Four Pillars Enterprise Co. filed a complaint against Avery Dennison for using a joint venture as bait to steal its trade secrets, Avery Dennison counter-charged Four Pillars Enterprise for making and disseminating false statements that are sufficient to damage its business reputation

Chinese Taipei


Case:

Four Pillars Enterprise Co. filed a complaint against Avery Dennison for using a joint venture as bait to steal its trade secrets, Avery Dennison counter-charged Four Pillars Enterprise for making and disseminating false statements that are sufficient to damage its business reputation

Key Words:

Trade S ecrets, Damage of Business Reputation

Reference:

Fair Trade Commission Decision of July 21, 2005 (the 715th Commissioners' Meeting), Letter Kung Erh Tzu No. 0940006432 and 0940006433 of August 4, 2005

Industry:

Other Plastic Products Manufacturing (2109)

Relevant Laws:

Article 19、Article 22 and Article 24 of the Fair Trade Law

Summary:

  1. This case originated from a complaint filed by Four Pillars Enterprise Co. (hereinafter referred to as the complainant) on December 31, 1998 against Avery Dennison Corporation (hereinafter referred to as the respondent) which is briefly stated as such: Starting from 1987, the respondent had used a joint venture with the complainant and purchases from the complainant as baits, causing the complainant to undoubtedly provide the respondent with trade secrets of practical and commercial value, including information on his products, technology, machines, equipment, costs, selling prices, markets and clients. However , the respondent had neither purchased products from nor sold products to the complainant. Furthermore, the respondent had even used the trade secrets that had been improperly obtained from the complainant in its company in Jiangsu, China in June 1994. Consequently, the respondent and the complainant have engaged in unfair competition in China and Asia markets. Such acts have violated Subparagraph 5, Article 19 and Article 24 of the Fair Trade Law. In addition, on February 27, 2004, the aforementioned respondent Avery Dennison has counter-charged Four Pillars Enterprise Co. in another case for making or disseminating false statements that are sufficient to damage its business reputations, in which the case has violated Article 22 and Article 24 of the Fair Trade Law.
  2. The Subparagraph 5, Article 19 of the Fair Trade Law stipulates that “no enterprise shall have act of acquiring the secret of production and sales, information concerning trading counterparts or other technology related secret of any other enterprise by coercion, inducement with interest, or other improper means which is likely to lessen competition or to impede fair competition.” With regard to the scope of protection for trade secrets, the protection is only applicable in the case of “secret of production and sales information of other enterprises”, “information concerning trading counterparts” or “other confidential technologies of another enterprise” and the manners of conducts are limited to “by means of coercion, inducement with profit or other improper means” in which the improper means are exemplified in the stipulation as conducts that are likely to lessen competition or impede fair competition on the market. Therefore, the said article does not prohibit any acts of regular business contacts among enterprises. In addition , whether the purpose of the enterprise’s conduct is competition should be taken into consideration while in determining “the likelihood to lessen competition or impede fair competition”. As regard to the term trade secret, it must be that its owner has taken reasonable measures to maintain its secrecy, for instance, the owner of the trade secret only can contend that the secret held by the company is trade secret protected by this Law if reasonable protective measures with respect to personnel and events have been taken by the company’s internal management to prevent the secret from being disclosed.
  3. The respondent in this case did not engage in any act of acquiring the complainant’s secret of production and sales by means of improper means and thus the respondent did not constitute any conduct that meets the conditions stipulated in Subparagraph 5, Article 19 of the Fair Trade Law:
    1. With regard to the allegation filed by the complainant that the respondent has acquired its relevant trade secrets, although the complainant and the respondent have common consensus that the information they have exchanged with each other in the process of negotiating the establishment of their joint venture were regarded as “p rivate” information, that is the nature of such information are private, the relevant information of “adhesive”, “production equipment and production flowcharts”, “marketing information” and “finance and costs” did not meet the attributes of trade secret. Furthermore, the complainant has presented such information voluntarily in the process of negotiating on the joint venture and moreover did not request the respondent to sign any essential confidentiality and non-disclosure agreement. It is indeed difficult to conclude that the complainant has already taken reasonable measures to maintain the secrecy of its trade secrets and the constitution of the respondent’s act thus did not satisfy the conditions stipulated in Subparagraph 5, Article 19 of the Fair Trade Law.
    2. The respondent did not conduct any acts of “improper acquisition”: The investigation found that information that the respondent acquired during the process of joint venture negotiation were given voluntarily by both parties. The complainant never requested the respondent to sign any kind of confidentiality and non-disclosure agreements . Both parties have started to get into touch with each other since 1987 and more than one hundred of letters and internal memorandum were exchanged between both parties. In addition , both parties have visited each other in Chinese Taipei, the United States and Mainland China, and notably after the two joint venture meetings taken place in June and November of 1991, both parties started to have more in-depth discussions. Several internal memorandum and letters of the respondent thereafter revealed that the respondent has doubts on the complainant’s financial issues after reading through the annual reports given by the complainant and the respondent has to go further to affirm the complainant’s financial condition. Thereafter, the respondent has terminated the joint venture project due to the complainant did not give cooperation in the accountant’s financial audit. There is no concrete evidence to substantiate that the respondent did not have joint venture intention from the beginning and acquire the trade secret with improper means.
    3. To sum up, the complainant and the respondent for the reason of joint venture negotiations have voluntarily provided the respondent with the relevant information; there is no evidence to prove that the respondent indeed did not have joint venture intention from the beginning. Furthermore, various evidences reveal that it is still difficult to conclude that the respondent has acquired the trade secrets of the complainant by improper means of coercion and inducement with interest.
  4. In addition, Article 24 of the Fair Trade Law stipulates that “In addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order.” However, the standard form of obviously unfair conduct refers to conduct contrary to business competition ethics, in another word, the business competition conduct has violated social ethics or impaired fair competition in quality, price, service and other effective competitions. Although the complainant in this case deemed that there were abnormalities in the process of joint venture discussion and the extent of information provided, but the complainant did not give any objections from the beginning to the end of the joint venture discussions. Both parties have carried out joint venture negotiations voluntarily. Moreover , a business contract is concluded upon the consent of both parties and without any specific objective standards. If either one of the parties concerned does not cooperate or both parties cannot reach an agreement, then of course the agreement cannot be concluded. Further investigation found that the hiring of the competitor’s employees is indeed common in societal and economic senses . In general, an offering of better terms to attract the competitor’s employees is quite common and also meets the principle of effective market competition. Although the respondent has ever intended to hire the employees of the complainant but there is no evidence to substantiate that the respondent has hired the complainant’s employee with means that violate business ethics, furthermore, the complainant discovered the hiring and stopped it. Therefore, there is no other concrete evidence to substantiate that the respondent has deceptive or obviously unfair conducts and violated the provision of Article 24 of the Fair Trade Law.
  5. The complainant argued that the secrecy for information obtained by the respondent was not extinguished as a result of joint venture negotiations. The parties involved in the discussion of agreement preparation shall maintain secrecy and bear the obligations of contract prior to signing. It is true that a special kind of trust could been developed between the parties involved during the contact and discussion of agreement preparation. All parties involved shall perform their duties according to the principle of good faith and trading customary practice along with the common effort, care for and protection obligations. The Civil Code has clearly stipulated the responsibilities of “negligence in agreement preparation” for such obligations of contract prior to signing in the added Paragraph 1, Article 245-1 of the Civil Code. However, t he violation of obligation to maintain secrecy on information known from agreement preparation is considered as a civil issue. If the respondent has violated such obligation, both parties shall seek relief through civil proceeding.
  6. The same Commissioners’ Meeting also resolved the case of counter-charges made by the respondent against the complainant and Mr. Yang, Pin-Yen for making and disseminating false statements that are sufficient to damage its business reputation and claimed that such conducts have violated Article 22 and Article 24 of the Fair Trade Law.
    1. Article 22 of the Fair Trade Law stipulates that “n o enterprise shall, for the purpose of competition, make or disseminate any false statement that is able to damage the business reputation of another.” The term “purpose of competition” refers to the intention to cause the clients of the competitor to lose confidence in the competitor’s business reputation and compete for the trading opportunity. The term “make or disseminate” refers to the acts of employing speech, text, pictures or mass media to show particular information to the third person or any other person so that they can understand the circumstances. As for the term “false statement” refers to the false viewpoint or description of the objective fact but not including the value judgment and expression of opinions that are not related to the fact. And, the decision of whether the statement is “false” shall be determined by the objective standards rather than the subjective viewpoint of the party concerned.
    2. Avery Dennison has quoted reports covered by Business Weekly and The Journalist in the counter-charges, an examination of the reports show that these reports are personal experiences of Mr. Yang, Pin-Yen in the proceedings of the litigation on Economic Espionage Act in the U.S.. A further examination of the reports revealed that most of the contents are on civil and criminal cases of the United States “Economic Espionage Act”, reminders and warnings on intellectual property rights issues for the local enterprises when they are discussing joint venture or doing business with American business enterprises. The wordings of Mr. Yang, Pin-Yen that “the judgments for the last two lawsuits can be reversed so long as Avery Dennison does not have this rights” were simply his own value judgment on the facts. Furthermore, the complainant and the respondent have filed lawsuits against each other for more than ten years, and similar lawsuits and judgments for them are found at many countries and known to the relevant public and their trading counterparts in which they also have their own evaluations about it. It is normal for Mr. Yang Pin-Yen to defend himself as he was inconvincible with the judgments from the United States and felt injustice. Furthermore, it is very likely that the looser of a lawsuit and the court to have different understanding on the case. It is indeed difficult to conclude that the speech of Mr. Yang Pin-Yen was for the purpose of damaging the business reputation of Avery Dennison.
    3. Moreover, Business Weekly admitted that they have reported the case in the face of the corporate espionage controversies in Chinese TaipeiChinese Taipei . The Weekly “initiated interview” with Mr. Yang Pin-Yen; the report was neither paid for by Yang Pin-Yen or Four Pillars nor was it an advertisement. The purpose of the Weekly’s report is to understand the thinking and experience of the person being interviewed and on the basis of the dictation of the interviewed, the relevant materials and interviews were supplemented in the report as evidences. Therefore, the whole report is about the subjective feelings, beliefs and interpretations of the person being interviewed and have been affected by the understanding and written expression of the writer. It is still difficult to conclude that Mr. Yang and Four Pillars have violated Article 22 of the Fair Trade Law of “make or disseminate any false statement that is able to damage the business reputation of another”.
    4. Article 24 of the Fair Trade Law stipulates that “i n addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order.” Article 24 of the Fair Trade Law is a supplementary provision that is applicable only to acts that are out of the reach of other articles of the Fair Trade Law. If a certain unlawful act is caught by other provisions of the Fair Trade Law, then there are no grounds for the application of Article 24. Conversely, only if those specific provisions fail to evaluate the alleged unlawful act in its entirety will there be room for the supplementary application of Article 24. It is obvious that Article 22 of the Fair Trade Law can be quoted to evaluate the charges of Avery Dennison that Four Pillars has acts of damaging its business reputations and hence there is no need to consider the applicability of Article 24 in this case.

Summarized by Yang, Chia-Hui;
Supervised by Lin, Kin-Lan

Appendix:

Four Pillars Enterprise Co.’s Uniform Invoice Number: 11222009
Avery Dennison Corporation


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