Pair sentenced to prison for theft of trade secrets

Lured by high salaries, two employees of Shenma Electric Power (SEP) in Jiangsu province stole the design for a successful high-tech insulator, changed their names and took the patented device to another company, according to testimony in a recent circuit court trial.

On June 7, Liu Fangzan and Li Quanwen were convicted of stealing trade secrets, sentenced two and half years in prison and fined 80,000 yuan ($12,344) each.

Founded in 1996 in Nantong city, SEP is a leading maker of electrical transmission equipment and has more than 500 million yuan in assets.

In 2004, it developed a high-tech insulator that was a success worldwide because it solved half-century-old problems with traditional porcelain insulators, which are prone to fractures and even explosions.

Liu was hired by SEP in 2007, followed by Li in 2008.

The two postgraduates worked for SEP as technicians and signed non-disclosure agreements with the company.

Their jobs gave them access to core technologies used in SEP's patented insulators.

Their positions made them attractive to other companies eyeing SEP's technologies, according to court testimony.

Titan Co Ltd, founded by a Zhejiang-headquartered real estate company in April 2009, planned to produce similar insulating devices, but lacked professionals who had mastered key production techniques.

So the company promised to double the wages of Liu and Li.

The two resigned from SEP in the spring of 2010 and joined Titan. Before they left, they copied design blueprints for the insulator and its production manual onto a flash disk and carried the information to their new boss.

Liu and Li then helped Titan replicate SEP's complex insulators and even modified technologies to develop new models.

Before its products hit the market, Titan posted advertisements boasting the same quality as the SEP device, but 20 percent cheaper.

Many of SEP's customers then demanded the lower price, which "had a great impact on our sales", said Ma Bin, SEP's chairman of the board.

SEP soon called the police and Liu and Li were detained in July last year.

The local court found that the pair's theft and use of SEP's business secrets breached non-disclosure agreements and caused a "great loss" for the patent owner.

Liu claimed that Titan's insulator was a modified version and not the same as SEP's product. But the court heard analysis that showed core parts of Titan's product copied the designs of SEP.

"What Titan has been practicing is a get-and-use method - they stole our talent and our confidential technologies and then used them to make their own products," Ma said.

Titan's infringement could result in several million yuan in direct losses to SEP, according to Ma, but the indirect loss is "inestimable".

In his ruling, a judge in the local court noted that "the flow of talent is good for the development of enterprises and society, but if a company uses talent to illegally obtain business secrets from other companies, it poses a threat to the fair play principle and intellectual property rights".