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Taiwan pushes to improve law on trade secrets


A proposed change to the law in Taiwan calls for up to five years imprisonment or fines of up to NT$10 million ($338,724) – more where there is intent to use the trade secrets abroad. This and several other proposed changes are in response to complaints from Taiwanese companies that the current law, which has been in effect since 1996, is no longer enough to deter trade secret theft.

"Domestic industries in recent years have seen some serious trade secret leakage and theft of their industrial research and development, so a lot of Taiwanese enterprises are supporting the amendments," said Ming-Yen Lin, executive manager at Deep & Far in Taipei.

Alan Chen, a partner at Rich IP & Company in Taipei, agrees: "Currently, there are only civil damages for trade secrets cases; this is insufficient."

The proposed amendment also calls for a 50% enhancement when there is intent to use the stolen trade secrets abroad, increasing maximum jail sentences to seven and a half years, or fines of up to NT$15 million ($508,086).

This provision is partly in response to a highly publicised case involving Taiwan Semiconductor Manufacturing Company (TSMC), one of the largest contract computer-chip makers in the world. TSMC alleges that a former high-level researcher stole its technology when he moved to Korean conglomerate Samsung.

The TSMC case is one of the "blasting fuses" igniting the calls for foreign enhancements, said Lin.

The proposed changes also impose criminal liabilities on companies involved in stealing trade secrets. If the proposed law could be applied to the TSMC case, both Samsung and the individual may be fined up to NT$15 million.

In addition to creating criminal liability, the amendments also make it easier to get civil damages.

It is now very hard to prove actual damages, said Chen. The revision proposes allowing trial courts to award statutory damages of up to NT$50 million ($1,354,899).

The law will empower trial courts to set damages based on various factors, such as the value of the stolen IP and how many instances of theft had occurred. This is similar to copyright cases in Taiwan, which also allow for statutory damages.

A familiar story

The high-profile TSMC case will sound familiar to any company that has lost trade secret information to a competitor.

A high-level research employee left TSMC for rival chip maker Samsung. TSMC suspected that the employee brought trade secret information, including details about its 28mm manufacturing process, over to its new employer.

This followed another well-publicised affair, the MediaTek case, and fits the same pattern. Here, the employee leaked information to a competing semiconductor company, while he was still employed at MediaTek. Soon after, he quit and joined the competitor, MStar.

Damages for trade secret theft are often too low to deter wrongful activity. In the MediaTek case, the employee received a jail sentence of nine months, which was commuted by paying a fine of NT$270,000 ($9,210). MediaTek had requested civil damages of NT$20 million ($682,191).

"Steal a television, you can get five years. But steal $300 million of production techniques, you can get maybe a year," said Gary Kuo at Winkler Partners in Taipei.

Getting the evidence

Companies also find it difficult to get the proof they need to prove their claims.

"Taiwan, like other civil law jurisdictions, doesn't have discovery procedures," explained Kuo. "As the plaintiff in a civil case, you have to prove everything yourself."

Alan Chen said that when he represented an integrated circuits client in a trade secrets matter, it was "very discouraged" when putting together the evidence to build their case. "We knew the former employee stole the trade secret information and the information was used by the new employer," said Chen, but they could not get the evidence to prove the connection.

Christopher Neumeyer, managing partner at Asia Law in Taipei, agrees: "A big part of the problem is the lack of discovery. You might observe that an employee downloaded all this information at work, but how do you find out whether the new employer used it?"

MediaTek was also an exception in that the company had evidence of the employee downloading the information and emailing the trade secrets to his future employee. Usually, showing that trade secrets were stolen can be hard to prove because the offender often uses harder to detect methods, such as USB drives. Still, Chen noted, the NT$270,000 award that MediaTek received did not compensate for the damages it had suffered.

The creation of criminal liability may help with the discovery limitations, as companies may now get assistance from police to gather evidence. TIPO is also looking to amend other laws to help companies gather evidence for trade secrets cases.

Kuo said that the TIPO has discussed working with the Ministry of Justice and Legislative Yuan to amend the Communications Security and Surveillance Act so that wiretaps may be used in trade secrets cases. Under Taiwanese law, wiretap warrants may be issued only for specific offences, and trade secrets theft is not on the list.

In the meantime

But while there is a strong belief that Taiwan needs tougher laws to protect trade secrets, the final revision might not contain everything that companies are seeking.

Attorneys in Taiwan stress the need to balance protecting trade secrets with the right to work, which is embodied in Taiwan's constitution. This was an important factor in the TSMC case, where the court granted an injunction against the dissemination of TSMC's trade secrets, but refused to prevent the former employee from working for Samsung.

Kuo echoed a similar sentiment, that the protection of trade secrets should not be used to prevent workers from moving around or companies from "poaching" employees. Still, he believes that while the details of the amendment need to be worked out, increased penalties for trade secrets theft are reasonable.

Japanese trade secrets case signals a change in attitude


As Taiwan pushed forward with reforms to its trade secrets laws, Nippon Steel launched a trade secrets case that shows attitudes to litigation there might be changing.

Nippon sued Korean steelmaker POSCO in the Tokyo District Court, requesting ¥100 billion ($1.25 billion) in damages. It filed the suit on April 19. It also filed suit in the US District Court in New Jersey alleging patent infringement based on largely the same facts, according to reports in the Asahi Shimbun.

According to the US complaint, the patents concern the manufacture of grain-oriented electrical steel, which is used in transformer cores and other electrical distribution machinery. The Japanese company claims that POSCO acquired internal technical documents from former NS employees, using "bribery and payoffs" as inducement.

Nippon Steel says that it first suspected the theft of its patents and trade secrets in 2007, when two POSCO employees were convicted in Korea of selling POSCO trade secrets to a Chinese company. During the trial, the Korean government discovered that the POSCO employees had NS documents as well.

Nippon Steel is represented by Graham Curtin and Gibson, Dunn & Crutcher in the US. POSCO has yet to respond to the complaint.

Japan has had a reputation for not being very patent-friendly in large part because damages awards are low.

"The issue in Japan is that there hasn't been an award commensurate with the value of the technology out of the Japanese courts," said David Makman of the Law Offices of David A Makman.

He said that people have been hesitant to put a high value on intellectual property in Japan, pointing to the pachinko case as an example.

In pachinko, which related to popular Japanese gaming machines, the trial court gave a ¥8.4 billion award ($105 million), only to have the patent in dispute invalidated on appeal.

The Nippon Steel case could be a sign that Japanese companies are beginning to value their IP rights more highly and aggressively defend their rights. Although there is no guarantee that Nippon Steel will get the requested ¥100 billion, the claimed damages may signal a changing attitude toward IP protection because it is so much larger than previous cases in Japan.

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