One of my former employers in Taiwan lost several employees to a competitor. Before leaving, the employees downloaded numerous files of sensitive financial information which they took to their new employer and used to try to steal our customers. We notified the authorities, the police launched a raid on the new employer, searched their computers, discovered the stolen data and another trade secrets battle had just begun.

Such cases are common; they’re also notoriously challenging. In Taiwan, the Trade Secrets Act prohibits the unlawful misappropriation, disclosure or use of trade secrets. Trade secrets are defined as business or technical information that is not known to the public, derives value from its secrecy, and is the subject of reasonable measures taken by its owner to protect its secrecy.

If trade secrets are unlawfully acquired, used or disclosed, the Act authorizes a civil suit for injunctive relief or damages. However, the basic measure for damages is plaintiff’s lost profits or defendant’s unlawful gains, both of which can be hard to prove. Additionally, Taiwan’s discovery procedures are practically non-existent, so it can be difficult proving knowledge and use of the secrets by the company receiving the secrets. Without that, all one has is a potential case against the individuals and no real proof of damages.

To circumvent Taiwan’s lack of a formal discovery system, the victim of trade secrets theft should usually file a criminal complaint prior to the civil complaint, as the police will likely launch investigative raids as part of the criminal action and any resulting evidence can then be used in the civil action. Additionally, such a tactic will likely save costs. In Taiwan, the plaintiff in a civil suit must deposit a court fee equal to 1% of the claim amount (plus 1.5% for any appeal), but no filing fee is required if the plaintiff files a civil suit ancillary to a pre-existing criminal suit concerning the same matter.

Taiwan’s truncated discovery system also allows an aggrieved party to file a “request for preservation of evidence,” either before or after filing a civil suit. The request may be filed ex parte and, in response, the judge may issue protective orders prohibiting the destruction of evidence and directing the police and technical examiners to help ensure compliance with the order.

However, such local discovery tactics are often insufficient, as Taiwan Semiconductor Manufacturing Company (TSMC) found out in its well-known dispute with its Chinese rival, Semiconductor Manufacturing International Corporation (SMIC), which settled in 2009.

In that case, TSMC knew that SMIC was poaching its employees, but was uncertain whether sensitive information was also being stolen. At TSMC’s request, the Taiwan authorities raided the home of one of the poached employees and found critical manufacturing data on her computer, but SMIC denied having received the data, so TSMC was forced to sue SMIC in the U.S.

As TSMC’s General Counsel, Richard Thurston explained, “People ask me why I sued in the U.S. One of the main reasons is that I can get discovery in the U.S. I can’t get it here. And, you can’t win a trade secret case without discovery.” Through the U.S. litigation, TSMC eventually learned that SMIC possessed 15,000 TSMC documents, comprising 500,000 pages of information. The case then settled, with TSMC receiving US$200 million plus a 10% stake in SMIC.

Taiwan-based IC designer, Mediatek, was less successful in its trade secrets lawsuit with rival, MStar Semiconductor. In 2011, the Taipei District Court found a former Mediatek employee (but not MStar) guilty of criminal charges for stealing numerous trade secrets when he left Mediatek for MStar. The court sentenced him to nine months in prison, but permitted him to avoid jail by paying a fine of NT$270,000 (equal to about US$9,000). The outcome was widely decried as inadequate and seen as a prime example of the need to reform Taiwan’s legal system for the protection of trade secrets.

Many believe the system may soon improve, as the Intellectual Property Office has drafted amendments to the Trade Secrets Act, aimed largely at strengthening available civil and criminal remedies. The draft amendments are pending with the Executive Yuan for consideration and could become law by early next year.

However, such lawsuits will continue to be difficult, due to Taiwan’s lack of formal discovery procedures and the resulting challenges proving a case against the company that benefits from stolen trade secrets – not just the individual who stole the secrets. In China, it’s been said that the best means of protecting a company’s IP is to not hire anyone. While there’s some truth to that quip, more realistically the most important means of protecting trade secrets is not through litigation but by preventing problems in the first place through careful, strategic, precautionary measures in advance.

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For assistance with trade secrets, please contact our Taiwan business lawyers