Although Article 13 of the Trade Secrets Act provides the ways to calculate damage in a misappropriation of trade secrets case, since the determination of such type of damages often involves a high degree of expertise, the actual damages are difficult to prove.

A recent judgment, Taiwan High Court Civil Judgment 109-Chong-Lao-Shang-Zi No. 18, provides a reference as to how an owner of trade secrets shall provide evidence and how a judge may examine such evidence in practice.

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I. Facts of the case

The Appellant of this case was a well-known insurance company in Taiwan. The Appellee was a former employee who inappropriately used the internal investment information, which is the trade secret of the appellant, and built a chat group on the LINE messaging app in 2018 to hype the stocks invested by the Appellant. The Appellant found out through an anonymous report and was later fined by the competent authority, which is the Financial Supervisory Commission (hereinafter the “FSC”), for the amount of NT$6.6 million.

The Appellant then filed this case to claim the damages against the Appellee. One of the main issues in this case was how to determine the amount of damage resulted from the misappropriation of trade secrets by the Appellee.

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II. Court judgment

The following is a brief summary of the court’s finding regarding the Appellant’s various claims for damage:

1. The fine imposed by the FSC:The Appellant claimed that because of the Appellee’s tortious act at issue, the Appellant was fined by the FSC for NT$6.6 million and resulted in economic loss.Having considered the reasons and provisions stated in the ruling, the court found NT$4.8 million out of the NT$6.6 million was indeed caused by the Appellee’s tortious act at issue due to the Appellee’s willful violation of the Appellant’s internal regulations which were well known to and agreed upon by the Appellee for his compliance. Hence the Appellant’s claim of this NT$4.8 million has merit. The remaining NT$1.8 million was a fine based on the fact that the Appellant reported the incident to the FSC only after the Appellant heard that the relevant media had found out the incident and would report on it, which would likely affect the Appellant’s reputation. The FSC found the Appellant’s reporting mechanism to be seriously flawed and imposed the fine. As such, the Appellee should not be responsible for the Appellant’s aforementioned negligence of not reporting the incident immediately.

2. The Appellant’s financial examination fee and notarization fee:

The Appellant claimed that it was subject to the FSC’s financial examination due to the tortious act at issue and had to pay examination fee and notarization fee, which resulted in damage. The court found that such financial examination was conducted by the FSC with respect to the report of the Appellee’s tortious act; it then concluded that the fee for such financial examination was indeed caused by the Appellee’s tortious act. As for the notarization fee, the court found it was difficult to confirm a causal relationship between such fee and the Appellee’s tortious act.

3. Appellant’s loss of insurance premium from new accounts:

The Appellant claimed that after the tortious act at issue was widely reported by the media, the Appellant’s reputation was seriously damaged such that the Appellant could not generate income from expected new policy premium. The court, having considered common social beliefs, found that such reports indeed had the capacity to reduce people’s willingness in purchasing insurance from the Appellant.

As such, the court weighed the circumstances of the tortious act, the widespread media coverage in 2018, and the fact that the proportion of the Appellant’s income from new policies in July and August of 2018 was indeed sharply lower than the same period in the last two years, and that Appellant’s income was also much lower than that of other well-known insurance companies’ in relation to the increase of new policy premium for the same period. With these factors, the court held that the Appellant’s claim of damage of NT$10.5 million as part of its economic loss in new policy premium was with ground.

From the aforesaid court findings, one can see that the court’s decision on the amount of damage from the misappropriation of trade secrets and its examination of the evidence from the parties were mainly based on the relevant causal relationship of the events. Moreover, it should be noted that, the Appellee of this case also asserted the argument of the contributory negligence on the Appellant’s part with respect to the occurrence of the damage. However, the court dismissed the Appellee’s allegation, citing the reason that whether the Appellant’s internal control system is flawed has no causal relationship with the Appellee’s tortious act.

(Author: Hsin-Ya Tsai, Esq.)