystem reflects the realities of modern industry. It acknowledges that stealing the “blueprint” is equivalent to stealing the entire product.
For foreign enterprises operating in China, this ruling is a clear signal that the legal environment is becoming more favorable. However, success depends on preparedness: companies must thoroughly document their integrated innovations, enforce strict internal controls, and confidently assert their rights, knowing that courts are increasingly willing to award damages that truly reflect the value of what was lost. In this new era, the message to infringers is straightforward: stealing the whole cannot be compensated as if only a part was taken.
For innovators, it is equally clear: your comprehensive technological ecosystems are now more secure and valued than ever before in Chinese commercial law. As this judgment and its future applications unfold, it is evident that proactive engagement with China’s legal system offers a promising and increasingly secure foundation for technological advancement and competitive business growth.