Under the PRC Anti-Unfair Competition Law (Article 10), in determining whether certain technical or business information constitutes a trade secret, one condition is whether the owner has taken security measures to maintain its secrecy. In practice, many enterprises, in an attempt to indentify its technical or business information as a trade secret, use non-compete agreements signed with employees as a security measure. Such agreements, however, are usually pure competition restriction agreements, which only provide that the employee may not work for competitors or run competing businesses for himself within a certain period after termination or expiration of the employment. In a recent trade secret infringement case (Shanghai Industrial Co., Ltd. v. Huang Ziyu and Shanghai Safeiya Textile Co., Ltd.) retried by the Supreme People⊙s Court(“the Supreme Court”), the Supreme Court determines that "pure non-competition agreements” (including pure non-competition contracts and pure non-competition clauses) does not constitute a security measure .
In this case, the Supreme Court holds that, a security measure provided under Article 10 of the Unfair Competition Law should be capable of indicating the owner’s attempt to maintain the secrecy of the information to be protected as trade secret as well as defining the scope of such information, so that the person who has a duty of confidentiality can be aware of such intention and the scope, and such measure should be capable of preventing disclosure of the information concerned under normal circumstances. Pure non-competition agreements, however, even having protection of secrecy as its main purpose, can not constitute a security measure provided in Article 10 of the Unfair Competition Law, as it does not explicitly embody the employer’s intent to keep secret and the scope of the information to be protected as trade secret.
Given the Supreme Court does not consider pure non-competition agreements as security measures provided under Article 10 of the Unfair Competition Law, it is no longer advisable for enterprises to protect technical information or business information by means of pure non-competition agreements. They should instead apply security measures recognized in judicial practice, such as entering into specific confidentiality agreements, limiting accession to confidential information，physically locking or encrypting confidential information, affixing “confidence” mark, etc., so their confidential information would not be excluded from legal protection for trade secrets merely as a result of the adoption of improper security measures.