New rules for adjudication of trade secret cases

Drafts for comment for several sets of judicial interpretations and new regulations were recently issued in the field of adjudication of trade secret cases. On 10 June 2020, the Supreme People’s Court (SPC) issued the Interpretations of Several Issues Concerning the Application of the Law in the Trial of Civil Trade Secret Infringement Dispute Cases (trade secrets interpretations), which comprehensively detail such issues as the determination of infringement, burden of proof, relief measures, damages, etc., in trade secret cases, and provide for procedural issues such as territorial jurisdiction, and overlapping criminal and civil procedures.

Subsequently, the Several Provisions on Evidence in Civil Intellectual Property Procedures (IP evidence provisions), issued by the SPC on 15 June, and the Interpretations of Several Issues on the Specific Application of the Law in the Handling of Criminal Intellectual Property Infringement Cases (3) (criminal case interpretations), issued by the SPC and the Supreme People’s Procuratorate on 17 June, provide for the rules of evidence in civil trade secret cases, the constitutive elements of a crime, and the method of calculating the measure of damages in criminal cases, etc., filling certain legislative gaps.

Criteria for determining that trade secrets are not public knowledge. “Not known to the public” is the key point, as well as the point where the difficulty lies, in determining trade secrets. The trade secrets interpretations further clarify the criteria for determining the “not known to the public” element, namely, “was not generally known to relevant persons in their field, and was not readily available at the time the alleged infringement occurred”. In particular, “new information that has taken form after the collation and improvement of information known to the public”, which satisfies the above-mentioned conditions, may also be accorded protection as a trade secret.

Rule for the shifting of the burden of proof. Article 8 of the trade secrets interpretations specifies that once the rights holder has adduced preliminary evidence of its “confidentiality measures”, and “could have been accessed by the alleged infringer”, if the possibility of trade secret infringement is relatively strong, the burden of proving that the trade secret was known to the public, or that it was not infringed, then falls on the alleged infringer.

The above-mentioned article does not mention the rights holder’s burden of proving the “substantially similar” element which, as compared to article 32 of the Unfair Competition Law, may further lighten the rights holder’s burden of proof. However, the wording, “the possibility of trade secret infringement is relatively strong” is rather vague, leaving much room for interpretation.

Act preservation. Compared with other IP cases, act preservation in trade secret cases is seldom used in judicial practice. Pursuant to article 21 of the trade secrets interpretations, an applicant need only specify the specific content of the trade secret it is claiming, adduce evidence to show that it has taken the appropriate confidentiality measures for the trade secret, and provide the appropriate security to apply for act preservation.

The court may render a ruling for act preservation if it finds that the respondent intends to, or has, disclosed, used, or permitted a third party to use the rights holder’s trade secret, and failure to take act preservation measures would make enforcement of the judgment difficult, or cause the concerned party to incur other damages. When satisfying the conditions for the “situation being urgent”, the ruling shall be rendered within 48 hours. If the alleged infringer adduces evidence showing that the information for which the rights holder is seeking protection is not a trade secret, or that it has not infringed the trade secret, the court is required to render a ruling lifting the act preservation measure.

Rules of evidence. On the basis of the provisions for civil evidence, implemented in May this year, and in light of the specific features of evidence, the IP evidence provisions provide detail on the specific requirements for evidence preservation, gathering of evidence by courts, expert testimony and evidence orders, providing detailed guidance to rights holders for the obtaining of evidence through various means.

For trade secret cases, special note needs to be taken of: (1) specifying application of the ruling on maintaining confidentiality during the trial to prevent further disclosure during trial; and (2) specifying that the similarities and differences between the technical secrets claimed by the concerned party and the technology in the public domain, as well as the similarities and differences between the alleged infringing technical information and the trade secret, may be matters for which an expert opinion is sought.

The IP evidence provisions also give a detailed explanation of the qualifications of the appraisal institution and expert witnesses, and the review of an expert opinion sought by a party itself, providing the basis for the rational use by parties of expert testimony, the most powerful means of adducing evidence available in trade secret cases.

Calculation of the measure of damages and illegal income. The criminal case interpretations respectively define the “causing of a material loss” and “causing of particularly serious consequences”, which serve as constitutive elements of a crime and statutory elements that aggravate a crime, in the crime of trade secret infringement as follows: a loss incurred by the rights holder in the trade secret of at least RMB500,000 (US$71,700), or illegal income of at least RMB2.5 million.

The interpretations also specify the rules for determining the measure of damages and illegal income based on reasonable royalties for the trade secret, or the sales profit loss incurred by the rights holder as a result of the infringement. Particularly, the “proportionality principle” is emphasized, namely, the rights holder’s measure of damages shall be determined based on the proportion and role accounted for by the infringed trade secret in the entire technical solution, or the value of the product that infringes the trade secret, and the proportion and role accounted for by it in realizing the profit on the entire finished product.

Although the above-mentioned regulations have not yet become effective, they reflect the new trends in the trial of trade secret dispute cases in judicial adjudication. Once officially issued, the above-mentioned series of regulations is likely to play an important role in resolving the longstanding problems of “difficulty in adducing evidence and difficulty in determining damages” in trade secret cases, assisting trade secret rights holders in safeguarding their rights and interests, and improving the level of judicial protection of trade secrets in China.

Wang Yaxi is a partner and Wu Yue is an associate at Yuanhe Partners