Supreme Court of the People’s Republic of China

Zhang v. Suzhou Nanxin Cement, Co. Ltd.

(2000) Zhi Zhong zi No. 3

Decided November 6, 2000

Appellant (the plaintiff of the original trial): Peirao Zhang, male, born on Oct.15th, 1941, Han nationality, Director of Environmental Protection Project Designing Institute, Suzhou Nonmetallic Mining Industry Designing Academy, State Construction Materials Industrial Bureau.

Place of Residence: Room 403, No.1 Building, Bali New County, Suzhou City, Jiangsu Province.

Appellee (the defendant of the original trial): Suzhou Nanxin Cement Co. Ltd. (Hereafter referred to as "Nanxin, Co.") conducting business mainly at West Bank of Fengqiao Canal, Periphery of Yanmen District, Suzhou City, Jiangsu Province

Legal Representative: Wenxuan Zhou, Chairman of the Board of Directors

Entrusted Agent: Changxi Zhang, Deputy General Manager

Entrusted Agent: Xueming Shao, Attorney of the Law Office of Suzhou Shao Xueming

Plaintiff of the original tiral: Deyue Hui, male, Born on July 4th, 1956, Han nationality, Director of Dust-cleaning Apparatus Factory, Funing County, Jiangsu Province

Place of Residence: No.1 Part Yezhen Village, Shanshe Coutry, Funing County, Jiangsu Province

Entrusted Agent: Peirao Zhang (Appellant)

Plaintiff of the original trial: Jiangsu, Funing Dust-cleaning Apparatus Factory (hereafter referred to as " Funing Factory")

Place of Residence: New Street, Guoshu District, Funing County, Jiangsu Province

Legal Representative: Deyue Hui, Factory Director (co-plaintiff of the original trial)

Entrusted Agent: Peirao Zhang (Appellant)

Facts:

On December 10, 1999, Jiangsu People’s High Court rendered its civil lawsuit decision (1999) Su Zhi Chu Zi No. 3 regarding the compensation claim for property damages and violation of trade secrets disputes on Peirao Zhang, Deyue Hui, Funing Factory v. Suzhou Nanxin Co.  Peirao Zhang is not satisfied with the first instance court’s decision and appealed to the Supreme Court of China.  The Supreme Court formed a three judges panel, then heard the case on Aug.22, 2000.  Appellant Peirao Zhang, Appellee Suzhou Nanxin Co. and its specially authorized agents Changxi Zhang and Xueming Shao, the plaintiff of the original trial Funing Factory and the agent Peirao Zhang, authorized jointly by Funing Factory and the plaintiff of the original jurisdiction Deyue Hui participated the hearing and made their arguments.  Neither party raised the recusal issue during the hearing.  This case is decided now.

The first instance Court identified the facts by trial as follows: Nanxin Co. and Jiangsu Funing Factory entered into an agreement on December 4, 1996.  According to this agreement, Funing Factory agrees to provide Type LZ-2 Standing Wet Style Dust-cleaning Apparatus (hereafter referred to “Type LZ-2 Apparatus”) to Nanxin Co. at the price of RMB 290,000.  If the Type LZ-2 Apparatus can not meet the requirement of dust discharging density lower than 150 mg/Nm³ after installation and testing by Funing Factory, Nanxin Co. shall not pay the money and the product still be owned by Funing Factory.  Furthermore, the Funing factory should restore the system of Nanxin Co. to the original state if the Funing factory has to disassemble the Type LZ-2 Apparatus.  After signing the contract, Funing Factory installed the Type LZ-2 Apparatus.  Afterwards, through many tests, the Type LZ-2 Apparatus can not reach the standard stipulated by the contract, and therefore Nanxin Co had never paid the money.  On September 16, 1998, Funing Factory filed petition to Suzhou Arbitration Committee for arbitration settlement.  Suzhou Arbitration Committee found that the Type LZ-2 Apparatus can not meet the dust discharging level agreed by the contract and therefore the condition of making payment is not met.  On November 13, 1998, the Suzhou Arbitration Committee determined (1) the agreement signed on December 4, 1996 is terminated. (2) Funing Factory shall remove the Type LZ-2 Apparatus within three months from the date of the Arbitration decision.  Nanxin Co. shall cease its operation for 20 days during the removing of the Type LZ-2 Apparatus.  Nanxin Co. shall reimburse Funing Factory RMB 30,000 after Funing Factory completes the removal of the Type LZ-2 Apparatus.

On October 21 and December 29, 1998, Jiangsu Environmental Protection Administration and Suzhou Economy Committee issued a document, which listed Nanxin Co. as one of the major enterprises that must meet the level of dust discharging.  In order to meet the level within the term prescribed, Nanxin Co. must install new dust-cleaning apparatus.  Therefore, on January 25, 1999, Nanxin Co. sent a telegram to Funing Factory requiring Funing Factory to notify the schedule of removing the Type LZ-2 Apparatus by return telegram.  At the same time, Nanxin Co. sent a letter to Funing Factory expressing its expectation that Funing Factory will dispatch their employees to remove the Type LZ-2 Apparatus on February 1 or 2 of 1999.  On February 6, 1999, Nanxin Co. sent a letter to Funing Factory again due to not receiving any response to its previous letter.  In that letter, Nanxin Co. hopes that Funing Factory will remove the Type LZ-2 Apparatus within the term prescribed.  Otherwise, Nanxin Co. will hire others to dismantle the Type LZ-2 Apparatus and is not responsible for the dismantled equipment and the Funing Factory shall bear the cost of dismantling.  On February 12, 1999, Funing Factory wrote a letter to Suzhou Arbitration Committee, requesting the Arbitration Committee to inform Nanxin Co. to dismantle the two papilionaceous valves installed on No.1 Standing Chimney, otherwise, the Funing Factory will not be able to dismantle the Type LZ-2 Apparatus.  On February 14, 1999, Nanxin Co. informed the Funing Factory in its replying letter that the papilionaceous valves would not affect the dismantlement.  Nanxin Co. would hire some teams to dismantle the Type LZ-2 Apparatus on February 20, 1999 because a new dust-cleaning apparatus was going to be installed.  Funing Factory never makes its reply after receiving the letter.  On February 20, 1999, Nanxin Co. signed an agreement with Jiangyin Working team and Changshu Working team that these working teams shall dismantle the equipment that affecting the operation of the No.1 Standing Style equipment.  Thereafter, some parts of the Type LZ-2 Apparatus was dismantled and kept in the Nanxin Co.

The first instance court also found: On June 6, 1995, Peirao Zhang and Deyue Hui filed applications for utility model and invention patent to China Patent Office.  On December 12, 1995, Peirao Zhang and Funing Factory signed a technology transfer agreement.  They agreed that Peirao Zhang shall transfer Standing Wet Style Dust-Cleaning Apparatus Technology (including sprinkling, spraying, fluidics, water-membrane, etc.) to Funing Factory.  Funing Factory shall bear the responsibility for keeping all of the drawings and technical secret.  Peirao Zhang shall possess the ownership of the technology, and Funing Factory shall have the right of use only.  The technology transfer fee is RMB 1.5 million.  On May 27, 1996, Peirao Zhang and Deyue Hui were granted the No.95213206.0 utility model patent for their Standing Wet Style Dust-Cleaning Apparatus (hereafter referred to as “SWSDCA “).  On March 20, 1997, Funing Factory filed its "SWSDCA" technical project to Funing County Science and Technology Bureau, and then obtained the approval on November 1, 1997.  Immediately after, Funing Factory made its investment in the research and production of the “SWSDCA”.

On May 10, 1999, Peirao Zhang, Deyue Hui and Funing Factory brought their case to the first instance court, asserting that Nanxin Co.’s dismantlement of the Type LZ-2 Apparatus provided by Funing Factory revealed their trade secret and caused the missing of the Type LZ-2 Apparatus.  They requested the court to order Nanxin Co. to: (1) Compensate RMB 20 million for the damages caused by revealing the trade secrets; (2) Compensate RMB 1,29 million for the damages caused by the illegal removing of Type LZ-2 Apparatus; (3) Return RMB 600,000 illegal profit; (4) Bear all of the litigation cost.

The technical secrets claimed by Peirao Zhang and Deyue Hui in the original trial are: the material, size, effect of the sprinkler head; the length, diameter, thickness of the stainless steel and the detailed size of the space in between them, method of installment and fixed installation; the material, size, technical character of the valve; the technical character of the valve plank elevating means and the electrical equipment controlling unit; the profile size, material of driving and driven chain wheel; the theory of sprinkling, spraying, fluidics, water-membrane and the relating parameters; the size, material, thickness of solid-solvent separating device, relating sizes and the size of space in between the chambers.

The first instance court conducted a field investigation on parts dismantled from Type LZ-2 Apparatus and found the following facts:

1.      Missing parts includes one hundred twenty sprinkler heads, two hundred forty meters of stainless steel pipe, twenty six mid-midget sphere valves, three elevating units (including an incomplete one), three pieces of large valve board (including an incomplete one), twenty meters of steel strip whose diameter is 1.6m, five and a half pieces stainless steel pipe fixing devices (three and a half are remained).

2.      Parts still existing include two reducers of type JZQ250, two 5.5 kw electric motors of type Y132M-6, two 7.5 kw pipe pumps of type Y13252-2, one water tank, one float sphere valve, one switch cabinet, two 2m diameter papilionaceous valves and a certain number of steel planks.

3.      Those disputed by the two parties include two items.  The first is the length of the chain.  The length of the existing chain is 55.8m, but the plaintiff claimed that the chain originally installed was 68m.  The court measured the device that equipped with the chain and found the distance between the upper and lower wheel was 7.8m. Therefore, the 68m claimed by plaintiff lacks basis.  The court is adopting the existing length.  The second item is the amount of the shaving plates.  20 pieces shaving plate are existing.  Plaintiff claims there were 40 pieces.  However, the drawings provided by the plaintiff indicate that there is 35 pieces.  Therefore, the court rendered that 15 pieces of shaving plate are missing.  During the hearing of the original trial, the plaintiff claimed that the prices of missing parts were RMB 29.64 for each stainless steel pipe (6m), RMB 400 per piece of large valve plate and RMB 20 per piece of large shaving plate.  The defendants ratified the above prices.  However, the plaintiff did not provide any information for calculating the prices of the sprinkler head, ball valve and elevating machine.

According to the facts above mentioned, the first instance court held:

1.        The subject of the right of action

This case is relating to the issues of violation of trade secret and compensating for the property damages.  As the trade secret is concerned, Peirao Zhang transferred the right of producing SWSDCA to Funing Factory for use his technology.  But, Peirao Zhang is still the owner of the technology.  Peirao Zhang and Deyue Hui are joint owners of the patented technology.  Therefore, they have the right of action for protecting their trade secret.  Type LZ-2 Apparatus is owned by Funing Factory, but it Funing Factory does not have the ownership of the technology for producing this apparatus.  Therefore, Funing Factory can only claim the compensation for the damages to the Type LZ-2 Apparatus.

Nanxin Co. argued that Funing Factory paid for the producing of the SWSDCA, and the patent issued to Peirao Zhang and Deyue Hui is an invention of employment, therefore, they have no right to sue.  Because this claim is concerned with the ownership of the patent and is not in the scope of this hearing, it cannot be supported.

2.        Whether there exists trade secret or not

Funing Factory did not take any measures for keeping the trade secret, and did not state explicitly that Type LZ-2 Apparatus involve trade secret and cannot be dismantled without authorization when Funing Factory and Nanxin Co. signed the contract.  Furthermore, the trade secrets claimed by Peirao Zhang and Deyue Hui are all that relating to the material, geometrical size, arrangement order of the internal component of the dust-cleaning apparatus.  However, simple dismantlement and measurement can know all of these.  Therefore, they can not be the technical information unknown to the public.  Peirao Zhang’s believes in that by not giving the drawings the defendant, sealing up the key technology and mounting a plate with the patent number above the Type LZ-2 Apparatus are measures for keeping trade secret does not have any legal basis.  Peirao Zhang and Deyue Hui asseted that Nanxin Co.’s dismantlement of the Type LZ-2 Apparatus caused the revealing of the trade secret, the disclosure of the contents of the pending patent application under the substantive examination, the loss of novelty for the technology not yet applied for patent, and the violation of trade secret.  However, all these assertions do not comply with the related laws.  Therefore, Peirao Zhang and Deyue Hui’s assertion of Nanxin Co.’s violation of trade secret can not be supported.

3.        The liability of dismantling the Type LZ-2 Apparatus 

As soon as the Arbitration decision is served, it comes into force immediately and should be observed by the recipients.  Nanxin Co. contacted Funing Factory initially to confirm the date of dismantlement after receiving the award.  However, Funing Factory never makes any responses.  After Nanxin Co. repeated reminders, Funing Factory wrote a letter to Nanxin Co. to inform that it did not plan to observe the award because the papilionaceous valves had not be dismantled.  Nanxin Co. replied the letter and indicated that the papilionaceous valves would not affect the dismantlement of the Type LZ-2 Apparatus.  Funing Factory was silent again after receiving this letter.  In order not to violate the government standard of year 2000 for cement production, Nanxin Co. dismantled the Type LZ-2 Apparatus although no reply was received from Funing Factory.  Funing Factory bears the major responsibility for what had happened.  Although Nanxin Co. has certain reasons for its conduct, the method adopted by them is inappropriate.  Besides, Nanxin Co. did not appropriately stored the dismantled apparatus, causing certain parts missing, therefore, Nanxin Co. bears corresponding compensatory liability.  The assertion of Funing Factory that Nanxin Co. shall bear the entire responsibility for dismantling the Type LZ-2 Apparatus lacks factual findings and is not supported by the court.  The court shall decide the compensation amount according to the particular situation of this case and the liability of the two parties, for Funing Factory did not provide information about calculating the missing parts.  In summary, according to the stipulation of the Article 10, Section 3 of << Anti-unfaire Competition Law of the People's Republic of China>> and the Article 106, Section 2 of <<General Principles of the Civil Law of the People's Republic of China>>, it is so ordered:

(1) Nanxin Co. shall pay RMB 30,000 to Funing Factory as compensation for property damages, and Funing Factory shall transport the dismantled equipment to their factory by itself.  This judgement must be executed once only within ten days after this judgement comes into force.  (2) Claims of Peirao Zhang and Deyue Hui are rejected.  For the court fee in total amount of RMB 119,460, Peirao Zhang, Deyue Hui and Funing Factory shall bear RMB 118,250, the defendant Nanxin Factory shall bear RMB 1,210.

Peirao Zhang appealed this judgement to the Supreme Court of China and asserted that:

(1) There is the trade secret claimed by the appellant.  The trade secret is composed of an issued patent for utility model, an allowed patent after four year substantive examination, two pending applications for invention patent and other technical information that had not applied for patent yet.

a.      The contract signed by Funing Factory and the Appellee on December 4, 1996 stated clearly that "Type LZ-2 Apparatus is a Chinese patented product", which is one of appellant’s measure for keeping secret.  Also, the contract indicated that "the product still be owned by Party B (Funing Factory) ".  The actual fact is that the Type LZ-2 Apparatus had been kept and controlled by Funing Factory from the date of installation to the time of illegal dismantlement.  The Type LZ-2 Apparatus was never given to the Appellee, also the Appellee never made any payment for the Type LZ-2 Apparatus.  Therefore, Funing Factory is entitled ownership and right of controlling this property.

b.      The original court is clearly erroneous in finding that the technical information obtainable by simple dismantlement and measurement is not technical secret.  The key factor is whether this kind of dismantlement and measurement is legal.  Some of the relating technology owned by the Appellant has been granted a patent.  Some of them are included in the patent application that is accepted by the Patent Office.  The material, geometrical size, order of arrangement of the dust-cleaning apparatus’s internal component is all technical information and also is technical secret.

(2)  The appellee violated the appellant's technical secret

a.      Because the appellee dismantled the Type LZ-2 Apparatus by inappropriate means, a large amount of parts and units including spray head have been stolen, the novelty of the Appellee's technical secret and equipment has been lost, and the relating applications for invention patent may be rejected.

b.      The Type LZ-2 Apparatus has never been entrusted to be kept by the Appellee.  The Appellee repeatedly indicated in its letter that the appellee is not responsible for taking care of the dismantled apparatus and material.  The Appellee violated the trade secret rather than “not taking good care” as found by the first instance court.

(3)  The letter that the Appellee sent to Funing Factory on February 14, 1999 did not affix a corporate seal on it.  Therefore, it has no legal effect.  The first instance court is clearly erroneous in holding Funing Factory is mainly responsible for the dismantlement of the Type LZ-2 Apparatus on the basis of this letter.  It is the Appellee who does not apply for execution of the Arbitration Decision to People’s court should actually be held responsible.

(4)   The appellant proposed to form two expert panels for evaluating the procedure of dismantlement of the Type LZ-2 Apparatus and for identify whether trade secret is contained therein, respectively.

In summary, the Appellant requests to vacate the first instance court’s decision and give appropriate judgement according to laws.

The Appellee, Nanxin Co. did not submit its defense brief on schedule.  Instead, it argued in the hearing as below:

(1)  Type LZ-2 Apparatus does not contain any trade secret

a.      Funing Factory did not take any measure for keeping secret.  There is no clause of confidentiality in the contract signed by both parties.  The contract states clearly that the technological arrangement, working drawing, detailed list of apparatus and technical illustration of the Type LZ-2 Apparatus provided by Funing Factory can only be used and installed after obtaining approval of Nanxin Co.  Employees of Nanxin Co. has participated all the stages of design, installment and test of the Type LZ-2 Apparatus.  All these make the technical information publicly available.

b.      None of the Appellant's technology is " Unknown to the public ".  The Appellant asserts that the Type LZ-2 Apparatus is a patented product.  However, a patented technology involved in a patented product should be disclosed to the public.  The system of dust-cleaning, retrieving, water circulation, the method of trouble shooting and parameters used by Funing Factory were public available in the magazine of <Cement Technology>, issues of 1992, 1994, 1995 and 1997 distributed nationwide.  The trade secret claimed by the Appellant is nothing more than the material, geometrical size, order of arrangement of the dust-cleaning apparatus's internal component, which can be known through simple dismantlement and measurement.

c.       The Appellant's technology has no industrial applicability and inventiveness.  It can not bring economic benefit.  Instead, it can only cause financial loss to both the Appellant and our company.  The Type LZ-2 Apparatus installed for our company is the first trial product of Funing Factory.  Its dust discharging density can not meet the prescribed standard of below 150mg/Nm³.  In contrast, the dust discharging density of the water-membrane dust-cleaning apparatus published in magazine <Cement Technology> (Jan. 1997) has already met this standard of below 150mg/Nm³.  Therefore, it is more advanced and practical than the Appellant's Type LZ-2 Apparatus.

(2)  The Appellee's dismantling conduct does not constitute violation of trade secret

a.      Type LZ-2 Apparatus does not contain any trade secret.

b.      Nanxin Co. has no intention to violate any trade secret.  Our dismantlement action is entirely caused by the Funing Factory's not complying with the Arbitration decision and not responding to our repeated reminders.  Dismantling the Type LZ-2 Apparatus is only for the purpose of removing it from the space occupied and obstacle to our production and environment protection operation to install a new dust-cleaning apparatus on time for complying the governmental environment standard.  We have no alternatives.

c.      Our company only dismantled part of the Type LZ-2 Apparatus and did not measure and study its internal components.

(3)  The Appellant's claim of compensation for the property loss has no factual support.  Even if there is any losses, it is the appellant who should bear the responsibility.

The original co-plaintiffs Deyue Hui and Funing Factory had jointed the Appellant in the appeal to the Supreme Court of China and filed a petition of deduction, exemption or postponement of paying court fee for their appeal.  Only Peirao Zhang actually paid the court fee for his appeal within the prescribed term.  Therefore, we found Deyue Hui and Funing Factory had withdrawn their appeal.  During this appeal, these two co-plaintiffs have presented the same arguments as that of the Appellant.  On Sepember18, 2000 Funing Factory sent a letter to the Supreme Court for applying to be added as co-appellant, because the issues of violation of trade secret and property loses are inseparable claims.

This court finds:

The facts that identified by the first instance court are correct.  In addition, this court also find that Type LZ-2 Apparatus installed on No.1 Standing Chimney of Nanxin Co. discharges dust density at the level of 260.9mg/Nm³ and 312.5mg/ Nm³ in two separate tests.  These dust discharging densities could not reach the national first-grade standard (lower than 150 mg/ Nm³) agreed by the contract, but they already reach the national second-grade standard (lower than 400 mg/ Nm³).  Besides, these results are lower than the dust discharging density before installing the Type LZ-2 Apparatus.  From February 21 to February 28, 1999, Nanxin Co. dismantled a part of the Type LZ-2 Apparatus.  The Type LZ-2 Apparatus is composed of the lower Solid-Liquid Separating Unit and the upper Dust-Cleaning Tower.  The papilionaceous valves are a part of the Dust-Cleaning Tower, but they were installed on the middle part of the chimney of No.1 Standing Chimney.  Both the No. 95213206.0 patent for utility model and the patent application for invention filed on the same date by Peirao Zhang and Deyue Hui involve the Solid-Liquid Separating Unit of the Type LZ-2 Apparatus.  China Patent Office issued the <First Official Action> on June 25, 1999 indicating that the application for patent of invention claims the same invention as that of No.95213206.0 utility model.  Only one of them can be granted as patent.  The Applicant has the option of abandon the patent for utility model or withdrawing the application for invention patent.  On November 29, 1999 Peirao Zhang filed his applications entitled "Cement SWS Dust-Cleaning Tower" (filing No.99125209.8) and "High Pressure Water Spiral Sprinkler Head" (No.99125208.X) to China Patent Office for invention patent.  These two applications were accepted by China Patent Office but not published yet.

This court holds:

The issues before this panel are whether there is trade secret as asserted by the appellant and whether the appellee should bear civil liability for its dismantlement conduct.

(1)      Whether there is trade secret as asserted by the appellant

According to the <The Law of the People’s Republic of China for Countering Unfair Competition>, trade secret refers to the technical and operational information which is not known to the public, which is capable of bringing economic benefits to the owners of the rights, which has practical applicability and which the owners of the rights have taken measures to keep secret.  Taking measures to keep secret of the information is the necessary condition for relating information to enjoy the legal protection.  These measures should be those appropriate measures taken by the legal owners of the relating information based on the particular circumstances and should be able to keep the information secret under the normal situation.  In other words, these measures should be able to make the other party or the third party aware of owner’s intention of keeping the information secret, or at least to make an ordinary businessperson to get similar conclusion when paying normal attention.  In the present case, the appellee obtained the Type LZ-2 Apparatus by entering the contract with Funing Factory on December 4, 1996.  This contract makes the appellee a lawful user of the Type LZ-2 Apparatus which contains the technical information asserted by the appellant.  The appellant and the appellee have no contractual or other kind of legal binding relationship.  Therefore, in order to decide whether the appellant has taken measures for keeping related information secret, we have to look into the facts to find out if there is any confidential clause in the contract between Funing Factory and the appellee.  Also if any other confidential measures have been taken when fulfilling the contract.  Looking into the contents of the contract, we found that this contract neither indicate that the Type LZ-2 Apparatus contains certain technical secret, nor it has any confidential clauses.  This contract states clearly that the technological arrangement, working drawings, detailed list of apparatus and technical illustration of the Type LZ-2 Apparatus shall not be utilized without the confirmation of the Appellee without any confidential clauses.  The Appellant's assertion that the indication of the Type LZ-2 Apparatus is a patented product is a measure for keeping secret has no legal basis.  Publicizing relating technical scheme is the premise to acquiring patent.  Since the contract states clearly that the Type LZ-2 Apparatus is a patented product, it indicates that the relating technical scheme has been publicly available.  Hence, as there is no special statement about whether the product contains any technical secret outside the patented technology, this means to the other party of the contract that the product contains no technical secret.  The Appellant's other assertion, i.e., the contract states that "the product is still owned by Party B (Funing Factory) " and the dust-cleaning apparatus being actually managed and controlled by Funing Factory is a kind of measure for keeping secret, also has no legal basis.  When the product, i.e., the carrier of the technology, is occupied and used legally by others, only declaration or confirmation of the ownership of the product can not be regarded as the reasonable measures for keeping relating technical information secret.  Furthermore, the actual statement in the contract is saying that the product is still owned by Funing Factory if the dust-cleaning apparatus can not reach the standard after tests.  The so called sending personnel to manage and control the Type LZ-2 Apparatus actually is to send Funing Factory staffs to be responsible to install, test and put the Type LZ-2 Apparatus into operation.  Therefore, this is not the measure for keeping relating technical information secret.  Moreover, the Appellee also has its staff participated in installation of the Type LZ-2 Apparatus while there was no obligation for keeping secret.  In summary, Funing Factory did not make any appropriate indication about that the Type LZ-2 Apparatus provided to the Appellee contains technical secret.  The measures for keeping secret claimed by the Appellant can not make ordinary businessperson to get a conclusion that the product occupied and used by them contains technical secret.  Funing Factory and the Appellant did not adopt any other appropriate measure to keep relating technical information from being known by the Appellee or disclosed to any other party.  To the appellee’s concern, there is no reasonable confidential measure in this case.  Therefore, the Appellant can not claim its relating technical information as business secret to enjoy legal protection.  Appellant’s assertions relating to trade secret are not funded.  Thus, we need not to organize technical experts to evaluate if there is any trade secret.  We reject all the Appellant’s assertions on this regard.

From the actual consequence of the Appellee's action of dismantlement, we found that the Appellant’s claim, i.e., the Appellee’s dismantling caused a great amount of parts and units being stolen lacks supporting evidence.  In the meantime, the loss of the dismantled apparatus can not necessarily result in the disclosure of the relating technical information or leakage to others.  Hence, the Appellee's dismantlement action can not be considered to cause the loss of novelty of the relating technical information for filing patent application.  We in this regard do not support the Appellant’s arguments.  Also, the Appellant can not claim their technical scheme disclosed in their published patent application as trade secret to enjoy legal protection.  As a matter of fact, the appellant may claim the technical scheme in the unpublished patent application as well as those not publicly revealed as trade secret.  As to the appellee’s argument, i.e., the system of dust-cleaning, retrieving, water way, the method of removing the breakdown and parameters used by Funing Factory were made public available by the magazine of <Cement Technology>, we found that these technical schemes are not the same as the technical information requested to be protected by the Appellant.  Hence, the conclusion that relating technical information being all made publicly available can not be drawn directly from this argument.  The Appellee also argued that the technology disputed in this case did not possess inventiveness and utility because the later installed dust-cleaning apparatus by the Appellee and the technical schemes published in the related literature are far more advanced than the Appellant's technology.  We found this argument has no legal basis.  It can not conclude that the disputed technology is not trade secret only because there exists more advanced other technology.  As long as the technical information can bring definite economic profit or competitive predominance for the owner or the user and can be used actually, this information meets the requirements of trade secret in the sense of valuable and applicable.  After the Appellee installed the dust-cleaning apparatus provided by Funing Factory, though the density of dust discharging did not meet the first grade national standard, it met the second grade national standard as well as significantly lower than that before installing the apparatus.  Therefore, the relating technical information should be considered to have value and applicability.

(2)      Civil liability of the Appellee’s dismantlement of the Type LZ-2 Apparatus

When Funing Factory did not comply with the Arbitration Decision voluntarily, the Appellee should apply for enforcement by the court, and should discharge other's property by himself.  Even though the appellee has to meet the governmental environment-protecting standard, the appellee should dismantle the dust-cleaning apparatus under the law.  Since the Appellee dismantled the Type LZ-2 Apparatus and did not keep them well, it has caused damage and loss of part of apparatus.  Therefore, the appellee is mainly responsible for the damages to the property of Funing Factory.  Funing Factory did not show its good faith in complying with the Arbitration Decision, and their silence is inappropriate.  Moreover, their excuse of dismantling the upper smoking pipe and papilionaceous valves first before their dismantlement of the Type LZ-2 Apparatus is not a sufficient reason.  Therefore, Funing Factory is partially liable for the loss caused by the dismantlement.  The first instance court's decision of Funing Factory being mainly liable is inappropriate and should be rectified.  The corresponding compensation should be increased according to the circumstance.  Although the letter of February 2, 1999 sent to Funing Factory by the Appellee did not has the corporate seal on it, it is the Appellee's unilateral notify action.  As long as the message is true and is served to the Appellee to let them know the sender’s meaning, the notification is established.  The Appellant should duly oppose the superficial flaw that the letter does not have sender’s corporate seal.  The appellant can not hold that the legal effect of notification has not established only because the letter does not have sender’s corporate seal on it.  The plaintiff of the first instance and the Appellant both admitted that Funing Factory had received the letter during the hearing and did not object the genuineness of the letter.  Therefore, the arguments made by plaintiff and the Appellant in this regard is rejected.  The first instance court had carried out a field investigation on the dismantled apparatus.  Neither appellant nor appellee objected the conclusion of the field investigation.  Therefore, there is no need to conduct it again.  The motion of the Appellant and the original plaintiff for re-evaluating the damages is denied.  Because the Appellee violates the property of Funing Factory and is responsible for it, the Article 106 Section 2 and Article 117 Section 2 of <General Principles of the Civil Law> should apply.  The first instance court is wrong in applying Article 106 Section 1 of <General Principles of the Civil Law> in determining the compensation.

As the owner of the Type LZ-2 Apparatus and having contractual relationship with the Appellee, Funing Factory is entitled to claim compensation for the damages caused by the dismantlement of the Type LZ-2 Apparatus.  However, Funing Factory is not the owner of the technical information involved in this case, it can not make any claims on the technical information.  Peirao Zhang and Deyue Hui is the co-owner of the technical information involved in this case, they can make claims to the technical information.  However, they are not the owners of the Type LZ-2 Apparatus and have no contractual relationship with the Appellee, so they can not claim compensation for the damages caused by the dismantlement.  In this case, the object of Fuing Factory’s claim is different from that of Peirao Zhang and Deyue Hui.  They are not entiled the same rights.  Funing Factory’s failure of paying the appeal court fee makes Funing Factory not to be entitled co-appellant of this case and should bear this result.  Funing Factory’s motion for being added as co-appellant is denied.

The reason for the court fee as high as RMB 119,460 in both the first instance and appeal is the inappropriate claims made by the plaintiff, especially by the Appellant.  The actual property damages of this dispute is caused mainly by the Appellee's dismantlement and not keeping the dismantled apparatus well.  Therefore, the appellee should is partially responsible in the dispute.  The court fee of this dispute should be born according to each party’s liability.

In addition, during the first instance trial, the plaintiff claimed that Nanxin Co. should return RMB 600,000 illegal profit accumulated in not complying with the Arbitration Decision for stop operation 20 days during the dismantlement of the Type LZ-2 Apparatus.  The first instance court did not address this issue by overlooking it.  In fact, this claim significantly lacks legal and factual foundation.  The purpose of stop operation is merely for enabling the dismantlement of Type LZ-2 Apparatus.  If the dismantlement can be carried out without stop operation, we find there is nothing wrong.  The savings on the expense and the profit generated in this regard are not the illegal profit defined by civil law.  Moreover, in the course of appeal, the Appellee stated that the operation was actually stopped since the dismantlement of Type LZ-2 Apparatus was done the Spring Festival holidays.  The Appellant and the original plaintiff have no evidence to show that Nanxin Co. did not stop operation and did not make this claim in appeal.  Therefore, we refuse to address this issue in this appeal.

In summary, the appellant’s claims in this appeal do not have sufficient support and are rejected.  The facts finding of the first instance court is correct.  However, the first instance court applied law inappropriately, therefore, it should be corrected.  According to the stipulation of Article 10 Section 3 of < Law of the People's Republic of China for Countering Unfair Competition>, Article 106 Section 2 and Article 117 Section 2 of <General Principles of the Civil Law of the People's Republic of China>, Article 153 Section 1 Provision (2) of <Civil Procedure Law of the People’s Republic of China> and Article 180 of 《The Supreme Court’s Opinions on Several Questions Concerning application of <Civil Procedure Law of the People’s Republic of China> 》, it ordered as follows:

1.      On the No.1 provision of (1999) No.3 intellectual property judgement of Jiangsu People’s High Court, Suzhou Nanxin Co. compensate RMB 60,000 for the property damages of Funing Factory, the dismantled apparatus should be transported back by Funing Factory.  All of which should be executed once only within 10 days after this judgement comes into force;

2.      No.2 provision of (1999) No.3 intellectual property judgement of Jiangsu People’s High Court is affirmed.

The first instance court fee of RMB 119,460 is paid in advance by Peirao Zhang.  Peirao Zhang, Deyue Hui and Funing Factory should be account for RMB 83,622, Nanxin Co. should be account for RMB 35,838.  The appeal court fee of RMB 119,460 is paid in advance by Peirao Zhang.  Peirao Zhang should be account for RMB 23,622, Nanxin Co. should be account for RMB 35,838.  The court fee accounted for by Nanxin Co. should be paid directly to Peirao Zhang when this judgement is executed.

This judgement is final.

Presiding Judge: Yongchang Wang

Judge: Zhonglin He

Judge: Lihong Duan

November 6, 2000

Clerk: Yanfang Wang