Image Source: Duge

Starting in 2016, dozens of employees from Chengdu Gaoyuan Automobile Company under Geely Holding Group moved to their new employer.

The new employer was WM Motor, and its founder Shen Hui, like these employees, had previously worked for Geely.

Geely Holding Group, who was "backstabbed," was thoroughly enraged. Subsequently, a long-drawn-out lawsuit was fought from the local court all the way to the Supreme Court.

On June 14, 2024, the Intellectual Property Tribunal of the Supreme Court announced relevant cases and judgments on its official WeChat public account, thus disclosing this major case of new energy vehicle technology secrets.

The plaintiff in this case, Geely, claimed compensation of up to 2.1 billion yuan. The Supreme Court's second-instance judgment applied a 2-fold punitive compensation, ordering the infringer to compensate for economic losses and reasonable expenses for defending rights totaling approximately 640 million yuan, setting a new record for the amount of compensation awarded in intellectual property infringement lawsuits in China.

1

Protracted Struggle

On October 12, 2018, Gaoyuan Automobile Company filed a lawsuit against WM Motor Chengdu Company, Xiang Mou, Zhong Mou, and Kou Mou, alleging infringement of trade secrets, which was accepted by the Sichuan High Court on the same day.

This case was named "Case No. 121."

Geely's counterattack began. Starting in 2018, Geely Holding Group and its subsidiaries initiated a series of lawsuits against WM Motor-related companies and related employees. The plaintiffs and defendants engaged in an exceptionally intense tug-of-war revolving around jurisdictional objections and other issues.

The case announced by the Supreme Court is one of the most important lawsuits, with a claim amount of up to 2.1 billion yuan. According to the judgment document, the Shanghai High People's Court (hereinafter referred to as the court of first instance) made the (2018) Hu Min Chu No. 102 civil judgment (hereinafter referred to as the first-instance judgment) on September 5, 2022, which was appealed by both the appellant and the appellee; the Supreme Court established a collegial panel after filing the case on August 23, 2023. On April 25, 2024, the Supreme Court made the final judgment.

Geely Holding Group and Geely Automobile Research Institute filed a lawsuit with the court of first instance on December 3, 2018, requesting that WM Group (WM Motor Technology Group Co., Ltd.), WM Smart Mobility, WM Wenzhou Company, and WM Sales Shanghai Company immediately stop infringing on the technical secrets of Geely Holding Group and Geely Research Institute; jointly compensate Geely Holding Group and Geely Automobile Research Institute for economic losses of 2.1 billion yuan; and bear the litigation costs of this case.

After a lengthy trial process, the court of first instance finally made its judgment in 2022.

The judgment of the court of first instance was that WM Automobile Manufacturing Wenzhou Co., Ltd. immediately stop infringing on the trade secrets of Geely Holding Group, etc., from the date of the judgment taking effect; compensate for economic losses of 5 million yuan and reasonable expenses of 2 million yuan incurred in stopping the infringement; and reject other claims of Geely Holding Group and Geely Automobile Research Institute.

However, this seemingly balanced judgment left both the plaintiff and the defendant dissatisfied.

From the plaintiff's perspective, such an outcome was obviously unsatisfactory. The claim of 2.1 billion yuan was reduced to 7 million yuan; moreover, the court ruled that Geely would also need to bear 42.167 million yuan in litigation costs (total litigation costs of 105.418 million yuan).

After the court's judgment, the defendant appealed, requesting the revocation of the first-instance judgment; changing the judgment to reject all claims of Geely Holding Group and Geely Automobile Research Institute; and ordering Geely Holding Group and Geely Automobile Research Institute to bear the first-instance and second-instance litigation costs.

After entering the second-instance proceedings, the collegial panel formed by the Supreme Court inquired with the parties on October 23, 2023, January 5, 2024, and conducted court hearings on January 30, 2024, and April 12, 2024. It can be seen from this timeline that due to the significance of the case, the process was indeed quite lengthy.

Finally, the Supreme Court made the final judgment. Among other things, it revoked the judgment of the Shanghai High People's Court (2018) Hu Min Chu No. 102; ordered WM to stop the infringement; and jointly compensated Geely Holding Group and Geely Automobile Research Institute Limited for economic losses of 637,596,249.6 yuan and reasonable expenses of 5 million yuan incurred in stopping the infringement.

While this result did not meet Geely's expectations, the compensation amount still set a new record for intellectual property infringement compensation in China. Together with a series of previous victories in other cases, Geely's protracted struggle with WM Motor, which lasted for more than five years, finally came to an end.

2

Backstabbing

Behind the protracted struggle was a "backstabbing."

Public information shows that WM Motor's founder Shen Hui and some core members have worked for Geely Holding Group or Volvo Cars in the past.

As early as 2016, Shen Hui stated that WM Motor had over 200 core employees, most of whom were his former colleagues. If time could be turned back, I believe Shen Hui would never want to say these words again.

On December 1, 2009, under the strong recruitment of Li Shufu, Chairman of Geely Holding Group, Shen Hui, the CEO of Fiat Powertrain Technologies China, officially joined Geely. He served as Vice President of Geely Holding Group, responsible for overseas projects. This overseas project was Volvo, which Geely acquired. He also served as Global Senior Vice President and China President of Volvo. With international corporate experience, he focused on integrating Volvo and its localization in China.

However, facing the wave of new energy vehicles, he aimed for bigger opportunities. Shen Hui officially resigned from Geely on December 31, 2014, and joined Shanghai Pateo as the group's CEO, focusing on smart car business. This was merely a transition. On October 12, 2015, Shen Hui founded WM Motor (formerly a joint venture founded by co-founder Du Ligang in 2012 focusing on the research and development of battery, motor, and electronic control systems).

After founding WM Motor, personnel and technology became urgent priorities. Poaching from the old employer became the most realistic choice. Based on a series of judgments in cases between Geely and WM Motor, the secrets of WM Motor in terms of personnel and technology have been revealed.

Since 2016, employees of Chengdu Gaoyuan Company such as Hou Moujing, Xiang Mouming, Kou Mochen, Leng Mouhu, Luo Mouzhou, Song Mou, Zhou Mouping, and Zhang Moukui have successively resigned and joined WM Motor. These employees worked in product management or technical positions at Chengdu Gaoyuan Company and signed labor contracts and confidentiality agreements with the company.

Accelerating research and development was something that these resigning employees needed to do. From March to July 2017, resigning employees of Chengdu Gaoyuan Company such as Leng Mouhu and Zhang Moukui, as inventors or co-inventors, applied for 12 utility model patents such as "an electronic accelerator pedal assembly" with WM Group or WM Smart Mobility as patent applicants.

Frequent resignations also caught Geely's attention. In March 2018, a major breakthrough occurred. During a routine security inspection, Geely Group's information security department discovered that multiple work computer hard drives returned by resigned employees of its subsidiary, Chengdu Gaoyuan Automobile Industry Co., Ltd. (hereinafter referred to as Chengdu Gaoyuan Company), had been damaged by blunt objects. After technical recovery, it was found that these computers contained files that these resigned employees had worked on for WM Motor two years ago. When Hou Moujing, Vice President of Geely Group and General Manager of Chengdu Gaoyuan Company, resigned to join WM Motor, he returned a brand-new computer to the company, claiming that his work computer was lost, without returning the work computer equipped with a large amount of technical data provided by Geely Group as required.

Further investigations revealed even more shocking discoveries for Geely Group. From March to June 2017, WM Motor Technology Co., Ltd. (later renamed WM Motor Technology Group Co., Ltd., i.e., WM Group) and WM Smart Mobility Technology (Shanghai) Co., Ltd. (later renamed WM Smart Mobility Technology (Shanghai) Co., Ltd., i.e., WM Smart Mobility) applied for a large number of patents using some of the resigned employees of Chengdu Gaoyuan Company as inventors within one year. The patent documents used 12 sets of technical drawings and digital models (hereinafter referred to as the 12 sets of drawings and digital models involved in the case) of automotive chassis components of Geely's NL-1/NL-4 models (both NL-1 and NL-4 are internal model numbers of Geely, corresponding to the Geely GX7 model and a certain X6 model, respectively). Later, it was found that some chassis components of WM Motor's mass-produced WM EX5 electric vehicle (hereinafter referred to as the WM EX5 electric vehicle) were identical to those developed and designed by Geely.

Based on this, Geely filed a lawsuit with the Shanghai High People's Court in December 2018. Prior to that, Gaoyuan Automobile Company filed a lawsuit against WM Motor Chengdu Company, Xiang Mou, Zhong Mou, and Kou Mou, alleging infringement of trade secrets with the Sichuan High Court.

Poaching in the automotive industry is not uncommon. Why was Geely so upset about this issue with WM Motor? This involves an important agreement signed in 2014. In December 2014, Geely Group signed the "Agreement on the Construction of the Geely Chengdu Gaoyuan Automobile Capital Increase Project Expansion" (hereinafter referred to as the project construction agreement) with a certain commission in Chengdu. To fulfill the project construction agreement, Geely Group approved and initiated the research and development of the application technology for the chassis of the new energy vehicle involved in the case, which was tested and developed at Chengdu Gaoyuan Company and ultimately belonged to Geely Group.

However, with the resignation of nearly 40 employees from Chengdu Gaoyuan Company and the taking of research and development results to WM Motor and its affiliates, the above-mentioned project construction agreement could no longer be fulfilled, causing significant losses to Geely. The judgment document shows that starting in 2016, senior management personnel responsible for technological research and development, production, sales, and management, as well as some front-line technical employees, resigned and joined WM Motor and its affiliates. Since Chengdu Gaoyuan Company began developing new energy vehicles based on traditional fuel vehicle chassis at the end of 2014, most of these resigning employees had access to Geely's core technical secrets for traditional fuel vehicle chassis, and some employees also participated in the research and development of the chassis application technology for the new energy vehicle involved in the case.

Significant losses led Geely to take legal measures to protect its own interests.

3

Consequences

Geely, having won the lawsuit, finally let out a breath of relief.

However, more than five years have passed, and many things have changed.

Just like Jia Yueting returning to China next week, WM Motor's founder has also left China. As early as October 2023, there were reports that WM Motor's founder and chairman, Shen Hui,借口参加德国慕尼黑车展, then transferred to the United States.

On October 10, the National Enterprise Bankruptcy Reorganization Case Information Network showed that WM Motor Technology Group Co., Ltd. applied for bankruptcy reorganization. The handling court was the Shanghai Third Intermediate People's Court. WM Motor Technology Group Co., Ltd., with SHENHUI (Shen Hui) as the legal representative and a registered capital of 6 billion yuan, is wholly owned by Suzhou WM Smart Mobility Technology Co., Ltd. WM New Energy Automobile Sales (Shanghai) Co., Ltd. is wholly owned by WM Motor Technology Group Co., Ltd.

The Shanghai Third Intermediate People's Court accepted WM Motor Technology Group's pre-reorganization application on October 7, 2023. WM Motor formally submitted its application for pre-reorganization to restructuring to the Shanghai Third Intermediate People's Court on December 13, 2023. On January 2, 2024, the "Civil Ruling" was served to WM Motor.

As early as during the court's acceptance of the pre-reorganization, WM Motor stated that "WM Motor still has commercial value and salvage value."

However, in the era of intense competition in the automotive industry, how much value will there be?

On March 29, 2024, the Shanghai Third Intermediate People's Court convened the first creditors' meeting for WM Motor. WM Motor's reorganization case materials show that WM Technology Group's audited total assets are only 3.988 billion yuan, while its liabilities reach a staggering 20.367 billion yuan. The assessment report shows that WM Technology Group's total asset valuation is 4.107 billion yuan, while its total liability valuation is also as high as 19.305 billion yuan.

If we add a series of other new debts, including Geely's judgment in this case, its debt is likely to further increase. In addition, with the accelerated elimination of the automotive industry, there are more variables in whether WM Motor's bankruptcy reorganization can succeed smoothly.

The 640 million yuan compensation awarded in the Supreme Court's final judgment will also depend on the asset liquidation and creditor distribution in the bankruptcy reorganization process.

In the bankruptcy reorganization process, creditors usually receive distributions of the debtor's assets according to the priority order prescribed by law. If WM Motor's assets are sufficient to cover the claims of all creditors, Geely may receive corresponding compensation. However, based on the disclosed information related to WM Motor's reorganization, the repayment rate is likely to be unfavorable.

Although the amount of compensation received is still unknown, Geely's use of legal weapons to defend its rights and interests is still commendable.

In China's automotive industry, strengthening intellectual property protection is an important means for enterprises to maintain their competitiveness. With the rapid development of new energy vehicles and intelligent connected vehicle technology, the importance of intellectual property is becoming increasingly prominent. In addition to the Geely-WM Motor patent case, CATL, Tesla, and Volvo have also initiated lawsuits in China to defend their rights and interests around intellectual property.

This time, Geely's use of legal means to protect intellectual property not only helps protect its technological achievements but also sets a positive example for intellectual property protection in the entire industry. Only in this way can healthy market competition in the automotive industry be further promoted.

Of course, if the victory had come earlier, it might have been more meaningful for the injured party.

Author | Duge

Source | CarVisibility

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