Burden of proof in trade secret infringement suits

By Sun Jinlin, Jincheng Tongda & Neal
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In China, trade secret infringement suits involve proof of at least two things: the plaintiff has a trade secret; and the defendant infringed that secret. However, to obtain substantial damages, presenting grounds for the claimed amount is also required. Regarding burden of proof, the basic principle in civil procedures in China is that whoever makes a claim is responsible for adducing evidence in support of it, and trade secret infringement suits are no exception. In such suits, the main burden of proof lies with the plaintiff, but, in the finding of certain facts, a switch in the burden of proof to the defendant will also be involved.

TRADE SECRETS

Trade secrets are a special form of intellectual property that exist through the protection of the rights holder itself, so in infringement suits the confirmation of trade secret rights is far more complex than that for patents. Substantiating that a trade secret has been established in accordance with the law is in fact proving that it satisfies the features of being secret, having commercial value and being confidential.

Sun Jinlin Partner Jincheng Tongda & Neal
Sun Jinlin
Partner
Jincheng Tongda & Neal

In the past, the question of who should assume the burden to prove the “secrecy” of a trade secret was one of the difficult issues. The Chinese courts held that the burden of proof should fall on the defendant, because “secrecy” is a negative fact and thus difficult to prove, whereas it was easier for the defendant to prove that the information in question was information in the public domain.

That notion has changed in recent years. In keeping with the judicial spirit of the Supreme People’s Court (SPC), the burden of proving secrecy should fall on the plaintiff, but the standard of proof may be suitably reduced, depending on the specific circumstances of a case.

If, at the time of instituting the legal action, the plaintiff can provide evidence of the process of creation of the trade secret (e.g., the labour expended, the cost investment, and research and development reports) or give an account of how its information differs from the information in the public domain, a preliminary finding that secrecy is established may be rendered.

If the parties disagree with this, the plaintiff may apply for judicial assessment to determine the secrecy of the information. The defendant is also free to present counter-evidence. If the defendant mounts a public domain information defence, it then bears the burden of proof. If, after the exhaustion of all means, it remains impossible to ascertain whether such information is secret, then the plaintiff loses the suit. When substantiating secrecy, it is first necessary to clarify the specific content of the trade secret, and the medium in which it is housed.

Furthermore, “confidentiality” signifies that the plaintiff must have taken certain confidentiality measures to protect the trade secret. Such confidentiality measures need not be absolutely perfect, but should be identifiable, permitting the other person to recognize the scope of the confidential information. Measures such as limiting the scope of those who are aware of the information, installing a lock, adding a confidentiality mark, execution of a confidentiality agreement, etc., can all be deemed to create identifiability.

However, if the confidentiality agreement executed by a company with its employees, or the confidentiality rules formulated by it, do not expressly specify the scope of the trade secret, or if no physical confidentiality measures were taken in respect of the medium in which the claimed trade secret is housed, then this would be insufficient.

There is one exception to this. In an existing case it was held that, based on their duty of loyalty to their company, senior officers not only bore an obligation of confidentiality for the company’s trade secrets but also bore an obligation of taking confidentiality measures to protect such trade secrets; accordingly, if a senior officer of a company mounted a defence of non-infringement on the grounds that the company failed to take confidentiality measures, the court would reject such a defence.

“Commercial value” is not typically a point of focus in a trade secret infringement suit. In the vast majority of cases, the plaintiff has actually been using the commercial information it is claiming in its business activities, and this is sufficient to show the commercial value of such information. Only in a few individual cases has the plaintiff’s claim been dismissed on the grounds of “no commercial value”.

EVIDENCE RULES

The plaintiff is required to adduce evidence substantiating that the defendant committed an infringement. Article 14 of the SPC Interpretations of Several Issues Concerning the Application of the Law in the Trial of Civil Unfair Competition Cases specifies that, “When a party claims that a third party has infringed its trade secret, it must bear the burden of proving that the trade secret that it possesses meets the mandatory conditions, that the other party’s information is identical or substantively identical to its trade secret, and the facts of the other party using improper means to obtain the same.” It can be seen that showing evidence that the defendant committed infringement must be attacked from two directions: (1) the information of both parties being identical or substantively identical; and (2) the defendant’s use of improper means.

However, in litigation practice, requiring the plaintiff to adduce evidence of (1) above is already quite difficult; requiring it to show that the defendant used illegitimate means adds another whole layer of difficulty. Accordingly, courts have, in judicial practice, themselves derived a set of special evidence rules that involve inferring certain facts and switching of the burden of proof.

Pursuant to this, if the plaintiff can show that the information used by the defendant is identical or substantively identical to its trade secret, and the defendant had access or conditional access to its secrets, then there is a high probability that the defendant obtained the trade secret from the plaintiff.

Under such a circumstance, it can essentially be inferred that the defendant used improper means, thus switching the burden of proof, with the defendant now required to present counter-evidence to show that it lawfully sourced the information that it uses, failing which it will be inferred that infringement is established. This set of rules is being widely used in the trial of certain cases, and has had the result of lightening the plaintiff’s burden of proof to a certain extent.

Sun Jinlin is a partner at Jincheng Tongda & Neal in Shanghai

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