Trade Secret Protection in China

Legal Definition of Trade Secret

China Legislature has early established a set of laws to protect trade secret, mainly the anti-unfair competition law of 1993 and related Supreme Court’s judicial interpretations. Besides, PRC Contract Law, PRC Labor Law, PRC Labor Contract Law and other administrative regulations and departmental rules have sets out supplementary provisions on trade secret protection. Article 10 of anti-unfair competition law defines trade secret as:

• practicalinformation of technology and operation unknown to the public;
• which can bring economic benefits to the obligee and has practical applicability;
• on which the obligeetakes secrecy measures;

Therefore, trade secret includes technology information and operation information that meets above requirements, such as operating process, methods or formula, or other information such as marketing strategies, customer lists, raw materials, contract terms or pricing, etc.

Infringement of Trade Secret

Article 10 of anti-unfair competition law further specifies three means to infringe on the business secrets of others:

• obtaining business secrets from the obligee by stealing, promising of gain, resorting to coercion or other illegitimate means;
• disclosing, using or allowing others to use the business secrets of the obligee obtained by the means mentioned in the preceding item;
• disclosing, using or allowing others to use the business secrets that it has obtained by breaking an engagement or disregarding the requirements of the obligee to preserve the business secrets.

In addition to the above mentioned types of infringement, it also states third party liability for infringement, if a third party obtains, uses or discloses the business secrets of others being fully aware of the infringement upon such business secrets.

According to relevant stipulations of PRC Contract Law, the contractual parties are not allowed to disclose or improperly use the business secrets known or obtained during the formation of the contract. The licensor and licensee may agree in the technology license contract the confidentiality obligations of each other. It is the same logic for the employee confidentiality duty to employer pursuant to the PRC Labor Law and PRC Labor Contract Law.

However, obtaining business trade through self-developing or researching and reverse engineering is not an infringement. In other words, they are effective defenses against accusation of infringement.

Trade Secret Protection in China

Once the obligee knows the infringement, he/she may resort to administrative remedy and judicial remedies, which include civil and criminal proceedings. The relevant Administration of Industry and Commerce (AIC) will conduct investigation once the conduct of infringement is found or reported. After the fact of infringement is confirmed, the enforcement measures may be taken by AIC are requesting infringer to stop infringement or posing fine or penalty on infringer. If the obligee claims for compensation, he/she has to bring a civil litigation.

During the civil litigation, the obligee may be granted two kinds of injunctions, interim injunction and permanents injunction. The obligee has to prove the fact of infringement and the damages or losses occurred thereby. Where the economic damages reach 500, 000 RMB, it will fall into criminal standards.

Trade Secret Protection Measures

In view of great difficulty and high cost, and heavy burden of proof for trade secret protection in China, taking some measures to prevent trade secrets from infringement is the best option to protect trade secrets.

Among them, we suggest:

 Make Confidentiality Policy

An effective confidentiality policy may include define confidentiality scope, and people who may get access to it, process of handling confidentiality information, consequences for use without authorized or improper use or disclose. For employee, the consequence could be reasonable cause of termination of employment.

• Implement Confidentiality Policy

Here are some suggestions: ask core staff, outside counsel, agent, contractor or other third party to sign confidentiality agreement or write the confidentiality obligation into employee handbook and let employees to acknowledge their confirmation of having reviewed and known it and to sign it; keep the confidentiality information in restricted storage file, device or area and clearly mark “highly classified information”, “confidentiality information” or “not allowed to be disclosed” etc.; require visitors of factory or office area to comply with the confidentiality procedure.

• Sign Confidentiality, Invention Assignment and Non-solicitation and Non-competition Agreement

To know more about these and other specific measures, please contact our lawyers by writing an email to info@dandreaparteners.com

Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness.

Copyright 2016