Inadequate laws spur proactive stance on trade secrets protection

By Wang Yadong and Lu Lei, Run Ming Law Office
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The protection of trade secrets differs from that of patents and trademarks. At present, China does not have intellectual property laws that specifically protects trade secrets, with provisions for their protection scattered among such laws as the Law Against Unfair Competition, the Labor Law, the Contract Law and the Criminal Law. Among these, the Law Against Unfair Competition is the core law for the protection of trade secrets.

王亚东-Wang Yadong-润明律师事务所 执行合伙人-Executive-Partner-Run-Ming-Law-Office
王亚东
Wang Yadong
润明律师事务所
执行合伙人
Executive Partner
Run Ming Law Office

Three criteria of trade secrets

Article 9 of the Law Against Unfair Competition specifies the concept of trade secrets as: “technical information and business information which is non-public, can bring economic benefits to the rights holder and is practical, and for which the rights holder has adopted measures to maintain its confidentiality.” From this it can be seen that a trade secret needs to satisfy three criteria to be accorded the protection of the law:

Secrecy. Pursuant to the Interpretations of the Supreme People’s Court of Several Issues Concerning the Application of the Law in the Trial of Civil Unfair Competition Cases, the term “non-public” means that the “relevant information is not generally known or easily available to relevant persons in the field”.

Practicality. Pursuant to the interpretations, the phrase “being able to bring economic benefits to the rights holder and being practical” means that the “relevant information has actual or potential commercial value and can give its rights holder a competitive advantage”.

Protective measures. Pursuant to the interpretations, the phrase “adopted measures to maintain its confidentiality” means the “reasonable protection measures appropriate to the commercial value and other specific circumstances of information that a rights holder takes to prevent disclosure thereof”.

Forms of infringement

Pursuant to the law, there are three types of infringement of trade secrets: 1) obtaining trade secrets of a rights holder by theft, enticement by promises of gain, coercion or other unfair method; 2) divulging, using oneself or allowing others to use trade secrets of the rights holder, where such trade secrets were obtained by any of the methods in the preceding item; or 3) divulging, using oneself or allowing others to use trade secrets in one’s possession, where such is in breach of an agreement or contrary to the rights holder’s requirement of confidentiality of the trade secrets.

In the real world, commonly seen forms of infringement of trade secrets include: a former employee disclosing the trade secrets to which he or she was privy to competitors of his or her former employer; using such means as secret photography or recording to obtain another’s trade secrets; or continuing to use or disclosing to a third party another’s trade secrets after the end of co-operation with it.

Evidence and defence

In civil cases involving the infringement of trade secrets, the plaintiff may appeal to the administration for industry and commerce to handle the matter or institute a legal action in a court, with the latter being the option most commonly used by rights holders. As with the basic principles of civil procedures, the burden of proof in trade secrets cases is mainly borne by the plaintiff. When the plaintiff claims that another has infringed its trade secrets, it is required to show that the relevant information satisfies the above three criteria of trade secrets.

陆蕾-Lu-Lei-润明律师事务所 律师-Lawyer-Run-Ming-Law-Office
陆蕾
Lu Lei
润明律师事务所
律师
Lawyer
Run Ming Law Office

Additionally, the plaintiff is required to show that the other party’s information is identical or similar to its trade secrets, and that the other party adopted unfair means – e.g. such means as theft, coercion or illegal disclosure, as mentioned above. In other words, the plaintiff must adduce evidence showing that the defendant’s acts comply with the principle of “similarity plus access”, constituting infringement.

Similarly, the party accused of infringement may mount its defence and present counter-evidence addressing the plaintiff’s evidence and grounds, e.g. by claiming: the so-called trade secrets were already publicly disclosed and therefore were not secret; the information it used was general business information only, and could not confer upon it a competitive advantage; the defendant lawfully obtained the relevant information through reverse engineering; the plaintiff did not take any measures to keep the information confidential.

Prevention first

Protection of trade secrets by the current law still requires further improvement. First, legislation on the protection of trade secrets is dispersed, and the protection accorded by the law is insufficient. For example, limiting infringers to business operators and emphasising that infringers be external to the rights holder makes it impossible to regulate the disclosure of corporate secrets by internal employees, thereby making it impossible to sanction the infringement of trade secrets by employees that divulge corporate trade secrets or breach anti-compete clauses.

Second, trade secrets cases mix technical issues and legal issues, put a heavy burden of proof on plaintiffs and, if improperly conducted, a legal action poses the problem of further divulgence of secrets. The Patent Law, Trademark Law and Copyright Law all contain specific provisions on the issue of jurisdiction and application procedure. In contrast, there are no express provisions governing trade secrets cases.

Third, the determination of the measure of damages in trade secrets cases differs from that in other types of intellectual property cases. For example, if damages are determined based on the income derived by the infringer, the amount derived by the infringer in the short term may be relatively small, but the loss to the rights holder from the disclosure of the secrets may sometimes be impossible to calculate. However, the law does not contain any special provisions on damages for trade secrets.

In summary, while waiting for China to establish better trade secrets protection, domestic and foreign enterprises should adopt the strategy of “prevention first and preservation of evidence” to protect their trade secrets under the current legal system.

Proactive measures

For example, enterprises may take the following measures to prevent the disclosure of their trade secrets: execute non-disclosure agreements with co-operating partners, suppliers and employees; formulate confidentiality systems; limit the scope of access to confidential information; with respect to machinery, plant buildings or workshops that have a connection with secrets, take security measures like fitting them with locks or using encryption to restrict visitors; and set confidentiality requirements. Additionally, pursuant to relevant provisions of current laws, strengthen the preservation and collection of evidence so as to secure protection of the law to the greatest extent possible.

Wang Yadong is the executive partner and Lu Lei is a lawyer at Run Ming Law Office

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lul@runminglaw.com

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