Taiwan Legislature enhances criminal penalties for trade secret misappropriation

by WP

Taiwan’s Legislature has passed a much-anticipated bill introduced by the Executive Yuan to amend the Trade Secrets Act.

The bill seeks to close loopholes in the definition of trade secret misappropriation and to enhance criminal penalties.

Misappropriation of trade secrets is now punishable with imprisonment of up to five years and fines of between NT$1 to $10 million (c. US$34,000 to US$340,000). However, if the unjust enrichment resulting from the misappropriation of the trade secret exceeds NT$10 million, the amount of the fine may be increased  to as much as  three times the amount of the unjust enrichment.  As before, a victim of trade secret theft can seek restitution of the unjust enrichment in a civil action although the amount was formerly difficult for a civil plaintiff to prove on his own.

Those who misappropriate trade secrets intending to use them overseas face imprisonment of  between one and ten years and fines ranging from NT$3 million (c. US$103,000) to NT$50 million (c. US$1.7 million).  Again the fines can be enhanced by multiples of the unjust enrichment up to 10x where resulting unjust enrichment exceeds NT$50 million. This range of fines actually exceeds the amount requested by the Executive Yuan and was inserted just before the bill was passed.

Significantly, the amended Trade Secrets Act  now provides that the heavy criminal fines for trade secret misappropriation also be imposed on  employers whose representatives, agents, or employees misappropriate trade secrets in the course of their duties unless the employer “does its utmost” to prevent the misappropriation of trade secrets. In other words, employers must take precautions that new employees, especially those coming from competitors, do not bring trade secrets with them. If employers passively allow trade secrets to be used, the employer will also be exposed to the heavy new fines.

Some members of the legal and business communities may be disappointed to learn that the proposed Article 14-1 was dropped from the bill due to reportedly universal opposition by legislators from all parties. The proposed Article 14-1 was based on a provision found in several Japanese IP laws that would have given the court discretion to find that the plaintiff’s allegations are true if the defendant makes a general denial without mounting a substantive defense. The provision was intended to make establishing trade secret misappropriation in civil cases somewhat easier given Taiwan’s lack of effective civil discovery procedures.

Despite this disappointment, Taiwan’s Trade Secret Act has been given sharp new teeth that should help deter employees from taking trade secrets with them when they leave with relative impunity as has been the case in the past.  If they do, their former employers will be able to avail themselves of the considerable powers of prosecutors to discover evidence that can be used both in criminal prosecutions and later civil litigation.

Another important strategic wrinkle is that the crime of trade secret misappropriation is ‘prosecutable only on complaint’ (gaosu nai lun). In other words, prosecutors can begin an investigation only upon receiving a complaint and the complainant retains the power to withdraw his complaint and end the investigation. This control over the initiation and termination of the investigation gives victims of trade secret misappropriation more flexibility to negotiate settlements with the misappropriator.