Lao Gan Ma Seeks Criminal Probe Against Trade Secret Disclosure

Lao Gan Ma Seeks Criminal Probe against Trade Secret Disclosure

Alice Dong, Intellectual Property Department   

On 9th May, 2017, it was reported by Guiyang Evening News that core confidential information of a leading chili sauce brand “Lao Gan Ma (老干妈)” was disclosed by a former employee, leading to the local public security authority pursuing investigation of this as a criminal case.

Background Story

In June 2016, Guiyang Nanming Lao Gan Ma Food Limited Company (贵阳南明老干妈风味食品有限责任公司) (refered to as ‘Lao Gan Ma’) found that one kind of fermented chili soybean sauce (see below picture) sold in a local supermarket tasted extremely similar to a fermented chili soybean sauce of its own brand, although the brand name and package were completely different. Following preliminary investigation, they found this company was also a food company, but had never entered into the field of soybean sauce, and that this company in particular was unlikely to have had the capability to research and develop such a sauce. Meanwhile, Lao Gan Ma has kept the chili sauce formulation a trade secret since the beginning of their business operation and has never assigned or transferred such information or product technology to any individual or company. 

Later, in November of that year, Lao Gan Ma reported to the Guiyang Nanming Police Office, claiming theft of a core business secret. The Police bought the fermented soybean sauces of the alleged infringing brand and Lao Gan Ma, and sent them both to the Judicial Appraisal Center for appraising. The appraisal results indicate that the competing brand sauce contained the technological information of Lao Gan Ma which is unknown to the public. 

Following deeper investigation, the investigators of the Police Office paid close attention to a resigning employee Mr. Jia, who worked for Lao Gan Ma for over a decade, from 2003 to 2015, as an engineer in the Quality department. During the course of employment, he had access to and a grasp of know-how, the processing and other core confidential information of Lao Gan Ma, including the processing and formulation of the fermented soybean sauce. 

Mr. Jia signed a Non-Disclosure and Non-Competition Agreement with the company promising, both ‘in-service’ and ‘post-departure’, to keep the company’s business secrets and to not engage in business activities which contain similarity or direct competition with Lao Gan Ma. However, after Mr. Jia left Lao Gan Ma in 2015, he took a position in quality technology management in another food company in the same city. The Police Office considered Mr. Jia a suspect and when the police detained the portable memory device and his computer, they found the internal material of Lao Gan Ma’s trade secret.

Currently, the suspect, Mr. Jia, is under criminal detention for suspected acts of infringing trade secrets.   

Legal Review

In China, trade secrets are not promulgated under a single law, but under multiple laws and regulations, such as Unfair Competition Law, Labor Contract Law and Criminal Law. It also has numerous connections with patents, copyrighted work, and trademarks. Generally speaking, a trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information (such as a customs list) not generally known or reasonably ascertainable by others, by which a business can obtain an economic advantage over competitors. 

Among trade secret infringement cases, most such secrets are leaked by resigning employees. To prevent, minimize, and protect certain types of sensitive technical or commercial information from disclosure to others, Non-Disclosure and Non-Competition Agreements are favorable approaches adopted by companies. When suffering heavy losses (over RMB 500,000) caused by the infringement of agreements that protect trade secrets, companies are able to report to the Police Office for legal protection and criminal prosecution. 

Article 219 of Chinese Criminal Law

Whoever commits any of the following acts of infringing on trade secrets and thus causes heavy losses to the right holder shall be sentenced to not more than three years of fixed-term imprisonment or detention, and shall also, or shall only, be fined; if the consequences are especially serious, he shall be sentenced to a fixed-term imprisonment of not less than three years but not more than seven years, and shall also be fined:

1. Obtaining a right holder's business secrets by stealing, luring, coercion, or any other illegitimate means;

2. Disclosing, using or allowing another to use the business secrets obtained from the right holder by the means mentioned in the preceding paragraph; or 

3. Violating the agreement on or against the right holder’s demand for keeping business secrets; disclosing, using or allowing another person to use the business secrets he has.

Whoever obtains, uses or discloses another's business secrets, which he clearly knows or ought to know falls under the categories of the acts listed in the preceding paragraph, shall be deemed an offender who infringes business secrets.

"Trade secrets" as mentioned in this Article refers to technology information or business information which is unknown to the public, can bring about economic benefits to the right holder, is of practical use and with regard to which the right holder has adopted secret-keeping measures.

"Right holder" as mentioned in this Article refers to the owner of trade secrets and the person who is permitted by the owner to use the business secrets. 

Pictures from: http://en.laoganma.com.cn/Product/index.aspx