Greater chance of criminal liability for stealing trade secrets

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Greater chance of criminal liability for stealing trade secrets

The Tianjin Intellectual Property Court recently tried a criminal case involving an employee’s infringement of his employer’s trade secrets. The judgment has drawn much attention in the Chinese media.

The defendant, surnamed Zhao, worked in the sales department of a foreign-invested company in China. During this time he stored many documents on a company-issued mobile hard drive without authorisation. When he left the company he took the hard drive with him. Police have since confirmed the drive contained considerable amounts of high-value confidential technical data belonging to the company.

The company had taken steps to protect its trade secrets such as including provisions in employment contracts, issuing employee manuals, sending emails and displaying reminders during computer startups. Ultimately, the court held that Zhao had infringed the company’s trade secrets and sentenced him to 10 months’ jail and a fine of RMB60,000 (USD8,900).

In the past, the most difficult thing to prove in criminal cases involving an employee’s alleged theft of trade secrets was the amount of loss the employer had suffered, or the fact the employee’s illegal income from the infringement was high enough to open a criminal case (i.e. at least RMB300,000). As a result, many cases that only involved the obtaining of secrets could not be treated as criminal offences. This limited the law’s deterrent effect.

The difficulty was eased on 14 September 2020, when the Supreme People’s Court and the Supreme People’s Procuratorate issued the Interpretation (3) of Several Issues in the Specific Application of the Law in Criminal Cases of Infringement of Intellectual Property Rights. The judicial interpretation provides expressly that “if a trade secret of the rights holder was obtained by improper means but has not been disclosed, used or licensed, the amount of loss may be determined based on a reasonable licence fee for the trade secret”. Zhao’s case was the first in China since the issue of that judicial interpretation where the amount of loss suffered by the rights holder was determined based on a reasonable licence fee and where the defendant was successfully convicted and penalised accordingly.

TAKEAWAYS AND OUTLOOK

It has become common in the judicial practice of many countries to determine the amount of damages for intellectual property infringement based on a reasonable licence fee. However, this method was not common in China. In relying on the 2020 interpretation, the amount of loss in Zhao’s case was determined based on a reasonable licence fee and he was convicted solely for obtaining the information without having to prove actual damages suffered. The case marked a new chapter in this kind of trial in China and reflects the trend in judicial practice to strengthen the protection of intellectual property rights and trade secrets. This trend is more beneficial to rights holders and particularly to employers’ protection of their own interests.

The case also serves to remind employers to take necessary steps to protect trade secrets. Measures such as including confidentiality and data security provisions in employment contracts, confidentiality agreements and employee manuals, and providing relevant training, emailing security reminders and displaying reminders during computer startups are now recognised as valid protection measures.


Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com