In China: Is Your Business Information Qualified for Protection in Trade Secrets Litigation?

Recently, China and the U.S. have reached some meaningful commitments on minimizing trade secrets misappropriation and protecting intellectual property during their Joint Commission on Commerce and Trade.The commitments represent a step forward for trade secrets protection between the U.S. and China. Many U.S. companies, however, still complain that they are burdened by intricate laws and litigation regarding trade secret misappropriation in China. Here’s a primer on Chinese trade secrets law, which is often jurisdiction-specific.

In order to qualify for trade secrets protection, the information must first be shown to fit within the statutory definition of trade secrets. A plaintiff is required to specifically identify the information it seeks to protect, and then it must begin the challenging task of proving that the information it seeks to protect fits within the four-part statutory definition of the term “trade secrets.” Article 10 of the “Anti-Unfair Competition Law of China” defines a “trade secret” as technological or business operational information that (a) is  unknown to the public; (b) can bring economic value; (c) has practical utility; (d) has been safe-guarded as secret using reasonable measures. Generally, the plaintiff could easily satisfy the burden to prove the economic value and utility of the alleged trade secrets. Therefore, the focus will normally be on the elements of “unknown to the public” and “reasonable measure” to keep secrets.

As a threshold requirement to fit in the statutory definition, the plaintiff must show that the information is not known to the public—more specifically, to the relevant people in the relevant area. However, there are no universal standards on how to prove that. Depending on the court, plaintiffs have different burdens to prove trade secrets misappropriation. For example, Beijing High People’s Court holds the opinion that the element of “unknown to public” is a rebuttable element. The plaintiff will only be required to identify the trade secrets it seeks to protect at the early stage of the litigation. Then, the burden of proof shifts to the defendant, namely, if the defendant fails to provide rebutting evidence to show the information is publicly known, the court will recognize the information as “unknown to public.” To the contrary, Fujian High People’s Court does not shift the burden of proof because it violates the evidence principle of “he who asserts must prove” in civil procedure. As yet another example, Jiangsu High People’s Court requires the plaintiff to list the specific content of alleged trade secrets and compare with public knowledge, placing a higher burden of proof on the plaintiff.

It is not enough that trade secret information is “not known to the public.” A plaintiff must also show that reasonable protective measures have been taken by the right owner to keep the information in secret. According to Article 11, Paragraph 1 of “Interpretation of the Supreme People’s Court on Certain Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition,” confidentiality measures should be efficient and appropriate to the value of its business. Similar to the element of “unknown to public,” courts have varying standards on the burden to prove confidentiality measures. Beijing High People’s Court says that the court should recognize confidentiality measures if the plaintiff strictly limits people’s access to the alleged trade secret, only gives authority to those who need to use the information, sets up password to access the information, and takes other similar measures. The Beijing High People’s Court also recognizes a plaintiff’s practice of using confidentiality clauses or agreements with others who could access confidential information as a kind of confidentiality measures. Other courts, however, hold different views on whether confidential clauses could fit within reasonable measures. A number of courts hold that, if the plaintiff only requires generalized clauses in its employment contracts, such as the “employee shall keep the company’s trade secret,” but does not specifically describe the scope of the trade secret, the courts will not recognize the clauses as reasonable measures or as evidence to prove malice intent of the other party. Zhejiang High People’s Court, on the other hand, recognizes reasonable measures in accordance with the relevant industry standards, including the form, objective and scope of the measures.

Disputes regarding identification of alleged trade secrets are common in trade secrets litigations in China. Courts thus far have not articulated a uniform set of standards and guidelines to address the problem.