China: Protection of trade secrets in talent flow

Labour Law Newsletter
Last Updated: 18 February 2015

by Maggie Kong, Shane Lou, Susan Shan, Kent Xu, Grace Yang, Anderson Zhang and John Zhou

In the recent years, the increasing cases of trade secret infringement due to talent flow cover a large proportion of trade secret cases heard by the people's courts, which prominently focus on (1) serving staff violating duty of loyalty and infringing company's trade secret by means of part-time job; and (2) ex-serving staff of key positions provide service to competitors or participating in their own business that competes with the ex-employer. This newsflash is aimed to discuss the issue of trade secret protection in talent flow.

1. The Consideration and Term of Confidentiality Duty

Confidentiality duty, which is derived from the duty of loyalty, is the main obligation to employees in employment relation. Employers, strictly, are not supposed to compensate employees for their assuming the duty; however, provided confidentiality fee has been stipulated between the employer and employee, compensation shall be paid under the agreement. Employers shall not use lack of such legal obligation as defense.

Besides, we often see the term of period of confidentiality duty, such as employers are subject to confidentiality duty for two years following termination of employment in legal practice. Such agreement, however, in our opinion is not very appropriate. On one hand, confidentiality duty is a main obligation to employee in employment relation, which still lasts even though employment relationship has been terminated. Confidentiality duty period, to some extent, makes a limitation to the right of employer. On the other hand, since trade secret is deemed as employer's property before it enters into the public realm, employee, as counterparty, has no right to infringe or disclose. Hence, the agreement on period of confidentiality duty shall be revised.

2. Proof of Trade Secret Infringement

The trial principle of trade secret infringement cases, in many parties' opinions, is "similarity (or identical) + contact – legal source". The counterparty is supposed to bear the burden of proof as to the fact of "legal source" as long as the facts that the counterparty's information is similar or identical and the counterparty has access to the trade secrets at his convenience have been proved. If the counterparty cannot prove the "legal source", the counterparty shall be liable to infringement.

The aforesaid analysis, however, is not in compliance with the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition. Pursuant to Article 14 of it, where a party alleges that another infringes its trade secret, the party shall bear the burden of proof as to the fact that the trade secret it has possessed is in conformity to the statutory requirements, that the other party's information is identical or substantially identical to its trade secret, and that the other party has adopted unfair means. The evidence showing that the trade secret conforms to the statutory conditions shall include the carrier, specific content, and business value of the trade secret, and the specific confidentiality measures taken for the trade secret.

Therefore, the party shall bear the burden of proof as to the facts as below prior to requiring the counterparty to prove "legal source", or it seems to require the counterparty to prove his own innocence that is against the principle of civil law.

  1. Proving that they are the legitimate holders of trade secrets; and
  2. The other party has adopted unfair means.

3. Identification and Protection of Customer List

Customer list is one of the most common and important trade secrets to all corporations. Unfortunately, not all the customer lists are deemed to as protected trade secrets. In compliance with Article 13 of the Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition, the customer list that is a trade secret shall generally refer to special customer data that is different fromrelevant public information, such as the names, addresses, contact information, habits, intentions, and contents of transaction of the clients, etc. It includes a customer list with the names of many customers /clients, and specific customers/clients with whom a long-term stable trade relationship has been established.

Hence, only the compile of the contact information of customers cannot constitute the customer list protected by the Interpretation. In summary, the undisclosed habits and contents of transaction, except the names and contact information of corporations which can be obtained publicly, are the substantial contents of a protected customer list.

Case Study

Plaintiff A is an equipment company which runs for production and sales for agriculture machinery. Defendant B and C were both employee of A and concluded a confidential agreement with A. In December 2012, B and C, during the employment at the company, set a Company D whose business competes with company A. Besides, B and C, making use of their position convenience at company A, illegally disclosed trade secrets of A to company D, which led adverse impacts on A's operation. Thus A sued B and C for ceasing infringing act and compensating for loss.

The trial found that what the plaintiff alleged cannot constitute trade secrets defined in the Anti-unfair Competition Law, because most of the information has been disclosed on A's website, some of it even on public websites. Moreover, the plaintiff can only prove that B and C have taken part in the same bid, which cannot prove that the defendants illegally obtain customer lists.

The trial held that the plaintiff failed to prove it holds the information of trade secret. The plaintiff also failed to prove that the defendant had infringing act. Therefore, the claims of plaintiff have been denied.

Our team believes that employers shall establish and improve the regulations on trade secret protection and effective media censorship system to avoid unconsciously discloses trade secrets. Concerning customer lists, under the circumstances of failing to set security classification of the contents, enhancing the customer relationship management is the fundamental way.

Moreover, although there are still some doubts about effects of non-compete agreement in practice, the successful rate of the non-compete disputes is still much higher than general trade secret infringement disputes in judicial cases. Therefore, imposing non-compete obligation on key personnel is still an adoptable strategy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions