Dispute over Misappropriation of Technical Secrets for Lentinan

Case Brief:

In 2004, Nanjing XX Pharmaceutical Technology Co., Ltd. and XX Pharmaceutical (Jiangsu) Co., Ltd. entered into a “Lentinan Project Cooperation Contract,” which stipulated that the former would provide the latter with the technology for producing lentinan raw materials. The produced materials would be only allowed to be sold to dealers designated by the former and the latter was to pay 20 million RMB in compensation if it chose to distribute the products by itself or through others without authorization. Both parties agreed to keep the technology of this project confidential, with penalties for breach per the aforementioned agreement.

Nanjing XX Pharmaceutical Technology Co., Ltd. then delivered the agreed-upon technology and XX Pharmaceutical (Jiangsu) Co., Ltd. obtained the necessary registration and production approval for lentinan raw materials in 2006.

However, in 2010, XX Pharmaceutical (Jiangsu) Co., Ltd. transferred the lentinan technology to a third party for 1 million yuan. In 2014, the third-party announced on its website the operation of a lentinan raw material medicine production line, projecting an annual output value exceeding 100 million RMB.

In response, Nanjing XX Pharmaceutical Technology Co., Ltd. filed a lawsuit to the Nanjing Intermediate People’s Court.

The court determined that the disputed technology was non-public, valuable, and confidential, qualifying as a technical secret. XX Pharmaceutical (Jiangsu) Co., Ltd.’s transfer of the technology to a third party constituted a breach of confidentiality and misappropriation. The court therefore ordered XX Pharmaceutical (Jiangsu) Co., Ltd. to compensate 20 million RMB as per the aforementioned agreement.

Dissatisfied with the decision, XX Pharmaceutical (Jiangsu) Co., Ltd. appealed, but the Supreme People’s Court upheld the original judgment.

Typical Significance:

This case highlights the protection of technical secrets related to traditional Chinese medicine techniques, such as the selection, processing, and treatment of authentic mushroom raw materials. The judgment addresses the identification of technical secrets of traditional medicine materials and the compensation for their illegal use, which helps promote the application and development of traditional Chinese medicine technology while fostering integrity and innovation within the field.