Key points for compliance management of trade secrets

By Li Kexuan, Starrise Law Firm
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Trade secrets constitute a vital part of a company’s intangible assets, significantly influencing its production, development and competitive advantage in the market. However, the boundaries of trade secret rights are often unclear, relying solely on a company’s efforts for protection.

Companies lacking self-protection awareness often find themselves unable to obtain judicial protection due to the inability to provide sufficient evidence after infringement. Effective compliance management of trade secrets is crucial for their protection. This article discusses several key points regarding compliance management.

Inventory of trade secret assets

Li Kexuan, Starrise Law Firm
Li Kexuan
Associate
Starrise Law Firm

In judicial practice, whether initiating civil litigation or criminal prosecution, rights holders must provide evidence that trade secrets meet statutory conditions. This evidence includes specifics such as the carrier, content, commercial value and confidentiality measures of the trade secret.

However, due to the weak awareness of trade secret protection, companies often neglect to systematically organise their trade secret assets in daily management, making it difficult to specify trade secret information and points in actual cases.

Companies are advised to: regularly or irregularly review and select confidential information; establish management profiles including the secret points, internal and external circulation procedures, and classification; and determine confidentiality periods of trade secrets. Companies with the capability should also periodically assess the cost and output benefits of trade secrets.

Additionally, regular maintenance of trade secrets should be conducted, with timely communication to relevant personnel and preservation of communication records. It is essential to conduct trade secret selection work promptly, at crucial junctures of major projects and business activities, to dynamically update trade secrets.

Reasonable protection measures

In contracts to protect trade secrets, many companies solely rely on measures such as signing confidentiality agreements with employees or stipulating confidentiality obligations. However, this approach may not effectively prevent leaks or secure legal protection during litigation, as it may be deemed inadequate. Protection measures are related to both “confidentiality” and “secrecy” requirements. If protection measures for trade secrets are inadequate, leakage becomes inevitable, leading to potential losses of both confidentiality and secrecy in litigation.

In specific cases, the determination of whether a rights holder has taken protection measures generally depends on factors such as: characteristics of the information carrier; rights holder’s intentions to keep confidentiality; recognisability of protection measures; and difficulty for others to legitimately obtain the information.

Companies are recommended to tailor protection measures based on their industry characteristics, scope of operations, scale, business processes, and other factors. It is crucial for protection measures to enable accurate identification and judgement of trade secret information by obliged parties. Therefore, companies must not only formulate protection measures for trade secrets, but also ensure their effectiveness.

Generally, based on the type and level of secrecy of trade secrets, companies can determine the main responsible departments for trade secret protection, define access levels for personnel and circulation requirements, and implement protective measures such as encryption and physical space isolation as needed. Additionally, they should retain evidence of implementation and ensure trade secrets circulation is under control and traceable through the review procedure.

Personnel, confidential information

Since most cases of trade secret infringement are perpetrated by internal employees, it is crucial for companies to prioritise the management and record-keeping of personnel involved in confidential matters.

Recruitment management

Recruitment management involves newly hired employees and those transferred to positions involving confidential information. Companies should sign confidentiality agreements corresponding to the job responsibilities of these employees, clearly defining and detailing their scope of confidentiality and responsibilities.

Before or after employees join a new position, companies can clearly inform them of their confidentiality obligations and other related matters through methods such as providing employee handbooks and training sessions.

In-service management

Employees should be encouraged to comply with the company’s trade secret protection policies and perform their duties in safeguarding trade secrets.

During daily operations, compliance monitoring of employee behaviour should be conducted to prevent employees from: accessing unauthorised accounts or systems without approval from the department responsible for safeguarding trade secrets; exploiting system vulnerabilities to obtain confidential documents or data; or exceeding access rights or unauthorised copying of confidential materials or electronic documents.

Departure management

For employees planning to leave, companies should set a declassification period in advance, based on their level of involvement with confidential information, and adjust their positions accordingly to avoid further exposure to trade secrets. When employees in sensitive positions leave, companies should actively inform them of their confidentiality obligations and legal responsibilities, reminding them to voluntarily register, return, clear or destroy any trade secrets and carriers they accessed or acquired.

If necessary, companies can sign confidentiality obligation notices with departing employees to explicitly prohibit infringement activities upon departure. Finally, inspections can be conducted on their work computers, systems and email accounts upon departure. Additionally, since employees who possess core secrets may engage in similar businesses after leaving, companies should monitor the whereabouts of such individuals after their departure.

In addition to the above-mentioned processes, compliance management of trade secrets also includes risk identification and control measures, external management of trade secrets, and establishing emergency response mechanisms for information leakage. However, the most crucial aspect is for the company’s leadership to strengthen awareness of trade secret protection and recognise its importance by establishing and operating an effective compliance management mechanism for trade secrets.

Li Kexuan is an associate at Starrise Law Firm

Starrise law firm logo

30 Beixingqiao Toutiao Alley

Dongcheng District
Beijing 100007, China
Tel: +86 10 6401 1566
E-mail: likexuan@xinglailaw.com
www.xinglailaw.com

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