On June 14, 2024, the Intellectual Property Court of the Supreme People’s Court announced the final ruling in a high-stakes legal battle on the intellectual property dispute where Geely, one of the largest and most innovative automakers in China, known for producing a range of vehicles under various brands, including Geely Auto, Volvo, and Lynk & Co., sued WM Motor, a Chinese electric vehicle (EV) manufacturer founded in 2015, for RMB 2.1 billion (about USD 30 million), a very large and unusually high compensation. The court determined that this case involved the organized and planned large-scale poaching of technical talents and resources from the new energy vehicle sector using unfair means, resulting in the infringement of trade secrets. The Supreme People’s Court ordered WM Motor to compensate Geely for economic losses and reasonable expenses for rights protection, amounting to approximately RMB 640 million (about USD 88 million). This judgment marks the highest compensation amount ever awarded in an intellectual property infringement lawsuit in China.
In the US and Australia, legal systems and regulatory frameworks tend to award substantial damages for trade secret theft to deter such actions and compensate the aggrieved parties. In contrast, China has traditionally had lower damage awards for trade secret theft. However, China has been making efforts to strengthen its intellectual property protection laws and increase penalties for trade secret theft in recent years.
Case Background
In 2018, nearly 40 senior management and technical personnel from Chengdu Gaoyuan Automobile Industry Co., Ltd., a subsidiary of Zhejiang Geely Holding Group Co., Ltd. (hereinafter referred to as Geely Holding Group), resigned and joined WM Motor Technology Group Co., Ltd. (hereinafter referred to as WM Motor) and its affiliated companies. Among them, 30 individuals joined WM Motor immediately after their departure in 2016. Geely Holding Group discovered that WM Motor and WM Smart Mobility Technology (Shanghai) Co., Ltd. had used some of these former employees as inventors or co-inventors to apply for 12 utility model patents based on technical information related to new energy vehicle chassis application technology and 12 sets of chassis component drawings and 3D models acquired from their previous positions. Without any technological accumulation or legitimate sources, WM Motor, WM Motor Manufacturing Wenzhou Co., Ltd., WM Smart Mobility Co., Ltd. and WM New Energy Vehicle Sales (Shanghai) Co., Ltd. (collectively referred to as WM Motor) launched the WM EX series electric vehicles in a short period, suspected of infringing on the trade secrets of Geely Group and Zhejiang Geely Automobile Research Institute Co., Ltd. (collectively referred to as Geely).
In December 2018, Geely filed a lawsuit with the Shanghai High People’s Court, requesting WM Motor to stop the infringement and compensate for economic losses and reasonable expenses for rights protection, totaling RMB 2.1 billion (about USD 0.29 billion).
Case Proceedings
First Instance Judgment
The court of first instance found that WM Motor had infringed upon the trade secrets of five sets of chassis component drawings belonging to Geely, and ordered WM Motor to compensate Geely for economic losses of RMB 5 million (about USD 0.69 million) and reasonable expenses of RMB 2 million (about USD 0.28 million). Both Geely and WM Motor were dissatisfied with the first-instance judgment and appealed to the Supreme People’s Court.
Second Instance Judgment
Upon review, the Supreme Court issued its second-instance judgment on April 25, 2024.
The second-instance court first acknowledged that the trade secrets involved in the case had high commercial value, and that Geely had taken reasonable measures to protect these secrets, thereby deserving legal protection. It was confirmed that both Geely Group and Geely Research Institute could act as plaintiffs to claim rights over the trade secrets in question. Additionally, the second-instance judgment further analyzed whether WM Motor had infringed on Geely’s trade secrets and the related civil liabilities WM Motor should bear.
Regarding whether WM Motor infringed on Geely’s trade secrets, the second-instance court, based on the evidence available, determined that WM Motor not only obtained all the trade secrets involved through unfair means but also disclosed part of these secrets illegally by applying for patents. Moreover, WM Motor used all the trade secrets to manufacture the chassis and components of WM EX series electric vehicles (including EX5, EX6, and E5 models). WM Motor’s actions constituted an infringementon Geely’s trade secrets. Geely’s appeal claims were upheld by the second-instance court. The court corrected the first-instance judgment, which had only recognized the infringement of Geely’s trade secrets in the EX5 model concerning five sets of chassis component drawings.
Regarding WM Motor’s civil liabilities for stopping the infringement and compensating for losses, the second-instance court first determined that the four WM Motor companies committed joint infringement and should bear full joint liability for their actions. The court ordered the immediate cessation of the disclosure, use, and allowing others to use Geely’s trade secrets by WM Motor. The court also specified the ways, content, and scope of stopping the infringement. Concerning the determination of the compensation amount, the court pointed out that the punitive damages provisions of the amended Anti-Unfair Competition Law, effective in April 2019, do not apply retroactively, hence only compensatory damages were calculated for the period before this amendment.
The compensatory damages were calculated as follows:
For the period from 2018 to April 2019, the compensatory damages were based on the profit from infringement (RMB 24872793.6/USD 3427515.38), calculated using the formula: average price of EX series vehicles (RMB 175,200/USD 24142.87/vehicle) × sales volume (8,873 vehicles) × profit margin (20%) × contribution rate of Geely’s trade secrets to the vehicle’s profit (8%); For the period from May 2019 to the first quarter of 2022, both compensatory and punitive damages were calculated. The compensatory damages were RMB 204241152/USD 28144019.84, determined using the same formula with updated sales volume (72,860 vehicles). The punitive damages were twice this amount, totaling RMB 408482304/USD 56288039.69. Adding both amounts, the total compensation for economic losses was RMB 637596249.6/USD 87859480.45. Additionally, the court partially supported Geely’s claim for rights protection expenses, awarding RMB 5 million/USD 0.69 million.
Conclusion
The Geely vs. WM Motor intellectual property dispute, spanning several years, culminated in a final ruling on June 14, 2024. This judgment not only underscores the Supreme People’s Court’s firm stance on protecting trade secrets and commercial interests but also sets a new record for the highest compensation awarded in an intellectual property infringement lawsuit in China. The ruling clarifies the commercial value and protection level of trade secrets, establishing a crucial judicial benchmark for future similar cases. This decision will have far-reaching impacts on both Geely and WM Motor and serves as a critical warning and guidance for other domestic enterprises in terms of technological innovation and intellectual property protection. As technology continues to advance and market competition intensifies, companies must prioritize intellectual property protection, adhere to legal standards, and collectively promote the healthy development of the industry.