Judicial challenges in trade secret protection

The IP Tribunal of the Supreme People’s Court rendered its appellate judgment in Geely v WM Motor (2024), which arose from a trade secrets infringement dispute triggered by employee poaching. The ruling underscores China’s commitment to “protecting innovation with innovation”, highlighting new practices in commercial secret protection.

By establishing the evidentiary burden for the preliminary presumption of infringement through a typical case, the Supreme People’s Court adopted the principle of “holistic analysis and comprehensive judgment”. This approach reduces the evidentiary burden on the plaintiff and delivers a clear message of rigorous IP protection and the encouragement of independent innovation.

Considering recent judicial developments, this article offers an in-depth analysis of the core elements of trade secret protection. It aims to provide enterprises with a multifaceted perspective on rights protection strategies, helping legal professionals strengthen their decision-making skills and more accurately predict the trajectory of trade secret disputes.

Determination of secrecy

Commercial secrets are categorised as either technical or business secrets, and establishing their secrecy is crucial to an enterprise’s market competitiveness and commercial value.

The criteria for determining the secrecy of technical secrets differ from the novelty and inventiveness standards used in patent law. Technical information that lacks novelty as a patent proposal does not automatically lose its status as a technical secret, as the secrecy requirement for trade secrets does not demand the level of innovation required for patents. This discrepancy stems from the fundamental differences in the protection objectives and legal interests between trade secret regimes and patent law.

While the patent system encourages innovation and technology dissemination by exchanging public disclosure for temporary exclusive rights, the trade secret system focuses on safeguarding the competitive advantage that arises from keeping technical and business information confidential, an advantage essential to an enterprise’s survival and growth.

Thus, when it comes to protecting competitive advantage, the secrecy of technical secrets is directly linked to an enterprise’s market position, providing a clear basis for their determination.

Business secrets mainly pertain to an enterprise’s operational management activities, with customer lists being a typical example. Customer lists generally include names, addresses, contact details and information on transaction habits and intentions. The critical factor in determining the secrecy of a customer list is the depth of information and the difficulty of obtaining it.

Typically, a customer list should contain detailed, non-public information such as transaction patterns, customer needs and price affordability. Recent judicial practice has placed greater emphasis on the depth of the information, the challenges involved in obtaining it and its dynamic nature.

A customer list should not be easily accessible and should incur a certain cost to acquire. Even if compiled from publicly available information, it may still qualify as secret if it has been processed and organised to produce new insights. The secrecy requirement does not depend on the volume of customer data; even details pertaining to a single customer can constitute a trade secret.

Whether a customer has completed a transaction or the duration of any trading relationship is not essential for secrecy, as information about potential customers may also qualify. For dynamically changing customer lists, factors such as the cost of developing customer relationships and transaction history must be considered to determine whether they constitute trade secrets.

Determination of confidentiality

The legal standard for the confidentiality of trade secrets is that the rights holder must adopt appropriate confidentiality measures. If such measures are not taken, allowing the secret information to be easily exposed, recognised and accessed by others, its confidentiality cannot be assured.

In judicial practice, the assessment of a trade secret’s confidentiality does not depend solely on the degree of secrecy of the measures, but rather on two key factors. First, the appropriateness of the confidentiality measures: the measures adopted by the rights holder must be specific, tailored and correspond directly to the trade secret and its medium. In other words, the measures must be intrinsically linked to the type of trade secret and its form, clearly reflecting the rights holder’s intent to keep it confidential.

Second, the reasonableness of the confidentiality measures: under normal circumstances, the measures should be sufficient to prevent the trade secret from being disclosed. They must demonstrate the rights holder’s subjective intent to maintain secrecy and be supported by proactive, objective measures that convincingly indicate that the information is treated as confidential.

Enforcement strategy

Trade secrets play an increasingly important role in resolving intellectual property disputes in business operations. Trade secret enforcement is distinct in that asserting rights simultaneously establishes them, making it essential for companies to adopt a dual strategy of preventive compliance and proactive enforcement to tackle practical challenges.

Trade secrets differ from other forms of IP regarding scope, constituent elements, evidentiary requirements in infringement cases and damage compensation. Their unique nature enables the effective protection of a company’s technical and business information, serving as an important means to maintain a competitive advantage in a highly contested market.

In light of this, companies should implement a defensive compliance strategy that includes establishing hierarchical confidentiality systems and dynamic talent management frameworks. In particular, when recruiting talent, companies must ensure compliance with trade secret protection measures to avoid litigation and the associated heavy evidentiary burden.

Compared with rights such as copyright, patent and trademark, the content and scope of trade secret protection are less clearly defined, which increases the risk of infringement, or even criminal liability, arising from improper use. This risk must be taken seriously.

Trade secret enforcement requires a multi-dimensional approach. Companies should build comprehensive compliance systems, while legal advisers must combine legal developments, technical details and industry characteristics to devise tailored strategies.

In cross-border scenarios, it is crucial to flexibly employ a combination of criminal, civil and administrative remedies. Simultaneously, ensuring that evidence is effectively linked both technically and legally is essential to achieving optimal enforcement outcomes.

Wang Zongpeng is a senior partner, management committee member and chair of the IP professional committee at Sundial Law Firm. He can be contacted by phone at +86 150 1352 7177 and by email at wangzongpeng@sundiallawfirm.com
Li Menglin, the secretary-general of the IP professional committee and Li Aisi, a member of the same committee, also contributed to this article.