After being targeted by short-sellers, GSX Techedu taken to court for trade secrets theft

Beijing-based online education platform VIPKid has filed a lawsuit against edtech company GSX Techedu (NYSE: GSX), alleging that GSX has asked two employees to steal VIPKid’s trade secrets, Chinese state-owned media outlet China.com.cn reported on Wednesday.

Beijing Haidian People’s Court has accepted the case, which is the first trade secret theft lawsuit in China’s online education sector. VIPKid seeks compensation of RMB 800 million (USD 113 million) from GSX, which, like VIPKid, is also headquartered in Beijing.

VIPKid matches native-speaking English teachers with Chinese students for one-on-one tutoring, while GSX offers courses including Chinese, English, and math that can be livestreamed to as many as 100,000 students simultaneously.

VIPKid is also suing the two GSX employees involved, both surnamed Wang, who worked for VIPKid before joining the US-listed company, according to the indictment seen byChina.com.cn.

The indictment alleges the employees used customer information they obtained while working at VIPKid to later promote sales for GSX once they switched over, a violation of confidentiality agreements they signed on to when terminating their labor contracts with VIPKid.

GSX started a hiring spree in the second half of last year, focusing in on jobseekers who had access to their competitors’ customer information, such as former employees of Yuanfudao and TAL Education, according to China.com.cn.

“Misbehaviours of taking away clients information to a new employer take place frequently in China partly because companies, in general, are not willing to take extra costs in protecting their own interests,” Zhang Guangdong, a lawyer with Shanghai City Development Law Firm, who is not involved with the case, told KrASIA on Thursday.

“On the other hand, companies must stop infringing rivals’ trade secrets to protect their own reputations,” Zhang added.

Neither VIPKid or GSX were available for comments on the lawsuit. This new allegation from a competitor marks another trouble GSX has got into recently.

Financial intelligence firms Grizzly Research and Citron Research issued two separate reports in the past two months alleging that GSX Techedu fabricated its financials, KrASIA reported. Chen Xiangdong, the company’s founder denied both short-sellers’ allegations.