Is “reverse engineering” a valid defense in a trade secret infringement lawsuit in Taiwan? Taiwan’s Supreme Court delivered a decision on this issues in June 2021. Taiwan High Prosecutors Office v. Chen, 110 Tai Shang 3193, Taiwan’s S. Ct. (June 2021).
The Defendant’s Reverse Engineering Argument
In this criminal lawsuit, the defendant was indicted on the charge of divulging trade secrets of his former employer, a forming machine manufacturer. The former employer claimed that, after the defendant left the company to start his own, he engaged in selling forming machines produced based upon a trade secret he had obtained while working with the former employer as its general manager. The trade secret, contained in several PDF and CAD (computer-aided design) files, was the design for a double-sided UV forming machine the former employer customized for a client, and was password-protected and accessible by authorized persons only. Launching a raid on the defendant’s premises, the Prosecutors discovered that a copy of the CAD file had been emailed from the defendant’s company to a third party, hence the indictment.
The defendant contended that the trade secret in dispute was not a secret at all. The defendant asserted, while the CAD file did contain a 3-D model of the machine, that model can be reverse engineered by disassembling the machine the former employer (hereafter the complainant) had publicly sold and analyzing its components. Accepting this defense, the IP & Commercial Court found for the defendant, holding that the asserted design in the CAD file lacked secrecy.
The Supreme Court’s Reversal
The Supreme Court reversed the IPC Court’s decision and remanded this case for a new trial. The Supreme Court pointed out that reverse engineering does not deprive a trade secret of legal protection if it requires “considerable input” which may take the form of money, time, professional instrument, special knowledge, etc. The reason is, if reverse engineering turns out to be a brute-force attack or heavy lifting, then it must be true that the reverse engineered information is not easily available to experts in the art, and therefore merits protection by the Trade Secret Act.
Further, the Supreme Court decision stressed that, even if the input is not considerable, the reverse engineering defense is doomed to fail if the product being reverse engineered was obtained through unlawful means, like stealing of an unreleased prototype.
Back to this case, the Complainant argued that disassembling the entire machine and getting each component’s measurements, as reverse engineering requires, would be a hugely complicated task in this case, given the large number of the components in the machine and the inevitable measurement errors along with assembly damage.
The Complainant’s argument prompted the Supreme Court to put the IPC Court’s decision on the above test, and the result was a reversal:
|The lower court’s judgment did not make a comprehensive assessment on the total input (such as money, time, professional instrument, special knowledge, etc.) required in reverse engineering the information contained in the dispute product, if the defendant had obtained it lawfully, so as to determine whether the information was known to people generally involved in the circle and could be easily obtained from public sources. It was a bit too quick for the lower court to conclude that the information contained in the CAD file was easily available and did not qualify a trade secret.
Moreover, the lower court found that the defendant obtained the drawing at issue in an unknown manner. Yet whether the defendant obtained it in a lawful manner is crucial to the fate of his reverse engineering defense. As this factual issue is still unsolved, this court is not in a position to determine whether the law was properly applied to this case [by the lower court].
- Under Taiwan’s Trade Secret Act, a trade secret is a piece of information that passes a tripartite test (roughly the same test as adopted in Article 39 of the TRIPS Agreement). First, the information must not be known to persons generally involved in the information of this type. Second, the information must have actual or potential economic value due to its secretive nature. Third, the information need be subject to reasonable measures adopted by its owner to protect its secrecy.
- With respect of the requirement of secrecy, this recent Supreme Court decision suggests that Taiwan adopts the same test as of Article 39(2)(a) of TRIPS: ”[the information] is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question.”
- Reverse engineering is not a valid defense in a trade secret infringement litigation if the reverse engineering requires considerable input of resources to such an extent that it failed the above test, or if the product being reverse engineered is obtained through unlawful means.
- Although reverse engineering is not necessarily a valid defense, according to the Legislative Notes of the Trade Secret Act, reverse engineering is not in itself a type of trade secret infringement, either.
- Under Taiwan’s Trade Secret Act, a person divulging a trade secret shall be sentenced to a maximum of 5 years imprisonment, and a fine between NT$1 million and NT$10 million may be additionally imposed. If the gain obtained by the offender exceeds the maximum fine, such fine may be increased within the extent of 3 times of the gain. If the crime is committed for the purpose of using the trade secret in a foreign jurisdiction, the punishment will be enhanced up to imprisonment of 10 years and the fine, if lower than the gain, may be increased to 10 times of the gain .