Protecting trade secrets in China

In China, the protection of trade secrets is mainly based on the prevailing Anti-unfair Competition Law, while most of the real-life standards derive from judicial practice. The inherent characteristics of trade secrets cases also mean that difficulties exist in judicial practice for protecting trade secrets.

The Anti-unfair Competition Law has spelled out the definition and types of trade secrets, and the trade secrets protected by the Anti-unfair Competition Law must mean technical information and business information that are not known to the public, are capable of bringing economic benefits to right holders, have practical applicability, and which the rights holders have taken measures to keep confidential.

The attributes of secrecy (i.e., not known to the public), value and confidentiality (i.e., subject to confidentiality measures) constitute the basic elements of trade secrets, and are widely adopted in judicial practice. The judicial interpretations of the Anti-unfair Competition Law contain further provisions on the connotation of secrecy, value and confidentiality.

In China, trade secrets cover technical information and business information, while acts that infringe upon trade secrets can broadly be divided into four categories:

(1) acts of improperly accessing the trade secrets of others;

(2) acts of inappropriately disclosing, using or allowing others to use trade secrets;

(3) acts of breaching confidentiality obligations to illegally disclose or use the lawfully obtained trade secrets; and

(4) acts of malicious access to, or use or disclosure of, trade secrets by third parties.

DIFFICULTIES IN JUDICIAL PRACTICE

As seen from data released by China’s courts, trade secrets cases account for a very small percentage of the total number of intellectual property cases, and the winning ratio for plaintiffs is also relatively low, which means the judicial protection of trade secrets faces various difficulties.

Plaintiff’s burden of proof. Trade secrets are different from patents and trademarks in the sense that no certificate of entitlement issued by state organs is available. The plaintiff of a trade secrets infringement case is obliged to produce a large amount of evidence to prove that claimed know-how satisfies the elements discussed above and can be protected as “trade secrets” under the Anti-unfair Competition Law. In practice, the plaintiffs to a considerable percentage of cases have eventually lost the case because they were unable to furnish adequate evidence on this point.

Complex techniques and procedures. Trade secret cases involving techniques usually touch upon complicated and specialized technical expertise in multiple technical fields, posing a challenge to both lawyers and judges. Therefore, the involvement of technical experts and third-party appraisal agencies is usually necessary to help ascertain the various technical issues in the case. In practice, entrusting a third-party appraisal institute to carry out technical appraisal is a commonly used approach for this purpose.

Concerns over “second leak”. In a trade secrets case, the plaintiff needs to present the claimed trade secrets and the supporting evidence to the court, the defendant and even the third-party appraisal agency, resulting in worries about “second leak”. Such concerns often result in the plaintiff holding back when producing evidence, which in turn may be counterproductive to its claims.

New issues in the big data era. In the current big data era, data-based storage, transmission and analysis of information have facilitated the public’s access to information and multiplied the volume of information, and are also constantly exacerbating the risks of data security. Since such data information are different from traditional technical information, difficulties arise in determining trade secrets of such data information, as well as judging their value and the appropriateness of confidentiality measures. The anonymous nature of contact with data-based information has also increased the difficulty in producing evidence to prove the infringement.

Moreover, in practice, trade secrets infringement cases that are triggered by employee job-hopping are commonplace. How to strike a balance between workers’ free choice of employment and trade secrets protection requires deeper consideration.

OUR SUGGESTIONS

Trade secrets often bring huge economic value, and even constitute the core competitiveness of certain enterprises. Therefore, effective and all-round protection of trade secrets is of particular importance. We believe that the protection of trade secrets may be strengthened from the following aspects.

Take and strictly enforce comprehensive confidentiality measures. Although Chinese laws do not require foolproof confidentiality measures, having in place a comprehensive confidentiality system and rigorously enforcing such a system will undoubtedly help minimize the possibility of unlawful access to trade secrets.

Strictly control the scope of personnel with access to trade secrets. In practice, trade secrets infringement cases resulting from a change of jobs by employees account for the majority of all trade secrets cases. Therefore, strictly controlling the scope of personnel with access to trade secrets is conducive to controlling the spread of trade secrets.

Internal training. Enterprises with a strong nature of technical secrecy should step up employee training, and nurture and enhance employee awareness of confidentiality and legal risks so as to further reduce the risks of trade secrets being infringed upon by relying on enhanced employee awareness.

Establish a protection framework. An enterprise should establish a three-dimensional protection framework that combines patents and trade secrets to avoid situations where it will be made completely passive in the event of any leakage of trade secrets. More superior contents contained in technical secrets, and the necessary peripheral technologies, may be protected by filing and obtaining patents, while detailed parameters or core technical information usually should be protected as trade secrets by adopting rigorous confidentiality measures.

Zhang Zhongbo (Aaron) is the leading partner of the Wintell & Co’s IP team. He can be contacted on +86 139 1696 1793 or by email at zhangzhongbo@wintell.cn