Protecting trade secrets

Article  \  26 Jul 2018

What is a trade secret in China? A trade secret is defined in Chinese Anti-Unfair Competition Law as:

“technology information or business operation information which is unknown to the public, has commercial value and towards which the obligee has taken measures to keep secret.”

There are three requirements for information to qualify as a trade secret in China:

  1. It must be unknown to others, i.e. the general public or any competitors;
  2. It must have commercial value, i.e. able to generate economic return or other benefits such as through failed research data; and
  3. Confidentiality measures must have been taken by the obligee to protect the confidentiality of the information.

China’s Anti-Unfair Competition Law was recently amended in early 2018 to remove the requirement for information to have practical value. This means that information that has ‘negative value’ (e.g. failed research data or business models), can now be protected as a trade secret. Although this information cannot bring active economic benefit, it’s value in avoiding unnecessary setbacks and reducing research and development costs makes it worthwhile protecting.

The frequent flow of employees between competitors has become one of the main reasons for the leakage of trade secrets in China. In light of this,  China’s new law now clearly stipulates that if a third party knows or should have known that an employee, or former employee, of a company has committed an act of infringement of the company’s trade secrets, and the third party still obtains, discloses, uses, or permits others to use the information, this will be considered an infringement of trade secret by the third party, not just the employee or former employee.


What should I do to protect my trade secrets in China?

Taking necessary measures to prevent your trade secrets being used or disclosed by others is crucial to success, particularly in China. Some simple precautions can save you time and money down the track:

  • Ensure employees are educated concerning the confidentiality of information and their obligations;
  • Label all confidential information or documents as such;
  • Control/monitor access to trade secrets limiting access only to those individuals who need the information;
  • Sign non-disclosure or confidentiality agreements with employees and all existing/potential co-operating partners;
  • Ensure company computer systems are well-protected and conduct risk assessments regularly.

What can I do if my trade secrets are infringed in China?

Once a trade secret is in the public domain there is little recourse to prevent a third party from using the information.  You may however claim damages and seek compensation through the courts. As the plaintiff, you are responsible for providing sufficient evidence to establish the following:

  • The information as claimed meets the three requirements outlined above and is qualified as a trade secret;
  • You are the owner of the trade secret;
  • The defendant knows or should have known the trade secret status of the information he/she obtained;
  • The defendant was able to obtain the trade secret from you;
  • The defendant has used the trade secret or disclosed it to others;
  • You have suffered loss due to the use/disclosure of the trade secret by the defendant.

As will be appreciated, this poses quite a significant evidential burden, particularly as some of this evidence will be in the possession of third parties. Having a wider, cohesive strategy that makes use of trade secrets alongside other rights, particularly registered rights such as patents, can optimise your IP protection, providing a more effective barrier against copiers.

If you have questions about protecting your trade secrets in China or would like further information, contact AJ Park’ China Desk experts today.