Latest judicial practice on protection of trade secrets

By Jerry Xia and Wang Yulu, AnJie Law Firm
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Protection of trade secrets has always been a hot issue, and it is also one of the core contents of the phase-one economic and trade agreement signed between China and the US in January 2020. Last September, the Supreme People’s Court (SPC) successively issued judicial interpretations to strengthen civil and criminal protection of trade secrets, and implement relevant provisions of the trade agreement. Some actual recently published cases reflect this trend.

Jerry-Xia,-Partner,-AnJie-Law-Firm
Jerry Xia
Partner
AnJie Law Firm

Q: What are the recent amendments to laws and regulations involving trade secrets?

A: Legislation regarding trade secrets has been intensive of late in China, reflecting the decision to “strengthen protection of corporate trade secrets”. Following the second amendment to the Law Against Unfair Competition, in 2019, the SPC formally passed the latest judicial interpretation on the trial of civil disputes and criminal cases on trade secrets, in September 2020.

In addition, there are some drafts, and drafts for comment. For example: In July, the National People’s Congress issued the Criminal Law Amendment (XI) (Draft), proposing to adjust the relevant provisions on the crime of infringement on trade secrets; on 14 August, the Ministry of Justice issued the Guidance on Strengthening the Protection of Trade Secrets and Confidential Business Information in the Process of Administrative Licensing (Draft for Comment); and on 4 September, the State Administration for Market Regulation issued the Provisions on the Protection of Trade Secrets (Draft for Comment). These legislations have reduced the difficulty of protecting the rights of trade secrets in the future, from different aspects.

Wang-Yulu,-Trainee,-AnJie-Law-Firm
Wang Yulu
Trainee
AnJie Law Firm

Q: When corporate trade secrets are infringed, how can the enterprise protect its rights? What are the advantages and disadvantages of the approaches to this?

A: Usually there are three approaches to protect these rights: Civil means, administrative means and criminal means.

The advantage of criminal means lies in its frontal offensive against infringers, and the capability of public security organs to obtain evidence far beyond the reach of civil litigants. However, the premise of investigating criminal liability is that the infringer has caused significant losses to the victim, that is, the loss amount is more than RMB300,000 (US$45,000). Originally the figure was RMB500,000, but the amendment to judicial interpretation reduced it to RMB300,000, and enterprises often find it difficult to convince the public security organs that their losses have reached the standard for case filing.

The latest criminal judicial interpretation stipulates that for infringement of obtaining trade secrets improperly, the “reasonable licence fees” of the trade secrets involved can be used to determine the losses, and the necessary remedial expenses paid by the obligee to reduce the losses caused by the infringement should also be included as losses. This makes it easier to protect rights via criminal means, and is also the biggest highlight of this amendment.

Civil litigation is relatively mature, and the obligee can claim to stop the infringement, including temporary injunction, and obtain compensation for damage. The greatest difficulty via the civil means for the obligee lies in the great responsibility of burden of proof, while the nature of trade secrets makes it difficult to collect evidence by oneself. The authors expect this problem to be alleviated through the inversion of burden of proof under the Law Against Unfair Competition, and the relevant provisions in the latest judicial interpretation.

In the past, the administrative means was often ignored by enterprises, but its advantage lies in a fast processing speed, and the law enforcement organs also have the capability to collect evidence. As the Law Against Unfair Competition strengthens the administrative penalty, and the Provisions on the Protection of Trade Secrets (Draft for Comment) refines law enforcement, the administrative means may be a good choice.

In practice, enterprises often adopt “criminal means first, and civil means second”. In civil litigation, the demandant can directly apply to the court for retrieving evidence material from previous criminal cases. It solves the problem of difficulty in obtaining evidence in civil litigation to the greatest extent, and the demandant can also get sufficient compensation for damages through civil litigation.

Q: How much compensation can the enterprise get if it proactively protects its rights?

A: The amount of compensation to the obligee who suffers damages due to the infringement is determined based on the actual losses caused by the infringement. If the actual losses are difficult to calculate, it is determined based on the profit obtained by the infringer. The revised civil judicial interpretation further clarifies that the licence fees and commercial value of trade secrets can be used to determine the amount of compensation. In addition, the legal compensation can be up to RMB5 million, and there are punitive damages of less than five times for malicious infringement.

In recent years, the amounts of compensation awarded in trade secret infringement litigation in China have increased, and there have been some cases with high amounts of compensation. For example, in the case of a dispute over infringement on technical secrets, the court determined that the three defendants jointly and severally compensate the demandant for RMB35 million in economic losses.

In another case, Geely Auto claimed RMB2.1 billion in a case of infringement on trade secrets against WM Motor. Although the judgment has not yet been pronounced, it may be the civil dispute over trade secrets with the highest level of claim so far. In addition, in the case of dispute over infringement on trade secrets between plaintiff Chongqing Manniu Company and defendants Tan Qing and Chongqing Yilian Jinhui Company, the court for the first time supported punitive damages of three times the profit obtained by the infringers.

Q: In the current legal environment, how do enterprises protect their rights for trade secrets?

A: First, enterprises should regularly screen internal information, identify the content that can be regarded as trade secrets, and take corresponding protection measures based on the value and importance of such information. Second, sign non-disclosure agreements and non-competition agreements with important employees, and keep records of employees’ access to trade secrets. Finally, while protecting the legitimate rights and interests of its own trade secrets, enterprises must also not infringe on others’ trade secrets, and must timely and regularly investigate infringement risks.

Jerry Xia is a partner and Wang Yulu is a trainee at AnJie Law Firm

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