Case law on Trade Secrets in China

Relevant topics related to the 2016 Trade Secret Directive (EU 2016/943)

1. Requirement to undertake reasonable steps to keep the information secret - art. 2(1)(c)

According to Article 9 of the AUCL, taking reasonable steps to ensure the confidentiality is one precondition of satisfying the definition of trade secret.

According to Article 5 of the Provisions, a People's Court shall identify whether a right holder has taken corresponding confidentiality measures based on such factors as nature of the trade secret and carrier thereof, commercial value of the trade secret, identification degree of confidentiality measure, degree of correspondence between the confidentiality measure and trade secret, and right holder's willingness to maintain confidentiality.

According to Article 6 of the Provisions, a People's Court shall identify that a right holder has taken appropriate confidentiality measures under any of the following circumstances if it is sufficient to prevent the leakage of trade secrets under normal conditions:

  1. The right holder executes a non-disclosure agreement or stipulates the obligation of confidentiality in a contract;
  2. By means of articles of association, training, rules and regulations, written notification, etc., the right holder puts forward confidentiality requirements on those who can access and acquire trade secrets, including its employees, former employees, suppliers, customers and visitors;
  3. The right holder restricts visitors' access to, or conducts differentiated management of secret-involved factory buildings, workshops and other production and business premises;
  4. The right holder differentiates and manages trade secrets and the carriers thereof by means of marking, classifying, isolating, encrypting, and sealing them, and by limiting the scope of personnel that can access or acquire them;
  5. The right holder takes measures to prohibit or restrict the use of, access to, storage in or reproduction from computer devices, electronic devices, network devices, storage devices, software, etc. that can access or acquire trade secrets;
  6. The right holder requires departing employees to register, return, remove or destroy trade secrets and the carriers thereof accessed or acquired by them, and continue to assume the obligation of confidentiality, etc.

2. Reverse Engineering - e.g. art. 3(1)(b)

According to Article 14 of the Provisions, the acquisition of any alleged infringing information through self-development or reverse engineering shall be identified by the pertinent People's Court as not constituting the infringement of trade secrets as provided for in Article 9 of the AUCL.

The term "reverse engineering" refers to acquiring relevant technical information on a product obtained from any public channel by technical means through disassembly, mapping, analysis, etc., thereof.

3. Infringing products - e.g. art. 2(4) and 4(5)

The AUCL and Provisions do not define the term of infringing products. Instead, the AUCL and Provisions focus on the specific acts which infringe upon trade secret.

According to Article 9 of the AUCL, the following acts of a business operator will be deemed as infringement upon trade secret:

  1. obtaining a right holder's trade secrets by theft, bribery, intimidation, electronic intrusion or other improper means;
  2. disclosing, using, or allowing others to use a right holder's trade secrets obtained by the means mentioned in the preceding paragraph; or
  3. disclosing, using or allowing others to use a right holder's trade secrets in violation of confidentiality obligations or the right holder's requirements on keeping such trade secrets confidential;
  4. obtaining, disclosing, using or allowing any other party to use a right holder's trade secrets by instigating, tempting or helping any other party to violate the confidentiality obligations or the right holder's requirements on keeping such trade secrets confidential;

Other natural persons, legal entities and unincorporated organizations other than the business operators who commit the illegal acts listed in the preceding paragraph shall be deemed as infringement of trade secrets.

If a third party knows or ought to know that an employee or former employee of the right holder of a trade secret or any other entity or individual has committed any of the illegal acts described in the first paragraph of this article, but still acquires, discloses, uses or allows any other person to use such trade secret, such conduct shall be deemed as infringement of trade secrets.

4. The (IP-like) catalogue of remedies - e.g. art. 10 and 12

The legal remedies for infringement upon trade secrets are subject to the general civil procedure rules under PRC laws. We briefly summarize the most common remedies below for trade secret infringement in civil litigations.

According to Article 15 of the Provisions, if a respondent has acquired, disclosed, used or allowed other persons to use any trade secret claimed by a right holder by improper means or attempts to do so, the pertinent People's Court may legally rule to take the behavior preservation measure, e.g. interim injunction to cease infringement immediately, if otherwise it would be difficult to enforce the relevant judgment or cause other damage to any party concerned, or cause irreparable damage to the right holder's legitimate rights and interests. If any of the aforesaid circumstances fall under the emergency circumstances set out in Article 103 and Article 104 of the PRC Civil Procedure Law, the pertinent People's Court shall make a ruling within 48 hours. Therefore, precautionary measures for trade secret infringement cases are available under PRC laws.

According to Article 179 of the PRC Civil Code, the main forms of civil remedies include: cessation of the infringement; removal of the nuisance; elimination of the danger; restitution; restoration; repair, redoing or replacement; continuance of performance; compensation for damages; payment of liquidated damages; elimination of adverse effects and rehabilitation of reputation; and extension of apologies. Punitive damages may be allowed under specific circumstances. According to Article 17 of the AUCL, the aforesaid remedies are applicable to infringement of trade secret on a case-by-case basis. The most common remedy should be compensation for damages in practice.

According to Article 17 of the AUCL, the amount of compensation for damage caused by any unfair competition act (including trade secret infringement) to a business operator shall be determined depending on the actual losses suffered by such operator as a result of the infringement. If it is truly difficult to work out the actual losses, such amount shall be determined in accordance with the benefits obtained by the infringer from the infringement. If a business operator commits a trade secret infringement in bad faith, and if the circumstances are grave, the amount of compensation may be determined as between one time and five times the amount determined under the foregoing method. The amount of compensation shall also include the reasonable expenses for stopping the infringement. If a business operator commits a trade secret infringement, and it is truly difficult to determine the actual losses suffered by the right holder as a result of the infringement or the benefits obtained by the infringer from the infringement, the People's Court shall award the right holder with damages less than RMB 5 million, depending on the seriousness of the infringement. 

5. Exceptions / allowed uses (and their relationship to contractual secrecy provisions) - art. 1 and 5

The Provisions provide some exceptions for trade secret infringement as follows:

  1. According to Article 2 of the Provisions, if a party concerned claims a particular customer as its trade secret only on the grounds that it maintains a long-term and stable trading relationship therewith, the pertinent People's Court shall not uphold the claim. Further, if a customer conducts transactions with an employee's employer in reliance on its trust in the employee as an individual, and, after the departure of such employee, the customer voluntarily chooses to conduct any transaction with the employee or the new employer where he or she works then as proved, the pertinent People's Court shall identify that the employee does not obtain the right holder's trade secret by any improper means.
  2. If the alleged infringing information is known to the public, it will not constitute trade secret under the AUCL and the Provisions and thus there will be no infringement upon trade secret. According to Article 4 of the Provisions, a People's Court may identify relevant information to be known to the public under any of the following circumstances:
    1. the information belongs to general knowledge or industry practice in the relevant field;
    2. the information only involves such contents as simple combination of product size, structure, materials and components and can be directly acquired by the personnel concerned in the relevant field through observing marketed products;
    3. the information has been publicly disclosed in public publications or other media;
    4. the information has been made public by means of public reporting, exhibition, etc.; or
    5. the personnel concerned in the relevant field can acquire the information from other public channels.
  3. According to Article 14 of the Provisions, obtaining any alleged infringing information through self-development or reverse engineering shall not constitute trade secret infringement. 

6. Secrecy in court proceedings (“confidentiality club”) - art. 9

The AUCL and the Provisions have stipulated the confidentiality measures during investigation or court proceedings related to trade secret infringement cases. 

According to Article 15 of the AUCL, the supervision and inspection authorities and their staff members shall keep confidential any trade secrets known to them during the investigations. Further, if any staff member of a supervision and inspection authority abuses powers, neglects duties, commits malpractices or reveals any trade secrets known during the investigations, such staff member shall be subject to punishment in accordance with the law.

According to Article 21 of the Provisions, any concerned party or an outsider may apply in writing to the pertinent People's Court for taking confidentiality measures, if the evidence and materials involve any trade secret of the party concerned or the outsider. The People's Court shall take necessary confidentiality measures in such litigation proceedings as preservation, exchange of evidence, cross-examination, appraisal upon entrustment, inquiry and court trial. 

If anyone violates the requirements for confidentiality measures provided for in the preceding paragraph, discloses any trade secret without authorization or uses any trade secret outside litigation activities or allows other persons to use any trade secret accessed or acquired in litigation, such person or organization shall assume civil liability in accordance with the law. If it constitutes the circumstances provided for in Article 114 of the PRC Civil Procedure Law, the pertinent People's Court may legally take mandatory enforcement measures. If it constitutes a crime, criminal liability shall be investigated in accordance with the law.