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01 Case Information

Trial Court

Shanghai Intellectual Property Court

Case No.

(2021) Hu 73 Civil Appeal No. 154

party

Appellant (Defendant in the Original Trial): Tencent Technology (Chengdu) Co., Ltd.

Appellee (Plaintiff of the First Instance): Shanghai Moonton Technology Co., Ltd.

Date of Judgment

September 29, 2022

Cause of Action

Commercial Defamation Dispute

02 Case Summary

Xu, founder of Moonton, joined Tencent (Shanghai) Company in 2008, where he was engaged in work including game product research and development. He signed the *Confidentiality and Non-competition Commitment Agreement* with Tencent (Shanghai) Company in 2009 and 2012 respectively, under which he undertook that he shall not, during his employment and within two years after his termination of employment, operate independently or participate in the operation of any enterprise that has a competitive relationship with Tencent (Shanghai) Company and its affiliated enterprises. However, as confirmed by the investigation of Tencent (Shanghai) Company, Xu founded Shanghai Moonton Technology Co., Ltd. during his employment and developed an online game named *Endless Duel* (Mobile Legends: Bang Bang). This act violated the stipulations on non-competition obligations in the agreement. In response, Tencent (Shanghai) Company filed a lawsuit against Xu. The case went through first instance and second instance, and finally concluded with a judgment rendered by Shanghai No. 1 Intermediate People's Court, ordering Xu to pay RMB 19.4 million to Tencent (Shanghai) Company.

On September 5, 2018, Tencent (Chengdu) Co., Ltd. sent a letter entitled *On Copyright Infringement of Honor of Kings and Related Works* to RevivalTV, the Indonesian partner of Moonton, and demanded a timely response, failing which the relevant party shall bear civil and criminal liabilities. In addition, Tencent (Chengdu) Co., Ltd. claimed that it had prevailed in the lawsuit filed in Shanghai, China against Moonton's chief executive officer over the "breach of trade secrets" involved in establishing a company and developing and promoting the *Mobile Legends* game software. On September 28, 2018, Tencent (Chengdu) Co., Ltd. issued a second warning letter regarding the same matter.

Accordingly, Moonton filed a lawsuit against Tencent (Chengdu) Company in respect of the latter's improper issuance of letters. After trial, the court held that: The judgments mentioned in the two letters sent by Tencent (Chengdu) Company to RevivalTV all refer to the non-compete dispute between Tencent (Shanghai) Company and Xu, an employee of Moonton, and do not involve issues relating to trade secrets. As legal professionals, the lawyers of Tencent (Chengdu) Company should have known the distinction between "trade secret infringement" and "breach of non-compete obligation", but they deliberately confused the conceptual difference between the two in the process of sending letters to RevivalTV, with the intention of damaging the business reputation and commodity reputation of its competitor Moonton and undermining Moonton's competitive advantages. Such act constitutes the fabrication and dissemination of misleading information, and thus constitutes commercial defamation.

Plaintiff's Claims (First Instance, Moonton)

1. Tencent Chengdu Company shall immediately cease the unfair competition act of commercial defamation against Moonton Company.

2. Tencent Chengdu Company shall, for its act of commercial defamation, publish a statement on the front-page headline positions of Tencent Website (www.qq.com), Tencent Games Website (game.qq.com), Kaskus.co.id (www.kaskus.co.id) and TribuneNews (www.tribunenews.co) for 30 consecutive days, to extend a formal apology to Moonton Company and eliminate the adverse effects arising therefrom.

3. Tencent Chengdu Company shall compensate Moonton Company RMB 500,000 for the economic losses incurred by the latter arising from the former's unfair competition act of commercial defamation.

4. Tencent Chengdu Company shall bear the attorney's fees, notarization fees, overseas notarization and authentication fees, translation fees and other relevant expenses incurred by Moonton for stopping the acts of commercial defamation, totaling RMB 200,000.

Court Judgment (First Instance)

1. Tencent Chengdu Company shall, within 10 days from the date this judgment comes into force, issue a clarification in writing to PT Garuda Muthia Shandy in respect of its commercial defamation act against Moonton Technology Co., Ltd. involved in this case, so as to eliminate the adverse effects (the relevant content of the written letter shall be subject to the review of this Court). If it fails to perform the aforesaid obligation within the time limit, the court of first instance shall publish the content of the judgment of this case on relevant media, and the relevant expenses incurred therefrom shall be borne by Tencent Chengdu Company.

2. Tencent Chengdu Company shall, within ten days from the date on which this Judgment enters into force, compensate Moonton Company RMB 100,000 for economic losses.

3. Tencent Chengdu Company shall, within ten (10) days from the date on which this Judgment takes effect, pay Mutong Company RMB 120,000 as compensation for reasonable expenses;

4. The other claims of Moonton are not upheld.

[Note: In this case, the court of second instance dismissed the appeal and affirmed the original judgment of the first instance.]

03 Case Observation

Q1: What is a trade secret?

A1: Trade secrets refer to technical information, business information and other commercial information that are not known to the public, have commercial value, and for which the right holders have taken corresponding confidentiality measures.

Q2: What is a non-compete restriction?

A2: Non-compete restriction refers to the "non-compete clause" stipulated in the labor contract or confidentiality agreement signed between an employer and an employee. It is mainly formulated to specify relevant matters including the employee's obligation to maintain the confidentiality of the employer's trade secrets, intellectual property rights and other related information. Generally, it requires that the employee shall not, within a specified period of time, engage in the operation of products of the same type, or join any enterprise that carries out competing businesses of the same type.

Q3: What is the legal basis for the court's finding that Tencent (Chengdu) committed an act of unfair competition in the present case?

A3: It violates the provisions of Article 11 of the Anti-Unfair Competition Law of the People's Republic of China, and constitutes [commercial defamation].

Q4: Is the act of releasing or disseminating information to unspecified persons a constituent element of commercial defamation?

A4: Denied. It is unnecessary. The dissemination method of the lawyer's letter involved in the present case may also constitute commercial defamation.

Q5: Why was the plaintiff's claim for "apology" in the present case not upheld by the court?

A5: As making an apology is generally applicable to circumstances where personal rights are damaged, in the present case, Motong Company suffered damage to its business reputation rather than damage to personal rights.

Q6: What factors does the court take into consideration when determining the amount of discretionary compensation in the present case?

A6: Circumstances including the scope of tort, degree of fault, scale of tort, popularity and reputation of Moonton, and the fact that the MPL Professional League is still held as normal.

04 Summary

On the surface, this case is a dispute over commercial defamation, while the underlying reasons are more noteworthy. Specifically, Moonton took advantage of the time lag in the release of China's hit game *Honor of Kings* across different countries to rapidly develop an identical or similar competing game *Mobile Legends: Bang Bang* and seize the Indonesian market. It thus enjoyed the first-mover competitive advantage, and even in turn suppressed the competition of *Honor of Kings* (i.e., Arena of Valor) in the Indonesian market. In addition, Moonton did not stop at this point. It subsequently launched *Peak Showdown*, the domestic Chinese version of *Mobile Legends: Bang Bang*, and obtained the game publication license approval from the National Press and Publication Administration in April 2023, continuing its roundabout competition strategy of "expanding overseas first, then entering the domestic market".