China’s National People’s Congress Standing Committee held its regular legislative session on April 20, 2019. One of the legislative readings is the amendments to the Anti-Unfair Competition Law with respect to trade secret protection. China does not have a special law to protect trade secret and currently relies on its Anti-unfair competition Law, as well as Criminal Law, to protect the trade secrets.
While the detailed draft of the amendments is not available yet for public comments, the State press has revealed several key points, which seem to be important improvements to protect trade secrets.
First, the proposed amendments expand the coverage of parties that may be held liable for trade secret infringement. The current law sets out the protection of trade secret in the framework of unfair competition, thus only business operators, essentially market competitors, are subject to legal liability for infringing trade secret. But in reality, trade secret theft acts are complex. Non business operators may also be included. So, the proposed amendments are reportedly including parties that may not be business operators and strengthening liabilities for trade secret infringement. Individuals, companies, or organizations that are not business operators but are involved in stealing trade secrets may also be sued and held liable.
Second, the proposed amendments introduce the concept of willful infringement into trade secret protection and impose punitive damages up to 5 times the actual loss of the rights owners or illegal profits gained by the infringers.
Third, the proposed amendments raise the cap of statutory damages to 5 million RMB from 3 million RMB. The administrative fine is raised to up to 1 million RMB for normal infringement and up to 5 million RMB in serious cases. The statutory cap for compensation and administrative fine has just been raised in the last amendment to Anti-Unfair Competition Law which takes effect as of January 1, 2018. The continued increase of liabilities shows a firm standing towards trade secret protection and should have more deterrent effect.
Lastly, the press report refers to the new rule of shifting burden of proof in the context of protecting trade secret. While the details are not clear, it seems that the legislature borrows something similar to the rules in process patent litigations. Possibly, when the plaintiff meets its initial burden of proof, the burden will be shifted to the defendant to prove where they acquire the trade secret. If adopted, such new rules may dramatically change the way trade secret litigation is conducted these days.
We all look forward to seeing the draft of the proposed amendments.