A good time for protecting trade secrets in China, part one

According to the Judicial Arbitration of Trade Secret Cases Research Report released by the Beijing Higher People’s Court Intellectual Property Court Research Group on January 4, 2021, its research of civil judgments in China involving breach of trade secrecy commercial from 2013 to 2017 showed a total of 338 unfair competition cases involving trade secrets were closed by judgment; and that plaintiffs were defeated in 210 cases, 140 of which occurred there were no trade secrets. The research report reflected the long-term difficulty of judging and proving a trade secret case in China to some extent.

The key to success lies in whether a plaintiff company can provide evidence to prove that the allegedly protected subject matter constitutes a trade secret. For a long time in judicial practice, due to the absence of legal appearance of right, trade secret is difficult to define its legal limits, and it is also difficult for the right holder to provide evidence , which makes it difficult to recognize legally. a trade secret, and leading to inadequate protection of trade secrets.

With the enactment of relevant laws and supporting judicial interpretations since 2019, trade secret protection is expected to come out of its predicament and usher in a good time.

  1. Changes in the legal protection environment
  1. AUCL clearly expands and increases the scope and types of trade secret violations.

Article 9 of the Anti-Unfair Competition Law (AUCL), which entered into force on April 23, 2019, specifies the scope of application of the trade secret infringer and the specific acts of violation of the trade secret, and stipulates by enumeration that an economic operator must not commit the following acts of violation of commercial secrecy:

(1) Incorrect acquisition: Acquiring a trade secret from the right holder by theft, corruption, fraud, coercion, electronic intrusion or any other unlawful means. Electronic intrusion is now expressly listed as an abusive means.

(2) Disclose, use or permit others to use a trade secret acquired through improper means: Disclose, use or permit others to use a trade secret acquired from the rightholder by any means specified in the preceding paragraph.

(3) Disclose, use, or permit others to use, a trade secret in its possession, in violation of its obligation of confidentiality or the confidentiality requirements of the right holder: Disclosing, using, or permitting others to use, a trade secret in its possession, in violation of its obligation of confidentiality or the requirements of the right holder to keep the trade secret confidential.

(4) [New] Encourage, induce or assist others to breach their duty of confidentiality or the right holder’s confidentiality requirements: Encourage, induce, or assist others to acquire, disclose, use, or permit others to use the Right Holder’s trade secret in violation of their obligation of confidentiality or the Right Holder’s confidentiality requirements of commercial secrecy.

The AUCL clearly states that any illegal act referred to in the previous paragraph committed by a natural person, a legal person or an unincorporated organization, which is not a commercial operator, must also be treated as an act of breach of secrecy. commercial. This widened the scope of trade secret infringer from commercial operator to any natural person, legal person and unincorporated organization.

The AUCL specifies that, when a third party knows or should have known that an employee or a former employee of the holder of the right to a trade secret or of any other entity or person has committed an illegal act as specified in paragraphs (1)-(4) above but acquires, discloses, uses or permits others to use such trade secret, the third party shall be deemed to have breached the trade secret.

  1. Judicial protection has been strengthened, with important civil and criminal changes that benefit rights holders more.
  1. In civil cases, the burden of proof is reduced while the damages awarded increase.

First of all, the burden of proof weighing on the holder of the trade secret right is reduced.

If the right holder establishes a prima facie case or provides evidence that reasonably demonstrates an infringement of the trade secret, the burden of proof will shift to the alleged infringer. This is specifically reflected in the new Article 32 of the AUCL:

If the trade secret right holder provides prima facie evidence to prove that it has maintained confidentiality for the claimed trade secret, and reasonably demonstrates that the trade secret has been breached, the alleged infringer must prove that the trade secret claimed by the holder of the trade secret right does not fall within the trade secrets stipulated in this law.

If the trade secret right holder provides prima facie evidence to reasonably demonstrate that the trade secret has been breached and provides any of the following evidence, the alleged infringer must prove that there is no breach of business secrecy:

  1. there is evidence proving that the alleged infringer has the means or possibilities to obtain the trade secret, and the information used by the alleged infringer is substantially identical to the trade secret;
  2. there is evidence proving that the trade secret is being disclosed or used by the alleged infringer, or that there is a risk of disclosure or use of the trade secret; or
  3. there is other evidence to prove that the trade secret has been breached by the alleged infringer.

This revision also reflects China’s commitments in the ECONOMIC AND TRADE AGREEMENT BETWEEN THE GOVERNMENT OF THE PEOPLE’S REPUBLIC OF CHINA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA.

Additionally, statutory damages have been increased with the introduction of punitive damages.

Article 123 of the Civil Code, which entered into force on January 1, 2021, listing business secrets and works, inventions, trademarks, geographical indications, etc. as protected subject matter of intellectual property rights, establishes that trade secrets are intellectual property rights, and thus ends the long-standing dispute over whether a trade secret is a right or an interest. Article 1185 of the Civil Code introduces punitive damages, i.e. in the event of intentional infringement of the intellectual property rights of others, when the circumstances are serious, the injured party has the right to seek corresponding punitive damages.

According to Article 17 of the Interpretations of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition (hereinafter referred to as “Interpretations”), which entered into force on January 1, 2021, the amount of damages for trade secret infringement can be determined by referring to the method for determining the amount of damages for patent infringement, that is, say by increasing the statutory damages to a maximum of 5 million RMB, and introducing punitive damages equivalent to 1 to 5 times the compensatory amount.

These amendments should provide better remedies for trade secret rights holders and reduce the number of trade secret violations by increasing the cost of violation.

  1. In criminal cases, the penalty threshold has been lowered with the inclusion of repair costs in material losses.

Article 4 of the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Certain Issues Concerning the Specific Application of Law in Handling Criminal Cases of Infringement of Intellectual Property Rights (III) (hereinafter referred to as “Interpretation of SPC and SPP”) lowers the conviction threshold from 500,000 RMB to 300,000 RMB by specifying “when the losses caused to the trade secret right holder or the amount of illegal gains due to the violation of the trade secret is more than RMB 300,000” as “causing material loss to the holder of the trade secret right”.

Article 5 of the interpretation of the CCP and the DPU adds that “repair costs incurred by the holder of the trade secret right in order to mitigate losses suffered by business operations and business plans or to restore the security of computer information systems and other systems are included in the losses caused to the holder of the trade secret rightwhich explicitly includes repair costs in material losses.

And Amendment (XI) to the Penal Law of the People’s Republic of China, which entered into force on March 1, 2021, introduced the crime of violation of trade secret by a foreign person, that is, anyone who commits a theft, espionage, bribery, or unlawful supply of trade secrets for the benefit of a foreign institution, organization or individual, is punishable by imprisonment for a period of time determined for a maximum of five years and a fine also or only; if the circumstances are serious, he will be sentenced to imprisonment for at least five years and a fine. The offense of forgery of a trade secret is a crime of consequence, which requires serious circumstances to constitute an offence, while the offense of forgery of a trade secret by a foreign person is an offense of act, as long as the If any of these acts are committed, regardless of the motive, it will constitute a crime.

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