Employee Poaching and Trade Secret Violations
Lessons from the Geely vs. WM Motor Case
The $640M Trade Secret Lawsuit That Shook the Auto Industry
On June 14, 2024, after five years of legal proceedings, China’s Supreme Court delivered a final ruling in the highly publicised Geely vs. WM Motor case. The lawsuit centered on the alleged misappropriation of “technical secrets” (akin to trade secrets in Western legal systems). WM Motor was ordered to compensate Geely with 637.5 million yuan (€84 million) for financial losses, in addition to 5 million yuan in legal costs. Furthermore, for each day of delay in ceasing the use of the misappropriated trade secrets, WM Motor was required to pay 1 million yuan, plus an additional 100,000 yuan per day for failure to return or destroy vehicles containing the protected technology.
This case sparked significant debate in China’s legal, automotive, and broader business sectors. Given its implications, businesses—particularly those in the technology sector—can learn valuable lessons from it. This article provides an analysis of the case, summarising key takeaways to help companies strengthen their trade secret protections.
Case Background
The Plaintiff: Geely
Zhejiang Geely Holding Group Co., Ltd. (Geely) is one of China’s leading automakers. In December 2014, Geely launched a research and development (R&D) project through its subsidiary, Chengdu Gaoyuan Automobile Industry Co., Ltd., aimed at adapting its NL-series SUV chassis (originally designed for internal combustion engines) to accommodate electric vehicle (EV) batteries. The project, based on Geely’s GX7 SUV, involved an investment of 1.97 billion yuan and resulted in the creation of 12 sets of technical drawings and digital modules related to the new chassis design.
The Discovery of Trade Secret Theft
In March 2018, a routine security check revealed suspicious activity. Several hard drives returned by former Chengdu subsidiary employees were found to be damaged. Upon forensic recovery, it was discovered that these computers contained documents related to WM Motor. Additionally, Geely found that two senior executives had failed to return their work laptops, claiming they were lost.
Further investigation revealed that around 40 former Chengdu subsidiary employees—ranging from project managers to high-level engineers—had joined WM Motor and its affiliates after leaving Geely in mid-2016. Many of these individuals had access to Geely’s confidential R&D data, including chassis application technology and proprietary digital designs.
All these employees had signed confidentiality agreements or non-disclosure contracts, and some had even agreed to non-compete clauses. However, upon joining WM Motor, they continued working on similar R&D projects. WM Motor then filed numerous patents for automotive chassis components, 12 of which were found to contain elements strikingly similar to Geely’s proprietary designs. Some patent illustrations even appeared to be direct screenshots of Geely’s digital modules.
To confirm its suspicions, Geely purchased a WM Motor EX5 electric vehicle and dismantled it. Upon examination, several chassis components were found to match Geely’s protected designs.
Legal Proceedings and Verdict
In December 2018, Geely and its Chengdu subsidiary sued WM Motor and three affiliated companies in the Shanghai High People’s Court for trade secret misappropriation, seeking 2.1 billion yuan in damages and an injunction to prevent further use of the stolen technology.
The initial trial found that WM Motor had used five sets of Geely’s proprietary chassis designs without authorization. The court ordered WM Motor to cease the infringement and pay 5 million yuan in damages, plus 2 million yuan in legal costs. Both parties appealed.
During the appeal, the Supreme Court ruled that WM Motor had indeed used all 12 sets of Geely’s digital chassis designs without authorization. The court imposed a total fine of 640 million yuan, including punitive damages—three times the statutory amount. To avoid further penalties, WM Motor reportedly complied with the ruling immediately after receiving the court’s notification.
Lessons for Businesses
1. Preventing Trade Secret Leaks: The Importance of a Strong Internal Firewall
At first glance, Geely’s legal victory appears significant, with the company securing over 600 million yuan in compensation. However, from a business perspective, this “win” does not necessarily translate into a financial gain. While the punitive damages component exceeded 400 million yuan, WM Motor had already sold 80,000 vehicles during the legal process. This raises the question: did Geely truly benefit, or did it suffer an even greater loss?
The key takeaway for businesses is that trade secret protection must be proactive rather than reactive. In Geely’s case, several warning signs were overlooked: an unusually high number of employee departures, senior executives joining competitors, and improper handling of company laptops. These red flags indicate that the Chengdu subsidiary lacked a robust system to prevent data leaks.
How to Strengthen Trade Secret Protection
• Legal Safeguards: Implement confidentiality agreements, non-compete clauses, and clear intellectual property policies for employees.
• Technical Measures: Use network restrictions, access controls, employee monitoring, and cybersecurity tools to detect potential leaks early.
• Corporate Culture: Employees should be regularly trained on the importance of confidentiality and the legal consequences of trade secret theft.
Ultimately, a company’s ability to protect its trade secrets depends not only on legal frameworks but also on a well-established corporate culture of security and vigilance.
2. Recruiting Talent Without Violating Trade Secret Laws
This case serves as a clear warning to companies about the risks of acquiring intellectual property through employee recruitment. While hiring skilled employees from competitors is common, companies must ensure they do not illegally exploit proprietary knowledge from former employers.
Key Guidelines for Ethical Talent Acquisition
• Respect Confidentiality Obligations: Employees transitioning from a competitor may bring valuable skills, but their previous employer’s trade secrets remain protected by law.
• Understand the “Brain Carry” Principle: Employees can apply their expertise at a new company but cannot directly transfer proprietary knowledge or materials.
• Implement Compliance Checks: Companies should establish strict protocols to verify that new hires do not bring in confidential information from former employers.
WM Motor’s mistake was failing to separate talent acquisition from technology acquisition. By directly using proprietary data from former Geely employees, the company not only faced legal consequences but also suffered reputational damage and financial losses.
Where Can Companies Source Legal Technical Innovations?
For businesses aiming to develop advanced technology while avoiding legal pitfalls, there are three main pathways:
1. In-House R&D: The safest and most effective approach is to invest in independent research. Many leading companies, including Geely, have achieved technological breakthroughs through sustained investment in internal R&D.
2. Contracted Development: Businesses can collaborate with external firms, research institutions, or universities to develop new technology under legally binding agreements.
3. Technology Transactions: Companies can acquire technology through legitimate channels, such as licensing agreements or technology transfers, ensuring full legal compliance.
A common mistake among companies is underestimating the importance of technology transactions. Just because a company can produce a product does not mean it owns all the underlying intellectual property. Many intellectual property disputes arise from this oversight.
Final Thoughts
Although the Geely vs. WM Motor case is closed, its implications will continue to shape industry practices for years to come. This case highlights the importance of trade secret protection, ethical recruitment practices, and legal compliance in technology development.
Companies should take this case as a lesson: protecting intellectual property is not just a legal necessity—it is a critical business strategy. Strengthening internal safeguards, ensuring ethical hiring, and investing in independent R&D will be key to long-term success in a highly competitive market.
By learning from past mistakes, businesses can avoid costly litigation and focus on sustainable innovation.
Protecting your trade secrets is not just a legal necessity – it is a business imperative. Do not wait for a lawsuit to learn the hard way. Reach out to us today and safeguard what truly sets you apart.
