South-East Asia (SEA) and China are fast-growing regions in the global economy and attractive to many innovative companies. When expanding into these markets, valuable know-how and information developed along the way may become a company's trade secrets and are crucial for a company's success.
Trade secrets are defined by the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS") as information that must meet three criteria – it must be secret, be valuable because of its secrecy, and be reasonably protected. In practice, trade secrets may include sales and distribution methods, advertising strategies, customer and supplier information, manufacturing processes, technical systems, new products or business models, recipes, and so on. There is no need to register such information as a trade secret, and it may remain a trade secret perpetually as long as its secret status is preserved, for example, not reversed engineered by others.
This article briefly discusses the legal framework and case studies for trade secret protection in South-East Asia and China, as well as to provide a list of practical tips for companies to protect and manage their trade secrets.
What is the legal framework for trade secrets protection in South-East Asia and China?
In Commonwealth common law countries such as Singapore and Malaysia, the legal framework for trade secrets protection is based on breach of confidence, which is part of the law of equity, and protects many kinds of confidential information in addition to trade secrets. In civil law – predominant countries such as Indonesia, Vietnam, Thailand, and China, the legal framework is mainly based on statue law, for example in China, the Civil Code and the Anti-Unfair Competition Law.
In Singapore, trade secrets are protected primarily through the law of confidence against unwanted disclosure, acquisition and/or use by third parties. To qualify for protection, first, it must be shown that the information is considered confidential in nature. Second, it must be shown that the recipient of the information was imposed an obligation of confidentiality to keep the information confidential. An obligation of confidentiality can be imposed by contractual measures such as employment contract and non-disclosure agreement, or by equity measures such as password protection of information so that the recipient knows or ought to reasonably know that the information is confidential. Third, it must be shown that there was a breach of the obligation of confidentiality. In exceptional cases, the recipient of the information may be able to justify the disclosure if it is in the public interest to do so. If a breach of confidence is established, various remedies are available, such as injunction, monetary compensation (damages, account of profits), and/or order for delivery-up or destruction, as compensation for the misappropriation of the trade secrets.
In addition, depending on the facts of the case, trade secrets can also be protected by Employment and Contract Law. Further, if a person seeking to obtain trade secrets unlawfully by breaching cyber security, the Computer Misuse Act 1993 (CMA) may apply. According to Section 3 of the CMA, any person who knowingly causes a computer to perform any function for the purpose of securing access without authority to any program or data held in any computer shall be guilty of an offence. Offenders caught under this provision can be fined and/or imprisoned.
In Malaysia, trade secrets are protected by the common law tort of breach of confidential information and/or by contract. Similar to Singapore, in order to succeed in an action for breach of confidence, three elements must be established: (1) the information sought to be protected is of a confidential nature; (2) the information was communicated in circumstances importing an obligation of confidence; and (3) the information was used in an unauthorised way to the detriment of the plaintiff. It is possible to enhance the protection of trade secret by contract, such as non-disclosure agreements when disclosures are made to third parties on a need-to-know basis. It is worth noting that under the law of confidence, disclosure of confidential information may be permitted when there is an overriding public interest in disclosing those facts to the public, or in the scenario that the disclosure of evidence concerning the commission of criminal offences is necessary.
In addition, Malaysia has Capital Markets and Services Act 2007 (CMSA), a statute that regulates capital markets in Malaysia. CMSA stipulated that insider trading is an offence, and that an "insider" shall maintain the secrecy of non-public information that would be expected to have a material effect on the price or value of securities of the company.
In Indonesia, Law of the Republic of Indonesia No. 30 of 2000 regarding trade secrets is the statute that provides protection to trade secrets. According to this law, an infringement on trade secret takes place when a person deliberately discloses the trade secret or breaks the agreement, or the obligation, either written or not, to maintain the confidentiality of the relevant trade secrets. Exceptions exist when the disclosure or use of the trade secrets is based on the interest for the security and defence, health, or safety of the public; or that the reverse engineering of a product based on the trade secrets of another person is solely conducted for the interest of making further development of relevant products. Criminal and civil remedies exist in the form of imprisonment and monetary fine.
In Philippines, the Intellectual Property (IP) Code includes "protection of undisclosed information" as an independent IP rights, though no definition is provided regarding "undisclosed information" or trade secrets. In Air Philippines v. Pennswell, Inc.  540 SCRA 215, the Supreme Court adopted the definition of trade secret from Black's Law Dictionary: "a plan or process, tool, mechanism, or compound known only to its owner and those of his employees to whom it is necessary to confide it." Other laws in the Philippines that protect trade secret include: (1) Revised Penal Code – Articles 291 and 292 prohibits the unauthorized revelation of secrets with abuse of office, and unauthorized revelation of industrial secrets, respectively; and (2) Data Privacy Act (DPA) of 2012 seeks to regulate the collection, storage, use, or destruction of personal data/information. Specifically where sensitive personal information is being processed, notice and prior consent should be obtained. In practice, trade secrets can be protected by contractual obligations and in the event of violations, the aggrieved party may resort for civil action for breach of contract and damages.
Trade secret is defined in Article 4.23 of Vietnam Intellectual Property Law – No. 50/2005/QH11 as "information obtained from activities of financial or intellectual investment, which has not yet been disclosed and which is able to be used in business". Article 23 of Vietnam Labor Law Code 2012 stipulates that when an employee performs a job which is directly related to business or technology secrets, the employer may reach a written agreement with the employee on the content and duration of protection of such secrets, and benefits and compensation in case of violation by the employee. In addition, Article 119 of Vietnam Labor Law Code 2012 specifies that an employer employing 10 or more employees must have internal working regulations in writing, which provides protection of assets and technological and business secrets and IP of the employer. Further, Article 39 of the 2004 Law on Competition further defines infringement of business secrets (such as accessing the same by counteracting the security measures; disclosing, using business secrets without the permission of owners; breaching security contracts) as a type of unfair competition act.
In practice, trade secrets disputes are less commonly seen compared to other IP disputes. It is recommended to register the internal working regulations / labour rules with labour authorities to strengthen the probability of enforcement.
In Thailand, the Trade Secrets Act B.E. 2545 stipulates that infringement of trade secrets happens via an act of disclosure, deprivation or use of the trade secrets without the consent of the owner in a manner contrary to honest trade practices, and, the infringer must be aware of or have reasonable cause to be aware that such act is contrary to honest trade practices. Acts contrary to honest trade practices include breach of contract, infringement or inducement to infringe confidentiality, bribery, coercion, fraud, theft, receiving of stolen property or espionage through electronics or other means. In contrast, the following acts are not considered infringement: disclosure by a person who obtained the trade secret through a transaction without knowing that the other party to the transaction obtained the trade secret illegally; disclosure of trade secrets by state agency for the protection of public health or safety, or for the benefit of other public interests with no commercial purpose; independent discovery via own method of invention or development through his own expertise; and reverse engineering. A trade secret dispute may be submitted to Trade Secret Board for mediation and settlement. Alternatively, it is possible to file a lawsuit in Court within three years from the date on which infringement act and the infringer are known, or within 10 years from the date of the infringement act, for remedies such as interim/permanent injunction, and/or damages.
In China, Article 9 of the Anti-Unfair Competition Law of the People's Republic of China (revised in 2019) provides that a trade secret is any technical information, operational information or commercial information which is not known to the public and has commercial value, and for which its obligee has adopted measures to ensure its confidentiality. The same article also sets out five specific types of trade secret infringement in China. The Civil Code of People's Republic of China, effective from 1 January 2021, attaches great importance to the protection of trade secrets, with Article 123 of the Civil Code stipulating that trade secrets are a type of intellectual property right and shall therefore be protected by intellectual property laws.
China has not yet enacted a unified law on trade secrets. At the moment in China, the laws directed to trade secret protection scatter across: the Civil Code, the Anti-Unfair Competition Law (revised in 2019), the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Trade Secret Infringement (effective from September 2020), the Interpretation of the Supreme People's Court on Some Matters about the Application of Law in the Trial of Civil Cases Involving Unfair Competition (effective since January 2021), the Labor Contract Law, the Criminal Law, as well as other laws, local regulations, and judicial interpretations.
It is possible to lodge a complaint against the infringer of trade secrets. The administrative agency responsible for the complaint is the local Administration for Market Regulation (AMR). The AMR has jurisdiction to take action against entities, grant quasi-injunctions and impose fines. Filing litigation in the Chinese courts may ultimately be necessary to stop infringement if other measures do not discourage the infringement. The right holder of trade secrets would be able to recover damages and obtain a permanent injunction from the court. In addition, committing a criminal offence involving the infringement of trade secrets may result in an imprisonment of up to 10 years.
SEA and China case examples on trade secrets
In I-Admin (Singapore) Pte Ltd v Hong Ying Ting and others  SGCA 32, two ex-employees from I-Admin, a company dealing in administrative data processing services, accessed, downloaded and circulated confidential materials of I-Admin with the knowledge that these materials are confidential in nature. Although it was not proven that these materials were used for the creation of the systems for a competitor company that these ex-employees set up, the court found that the obligation of confidence had still been breached on the basis that the materials had been acquired and circulated without permission.
In Ecooils Sdn Bhd v Raghunath Ramaiah Kandikeri, an employee was found to have breached his terms of employment by misusing and disclosing trade secret of the company to third parties. The High Court ruled that the confidentiality clause in the employment agreement imposed on the employee an express obligation of faithfulness, and a duty of fidelity and confidence. Breach of the duty of confidentiality was found. The court in the case of Schmidt Scientific Sdn Bhd v Ong Han Suan further established that this duty of fidelity subsists not only during the term of the employment but also after the end of the term of employment.
In case no. 3305 K/Pdt/2016PT, Basuki Pratama Engineering filed a claim against PT.Hitachi Construction Machinery Indonesia and a few individuals for infringement of its secret know-how in boiler construction. In 2017, the Court of Appeal ordered the defendants to stop the use, production, distribution, to withdraw from the market all boiler machine production using the plaintiff's trade secret, and to pay damage to plaintiff which amounted to 50% of the lost profits during the period of the theft.
Supreme Court Judgment 10217/2553 is related to alleged employee disclosure of employer's confidential information. The court determined that a general non-disclosure clause inserted in an employment agreement was not an appropriate measure to maintain the secrecy of the trade information, and it was unable to demonstrate that the documents with the list of customers and the information containing the origin of goods were protected by the appropriate measures to prevent access by an employee who is not normally connected to this information.
On 26 February 2021, the Supreme People's Court of China (the "SPC") handed down the second-instance judgment for the dispute between the plaintiffs Jiaxing Zhonghua Chemical Co., Ltd. et al. and the defendants Wanglong Group Co., Ltd. et al. over the infringement of technical secrets involving the chemical Vanillin. The SPC ruled that the defendants should cease the infringement and pay the damages of RMB 159,000,000 to the plaintiffs, which is the highest amount of compensation granted in trade secret infringement cases to date. In this case, the SPC determined that natural persons associated with the infringing company (such as legal representatives, beneficial owners of the company, and key management staffs) should be held jointly liable with the company under certain conditions and, the burden of proof should shift to the alleged infringer following prima facie proof by the right holder of the existence of trade secrets.
Practical tips for protection and management of trade secrets
In view of the legal framework and case laws above, we recommend the following general framework for protection and management of trade secrets:
1. Identify trade secrets
- Has the information been kept secret and only accessible by selected personal, or out in the public domain?
- Is this information commercially valuable to the business?
- Is it difficult to reverse engineer the trade secret?
- Is there a process to identify trade secrets on an ongoing basis?
2. Record, analyse and review trade secrets
- Is there an inventory for trade secrets? These may include (a) the trade secrets developed in house, (b) those disclosed to third parties and (c) those licenced for your use by third parties.
- Are there details of the trade secret recorded, such as who developed the trade secret, when it was developed, how it can be used?
- Are the trade secret inventory updated and reviewed regularly, for example, on a quarterly basis?
3. Protect trade secrets
- Are trade secrets marked "HIGHLY CONFIDENTIAL", and/or contain any notices of confidentiality to inform the reader that the document is confidential in nature?
- Are there cybersecurity measures such as password protection, encryption, anti-virus and firewall protection?
- Are there physical protection measures? This may include storing confidential material in a safe or room with restricting access to authorised personnel; prohibiting the use of cameras or external storage devices in areas containing trade secrets; and maintaining a logbook of sign in and sign out activities.
- If trade secrets need to be disclosed to a third party during business activates, have the relevant agreements such as non-disclosure agreements and employment contracts been signed? Consider providing both the English version and local language version to prevent a party from claiming that he or she did not understand the confidentiality obligations.
4. Train employees on trade secrets
- Have employees been trained on the importance of, and how to recognise trade secrets?
- Is there an internal trade secrets policy training employees on their obligations of confidentiality?
- Are there (i) confidentiality agreements and/or (ii) non-compete agreements with respect to trade secrets for employees to sign?
- Have employees been trained on cybersecurity protection measures for trade secrets? These may include: reporting and deleting phishing e-mails and suspicious links; encrypt documents when sending to third parties; strictly prohibiting the use personal email addresses to send work-related documents.
- Have employees been trained on physical protection measures for trade secrets? These may include: returning documents containing trade secrets to the designated area immediately after using; locking areas containing trade secrets; destroying unwanted copies of documents containing trade secrets.
- Are there policies and approval procedures to ensure that the trade secrets are not disclosed to the public via activities such as workshops or talks with third-parties or publishing technical papers?
- Are there exit interviews for departing employees to remind them of their obligation of confidentiality after the termination of employment (and any legal consequences that may ensue in the event of leaking trade secrets to a third party), and to return all trade secrets in his/her possession to the company?
When it comes to protecting your business information and trade secrets leave nothing to chance.
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Read the original article on GowlingWLG.com
Co-authored by Vivian Wei Cheng a patent attorney working in the offices of JurisAsia LLC, with who Gowling WLG has an exclusive association.
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.