A closely watched trade secret case in Taiwan yielded a verdict yesterday, with lens manufacturer Largan Precision prevailing over a competitor it accused of stealing information about manufacturing processes. After four years of litigation, Taiwan’s Intellectual Property Court awarded the key Apple supplier around $50 million (NT$1.52 billion) in damages, an award which practitioners say is likely the largest-ever award stemming from trade secret misappropriation in Taiwan.
Largan sued Ability Opto-Electronics Technology (AOET) and a number of engineers it had hired away from Largan in 2014. The suit alleged that the engineers shared numerous trade secrets about lens manufacturing processes with their new employer, and subsequently filed patents on some of them, causing them to enter the public domain. Largan had asked for up to $130 million in damages, arguing that its large market share and high profit margins in the market for high-end smartphone camera lenses rely upon the closely-guarded details of its production methods.
In a decision announced yesterday, the Intellectual Property Court ruled that AOET misappropriated six of the seven trade secrets in the case. In addition to a damage award of around $50 million, it ordered AOET to pay 98% of the litigation costs and transferred two Taiwanese patents filed by AOET to Largan’s ownership. The damage award appears to be on par with some of the court's biggest determinations in patent infringement cases. Philips recently walked away with about $33 million in a patent suit against a local company, and it looks like the Intellectual Property Court’s biggest payout ever was about $65 million.
According to Yulan Kuo, managing partner at Formosa Transnational Attorneys at Law, which has represented Largan throughout the case, the high damage award underscores how much the IP environment has changed since the inauguration of Taiwan’s Intellectual Property Court nine years ago. But because the trade secrets at issue pertained to a manufacturing process that Largan never would have considered selling or licensing, it was a challenge to demonstrate what its value would be on the market. Kuo said his team turned to a forensic accountant to help determine the economic impact on the parties. According to his research, it’s the first time forensic accounting has been used to calculate damages in an IP case in Taiwan.
The ruling is one of the most visible IP wins to date for a company that has kept a low profile and eschewed collaboration, leaning heavily on trade secrets to protect its technological edge. According to a profile of Largan founder Scott Lin, he set three ground rules when he established the lens maker in 1987 – “no contracting, no purchase of technology, and no poaching of talent from other companies”. In an industry where Japanese imaging majors had already amassed huge patent portfolios around glass lens technology, Largan went all in on high-performance plastic lenses just as they became a must-have component for smartphone makers. That decision has made it one of the most profitable companies in the smartphone supply chain.
Largan also owns several hundred patents protecting its core technologies, and it has not been afraid to assert them. In 2013, it sued Samsung Electronics for patent infringement in the United States at a time when the world’s largest smartphone maker was one of its customers, settling three years later.
But the company clearly sees its trade secrets as its core IP asset. On a call with investors this year, CEO Adam Lin told analysts: “Patents are just doors that open the way to designs. Manufacturing processes and how to master them, that’s the main area of competition in the lens industry.” Lin also stated that the company has modeled its internal system for guarding confidential business information on Coca Cola’s approach, adding: “Patents are not protective, only offensive”.
If there is a downside to trade secrets, it is that once lost, it is difficult to recoup their value through litigation. We may be able to add Taiwan to the list of jurisdictions where prospects for trade secrets owners to enforce their rights are improving. While the island’s biggest tech players will likely continue to bulk up their patent portfolios, they will certainly welcome any improvement in the trade secrets environment as they face tough competition on both sides of the Strait.