Your own employees

For businesses operating in China protection of intellectual property should be high on the agenda. Given the high turnover of employees, businesses should anticipate that at some point one of more of their employees will take trade secrets when they leave.

Under both China’s Anti-Unfair Competition Law and its criminal law, a trade secret is a specific type of confidential information that gives an economic advantage to a given company, at least for so long as that information is kept confidential. It is therefore necessary when seeking to enforce rights to trade secrets to show the steps that have been taken to preserve the confidentiality of the material. There is no statutory limit on the duration of a trade secret – as long as it is kept secret and can be shown to have value, it can be claimed as a trade secret.

In order to minimise the risk of employees misusing confidential or classified trade secrets, employers operating in China should take robust and proactive steps to protect their intellectual property rights, including:

  • imposing confidentiality and non-competition obligations on all "ordinary employees" in standard employment contracts, which are mandatory under Chinese law.
  • requiring senior or mid-level management personnel and other employees who have access to trade secrets to sign a separate and stricter confidentiality and non-competition contract. This separate contract may permit enforcement without going through the labour arbitration that will be required for most employment disputes.
  • specifying in employment contracts and the company handbook that theft of trade secrets or other IP constitutes grounds for termination of employment.

During the employment relationship employers should also:

  • limit access to classified information on a need-to-know basis.
  • maintain lists of employees with access to particular pieces of classified information.
  • use software to monitor who accesses classified material.
  • require passwords and codes to be updated at least every three months.
  • educate and train employees about their responsibilities regarding trade secrets and IP, including the sanctions under Chinese law for breach.
  • establish a hotline for employees to report risks of theft of trade secrets by colleagues or outside contacts.
  • take prompt action to stop trade secret and IP theft immediately after identifying a problem, for example by taking control of an employee’s laptop, perhaps filing the case with the Public Security Bureau and applying for preliminary injunctive relief, if appropriate.
  • consider participating in organisations focusing on IP in China, for example the Quality Brands Protection Committee or the European or American Chamber of Commerce.
  • remind employees in any exit interviews at the end of the employment relationship of their continuing obligations regarding trade secrets and IP.

Although it remains difficult for employers to obtain adequate redress in China for theft of trade secrets, there have been some positive developments recently. In a recent decision from the Shanghai No.1 Intermediate court, an ex-employee of Eli Lilly was banned from circulating trade secrets after he was discovered downloading 21 documents containing trade secrets at work without authorisation and then refusing to delete them. This interlocutory injunction was the first of its kind under the new Chinese Civil Procedure Law and marks a significant step forward for IP protection.

China presents an attractive proposition for businesses looking to expand into the emerging markets, as its economic growth has, in general, remained strong despite turbulent market conditions elsewhere. However, businesses looking to capitalise on this growth are advised to take adequate preparatory steps to ensure that a launch into this market does not jeopardise what may be its core assets, IP and trade secrets.