Guangzhou IP Court Applies Treble Punitive Damages in Trade Secret Infringement Case Involving “Virtual Digital Human” Technology

On April 21, the Guangzhou Intellectual Property Court publicly announced its first-instance judgment in a dispute case involving the infringement of trade secrets related to “virtual digital human” technology. The court held that seven defendants, including De Technology Co., constituted unfair competition, applied punitive damages for their infringing conduct, and ordered the seven defendants to immediately cease the infringement, destroy confidential carriers, and jointly pay the plaintiff, Sai Company, economic losses and reasonable expenses for rights protection totaling over RMB 5.17 million.

The court found that the plaintiff, Sai Company, as an innovative enterprise in the artificial intelligence field, had independently developed “virtual digital human” technology that has been widely applied in scenarios such as academic lectures, government publicity, and news broadcasting, and has achieved large-scale commercial implementation. To protect its core competitiveness, Sai Company established a rigorous confidentiality system, including signing confidentiality agreements, deploying private databases, implementing tiered access controls, and using encrypted communication transmission — a comprehensive set of protective measures.

However, this seemingly solid defense was compromised internally. Five defendants, including Fu, were former senior managers and core R&D personnel of Sai Company’s virtual digital human project. During their employment, they had direct access to and control over the source code, database table files, and other highly confidential information. In September 2024, these five individuals resigned collectively and quickly joined De Technology Co., a company that had previously engaged in project procurement negotiations with Sai Company but had not reached a cooperation agreement.

Just two months later, Sai Company discovered that De Technology Co. had launched a website highly similar to its own platform, and its wholly-owned subsidiary, De Intelligence Co., began aggressively promoting similar products such as “AI interactive digital humans.” Professional comparison revealed that the source code and database table information of the accused products were highly similar to Sai Company’s trade secrets, with a similarity exceeding 90%. Left with no choice, Sai Company filed a lawsuit with the court, claiming RMB 25 million in damages from the seven defendants.

After trial, the Guangzhou Intellectual Property Court held that the source code and database table files of the plaintiff’s virtual digital human technology possessed secrecy and value, and that reasonable confidentiality measures had been taken. Therefore, they legally constituted protected trade secrets.

The court pointed out that the five defendants, including Fu, violated their confidentiality obligations, used illegal means such as intranet tunneling and electronic intrusion to obtain trade secrets, and used them to develop infringing software, demonstrating extremely high subjective malice. Meanwhile, De Technology Co., after failing to reach a cooperation, precisely and quickly recruited the plaintiff’s core employees within a short period. Knowing the risk of infringement related to the technology, it failed to perform basic review and preventive obligations, instead tolerating and exploiting the infringing achievements to compete in the same market. De Intelligence Co., as the promotion leader, formed a clear division of labor and a well-connected chain of joint infringement with the other defendants.

Given that the seven defendants had illegally obtained, disclosed, and used others’ trade secrets, directly seized the plaintiff’s market opportunities, caused significant economic losses, and seriously disrupted market order — with severe circumstances of infringement — the court ultimately decided to apply punitive damages. Using the plaintiff’s expected loss of profits of RMB 1.65 million as the base amount, the court imposed the statutory maximum treble punitive damages, ordering the seven defendants to jointly pay RMB 4.95 million in economic losses and bear RMB 226,864 in reasonable expenses for rights protection.

The presiding judge in this case stated that when recruiting core technical personnel and engaging in similar business activities, enterprises must exercise reasonable care and review obligations. They cannot take shortcuts by attempting to poach talent. At the same time, rights holders should take this as a warning to implement confidentiality measures thoroughly and meticulously, truly building a strong firewall for the protection of trade secrets.