In the news: Chinese capital market turmoil discussed, GSK scientists steal trade secrets and Shanghai's VC compensation plan under fire

Ex-GSK employees steal trade secrets

Five people, including two former GlaxoSmithKline researchers, were charged with theft of trade secrets on drugs for cancer and other serious diseases from the British drugmaker, the U.S. Attorney's Office in Philadelphia said last Wednesday. Two of the individuals (one a senior-level manager), Chinese nationals who worked as scientists in GSK's Upper Merion Township research facility, reportedly downloaded confidential information from the company's network and sent it to their co-conspirators, who formed a corporation in China called Renopharma, allegedly to market and sell the stolen trade secrets that could be used to reproduce GSK products and drugs in development. This isn't the first incident in the U.S. involving a Chinese citizen taking trade secrets back to their country. In fact, the first parallel enforcement in China and the U.S. for trade secret violations involved RF Micro Devices in 2013, which was also the first case where the owner pursued criminal prosecution on top of civil litigation in both jurisdictions. Regulations now have a long-arm reach, and the criminal liability and severity of punishments have increased for violating private data. We discussed how businesses can protect themselves from misappropriation here, and how to litigate in China here.

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Market criticizes Shanghai's plan to compensate VC firms' losses

Investors have criticized a Shanghai government plan to encourage innovation and private venture capital (VC) investment by compensating VC firms for losses from investing in high-tech startups. The policy is set in a regulation dated December 29. It allows a VC to ask for a payout of 30% to 60%, depending on size and revenue, of the shortfall, if the sale of its stake in a startup fails to cover the original investment. The cap is Rmb6 million for firms and Rmb3 million for individuals. One private equity investor said this will have a “disastrous” impact on fundamental capital market principles, which involve matching risk and return. VC investments are extremely risky and limited to very few people and institutions, and the negative consequences of using public money to compensate losses will be unimaginable, he said. Another issue is that the regulation's loopholes and lack of clear standards on calculating losses. China has recently rolled out a series of tax breaks for R&D, VC and high-tech startups, and although such incentives can spur innovation, providing investors a monetary safety net by providing compensation in case of failure could be a huge risk to everyone involved. VC investors are already extremely selective, but this may result in the taking on of higher – and ill-advised – risk. The focus should be on things such as boosting IP enforcement and legal protection, rather than on the encouragement of unbridled lending.

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China probes new-energy vehicle subsidies fraud

China will investigate reports that companies are committing fraud to obtain state subsidies for new-energy vehicle sales. The aim is to ensure that the billions of dollars spent on promoting emission-free autos are going to legitimate makers. The Ministry of Finance (MOF), State Administration for Industry and Commerce (SAIC), Ministry of Science and Technology and the National Development and Reform Commission (NDRC) will begin a probe and severely punish, blacklist and publicize violators, an official said. Local media have reported on scams including companies assembling and selling poor-quality vehicles to shell companies to obtain state subsidies. The authorities are right to crack down. With pollution levels as high as they are in cities like Beijing and Shanghai, the last thing that China wants is to allow the illegal acts of a few to scupper the fledgling green-vehicle industry.

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