A secret war

New legal regimes mean an increase in trade secret litigation in both China and the US, but what measures are needed to protect trade secrets? Seth Gerber, Zhu Shaobin and Lucia Tang give their views

Twenty years ago, the US Congress granted the People’s Republic of China permanent normal trade relations with the expectation that opening Chinese markets would increase American prosperity. In 2019, the US reacted to perceived unfair trade practices by imposing tariffs on US$360 billion worth of Chinese products.

Now that a Phase One China Trade Deal has been announced, which addresses some disputes concerning intellectual property, the parties should continuously focus on improving the international legal regimes to protect trade secrets.

Trade secrets often are a company’s most valuable form of IP. Trade secrets include financial, business, scientific, technical, economic or engineering information, such as customer lists, manufacturing methods, formulas, prototypes, designs or codes, which are subject to reasonable measures to keep such information secret, and which derive independent economic value that is not readily ascertainable by proper means by another person who may obtain economic value from the disclosure or use of that information.

US trade secrets law developed from various state court opinions. By 1979, these court decisions were memorialized in the Uniform Trade Secrets Act (UTSA), which has been adopted in 49 states and the District of Columbia.

Claims under California’s version of the UTSA have been asserted against China-based companies where, for example, the trade secrets that were allegedly stolen had been developed in California, and former high-ranking employees moved from California to China, founded a competitive business, and announced the sale of similar products embodying the trade secrets within one year of starting business in China.

Seth Gerber is a Los Angeles-based partner and Zhu Shaobin is a Shanghai-based partner at Morgan Lewis & Bockius. Lucia Tang is the firm’s China associate in Shanghai.