China: A Stronger Protection Of Trade Secret In China

It has been a definite policy to enhance protection of intellectual property rights in China, both from the purpose of prompting China's industrial development and shifting from manufacturing to creation, and the purpose of bilateral cooperation between China and other countries. Among the different kinds of intellectual properties, trade secret has been in the spotlight for a long time.

Relevant laws

The laws regulating trade secrets protection in China are updated frequently in recent years, such as:

The Civil Code, which became effective from on January 1, 2021 and includes in Article 123 trade secret in the list of intellectual property rights;

The Anti-unfair Competition Law amended on April 23, 2019 (the amendment became effective from the same day), which provides for in Article 9 the main basis for initiating an action against a misconduct over other's trade secrets;

The Criminal Law amended on Dec. 26, 2020 (the amendment (XI) became effective from on March 1, 2021), which provides for the crime of infringing trade secret;

The Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets, which became effective from on September 12, 2020;

The Interpretation (III) of the Supreme People's Court and the Supreme People's Procuratorate of Several Issues Concerning the Specific Application of Law in the Handling of Criminal Cases Involving Infringements upon Intellectual Property Rights, which became effective from on September 14, 2020;

These laws provide the basis for protection of trade secrets from the civil route and the criminal route. Both routes can be adopted alternatively or in combination by a sophisticated plaintiff in China.

A historical review

Traditionally, trade secret was deemed to be an interest of its holder instead of a right in China, and was usually protected through the civil route according to the Anti-unfair Competition Law, which requires businesses to adhere to the free will, equality, fairness, and good faith principles and abide by laws and business ethics, in their production and distribution activities. Unlike other intellectual property Laws, the Anti-unfair Competition Law is basically directed to the conduct of a business, while trade secret was sometimes considered to be an asset in nature.

The controversy on the nature of trade secret as well as the burden of proof on the plaintiff had hampered its protection. There was a great uncertainty and low win rate when seeking for protection of trade secrets. Plaintiffs would have to show trade secrets infringement from both the subject matter branch and the conduct branch.

On the subject matter branch, a trade secrets holder had to bear much burden of proof as a plaintiff, such as defining the scope of his trade secrets and showing that considerable measures had been taken to protect his trade secrets etc. On the conduct branch, the holder had to show that the defendant had misconducted in obtaining, using or disseminating his trade secrets. When it involved some emerging business modes, the judges would be more reluctant to support a trade secret claim and preferred to observe for a period, since no common understanding had been formed on what are the business ethics in the sector and it is difficult to tell immediately whether or not the emerging business modes are advantageous to competition and economic.

Most often, the judges had to combine the subject matter branch and the conduct branch together, to comprehensively determine whether or not to give protection to the asserted trade secrets.

Perspectives

The judicial cases have now shown greater interests of trade secrets holders to sue those persons and/or competitors illegally obtaining, using or disseminating their trade secrets, such as their former employees and the current employer of their former employees. Besides civil procedures, some even assert their trade secrets through criminal procedures. Both the civil and criminal cases are increasing constantly though the absolute number is yet very small as compared to patent, trade mark or copyright cases. The IP Tribunal of the Supreme People's Court, as an example, received 12 technical secret cases in 2019, while in 2020 the number went up to 44.

The judges are becoming more and more friendly to trade secrets holders in the context of a stronger intellectual property protection, and the laws have put heavier burden of proof on defendants. Once a plaintiff has submitted the preliminary evidence of trade secrets infringement, the burden of proof shifts to the defendant, who has to show, for example, that he is using a different technology, the claimed trade secrets are already known in the sector before the critical date, or he obtained the trade secret through reverse engineering or his own research and development. The previous disadvantageous in claiming trade secrets infringement have become strengths of plaintiffs to some extent.

On the subject matter branch, the claimed trade secrets of plaintiffs can cover extreme broad spectrum of subject matters, which can be a very particular feature or a complete technical solution and needn't to be absolutely new. On the conduct branch, the conduct of an accused infringer is assessed on the basis of business ethics and general principles, which are normally indefinite, flexible and empirical, a rights holder friendly judge means a higher win rate.

The polices and the prosecutors are also active to carry out investigations when a trade secrets holder files a complaint, and to initiate criminal procedures if the misconduct of the infringer is serious. It is expected that more and more trade secret cases will be instituted before the courts in China through both the civil route and the criminal route.

Of course, this may implies potential abuse of litigation rights by some businesses, which may interfere with the business of their competitors by instituting trade secret litigations, even worse, try to obtain trade secrets of defendants during the legal proceedings. It is therefore necessary to strike a balance while enhancing protection of trade secrets.