Changes in trade secret protection 

By Nancy Qu, Beijing Gaowo Law Firm
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The difficulties of filing trade secret cases, and the low plaintiff success rates, have always troubled enterprises and practitioners. It’s common to see core employees of an enterprise leave the enterprise and take away core business information and technical information, then become engaged in a competitive industry, which causes huge losses to the original enterprise, or difficulties in operation.

屈小春, Nancy Qu Lawyer, Patent agent, Partner, Beijing Gaowo Law Firm
Nancy Qu
Lawyer, Patent agent, Partner
Beijing Gaowo Law Firm

However, the number of cases that take the judicial path and successfully pursue legal responsibility of their former employees (and their newly established or joined enterprises) through criminal or civil lawsuits is extremely low. On average, there are less than 100 civil cases involving trade secrets concluded by courts in China each year. Considering the difficulties of filing and winning cases, and the costs of protecting the rights, most small and medium-sized enterprises choose to remain silent after trade secret violations.

On 10 September 2020, the provisions of the Supreme People’s Court (SPC) on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets were issued, and took effect on 12 September 2020. On 13 September 2020, Interpretation III of the Supreme People’s Court and the Supreme People’s Procuratorate of Several Issues Concerning the Specific Application of Law in the Handling of Criminal Cases Involving Infringements upon Intellectual Property Rights was issued, and took effect on 14 September. The above-mentioned judicial interpretations have made new regulations on civil and criminal cases involving trade secrets, and it’s definitely good news for trade secret rights holders.

The above-mentioned trade secret infringements provisions aim specifically at systemic interpretations of civil cases involving trade secrets, which is a first for China’s judicial practice. The above-mentioned provisions comprehensively detail the definition of trade secrets, determination of trade secret infringement, the civil liability of trade secret infringements, legal proceedings involving trade secrets, and the application of law.

Particularly, in view of the difficulties in adducing evidence and determining infringement at present, the provisions significantly reduce the difficulty in adducing evidence concerning confidentiality (article 6), commercial value (article 7), the use of trade secrets (article 9), breach of the duty of confidentiality (article 10). They also detail the conditions for the court to take measures of act preservation (article 15) and the system of impediments to the production of evidence (article 24).

In interpretation III, articles 3, 4, 5 and 6 involve the crime of infringement of trade secrets. It’s worth noting that article 4 specifies the standards of “causing of a material loss” to trade secret rights holders, including: “The amount of loss caused to trade secret rights holders or the amount of illegal gains due to trade secret infringements is more than RMB300,000 [US$46,000]”. This significantly lowers the threshold of a trade secrets criminal offence, and improves the protection to trade secret rights holders.

In addition, interpretation III makes explicit stipulations on sentencing for criminal offences involving trade secrets, including considering heavier penalties, probation being inapplicable, and considering lesser punishment, which reflects the criminal policy of strict protection, while tempering strictness with mercy.

It’s foreseeable that the issuance and implementation of the above-mentioned two judicial interpretations will have a positive impact on the protection of trade secrets for enterprises in China. Enterprises can practise trade secrets protection from the following two aspects:

Strengthen the system construction of trade secrets

First, an enterprise should identify the details of its trade secrets (any non-public technical and business information with actual or potential commercial value, and that is guarded by confidentiality measures from rights holders).

Second, an enterprise should take confidentiality measures for trade secrets, and strengthen internal management. Enterprises can, for instance: Stipulate the duty of confidentiality with the employee; sign confidentiality agreements with employees or other personnel who are exposed to trade secrets; sign intellectual property ownership agreements with employees or partners who are engaged in the development of trade secrets; sign non-compete agreements with employees who are exposed to trade secrets; make confidentiality requests to employees or other personnel who are exposed to trade secrets through company articles, training, rules and regulations, written notifications and signing confidentiality commitments; and restrict personnel exposed to trade secrets by physical or technical measures.

Finally, companies can anonymise content related to trade secrets to avoid disclosing trade secrets when they are involved in litigation. When companies have to submit content involving trade secrets, they can file a court application to take necessary confidentiality measures in litigation activities (including that cases are heard in private, and requesting personnel who are exposed to trade secrets to make confidentiality commitments).

Responding actively to trade secret violation

Once trade secrets are stolen and used, irreparable losses are incurred by the rights holders. Therefore, trade secret rights holders must actively defend their rights, through criminal or civil means. In civil litigation, trade secret rights holders can make full use of (pre-litigation) act preservation, evidence preservation, property preservation system, application for court investigation and collection of evidence, and order of producing documentary evidence, to reduce the pressure on producing evidence, and stop trade secrets infringements in a timely and effective manner.

Nancy Qu is a lawyer, patent agent and partner at Beijing Gaowo Law Firm. She can be contacted on +86 10 8287 3665, +86 186 0011 3699, or by email at nancyqu@gaowoip.com