WM Motor to Compensate Geely $1M for Trade Secret Infringement

In 2018, Chinese automaker Geely sued its rival WM Motor on the grounds of infringing upon its trade secrets, demanding WM Motor to compensate 2.1 billion yuan ($301 million). As a result, the case has been tried many times over the last few years. According to Caijing Automobile‘s report on December 26, the first-instance judgment was issued in September, and WM Motor needs to compensate Geely to the tune of 7 million yuan.

The 7 million yuan includes economic losses of 5 million yuan and various expenses to stop further infringements of 2 million yuan. In addition, WM Motor needs to stop using the five auto parts drawings, which, the court found, belonged to Geely. WM Motor said that the judgment of the case has not yet come into effect and it has appealed. In addition, the company claimed that the discontinuation of these drawings has no substantial or only a very minimal impact on its operations.

In the first-instance judgment, the Shanghai High People’s Court found out that there are two main types of trade secrets to be protected by Geely, one is the production drawings and digital models of 12 automobile chassis parts, and the other is the technical information about the batteries carried on the automobile chassis.

After comparing the size of the parts, marking position and other information in the drawings of both parties, five of them were judged to be substantially similar. WM Motor did not clarify the source of these five drawings, while the evidence from companies who manufacture auto parts for WM Motor showed that the production drawings were provided by the EV maker.

Since 2016, many former employees of Chengdu Plateau Automobile Industry Co., Ltd., a subsidiary of Geely, have joined WM Motor, and some have served as senior executives of the company. In the internal mail system of Plateau Automobile, some of the above drawings appeared in the emails of some departing employees, which means that WM Motor had the conditions to come into contact with Geely’s trade secrets.

Many of the founding teams and core members of WM Motor came from Geely. Freeman Shen, founder of WM Motor, served as director and vice president of Geely, and senior managers such as Du Ligang, Lu Bin and Hou Haijing, all have connections to Geely.

In fact, Geely has sued WM Motor in more than one case. In 2018, Plateau Automobile filed a lawsuit in Sichuan on the grounds of infringing upon its trade secrets. The defendants include several former employees of WM Motor-related companies and Plateau Automobile. However, the lawsuit was withdrawn.

WM Motor’s current financial situation is quite serious. Freeman Shen sent an internal letter to all employees in November demanding that operating costs be reduced via salary reductions. The salary of senior employees was reduced by 50% while other employees were paid only 70% of their basic salary. In addition, the monthly payday was postponed and year-end rewards were cancelled.

According to the prospectus submitted by WM Motor in June this year, its total revenue in 2021 was 6.364 billion yuan, a year-on-year increase of 77.5%. However, the net loss further expanded, from 4.145 billion yuan in 2019 to 8.206 billion yuan in 2021.

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Because of the professionalism and complexity of intellectual property litigation, the time it takes to resolve the issue is often protracted and the impact is often far-reaching. Due to the delay in concluding the case of infringement of trade secrets with Geely, some financial institutions have suspended cooperation with WM Motor.

According to the prospectus of WM Motor, it has reserved a budget of 61.2 million yuan in the annual financial statements at the end of 2021 to deal with trade secret and intellectual property disputes. For technical solutions or patents involved in disputes, a replacement or elimination plan has been formulated, which is expected to be completed from the end of 2022 to the middle of 2023.