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Applying Trade Secret Law and problem faced in China

Time:2015-01-03   Click:

Applying Trade Secret Law and problem faced in China

Jiang zhipei

Formerly Chief Justice of the IPR Tribunal of the PRC Supreme People’s Court

Professor in Law school of Beijing Foreign Studies University and Renmin University of China

www.chinaiprlaw.cn

 

 

I.       The basic situation of judicial protection of trade secret in Chinaone parts

 

The trade secret protection in China started in the 1990s, when the Law Anti-unfair Competition of PRC was promulgated. The Supreme Court issued two important judicial interpretations about technology contract and the application of the Law anti-unfair Competition of PRC etc. after 2000, which has perfected the legal protection of trade secret. In the recent years, the Supreme Court has attached great importance to and greatly strengthened the trial work of trade secret cases, and constantly enhanced the protection of trade secret through ways of judicial interpretations, judicial policies, case instructions etc., which has protected the legitimate rights of trade secret owners effectively.

 

1        The basic rules and characteristics of trade secret cases

 

Regarding the acceptance of trade secret cases in people’s courts, this kind of cases has the following characteristics. First, the total amount of trade secret cases is not very large, which is basically stable at an annual amount of about 200-250, but it is of a large proportion of the unfair competition disputes which is around 20%. Second, the area distribution of trade secret cases is extremely unequal. They are concentrated mainly in the developed areas, while many less developed inland provinces have not yet accepted any trade secret cases. Third, according to the distribution of causes of cases, cases about infringement of management secrets are of a large proportion which is around 60%. Fourth, it is very difficult for the Plaintiff to collect evidence. The infringement of trade secret is mainly implemented by former employees, which cannot be easily found in advance. It’s very difficult for the right holder to have a comprehensive grasp of the evidence to prove the infringer’s implementation and profits of infringement.

 

2        The basis and judicial policies of judicial protection of trade secret

 

In order to solve the problem of specific legal application involved in trade secret cases, the Supreme Court has promulgated the relevant judicial interpretations, and also cleared boundaries, solved knotty problems as well as cleared the relevant judicial policies by ways of conferences on judicial work and issuance of conference document.

 

In terms of judicial interpretation, the Supreme Court has regulated relevant provisions about trade secret protection in many judicial interpretations. The Supreme Court issued Interpretation of the Supreme People's Court concerning Some Issues on Application of Law for the Trial of Cases on Disputes over Technology Contracts (come into force on January 1, 2005) on November 30, 2004.This interpretation regulates the provisions about issues of handling of technology contracts infringing others’ technical secrets(Article 12, Article 13), use and dispose of technological secret achievement in technological development contracts (Article 20), and the assignment and licensed use of technological secrets.

 

The Supreme Court issued Interpretation of the Supreme People's Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition come into force on February 1, 2007on December 30, 2006. The interpretation makes very detailed and specific provisions about trade secret protection in 9 articles in total from Article 9 to Article 17, which is the most complete and the most important judicial interpretation about trade secret protection so far.

 

In order to unify the legal application and the judgment standard, the Supreme People's court also guides the judicial practice of trade secrets through judicial policies. The judicial policies are embodied in the leading judges’ speeches and judicial documents issued by the Supreme People's court. For example, Notice of the Supreme People's Court on Issuing the Opinions on Issues concerning Maximizing the Role of Intellectual Property Right Trials in Boosting the Great Development and Great Prosperity of Socialist Culture and Promoting the Independent and Coordinated Development of Economy has the most complete provisions of key issues about trade secret protection so far, for instance the reasonable grasp of the proof standard, lower the difficulties of proof, reasonable grasp of the scope of protection, relationship between trade secret protection and free choice of occupation and non-competition restrictions. The notice clearly puts forward to resolve the difficulties right holder has when they need to prove trade secret infringement, and stipulated that the Court should reasonably verify the standard of secret and improper means, and moderately reduce the difficulties of maintaining legal rights for trade secret right holder according to the specific situation of the case. Therefore, the notice clarifies the specific measures to reduce the proof difficulties. For example, the notice points that,Where the right holders have provided preponderant evidence on confidentiality or have made a sufficient and rational explanation or statement of the differences between their trade secrets and information in the public domain, confidentiality may be held established.The notice also puts forward the fact presumption rules of trade secret infringement,Where the right holders have provided evidence that the information possessed by the defendants is identical or substantially identical to their trade secrets and that the defendants are in a position to access or illegally obtain the trade secrets, if there is a high possibility that the defendants have adopted unjustifiable means in light of the specific circumstances of cases or known facts and daily life experience, it may be presumed that the defendants have adopted unjustifiable means to obtain the trade secrets in question, unless the defendants can prove that they have obtained relevant information by lawful means.

 

3        The preservation measures before litigation and the evidence preservation of trade secret

 

Before the implementation of Civil Procedure Law of the People's Republic of China (2012 Amendment), there weren’t any provisions about taking preservation measures before filing the lawsuit as temporary injunction and evidence preservation in trade secret cases in Civil Procedure Law or Intellectual Property Law. So the people’s court has no right to take measures as above. The amended Civil Procedure Law (2012 Amendment) has added provisions about behavior preservation and evidence preservation before filing the lawsuit, and extended the scope to all areas of civil cases. According to this, the people’s court may take the preservation measures before the lawsuit is filed in trade secret cases.

 

In order to further strengthen the trade secret protection, the Supreme Court requires the courts at all levels promptly accept the application of the interested parties for behavior preservation and evidence preservation before filing the lawsuit, and take relevant measures positively. Meanwhile at the third National Conference on intellectual property adjudication of courts, the court’s leaders stressed that take intellectual property preservation measures positively and reasonably, make full use of the time sensitiveness of the preservation system, improve the promptness, convenience and effectiveness of intellectual property judicial remedy; increase the force of evidence preservation and obtaining the evidence by authority, which means that relevant measures shall be timely taken in line with the conditions of evidence preservation or investigating and collecting evidence.

 

After the implementation of the new Civil Procedure Law, the Shanghai first intermediate people's court issued the first preliminary injunction related with trade secret in a trade secret infringement case involving American right holder, which has achieved great social effect. The third civil tribunal is currently drafting a judicial interpretation about preliminary measures before filing the lawsuit, in which the relevant issues will be further cleared.

 

    The problems, defects and related suggestions of judicial protection of trade secret in China

 

1          The lack of a specialized law protecting trade secret.

 

At the present, China is still protecting trade secret according to a series of provisions scattered in different laws and regulations and there is lacking of a unified national law of trade secret protection. The current legislation is too scattered, and the content is relatively unilateral. Then, the current legislation lacks operability because of the generalness and confusion of concept, and the lack of uniformity of titles in the content. Last, the current legislation governing the protection of trade secret is Law of the People's Republic of China Anti-Unfair Competition, which makes a part of people not treat trade secret as a kind of intellectual property, but a kind of means of competition instead. Such is not good for effective trade secret protection.

 

Suggestions for perfection: Separate legislation should be made for trade secret protection, which is a trend on the protection of trade secret in the world. Since there are many defects in trade secret protection of our country, which can’t be completely solved by partial modifications. So the specialized Trade Secret Protection Law should be made in our country. In this law, the concept and ownership of trade secret should be cleared first. It should be cleared by domestic legislation that trade secret is an important intellectual property right and belongs to the absolute right of the classification of civil rights. In this way, it will be consistent with the provisions of the International Chamber of Commerce, the World Trade Organization and other international treaties. It should also clarify that when the trade secret owner’s rights are infringed, not only Trade Secret Protection Law can be applied, but also the relevant regulations of the civil law. In this way, the right holder can get compensation according to the relevant civil liabilities when his rights are infringed, which offers a better protection for the interests of trade secret right holders, enhances the law enforcement efforts of trade secret protection, and helps remove the fuzziness of legal identification.

 

2          The heavy burden of plaintiff proof in such cases.

 

In China, the burden of proof belongs to the plaintiff in trade secret civil trial. Moreover, the use of private detectives is restricted in the evidence collection process. So the plaintiff often has to spend a lot of time and resources gathering the infringement information.

 

Suggestions for perfection: It can be considered that we can add some special provisions about the burden of proof in trade secret litigation in the current Civil Procedure Law or its judicial interpretation, in order to solve the situation that the right holder is unable to safeguard their legitimate rights because of the difficulties of proof in the current litigation.

 

IIIprotect your trade secrets in China

 

Nearly all businesses in all industries and sectors possess trade secrets, which are a valuable and highly useful form of IPR. Unlike registrable IP such as patents and copyrights that have a finite term, trade secrets can theoretically enjoy an infinite term of protection as long as the trade secret remains just that – a secret. On the other hand, once the information becomes public, it no longer enjoys any legal protection. As a result, prevention is the golden rule when it comes to trade secrets. Consider the following steps to protect your trade secrets in China.

 

Step 1: Know Your Secrets

 

A trade secret is any non-public information with commercial value and that is guarded by confidentiality measures. Examples of trade secrets include: new product, innovative business model, new online concept, manufacturing or design techniques, formulas, work flow processes, quality control measures, information gained during R&D on what not to do, customer lists, price information, suppliers and contractors, contract terms, marketing strategy, and any other information with potential commercial value. It is important to catalogue what trade secrets you may have, rank the trade secrets in terms of importance and value and regularly update the list.

 

Step 2: Keep It Secret, Keep It Safe

 

It is important to remember that once trade secrets become publicly known, they can no longer be protected as trade secrets.

 

Keeping trade secrets safe involves using a combination of physical, technical and contractual barriers and implementing a trade secrets protection policy. Any business can and should take simple, sensible precautions. You could simply mark documents as “CONFIDENTIAL” or lock files away after business hours (physical barriers); you can also use passwords on documents and log-in features (technical barriers). Finally, you can also use contractual barriers such as non-disclosure or confidentiality agreements, which are considered one of the best ways to protect trade secrets.

 

Be sure to document the trade secret protection measures you take and that your trade secrets protection policy is written down. It is also essential to maintain sufficient records of the flow of information in and out of your company, including keeping records of meetings, discussions, E-mails, written correspondence, and the transfer of electronic files so that you can conduct an investigation and have evidence in case your trade secrets have been misappropriated.

 

Step 3: Don’t Forget Your Employees

 

A typical theft of trade secrets generally involves a former employee leaving the company for a competitor and leaking secrets to the new employer. The best way to avoid such a situation is to include a non-disclosure agreement in employment contracts. In addition, you should periodically remind your employees about confidentiality obligations. Consider holding exit interviews and have leaving employees return documents and other potentially sensitive materials, and bring the non-disclosure agreement to their and their future employee’s attention.

 

Trade secrets may also be inadvertently disclosed by employees. In China in particular, your employees may not have the same understanding of IP rights and proprietary information or hold expectations about protecting such information as you do. It is important that you periodically remind your employees what kind of information is proprietary, how it should be kept confidential, and what your expectations are.

 

Step 4: Dealing with Third Parties

 

Another common way trade secrets are disclosed is during business dealings or negotiations with third parties, whether it be potential partners, suppliers, contractors, licensees, or customers. Your trade secret protection policy should address the protocol to be followed when dealing with third parties.

 

Many foreign companies in China find it difficult to insist on a pre-negotiation non-disclosure agreement with Chinese parties, who often claim that such requests are “hostile” or “unnecessary”, and that a handshake between two friends should be enough. This together with the prospect of losing a potential business opportunity because of what appears to be a minor issue often leads SMEs to move forward with negotiations without a non-disclosure agreement in place. When confronted with such a scenario, it is important to know when to walk away. The party that refuses a reasonable request for a mutual non-disclosure agreement is also the party that is most likely to misappropriate your trade secrets.

 

Even after an agreement is signed, make sure you continue to monitor your partners, suppliers or licensees to make sure they are complying with your trade secrets protection policy. You may wish to negotiate the right to make unannounced visits and to conduct periodic audits in your agreement.

 

Step 5: What to Do When Your Secret is Out

 

The key to protecting your trade secrets is prevention. China provides for administrative, civil and criminal protection for trade secrets, but by the time you have to consider legal action through any one of these channels, your trade secret and commercial advantage may already be lost.

 

Litigation is the primary channel for pursuing a remedy for the misappropriation of your trade secrets in China. If you are successful, the court can require the infringer to pay you damages and order the infringer to stop using the trade secret. In court, you need to prove that a) you own the trade secret which has commercial value, and you have taken measures to protect it; b) that the defendant possesses information that is substantially identical to your trade secret; and c) that the defendant used improper means to obtain it. It is important to know beforehand that evidence in a Chinese litigation is almost exclusively in the form of documents and often does not allow witness testimonies.

 

In addition to litigation, unlike in many other countries, China’s Administration for Industry and Commerce (AIC) provides an option of administrative enforcement for trade secret cases. However, this is most appropriate for simple cases involving non-technological trade secrets.

 

In serious cases where your loss as a result of trade secret theft totals more than RMB 500,000, your infringer can be charged with a crime and may be fined and/or imprisoned for up to three years.