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【Trade Secret】 Base Price Information Meeting the “Economic Value” Element of a Trade Secret - Taiwa..

2019-08-27 Yen-Chia Chen

Base Price Information Meeting the “Economic Value” Element of a Trade Secret

- Taiwan Supreme Court 106 Tai Shang No. 441 Civil Judgment
-
符合營業秘密「經濟價值」要件之底價資訊
- 臺灣最高法院106年度台上字第441號民事判決 -
 
Sometimes a market participant may adopt a price-matching strategy to match or beat the price offered by any competitor in the same market.  Entrepreneurs doing business in Taiwan should be cautious with using the pricing information (e.g., pricing strategies, price quotes, and cost and pricing analysis) obtained from their competitors or any third persons.  Some entrepreneurs doing business in Taiwan will take precautionary measures to protect their pricing information and make their pricing information confidential because their pricing information gives them a competitive edge in Taiwan’s competitive market.  In Taiwan, various prior cases show that a former employee allegedly misappropriating his former employer’s confidential information (e.g., pricing information) either for the employee’s own benefits or for the benefits of a competitor to his former employer will likely face a civil lawsuit filed by his former employer alleging trade secret misappropriation and/or a criminal charge by the prosecution for trade secret theft.[1]  An example is the underlying case of the 106 Tai Shang No. 441 Civil Judgment (“106 Tai Shang 441”)[2] rendered by the Supreme Court in Taiwan (the “Taiwan Supreme Court”). 
 
In 106 Tai Shang 441, the defendants worked for the plaintiff (a company in Taiwan) before leaving the plaintiff to work for a competitor to the plaintiff in the same industry.[3]  The plaintiff filed a civil lawsuit against the defendants alleging trade secret misappropriation after finding out that (1) the defendants stole the pricing information of the plaintiff’s products; (2) the pricing information allegedly misappropriated by the defendants was confidential information protected by the plaintiff as the plaintiff’s trade secret; and (3) after learning of the pricing information of the plaintiff’s products, the business of the plaintiff’s competitor beat the plaintiff’s business and gained a competitive edge in the market by setting a product price lower than the product price offered by the plaintiff.[4]  One of the issues raised and debated by the parties in 106 Tai Shang 441 is whether the pricing information at issue allegedly misappropriated by the defendants meets the “economic value” element of a trade secret under the Trade Secret Act in Taiwan (the “Trade Secret Act”[5]).[6]  When the 106 Tai Shang 441 case was remanded to the Taiwan High Court for a retrial, the Taiwan High Court found that the pricing information at issue meets the “economic value” element of a trade secret.[7]  On appeal, the Taiwan Supreme Court affirmed the Taiwan High Court’s finding above.[8]
 
I.  The “Economic Value” Element of a Trade Secret
 
Not all confidential information constitutes a trade secret under the Trade Secret Act.  According to the Trade Secret Act, a trade secret consists of “any method, technique, process, formula, program, design, or other information that may be used in the course of production, sales, or operations” that meets all three following requirements:[9] (1) the element of “secrecy” requires that the said information “is not known to persons generally involved in the information of this type;” (2) the element of “economic value” requires that the said information “has economic value, actual or potential, due to its secretive nature;” and (3) the element of “reasonable measures” requires that a holder of a trade secret “has taken reasonable measures to maintain [the said information’s] secrecy.”[10]  In addition to the three elements above, the courts in Taiwan generally will take into consideration the legislative purposes of the Trade Secret Act (including the protection of trade secrets, the maintenance of industrial ethics and competition order, and the balance of societal and public interests[11]) when determining whether a piece of information constitutes a trade secret.[12]
 
The courts in Taiwan have held different views in determining whether a piece of information meets the “economic value” element of a trade secret.[13]  Some courts found that a piece of information meets the “economic value” element of a trade secret as long as that information may be used in the course of production, manufacture, operation, or sales, and generates economic benefits or commercial values therefrom.[14]  There are also courts which held that a piece of information meets the “economic value” element of a trade secret if the holder of that information has spent substantial efforts, time, and/or expenses on collecting, acquiring or obtaining that information.[15]
 
II.  99 Tai Shang 2425
 
With reference to whether a piece of pricing information has economic value meeting the “economic value” element of a trade secret, one of the leading decisions by the Taiwan Supreme Court is 99 Tai Shang 2425.[16]  In 99 Tai Shang 2425, the Taiwan Supreme Court held that (1) the price of a product in the market does not remain unchanged forever; (2) setting a sale price for a product involves business strategies such as the computation of cost and profit; and (3) when no other specific factors or concerns (e.g., a violation of the industrial ethics or the competition order by one preying on his competitor through setting a lower price based on the price offered by his competitor to obtain an unfair advantage over his competitor) is involved, an access to the pricing information at issue by the defendant does not therefore make that pricing information economically valuable (i.e., that pricing information does not meet the “economic value” element of a trade secret).[17]  Since 99 Tai Shang 2425, many courts in Taiwan have followed 99 Tai Shang 2425 and take the same view on the aforementioned issue.[18] 
 
III.  106 Tai Shang 441
 
In 106 Tai Shang 441, with respect to whether a piece of pricing information meets the “economic value” element of a trade secret, the Taiwan Supreme Court held that a piece of pricing information should be considered economically valuable (i.e., that pricing information meets the “economic value” element of a trade secret) if that pricing information may be used by someone for setting a lower price to beat his competitor’s price and obtain an unfair advantage.[19]  The holding of the Taiwan Supreme Court in 106 Tai Shang 441 affirmed the finding and holding of the Taiwan High Court in 103 Shang Geng (1) 115 on appeal.[20]  In 103 Shang Geng (1) 115, the Taiwan High Court found that, by learning of the pricing information at issue, one may use that pricing information to set a lower price beating the plaintiff’s price and gain a competitive edge because that pricing information may help one figure out the cost of material purchased, product sale prices, and price-setting strategies of the plaintiff.[21]  Accordingly, the Taiwan High Court held that the pricing information at issue has economic value due to its secretive nature and meets the “economic value” element of a trade secret because that pricing information may be used as a price base for setting a lower price to beat the other’s price.[22] 
 
The facts of the 106 Tai Shang 441 case are partially identical to the facts of the 99 Tai Shang 2425 case because (1) both cases involve lawsuits filed by former employers against their former employees who allegedly misappropriated their former employers’ pricing information for the business of competitors to their former employers in the same market; and (2) the issue of whether the pricing information allegedly misappropriated by the defendants meets the “economic value” element of a trade secret under the Trade Secret Act is raised in both cases.[23]  However, 106 Tai Shang 441 distinguishes from 99 Tai Shang 2425 on the grounds that:
(1)  in 106 Tai Shang 441, the Taiwan Supreme Court found that the pricing information at issue meets the “economic value” element of a trade secret because that pricing information was used as a price base for setting a lower price to beat the plaintiff’s price and obtain an unfair advantage;[24] whereas,
(2)  in 99 Tai Shang 2425, the Taiwan Supreme Court found that the pricing information at issue does not meet the “economic value” element of a trade secret because:
(i) the pricing information at issue may be changed from time to time due to various factors; and
(ii)  there was no proof that the defendants set the sales price of their products based on the plaintiff’s pricing information other than the fact that the defendants previously had access to the plaintiff’s pricing information.[25]
 
IV.  Conclusion
 
A piece of pricing information is not a trade secret if that pricing information fails to meet the “economic value” element of a trade secret.[26]  Simply access to a piece of pricing information by someone, without the involvement of any other factors or concerns, does not thus make that pricing information meet the “economic value” element of a trade secret.[27]  On the other hand, a piece of pricing information will likely meet the “economic value” element of a trade secret if that pricing information is used as a price base for setting a lower price to beat other’s price and obtain an unfair advantage over others.[28]  In regard to whether a piece of pricing information meets the “economic value” element of a trade secret, the opinion held by the Taiwan Supreme Court in 99 Tai Shang 2425 and 106 Tai Shang 441 may appear to be slightly different on the surface.  Nonetheless, it does not seem like that the Taiwan Supreme Court intends to replace 99 Tai Shang 2425 with 106 Tai Shang 441.  99 Tai Shang 2425 and 106 Tai Shang 441 seem to be supplements to each other because these two decisions have addressed the same issue from different sides of the spectrum.  99 Tai Shang 2425 tells us that under what circumstances will a piece of pricing information not be considered meeting the “economic value” element of a trade secret, while 106 Tai Shang 441 helps us understand that under what conditions will a court in Taiwan find a piece of pricing information meets the “economic value” element of a trade secret.
 
 
This Article, including the information contained herein, has been prepared only for educational and general information purposes to contribute to the understanding of the Taiwan Supreme Court’s recent opinion on base price information meeting the “economic value” element of a trade secret under the Trade Secret Act in Taiwan.  This Article does not and is not intended to constitute, offer, or convey individual legal advice, legal opinion, or any other professional advice on any subject matters covered herein.  Please obtain specific legal advice before acting on any matters discussed herein.  While the author makes every attempt to ensure that the information covered herein is accurate, the author disclaims any liability for any omissions or errors that may be contained in this Article.
 
 
 
[1] E.g., Zuigao Fayuan 106 Tai Shang No. 441 Civil Judgment (Jan. 4, 2017) (最高法院106年度台上字第441號民事判決) [Taiwan Supreme Court 106 Tai Shang No. 441 Civil Judgment] (hereinafter “106 Tai Shang 441”); Zuigao Fayuan 102 Tai Shang No. 235 Civil Judgment (Jan. 31, 2013) (最高法院102年度台上字第235號民事判決) [Taiwan Supreme Court 102 Tai Shang No. 235 Civil Judgment] (hereinafter “102 Tai Shang 235”); Zuigao Fayuan 99 Tai Shang No. 2425 Civil Judgment (Dec. 30, 2010) (最高法院99年度台上字第2425號民事判決) [Taiwan Supreme Court 99 Tai Shang No. 2425 Civil Judgment] (hereinafter “99 Tai Shang 2425”); Taiwan Gaodeng Fayuan 103 Shang Geng (1) No. 115 Civil Judgment (July 12, 2016) (臺灣高等法院103年度上更(一)字第115號民事判決) [Taiwan High Court 103 Shang Geng (1) No. 115 Civil Judgment] (hereinafter “103 Shang Geng (1) 115”); Taiwan Gaodeng Fayuan 98 Shang No. 503 Civil Judgment (July 6, 2010) (臺灣高等法院98年上字第503號民事判決) [Taiwan High Court 98 Shang No. 503 Civil Judgment] (hereinafter “98 Shang 503”); Zhihui Caichan Fayuan 107 Min Ying Shang No. 2 Civil Judgment (Jan. 24, 2019) (智慧財產法院107年度民營上字第2號民事判決) [Intellectual Property Court 107 Min Ying Shang No. 2 Civil Judgment] (hereinafter “107 Min Ying Shang 2”); Zhihui Caichan Fayuan 107 Min Ying Su No. 5 Civil Judgment (Dec. 27, 2018) (智慧財產法院107年民營訴字第5號民事判決) [Intellectual Property Court 107 Min Ying Su No. 5 Civil Judgment] (hereinafter “107 Min Ying Su 5”); Zhihui Caichan Fayuan 107 Min Zhan Kang No. 10 Court Order (Dec. 27, 2018) (智慧財產法院107年民暫抗字第10號民事裁定) [Intellectual Property Court 107 Min Zhan Kang No. 10 Court Order] (hereinafter “107 Min Zhan Kang 10”).
[2] 106 Tai Shang 441.
[3] Id.
[4] Id.
[5] Yingye Mimi Fa [The Trade Secret Act] (promulgated on January 17, 1996; last amended on January 30, 2013) [hereinafter the “Trade Secret Act”].
[6] 106 Tai Shang 441; 103 Shang Geng (1) 115.
[8] 106 Tai Shang 441.
[9] Id.; 99 Tai Shang 2425; 103 Shang Geng (1) 115; Taiwan Gaodeng Fayuan 104 Shang Yi No. 1052 Civil Judgment (Mar. 9, 2016) (臺灣高等法院104年上易字第1052號民事判決) [Taiwan High Court 104 Shang Yi No. 1052 Civil Judgment] (hereinafter “104 Shang Yi 1052”); Taiwan Gaodeng Fayuan 102 Jhong Lao Shang No. 52 Civil Judgment (Oct. 14, 2015) (臺灣高等法院102年重勞上字第52號民事判決) [Taiwan High Court 102 Jhong Lao Shang No. 52 Civil Judgment] (hereinafter “102 Jhong Lao Shang 52”); 98 Shang 503; 107 Min Ying Shang 2; 107 Min Ying Su 5; 107 Min Zhan Kang 10; Zhihui Caichan Fayuan 103 Min Ying Shang No. 5 Civil Judgment (May 21, 2015) (智慧財產法院103年度民營上字第5號民事判決) [Intellectual Property Court 103 Min Ying Shang No. 5 Civil Judgment] (hereinafter “103 Min Ying Shang 5”).
[11] Id. art. 1.
[12] 106 Tai Shang 441; 99 Tai Shang 2425; 103 Shang Geng (1) 115; 102 Jhong Lao Shang 52; 107 Min Ying Su 5; 107 Min Zhan Kang 10.
[13] 104 Shang Yi 1052; 103 Min Ying Shang 5.
[14] E.g., 103 Min Ying Shang 5.
[15] E.g., 104 Shang Yi 1052.
[16] 99 Tai Shang 2425.
[17] Id.
[18] E.g., 103 Shang Geng (1) 115; 102 Jhong Lao Shang 52; 107 Min Ying Su 5; 107 Min Zhan Kang 10.
[19] 106 Tai Shang 441.
[20] Id.
[21] 103 Shang Geng (1) 115.
[22] Id.
[23] 106 Tai Shang 441; 103 Shang Geng (1) 115; 99 Tai Shang 2425; 98 Shang 503.
[24] 106 Tai Shang 441.
[25] 99 Tai Shang 2425.
[26] Id.; 98 Shang 503.
[27] 99 Tai Shang 2425.
[28] 106 Tai Shang 441.