On September 10, 2020, the PRC Supreme People’s Court (“SPC”) officially promulgated the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Disputes over Infringements on Trade Secret (hereinafter the “Trade Secret JI”). The Trade Secret JI marks the first time SPC has issued a JI solely for the  trade secret cases. It represents another significant development in China’s trade secret law system following the 2019 legislative amendment to the trade secret statute, i.e. the Anti-Unfair Competition Law (“AUCL”) and its 2007 Judicial Interpretation (hereinafter the “AUCL JI”), which to some extent demonstrates the Chinese government’s attitude and determination to creating a sound business environment by strengthening intellectual property protection.

The Trade Secret JI contains 29 articles, which provide more comprehensive and detailed provisions on the judicial protection of trade secrets. The main contents include the object of trade secret protection, the constitutive elements of trade secrets, confidentiality obligation, behavior preservation measure, civil liability, procedural regulations for interlocked penal and civil cases, etc. In this article, we will briefly introduce the key aspects of the Trade Secret JI.

1. The Retroactivity of the Trade Secret JI and its Connection with the AUCL JI

The Trade Secret JI absorbed, integrated and developed the provisions on trade secrets originally stipulated in the AUCL JI, and replaced the inconsistent contents in the latter. According to the Trade Secret JI, cases of first instance and second instance being heard by the people’s courts after the effective date of September 12, 2020 shall be subject to the Trade Secret JI; however cases where effective judgments have been made before the effective date shall not be retried in accordance with the Trade Secret JI.

2. Enumeration of Types of Trade Secrets

Article 9 of the AUCL summarizes the types of trade secrets protected by law into two main categories, namely technical information and operational information. However, neither the AUCL nor the AUCL JI clearly define the scope of technical information and operational information, which is often a controversial issue in judicial practice.

For the convenience of law enforcement and judicial practice, SPC has made the following non-exhaustive list of technical information and operational information, giving concrete examples to illustrate the types of information that courts have found are protectable under the AUCL:

  • Technical information: technology-related information such as structure, raw materials, components, formulas, materials, samples, patterns, propagating materials of new plant varieties, techniques, method or its steps, algorithms, data, computer programs, etc.
  • Operational information: information related to business activities such as original ideas, management, sales, finance affairs, plans, samples, bidding materials, customer information, data, etc.

In particular, the Trade Secret JI further elaborates the judicial rules on the scope of customer information that qualifies as trade secrets. Firstly, the Trade Secret JI provides that customer information includes, among others, the names, addresses, contact information, trading practices, particular needs of transaction and contents of transaction. Secondly, the Trade Secret JI clarifies that where a party asserts that the information of a specific customer constitutes a trade secret only on the ground that it has maintained a stable long-term trading relationship with the customer, the people’s court shall not support such assertion. We understand this provision strikes a delicate balance between protection of trade secrets and promotion of fair competition.

3. Further Elaboration of the Constitutive Elements of Trade Secrets

Under the AUCL, when determining the availability of trade secret protection, the primary focus is to assess the three constitutive elements of “unknown to the public”, “being of commercial value” and “confidentiality measures having been taken”. On the basis of fully absorbing these established rules, the Trade Secret JI further explains the three elements, thereby providing clearer guidance for the right holder in judicial practice.

(1) Unknown to the public

Article 3 and 4 of the Trade Secret JI set out clear provisions on how to determine relevant information being unknown to the public, which unify the judicial judgement standards . In previous judicial practice, it has been a controversial issue about what timing should be taken as a benchmark to determine that the relevant information is unknow to the public. The Trade Secret JI makes clear that where the trade secret asserted by the right holder is not widely known and easily accessible to those relevant persons in the field when the alleged infringing act occurs, the people’s court shall determine that the trade secret is not known to the public. Moreover, given that many technical information are usually non-original and are generated based on the improvement of existing technology in practice, the Trade Secret JI further confirms that new information formed based on the sorting, improvement or processing of public information, if it is not generally known by and easily available to relevant persons in the field at the time when the infringement occurred, shall also be deemed to be unknown to the public.

(2) Being of commercial value

Compared with the AUCL JI, the Trade Secret JI confirms that the periodical achievement formed in the process of business activities may also be of commercial value, which is conducive to protecting the right holder’s periodical achievement in development.

(3) Confidentiality measures having been taken

As one of the constitutive elements, the right holder is required to show that it has adopted reasonable measures to protect the trade secret. This is also the key point of the examination during court trial process. On the basis of the AUCL JI, the Trade Secret JI further provides several typical confidentiality measures that would usually be qualified as “corresponding confidentiality measures” in judicial practice:

  • The Trade Secret JI clarifies that “stipulating the obligation of confidentiality in a contract” can be regarded as adopting confidentiality measure. In addition, it supplements the scope of persons who may have access to or obtain the trade secret (including employees, former employees, suppliers, clients and visitors, etc.) and the way of putting forward the confidentiality requirements to such persons (such as articles of association, training, internal rules and written notification, etc.).
  • The Trade Secret JI enumerates several ways to differentiate and manage the trade secret and its carriers such as marking, classification, isolation, encryption, sealing up for safekeeping and limiting the scope of persons who can reach or obtain such secret.
  • In response to the common practical problem that former employees may disclose trade secrets after leaving the job, the Trade Secret JI incorporates “employer’s confidentiality requirements for resigned employees” as a specific circumstance under which the employer will be regarded as taking reasonable confidentiality measure. The confidentiality requirements may include requiring resigned employees to register, return, clear away or destroy the trade secret they have accessed to or acquired as well as the carriers thereof, and to continue to assume the obligation of confidentiality.

In addition, the Trade Secret JI formally confirms for the first time that even though there is no clear contractual stipulation, the confidentiality obligation of the sued infringer may also be derived from the collateral obligation based on the principle of good faith. However, since the collateral obligation of secret protection does not reflect the subjective desire and objective measures of the owner of trade secrets to take confidentiality measures, whether the existence of collateral obligation alone is enough to establish reasonable measures still remains to be confirmed by the court in subsequent judicial practice.

4. Further Classification of “Illegal Use” of Trade Secret

Under the AUCL, trade secret infringements can be summarized into three categories, namely “illegal obtainment”, “illegal disclosure” and “illegal use”. The Trade Secret JI further subdivides the “illegal use” into “directly illegal use”, “illegal use after amendment or improvement” and “illegal use for reference”. According to Article 9, in case the sued infringer directly uses the trade secret in business activities, or uses the trade secret after amending or improving it, or adjusts, optimizes or improves the relevant business activities based on the trade secret, the court shall identify it as the illegal use of a trade secret.

From the perspective of strengthening trade secret protection, it is indeed necessary for the Trade Secret JI to expand and subdivide the “illegal use of trade secret”. However, in future judicial practice, how to determine the existence of “illegal use after improvement” or “illegal use for reference” is still an unknown challenge, due to the possibility that the sued infringer’s lawful accessing and preservation of trade secret may be mistaken for “illegal use” in case there exists a resemblance between the claimed trade secret and the information used in business activities.

5. Clarification of 2019 AUCL Amendment’s Burden-of-Proof Revisions

The 2019 AUCL Amendment provides that after the right holder of a trade secret provides prima facie evidence to reasonably indicate that the trade secret has been infringed upon, if further evidences can be provided to prove that “the defendant has means or opportunities to access the trade secret” and “the information that the defendant has used is substantially the same as the trade secret”, the burden-of-proof will be transferred to the defendant.

Article 12 and 13 of the Trade Secret JI further clarify what constitutes “means or opportunities to access the trade secret” and how to determine that “the alleged information is substantially the same as the trade secret”, which provide guidelines for the right holder to submit reasonable and appropriate evidence.

(1) “Means or opportunities to access trade secret”

The factors that the court may consider in determining whether the employee or former employee has means or opportunities to obtain the trade secret may include:

  • position, duties and authorities;
  • duties performed by the employee or the tasks assigned by the employer;
  • specific participation in producing and operating activities related to trade secret;
  • whether the employee has ever kept, used, stored, reproduced, controlled or otherwise accessed to or obtained the trade secret and its carrier;

(2) “Substantial similarity”

The factors that the court may consider in determining whether the alleged information and the trade secret are substantially the same may include:

  • the degree of similarity between them;
  • whether it is easy for those relevant in the relevant fields to think of such difference at the time of occurrence of the infringement acts;
  • whether there is any substantial difference between them in terms of use, method of use, purpose or effect, etc.;
  • information related to the trade secret in public domain.

6. Behavior Preservation

Under the Economic and Trade Agreement signed by the United States and China on January 15, 2020, China shall identify the use or attempted used of claimed trade secret as an “urgent situation” under which the court may order the grant of a behavior preservation (similar to the “preliminary injunction”) against the infringement. The Trade Secret JI has gone one step further and its Article 15 stipulates that where a respondent attempts to obtain, disclose, use or allow others to use the claimed trade secret, or has done so, the right holder may request the court to take behavior preservation measures, thereby the threshold for applying for a behavior preservation will be lowered. It can be reasonably expected that in future judicial practice, the court may grant more behavior preservation in cases involving trade secrets.

7. Civil Liabilities

With respect to the compensation amount for infringement acts, the Trade Secret JI provides a variety of reference factors for the calculation and determination of the compensation amount, such as the nature, commercial value and R&D cost of the trade secret, the degree of innovation, the competitive advantage that can be brought therefrom, the infringer’s subjective fault, and the nature, seriousness and consequences of the infringement, etc. Especially for the actual losses that are usually difficult to prove in judicial practice, the Trade Secret JI also stipulates that the right holder may request the court to determine the actual losses by reference to the royalty fee for the trade secret, which to some extent lowers barrier in proof-providing for the right holder.

In addition to the compensation amount, the Trade Secret JI also clarify other civil liabilities that may be imposed on the infringer. Article 18 stipulates that where the right holder requests for ruling that the infringer shall return or destroy the carrier of the trade secret, or erase the trade secret information under its control, the court shall uphold such request in general.

8. Procedural Regulations for Interlocked Penal and Civil Cases

For the convenience to collect evidence, the right holder usually adopts the strategy of “criminal proceeding first and then civil proceeding” in trade secret infringement cases, and the Trade Secret JI provides comprehensive legal support for such strategy. On the one hand, Article 22 stipulates that the right holder of trade secret may apply to the civil court for the investigation and collection of the evidence related to the claimed infringement which is kept by a public security organ, procuratorial organ or other court, if it fails to collect the evidence by itself due to objective reasons. On the other hand, Article 23 states that where the right holder claims to determine the compensation amount for the same civil case involving trade secret infringement based on the actual losses or illegal gains identified in an effective criminal judgment, the court shall uphold such claim.

In short, the Trade Secret JI seeks to reflect, rather than change, current judicial practices by describing how the court analyze a trade secret infringement case, representing a problem-oriented approach and providing additional guidance for companies to protect their trade secrets. We recommend companies in China to pay close attention to the changes in the Trade Secret JI so as to adjust their trade secrets strategy accordingly.