Three Verdicts, One Pattern: Why ¥1.1 Billion in Trade Secret Damages Shows NNN Alone Is Rarely Enough

By Matthew Chou, Licensed PRC Attorney · Shanghai Xinben Law Firm · 2026-04-21

Abstract

Trade secret misappropriation is often difficult to detect and harder to prove, particularly for foreign rights holders operating across borders. Chinese courts apply strict evidentiary standards, placing a substantial burden on the plaintiff at the initial stage, even when the underlying facts appear clear. This article examines three recent Supreme People’s Court (SPC) verdicts totaling ¥1.1 billion in trade secret damages, and argues that for foreign companies sharing technical information with Chinese partners, an NNN agreement alone is rarely enough: it is where protection begins, not where it ends.

Introduction

Within roughly a year,SPC handed down three trade secret judgments totaling more than ¥1.1 billion in damages. Different industries, different defendants, but the underlying mechanism repeated in each case: technical staff left with proprietary information, joined or set up a competing business, and used what they took to manufacture rival products without having to pay for the Research and Development (R&D) that had produced it.

The headline numbers are easy to fixate on. What is more useful, if you run a foreign company that shares any technical information with Chinese partners, is to look past the damages figures and notice how routine the underlying facts are. The defendants were not sophisticated industrial spies. They were ordinary employees who walked out with files.

Table 1. Three recent SPC trade secret verdicts cited in this article.

The first case involved a new energy vehicle manufacturer (NEV) that lost close to 40 senior engineers to a single competitor over a short period. Thirty of them joined immediately after resigning. The competitor had no prior track record in SUV chassis work, yet managed to launch a competing electric SUV about two years later and filed 12 utility model patents that named the departed employees as inventors. The Supreme People’s Court overturned a first-instance award of ¥5 million and ordered roughly ¥640 million in damages, with a 2-times punitive multiplier ^[1].

The second case is the one most worth reading in full. A precision computer numerical control machine tool manufacturer (CNC) discovered that one of its 14-year employees had, in his final 21 days, pulled files from the company server 162 times and pushed them out through internal network sharing more than 70,000 times. The total haul was 37,340 drawings and technical documents covering 27 product series and 160 machine models. Four days after resigning he was at a competitor, working under a false name, installed as deputy general manager of its glass machining division. Within months the competitor was building and selling machines based on those drawings. The SPC ordered ¥382 million in damages with a 3-times punitive multiplier and added a ¥1 million daily penalty for any delay in complying with the injunction.^[2]

The third case illustrates a different risk pattern. An industrial compressor manufacturer found that a group of its employees had quietly set up a competing company while still drawing salaries from it, holding the shares through their spouses. They took the plaintiff’s selection software and core impeller model data and ran the infringement for more than a decade before it was caught. The court ordered ¥166 million in damages.^[3]

All three disputes were between Chinese parties. The reason I think they matter is the fact pattern, which the foreign companies should recognize. Employees leaving with know-how, a competitor appearing on the market at speed, the original rights holder scrambling to reconstruct an evidentiary record after the fact. What differs in these cases is the enforcement environment and, more importantly, what the courts expect you to have done before the theft to be taken seriously afterwards, as provided under Article 39(1) of the Anti-Unfair Competition Law^[4].

Why the punitive multipliers matter

What actually distinguishes these three verdicts is not the absolute size of the awards. It is that in each of them the SPC applied a punitive multiplier on top of the calculated base damages: 2-times in the NEV case, 3-times in the CNC case, 2-times in the compressor case. For practitioners watching Chinese IP enforcement, this is the more important development.

Punitive damages in trade secret cases are a relatively recent feature of Chinese law. Article 17 of the Anti-Unfair Competition Law, as amended, permits courts to assess punitive damages of up to five times the base amount where the infringement is willful and the circumstances are serious. The statutory language has been on the books for several years, but courts were initially cautious in applying it, and for a long time the prevailing market assumption—particularly among foreign rights holders—was that large trade secret awards were theoretically available but rarely realized in practice. These three judgments are the SPC signaling, fairly emphatically, that the five-times ceiling is not decorative. With such a substantial base amount, the 3-times multiplier in the CNC case is, to my knowledge, among the highest applied in a trade secret matter to date.

The reasoning across the three judgments is also worth noting, because it tells you what the SPC considers willful-and-serious. The courts focused on: (1) the deliberate and systematic way the information was acquired, such as the 162 downloads and 70,000-plus file transfers in the CNC case, the coordinated departure of 40 engineers in the NEV case, the decade of concealed operation in the compressor case; (2) the direct commercial exploitation that followed, and (3) the scale of the economic value taken relative to the defendants’ near-zero independent R&D cost. These factors put together, are what lift a case from ordinary misappropriation into the punitive range. For a foreign company, this has practical implications at two stages. Before a dispute, it tells you what kind of evidence will be probative. During a dispute, it tells you what to prove if you want a court to apply a multiplier rather than stopping at the base damages figure.

The other practical consequence is on settlement leverage. A defendant exposed to a credible 3-times or 5-times legal risk negotiates differently from one facing only actual damages. Since the CNC decision, I have noticed Chinese counterparties in NNN negotiations becoming more willing to accept tighter confidentiality provisions, apparently because the downside risk has become more tangible to them. That is a small data point, but a real one.

What the CNC plaintiff actually had in place

The CNC case rewards close reading because the judgment walks through, in some detail, the specific measures the plaintiff had adopted and why the court treated them as sufficient to meet the Anti-Unfair Competition Law’s “reasonable protective measures” threshold. None of the measures were individually remarkable. What mattered was that they existed, in writing, before the dispute.

On the contractual side, the plaintiff had three overlapping instruments with the departing employee: (1) an employment contract, (2) a stand-alone confidentiality agreement, and (3) a set of internal company rules (especially audit trails) governing how proprietary information was to be handled. The court looked at them together rather than asking whether any one was perfect. A gap in one document was covered by another.

The reason the court could accept such precise numbers (162 server pulls, over 70,000 file transfers) was that the plaintiff had deployed a product data management system and audit monitoring across its design department, access-controlled its office areas, and physically separated its internal network from the outside. This is obviously a large-enterprise setup. Most foreign Small and Medium Enterprises (SMEs) are not going to replicate it. But the underlying logic scales. If you are going to share technical information with a counterparty, you need to be able to prove what was shared, when, and with whom. For a smaller operation the baseline version of this is unglamorous but effective. It means logging each file transfer to the manufacturer including the date and file list, collecting a signed acknowledgment, and retaining the related emails.

The other aspect of the CNC case worth dwelling on is how the plaintiff defined what had been stolen. It did not point to a handful of especially sensitive drawings. The plaintiff argued that all 37,340 documents constituted a single integrated trade secret, an information system from which the whole product line could be reconstructed. The SPC upheld that argument, and held that even if certain individual details could in theory be inferred from a finished machine in the market, the aggregated whole, such as dimensions, tolerances, surface finishes, material specifications, assembly relationships, and process parameters across 160 machine models, remained beyond what a skilled person could readily reconstruct^[5]. Chinese courts have applied this combination principle for years. The drafting consequence for a foreign company is direct. If your NNN defines Confidential Information as a list of specific drawings or isolated parameters, you may risk narrowing the scope of what you can later claim as an integrated set of information to be protected. The NNN should reflect the reality that what you hand over is an integrated package of files that make up the whole and systematic solution or products.

Translating into protocol for your own operation

The through-line across the three verdicts is not that the winning parties got lucky. It is that they had already done unglamorous groundwork before anyone needed to sue. The practical lesson for a foreign company sharing drawings with a Chinese manufacturing partner is that a single NNN agreement is rarely enough.

Build a traceable evidence trail from day one

The counterparty who breaches or is breaching a trade secret is not afraid of what you know or suspect. They are afraid of what you can prove. The NNN covers the counterparty relationship. You also need confidentiality language in the OEM or supply contract itself (tied to the actual deliverables) and a written acknowledgment from the recipient at each transfer of files. Three instruments, three paper trails. If you only have one and it happens to have a drafting weakness, you are exposed in a way the CNC plaintiff was not. For a foreign company, most of this work is not technical. It is contractual and procedural. A few points are worth pulling out specifically.

Applying drawings with invisible, recipient specific watermarks before sharing drawings is worth the modest cost. For important disclosures, notarizing the transfer through a Chinese notarial office or recording it on a court-recognized blockchain evidence platform will generally produce evidence that Chinese courts treat as reliable. Blockchain preservation has been gaining ground with Chinese courts for many years now and costs a small fraction of traditional notarization.

Disclose what is necessary at each stage

In the CNC case, one person was able to pull technical documentation spanning an entire product line because he had been given access to that line. During quotation, share only the specifications needed to price the job. At sampling, share only what is needed to make a prototype. Full drawings come out when there is a commitment to volume production, and only for the models actually being made. Each stage gets its own signed acknowledgment. This is procedurally tedious, and I will concede that clients sometimes push back on it because it slows down onboarding. It is also the single most effective structural protection available.

Do not concentrate everything in one supplier

Splitting core components, tooling, and key process parameters across different manufacturers limits the damage any one breach can do. Sourcing critical subassemblies from separate parties and keeping final assembly (or one critical integration step) under your direct control is the version of this that most SMEs can actually implement. Diversification leads to cost escalation, yet it remains far more manageable than the fallout of a trade secret breach.

Document R&D investment from the start

R&D investment was documented. A specialized audit report in the CNC case put the plaintiff’s R&D spend on the relevant product line at ¥363 million over 15 years, and the Supreme People’s Court cited that figure in concluding that the defendant had, at essentially no cost, appropriated the product of years of investment. That finding fed directly into the 3-times punitive multiplier.

Design costs, prototyping, testing, certification, engineering labor—keep contemporaneous records. This is the evidence that, years later, gives a Chinese court a rational basis for assessing the seriousness of an infringement, which is half of what the AUCL requires before a punitive multiplier can be applied. In the CNC case the ¥363 million R&D figure was not the damages calculation itself; it was what allowed the SPC to characterize the taking as serious enough to warrant the 3-times multiplier. A defendant who appropriates ¥363 million of accumulated development in an afternoon is not similarly situated to one who copies a single patent, and the court’s willingness to quantify that gap is what produces the punitive uplift.

Closing thought

Whether these risks are real is not really the open question the three verdicts leave. The question each foreign company with Chinese manufacturing exposure has to answer is a smaller one, namely if one of your key suppliers’ engineers walked out tomorrow with your drawings and turned up at a competitor next month, do you have the documents, the logs, and the contractual architecture to do what the CNC plaintiff did? If the answer is no, or is qualified, the window for fixing it is before the event, not after.

Notes and References

1. Herbert Smith Freehills, “Supreme People’s Court of China grants record-breaking damages in trade secrets case” (August 2024); National Law Review, “China Awards 640 Million RMB in Energy Vehicle Trade Secret Case” (June 2024). SPC Case No. (2023) 最高法知民终 No. 1590. ↑

2. SPC Case No. (2023) 最高法知民终2039号. The full text of the second-instance judgment was reviewed by the author. ↑

3. National Law Review, “China’s Supreme People’s Court Releases Typical Cases of Unfair Competition in 2025” (September 2025). SPC 2025 Typical Anti-Unfair Competition Cases. ↑

4. Article 39(1) of the Anti-Unfair Competition Law (as amended in 2025, formerly Article 32(1)) requires a trade secret holder to present prima facie evidence that it has taken reasonable protective measures. ↑

5. Article 39(2) of the Anti-Unfair Competition Law (as amended in 2025, formerly Article 32(2)) establishes a burden-shifting framework for trade secret claims: once the rights holder makes a prima facie showing of misappropriation, the burden shifts to the alleged infringer to prove non-infringement. In the CNC case, the court's finding that the competitor had obtained and used the plaintiff's trade secrets relied on this burden-shifting framework rather than on direct evidence of document transfer, because the alleged infringer failed or refused to discharge that burden. ↑