Trade secret laws and regulations in Hong Kong

Explore reliable legal information about trade secrets in Hong Kong

  1. General
    1. 1. Has the Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (“Trade Secrets Directive”) been implemented?
    2. 2. Are there any other applicable sources of law related to trade secrets?
    3. 3. How are trade secrets defined? 
    4. 4. Do specific measures or protections need to be put in place for information to benefit from protection as a trade secret?
  2. Dealings in and ownership of Trade Secrets
    1. 1. Are trade secrets transferable and/or licensable?
    2. 2. Are there specific consequences arising from transfer or licensing of trade secrets by a party other than the trade secrets owner?
    3. 3. Is co-ownership of trade secrets permitted?
  3. Enforcement of Trade Secrets
    1. 1. What actions constitute infringement of trade secrets?
    2. 2. Are there any measures allowing the trade secrets' owner to gather and/or preserve evidence of infringement of trade secrets?
    3. 3. What specific interim and final measures and remedies are available in the event of infringement of trade secrets?
    4. 4. Is there a specific period after obtaining interim measures by which the applicant must bring proceedings for a substantive decision on the merits of the claim?
    5. 5. Are there circumstances in which damages or other financial compensation may be available in place of an injunction and other measures?
    6. 6. Are any interim or final measures and remedies available through ex parte hearings?
    7. 7. How is financial compensation to the trade secrets holder calculated?
    8. 8. What is the limitation period for claims relating to misappropriation of trade secrets?
    9. 9. When does the limitation period begin to run?
    10. 10. Are there any circumstances that interrupt or suspend the limitation period?
    11. 11. Are mechanisms available to preserve confidentiality of trade secrets in the course of legal proceedings?
    12. 12. Are there any particular legitimate interests which may be invoked as an exception to the measures, procedures and remedies for trade secrets protection?
    13. 13. Are any measures available where proceedings concerning trade secrets are manifestly unfounded and / or found to have been initiated abusively or in bad faith?
    14. 14. Are separate legal proceedings required for such measures?
  4. Employee / employer liability
    1. 1. In addition to any statutory protection of trade secrets, what protections can employers put in place to avoid misuse of trade secrets by its workforce? 
    2. 2. Are there implied rights of protection for employers regarding misuse of trade secrets by its workforce?  
    3. 3. What other means can employers use to protect misuse of trade secrets by the workforce, particularly when staff leave? 
    4. 4. Are there any protections for “whistleblowers” or similar rights for employees in relation to infringement of trade secrets?
    5. 5. Can an employer be liable for their employee’s infringement of a third party’s trade secrets?
  5. Commercial contracts aspects
    1. 1. What kind of protection/provisions are to be included in supply or similar contracts with respect to trade secrets?
    2. 2. What are typical pitfalls in contracts regarding protecting trade secrets?
    3. 3. Are there any important aspects regarding protecting trade secrets cross border?
    4. 4. Are there any penalty clauses in contracts with regards to trade secrets?

General

1. Has the Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (“Trade Secrets Directive”) been implemented?

N/A

In Hong Kong, Trade Secrets are protected under the common law of confidence. It may also be protected under the law of contract.

3. How are trade secrets defined? 

Trade secrets are confidential information in a commercial setting.  Trade secrets generally refer to information or knowledge that is (1) known to a business; (2) not known by anyone else, or is not generally known by the public; (3) has value, because it is not known at all by anyone else, or is not generally known by the public, and (4) its value is sought to be preserved by maintaining secrecy. Examples of trade secrets include client lists, formulae, methods, technologies, designs, product specifications, and business plans, that have commercial value.

4. Do specific measures or protections need to be put in place for information to benefit from protection as a trade secret?

The information must be treated as confidential and it should be clear that the information communicated to or acquired by a person that they reasonably ought to know that it is intended to be kept confidential. It is recommended that an appropriate non-disclosure agreement be put in place fortify this understanding and to also impose a contractual obligation on the recipient of the information.

Dealings in and ownership of Trade Secrets

1. Are trade secrets transferable and/or licensable?

Unlike other intellectual property rights such as patents and trade marks, trade secrets are not recognised under any legislation as being personal property which may be transferable and/or licensable. However, trade secrets may be “transferred” or licensed by way of contract in that the recipient of the trade secret may be bound by obligations under the contract between him and the discloser.

2. Are there specific consequences arising from transfer or licensing of trade secrets by a party other than the trade secrets owner?

Please see answer above. The consequences would be subject to the contract.

3. Is co-ownership of trade secrets permitted?

Co-ownership would be determined by way of agreement between parties. This will not stop any party not bound by any equitable or contractual duty to such co-owners from using the same trade secret.

Enforcement of Trade Secrets

1. What actions constitute infringement of trade secrets?

  1. The information which is alleged to be confidential must be identified clearly.
  2. There must be a “necessary quality of confidence about” the information.
  3.  “That information must have been imparted in circumstances importing an obligation of confidence”. Such circumstances would include where the recipient has implicit notice that the information is confidential.
  4. “There must have been an unauthorised use of that information to the detriment of the party communicating it”.

2. Are there any measures allowing the trade secrets' owner to gather and/or preserve evidence of infringement of trade secrets?

Yes. Under Order 29, rule 2 of the Rules of the High Court (Cap. 4A), the Court may make an order for the detention, custody or preservation of any property which is the subject-matter of the cause or matter, or as to which any question may arise therein, or for the inspection of any such property in the possession of a party to the cause or matter.

3. What specific interim and final measures and remedies are available in the event of infringement of trade secrets?

Usual orders include:

  • a declaration as to the confidentiality and the (lack of) entitlement to the use of the information,
  • an injunction to restrain the use or further use of the confidential information
  • disclosure of any infringing use made of the information
  • delivery up of any infringing materials
  • damages or, at the Plaintiff’s election, an account of profits.

The court may also order the parties be kept anonymous, and to bar the reporting of the proceeding.

4. Is there a specific period after obtaining interim measures by which the applicant must bring proceedings for a substantive decision on the merits of the claim?

No. However, normally, interlocutory injunctions would remain in force up to and including the return date, or until judgment in the action (unless before then it is varied or discharged by further order).

5. Are there circumstances in which damages or other financial compensation may be available in place of an injunction and other measures?

Interlocutory injunctions are normally granted where damages are not an adequate remedy. If preservation is required, a plaintiff may seek to restrain disposal of property over which the plaintiff has a proprietary claim, or apply for a Mareva injunction to restrain the defendant from disposing of or dealing with his assets. 

6. Are any interim or final measures and remedies available through ex parte hearings?

Normally, interim measures and remedies are available through ex parte hearings. Such measures or remedies are normally in place until the return date where the hearing is inter partes.

7. How is financial compensation to the trade secrets holder calculated?

Relief in terms of financial compensation would be damages or, at the plaintiff’s election, an account of profits.

8. What is the limitation period for claims relating to misappropriation of trade secrets?

6 years for an action in tort or contract and 12 years from the date of the breach of a Deed under the Limitation Ordinance (Cap. 347)

Tort: From the day the damage was suffered. Contract: From the day the contract was broken.

9. When does the limitation period begin to run?

Where there is fraud, concealment or mistake, the period of limitation does not start to run until the plaintiff has discovered the same, or could with reasonable diligence have discovered it. 

A limitation period could be extended where the claimant was under a disability at the time when the cause of action accrued.

10. Are there any circumstances that interrupt or suspend the limitation period?

N/A

An order for anonymity and gagging orders may be sought. 

12. Are there any particular legitimate interests which may be invoked as an exception to the measures, procedures and remedies for trade secrets protection?

Post-termination relief against an employee is confined to restraining misuse or disclosure only of trade secrets and confidential information of an equivalent status. Confidential information of lesser significance is not subject to such protection. 

An employer is not entitled to restrain the former employee from deploying his own skill and knowledge for the benefit of himself and his new employer.

The Courts will generally refuse an injunction to restrict an employee’s field of activity unless such restriction flows from an enforceable restrictive covenant.

13. Are any measures available where proceedings concerning trade secrets are manifestly unfounded and / or found to have been initiated abusively or in bad faith?

No.

However, depending on the circumstances, “theft” / “misappropriation” of the trade secret may attract criminal liability pursuant to section 161 of the Crimes Ordinance - “access to a computer with criminal or dishonest intent” (for example, the acts involved accessing to the company’s computers to obtain certain trade secret).

N/A

Employee / employer liability

1. In addition to any statutory protection of trade secrets, what protections can employers put in place to avoid misuse of trade secrets by its workforce? 

Employers can avoid the misuse of trade secrets via contractual means by, for example, including an express confidentiality clause that covers trade secret in the employment agreement. 

2. Are there implied rights of protection for employers regarding misuse of trade secrets by its workforce?  

Yes. Employee has the implied duty not to disclose confidential information. Such duty of confidentiality covers all the information and knowledge that had come into the knowledge of the employees during the course of the employment unless such information and knowledge could be obtained from public domain. 

Trade secrets could also be protected by common law duty of confidence, if a piece of information is communicated to or acquired by a person who knows or ought as a reasonable person to know that the other person intends to keep that information confidential.

3. What other means can employers use to protect misuse of trade secrets by the workforce, particularly when staff leave? 

Employers could avoid the misuse of trade secrets by a former employee via contractual means, i.e. including post-termination restrictive covenants. 

4. Are there any protections for “whistleblowers” or similar rights for employees in relation to infringement of trade secrets?

No except in circumstances where a whistle-blower can rely on common law principles that it is in the public interest to make a disclosure relating to serious misconduct or important for safeguarding public welfare in matters of health and safety.

Further, protections are afforded to specific whistle-blowers for the reporting of specific offences under the following Ordinances:

  • Section 72B of Employment Ordinance (Cap 57) - An employer cannot terminate an employment by reason of the employee giving evidence in proceedings or enquiry for the enforcement of the Ordinance or in any proceedings or enquiry in relation to safety at work.
  • Section 9 of Sex Discrimination Ordinance (Cap 480), Section 7 of Disability Discrimination Ordinance (Cap 487), Section 6 of Family Status Discrimination Ordinance (Cap 527) and Section 6 of Race Discrimination Ordinance (Cap 602): it is unlawful for a person (discriminator) to discriminate against another person (person victimised) on grounds that the person victimised has brought proceedings against the discriminator or given evidence or information in connection with proceedings brought by others against the discriminator.
  • Drug Trafficking (Recovery of Proceeds) Ordinance (“DRTPO”), Organized and Serious Crimes Ordinance (“USCO”), United Nations (Anti-Terrorism Measures) Ordinance (“UNATMO”): A whistleblower who makes a disclosure of suspected proceeds of drug trafficking, money laundering or crimes to an authorised officer under the DTRPO, OSCO and UNATMO, will not be regarded as in breach of any restriction against disclosure of information imposed by contract or by any enactment, rule of conduct or other provision, or render the whistleblower liable in damages for any loss arising out of the disclosure. Under the DTRPO and the OSCO, witnesses in any civil or criminal proceedings are not required to reveal the identity of the person making the disclosure.
  • Section 30A of Prevention of Bribery Ordinance (Cap 201): The name and address of an informer should be kept confidential and any documents that may lead to disclosure of the informer’s identity have to be redacted prior to disclosure in civil or criminal proceedings. The Independent Commission Against Corruption (ICAC) informers are entitled to witness protection under the Witness Protection Ordinance.
  • Section 22 of Securities and Futures Ordinance (Cap 471): A whistleblower will be protected against any civil liability whether arising in contract, tort, defamation, equity or otherwise for reporting any financial irregularities or non-compliance with any financial resources rules which occurred in the company.
  • Section 80 of Competition Ordinance (Cap 619): the Competition Commission may, in exchange for a person's cooperation in an investigation or in proceedings, consider entry into a leniency agreement with the party under investigation, with the consequence that it will not bring or continue proceedings for a pecuniary penalty in respect of alleged cartel conduct.

5. Can an employer be liable for their employee’s infringement of a third party’s trade secrets?

Yes, if it can be shown that the employer should be vicariously liable for the employee’s such act despite that it is an unauthorised act – an employee’s tort is deemed to have been committed in the course of his employment if it is either (a) something authorised by his employer; or (b) unauthorised mode of doing something authorised by his employer.

Commercial contracts aspects

1. What kind of protection/provisions are to be included in supply or similar contracts with respect to trade secrets?

Confidentiality, non-disclosure, non-circumvention, and non-use obligations may be included in contracts. Such clauses should set out clearly the scope of trade secrets and/or confidential information, duration of obligations and if such information is to be returned or destroyed on termination or expiry of the contract.  Similar obligations may be extended to bind employees or third parties to which the recipient will necessarily need to share the information with.  Discloser of the trade secrets/confidential information may reserve right of approval before disclosing to any other parties not bound.

2. What are typical pitfalls in contracts regarding protecting trade secrets?

Pitfalls include: 

  • scope/definition of trade secrets/confidential information not being sufficiently wide or precise
  • trade secrets/confidential information not being protected as confidential information due to the manner in which the discloser treats the information
  • duration of obligation not sufficiently clear
  • scope of authorised use of trade secrets/confidential information not sufficiently restrictive
  • inadequate control and consequences on recipient to impose strict handling of information by recipient.  

3. Are there any important aspects regarding protecting trade secrets cross border?

Discloser should be clear on the availability of legal remedies to control the dissemination of trade secrets/confidential information in the relevant jurisdictions.  There may, for example, be stronger protection if such information were protected by contract over any available protection under statute or common law (if relevant).  

Certain jurisdictions may have more hurdles to obtain relief such as interim/interlocutory injunctions, and steps should be taken to ensure the availability of such remedies in the event of a breach or threatened breach.

It is also important to ensure the identity of recipient are clear and reliable to ensure adequate control.  It is not uncommon for accuracy of names of recipients to be overlooked especially when they are in another language, and, even if accurate, the recipient entity is not one of substance, in which case, enforcement action may not yield any worthwhile relief. 

4. Are there any penalty clauses in contracts with regards to trade secrets?

Penalty clause is not enforceable in Hong Kong. However, parties may include a liquidated damages clause that sets out the damages to be paid in case there is a breach of the confidentiality agreement / non-disclosure agreement. Such should be a genuine pre-estimate of the loss at the time the contract is made. 

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Jonathan Chu
Partner
Hong Kong (CMS CMNO - Lau, Horton & Wise LLP)