Author Dongxiao Ma, parter of Zhonglun Law Firm
Criminal-civil cross cases refer to the nature of the case involves both criminal and civil legal relations, thus cross, implication, influence of each other’s legal procedure. In judicial practice, the problem of criminal-civil cross case first appeared and mainly focused on cases where economic disputes and crimes intersect, such as the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security on the Timely Investigation And Handling of Economic Crimes Found In Economic Dispute Cases promulgated in 1985 and the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security on the Trial of Economic Disputes in 1987.
Although the expression “criminal first, then civil after” or “civil after criminal” did not appear in either of the above documents, the provision that “economic crimes discovered by the people’s courts during the trial of economic disputes should be transferred entirety” was the earliest provision to establish the practice of “civil after criminal” for such cases.
The 1998 Provisions of the Supreme People’s Court on Several Issues Concerning the Suspicion of Economic Crimes in the Trial of Economic Dispute Cases“(“Provisions on Economic Disputes Involving Economic Crimes“) made more overarching and detailed provisions on this issue. Provisions on Economic Disputes Involving Economic Crimes has since been referred to as the “civil-criminal cross provisions”, after which the practice of “criminal first and then civil after” has continued, and the associated scope of application has been gradually expanded by the vaguely defined concept of “economic crime”. It seems to have become the applicable rule for all cross civil-criminal cases. Some judicial authorities disregarded the actual situation by way of mechanical application, which has made such issues cause concern and controversy among the legal profession.
In recent years, a large number of civil and commercial litigations, which involve criminal and legal relations but not the traditional sense of economic crime, such as infringement of intellectual property rights, the difference between civil infringement and criminal offenses only lies in the consequences, namely the amount of damages occurred and the seriousness of circumstances.
Cixing v. Beworth is a trade secret case involving the intersection of criminal and civil matters. It summarizes the legal application of the criminal-civil cross cases for the trial and adjudication methods of similar cases with guiding significance.
II. Cixing v. Beworth Case Brief
The plaintiff Zhejiang Ningbo Cixing company is a listed company, the defendant Ningbo Beworth company is established by staff who used to be the plaintiff’s former employees. In March 2016 Cixing and Beworth signed a Purchasing Agreement/Contract and Confidentiality Agreement/Contract in which Cixing entrusted Beworth processing the computerized knitting machine parts. The Confidentiality Agreement/Contract set the below clauses:
- Party A (referring Cixing) ‘s technical information, is the Party A’s design, procedures, product formulas, production processes and other information, including but not limited to …… and so on;
- Party A’s business information, is the Party A’s know-how, customer lists, source intelligence, production and marketing strategies and other information, including but not limited to …… and so on;
- Information belonging to others but technical information and business information that Party A has undertaken confidentiality responsibility to others.
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In response to the letter of the local public security bureau, the court of first instance ruled in the Adjudication that:
According to the Economic Disputes Involving Economic Crimes Article 11: “The People’s Court, when handling an economic civil dispute, if the case is not considered an economic civil dispute but suspected of economic crimes, should dismiss the civil case and transfer the relevant materials to the public security bureau or procuratorial organs “.
Article 12: “If the economic civil dispute has been accepted by the People’s Court, and the public security bureau or procuratorial organs considered to be suspected of economic crimes attached with the reasons, the relevant materials and letter to the People’s Court, the relevant the People’s Court shall carefully examine the materials. After examination, if the People’s Court considered a suspicion of economic crime, it should transfer the case to the public security bureau or procuratorial organs, and notify the parties in writing, and refund the case acceptance fee; if it considered a case of economic civil dispute, it shall continue to hear the case in accordance with the laws, and notify in written the relevant public security bureau or procuratorial organs of the results”.
For the subject case, the facts being reviewed by the public security bureau covered the mutually signed Purchase Agreement/Contract, Confidentiality Agreement/Contract and the content of the relevant drawings, which overlapped the legal facts to be judged by the court during the trial, the defendant Beworth has the suspicion of committing Crime of Infringing Trade Secrets. The local court ruled that the case was transferred to the public security bureau for further processing.
After the ruling was made, we representedthe defendant Beworth, appealed to the Intellectual Property Tribunal of the Supreme People’s Court on the following grounds:
1. The criminal and civil issues in this case are were the same legal relationship and according to Article 10 of the Provisions on Economic Disputes Involving Economic Crimes, “If any clues or materials of economic crime is found to be involved in this case, but not in the same legal relationship, The People’s Court, in the course of hearing economic dispute civil case shall transfer the crime clues and materials to the relevant public security bureau or procuratorial organs for further investigation and handling, then continues to hear the economic dispute civil case.”
2. The Court of the First Instance did not hold a hearing or a trial session but directly made a decision without confirming the scope of the technical secret, whether the technical secret is known to the public, the value of the secret point, and the contribution rate to the product, etc. The procedure of the First Instance was illegal.
After hearing and rounds of discussion with both parties and authorities, the Supreme People’s Court ruled in its decision that:
Per the plaintiff Cixing’s evidence and statement, the defendant Beworth was found to use Cixing “licensed technical secrets” on its own products, whose behavior was beyond the agreement, and requested the defendant to bear the corresponding liability for breach of contract. It can be seen that the lawsuit brought by the plaintiff is the legal relationship of the violation of technical secret license contract.
However, the suspected commercial secret crime under investigation by the public security organ was the legal relationship of commercial secret crime. The legal relationship involved the violation of technical secret license contract and commercial secret crime is different and not based on the same legal fact. They involved economic disputes and suspected economic crimes respectively, though some facts involved in the case overlapped.
The Court of the First Instance should transfer the criminal suspect clues and materials that are involved in this case but not in the same legal relationship with this case to the public security organ, but should also continue to hear the technical secret license contract dispute involved in this case.
III. Solutions to Criminal-civil cross cases
This typical case announced by the Supreme People’s Court is actually one type of the criminal-civil cross cases, namely, civil cases and criminal cases are implicated but not based on the same legal facts. In the past in most these cases many public security bureau wrote letters to the People’s Court requesting to transfer the case file and the dismissal of the prosecution.
Different from the traditional “economic disputes involving economic crime”, trade secret criminal-civil cross cases are basically the same in the identification and composition of the “secret” of trade secret, only different in the circumstances and consequences.
In practice, it is common that criminal allegations are not supported by courts due to some public security organs’ failure to observe the above-mentioned principle that results in publicly available information being deemed element of a trade secret.
Whether the Anti-Unfair Competition Law or Criminal Code, “non-public knowledge” is a prerequisite for the composition of trade secret , but “non-public knowledge” is the proof of negative facts, which can only be proved indirectly by refuting the other side’s assertion of positive facts. In addition, the proof of the ownership of the trade secret rights also requires confrontations to confirm. Therefore, the burden of proof for the composition and attribution of trade secrets should be on the defendant’s side, and the plaintiff cannot prove negative facts by himself.
In practice, after the public security organ files the case, it conducts the investigation under confidentiality, and the content and scope of the commercial secret involved can definitely not be known to the defendant. Therefore, it often occurs that the victim (plaintiff) expanded the technology in the public domain into his own scope of technical secret, which may cause injustice or even false convictions then be overturned by the court in the follow-up trial after years.
The former Chief Judge of Intellectual Property Tribunal of the Supreme People’s Court used to emphasize that ” it cannot be said absolutely that criminal first and civil after. In some cases, there is also situation that civil comes first and then criminal. For example, in the trial of criminal cases of infringement of trade secrets, it is necessary to firstly determine the trade secret rights through the trial of civil and commercial disputes, before the trial of criminal cases to determine whether the suspect constitutes a crime.”
In summary, there is no solution to the chaos in the criminal-civil cross cases of trade secrets. In addition to clarifying the legal facts involved in both civil and criminal cases, adhering to the “criminal-civil parallelism” and “principle of precedence “, it may depend on the People’s Court to clarify the rules of application through new typical cases in the future.
Ten Model Anti-monopoly and Anti-unfair Competition Cases Tried by the People’s Courts Published by the Supreme People’s Court in 2021
Handling of a case with criminal and civil overlap involving a trade secret
Ningbo Cixing Co., Ltd. (“Cixing Company”) sued in the court in the belief that Ningbo Beworth Textile Machinery Co., Ltd. (“Beworth Company”) infringed the trade secret of Cixing Company by using the technical drawings which Cixing Company required to be kept confidential in violation of agreement to produce flat-bed knitting machines.
The Public Security Bureau of Ningbo City, Zhejiang Province placed the case on file for criminal investigation against Beworth Company on suspicion of the crime of trade secret infringement. The court of first instance held that the facts investigated by the Public Security Bureau of Ningbo City, Zhejiang Province covered the relevant content of the agreement and drawings involved in the case, and thus ruled to transferred the case to the public security authority for handling.
Beworth Company was dissatisfied and appealed to the Supreme People’s Court. The Supreme People’s Court held at the second instance trial that
The case thoroughly implemented the requirements of the judicial policy of the central authorities for protecting property rights, protecting the rights and interests of entrepreneurs, and creating a good business environment under the rule of law, specified the principles for handling cases with criminal and civil overlap involving trade secrets, ensured the fair and timely handling of cases by avoiding parties to civil actions interfering with the normal conduct of civil proceedings, and prevented the public security authority from refusing to place a case on file for criminal investigation on the grounds of the economic dispute, causing confusion between criminal and civil liability, affecting judicial justice and authority.
