People’s No. 5 Intermediate Court of Chongqing, Civl Judgment ( No. 299(2009))

November 23, 2010

Summary:

China Tianfu Cola Group Corporation (hereinafter referred to as “Tianfu cola”) instituted legal proceedings at People’s No.5 Intermediate Court of Chongqing (“Intermediate Court”) against Chongqing Pepsi Tianfu Beverage Corporation Limited (“Pepsi Tianfu”) and Pepsi (China) Investment Corporation Limited (“Pepsi cola”) for infringement upon Tianfu’s technological secrets. Through examination and hearing, the court partly supports the plaintiff's claims and holds that Tianfu is the owner of the commercial secrets in question; Pepsi Tianfu shall immediately cease using of the commercial secrets and return relevant materials to Tianfu.

The court made a thorough analysis on major questions including: whether the court has the jurisdiction over this case; whether the issue of determining the ownership of technological secrets and the issue of  infringement can be heard in one proceeding; whether the ingredients, formula and processing technology of condensed materials for Tianfu cola beverage are commercial secrets; and whether Pepsi Tianfu committed infringement.

Facts:

The predecessor of Tianfu Cola is Chongqing Beverage Plant. In 1981, Chongqing Beverage Plant and Sichuan Institute of Traditional Chinese Medicine contracted to cooperatively research and develop “Foguang” Tianfu cola beverage. In 1986, they contracted to be co-owner of the rights and interests in the processing technology of the magma for Tianfu cola beverage.

In 1994, Tianfu Cola and Kentucky International Holding Corporation, a subsidiary of Pepsi Corporation, established a joint venture named Pepsi Tianfu Corporation. In the agreement, it is stated that Tianfu Cola shall provide the site, workshops, equipment and auxiliary equipment worth of 7.13 million USD and the joint venture is engaged in production of Tianfu cola beverage, condensed water, and Pepsi series products.

On July 3, 1995, Sichuan Institute of Traditional Chinese Medicine reached an agreement with Tianfu Cola on the proposal presented by Tianfu Cola for a “solution in one slump”. According to the agreement, Tianfu Cola shall pay 0.25 million RMB to Sichuan Institute of Traditional Chinese Medicine and all the previous contracts signed between them shall be terminated. After its establishment, Pepsi Tianfu uses the formula and processing technology of Tianfu Cola to produce Tianfu cola, condensed water, and Pepsi series products.

In 2006, Tianfu Cola assigned all its shares to Pepsi.

After that, Tianfu Cola finds that Pepsi Tianfu still holds and uses its commercial secrets of the formula and processing technology for Tianfu cola, and brings a case demanding the court to:

1. confirm that Tianfu Cola is the owner of the commercial secrets of the formula and processing technology for Tianfu cola;

2. order Pepsi Tianfu to immediately stop using the commercial secrets of the formula and processing technology for Tianfu cola;

3. order Pepsi Tianfu to immediately return the materials concerning the commercial secrets of the formula and processing technology for Tianfu cola;

4. order Pepsi Tianfu Corporation and Pepsi (China) Corporation to pay 1 million RMB to Tianfu Cola to cover its losses.

Issues:

Whether the ingredients, formula and processing technology of condensed materials for Tianfu cola are commercial secrets;

who is the owner of these secrets; and

whether Pepsi Tianfu committed infringement.

Holding:

       Upon the effective date of the decision, Pepsi Tianfu shall stop using the commercial secrets such as the ingredients, formula and processing technology of condensed materials for Tianfu cola beverage, and shall return the relevant materials to Tianfu Cola. Pepsi Tianfu shall bear all the legal costs.

Reasoning:

The court rules that a commercial secret shall satisfy the following three conditions:

1. It is unknown to the public. In other words, the information is not generally known and is easily accessible to the relevant person.

2. The information actually brings commercial interests to the owner.

3. The owner of the information has taken measures to protect such secrets.

The commercial secrets in question are concerned with the ingredients, formula and processing technology of condensed materials for Tianfu cola, which have current and potential commercial values and can bring competitive edge and commercial benefits to the owner. It satisfies the condition that it actually brings commercial interests to the owner.

To protect the secrets, Chongqing Beverage Plant and Sichuan Institute of Traditional Chinese Medicine signed an agreement on confidentiality of the secrets. Tianfu Cola also established a team responsible for this matter. All the documents concerning the secrets are marked “top secret” in a prominent position and are kept in the record office of Tianfu Cola. Authorized persons are responsible for respective parts. In using the technology, Pepsi Tianfu also treated the technology as commercial secrets. These meet one of the aforementioned conditions,  “protection measures are taken to protect the information”.

Neither party showed that the technology in question is accessible to the public through an open channel. The condition that the information is unknown to the public is satisfied.

Through above analysis, the concerned technology is a technological secret in commercial secrets.

In the contract and capital verification report, there is no record showing that Tianfu Cola invested these secrets in Pepsi Tianfu as registered capital. Tianfu Cola is still the owner of the concerned commercial secrets. After the establishment of Pepsi Tianfu, Tianfu Cola was aware that Pepsi Tianfu was using the commercial secrets and did not exercise the right of the owner of the secrets by protesting or trying to stop the use by Pepsi Tianfu. It is thus held that Tianfu Cola licensed Pepsi Tianfu to use the commercial secrets free of charge. As the result, Pepsi Tianfu’s use of the commercial secrets is legitimate before the decision of this case.

Tianfu Cola has instituted legal proceedings demanding that Pepsi Tianfu Corporation stop using these commercial secrets. Pepsi Tianfu, therefore, shall cease using the commercial secrets in question.

As Pepsi Tianfu shall cease using the secrets, it is unnecessary for him to hold relevant materials. For the sake of use and protection of the commercial secrets by Tianfu Cola, Pepsi Tianfu shall return the materials to Tianfu Cola.