On December 30, 2006, the Supreme People’s Court of the PRC issued the Interpretations on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Unfair Competition (the “Interpretations”), which came into effect on February 1, 2007. The Interpretations clarify various important terms used in the Anti- Unfair Competition Law of the PRC (the “Law”). The main issues raised in the Interpretations are set forth as follows:

Determination of “Well-known Commodity,” “Trade Dress,” and “Confusion”

The Interpretations give guidance on the meaning of the terms “well-known commodity” and “trade dress” which are not defined in the Law. According to the Interpretations, the names, packaging, and trade dress which are not distinctive are not protected by the Law. The Interpretations clarify that the “confusion” shall refer to any misunderstanding as to the source of the commodity as well as any wrongful association with a well-known commodity. Use of same, or basically visually same, name, packaging, and trade dress as that of the well-known commodity will be deemed to be “confusion.”

Article 5(3) of the Law prohibits the use of the enterprise name of another party which may create confusion. The Interpretations clarify that the term “enterprise name” refers to enterprise names not only registered, but also used in China. The trade name which has acquired a certain reputation and is recognized by the relevant public shall also be deemed as an enterprise name under the Law.

Trade Secret

Trade secrets are protected by the Law. According to the Law, trade secrets must be (1) unknown to the public; (2) valuable to the owner; and (3) protected by confidential measures. The Interpretations broadly clarify the above elements. Under the Interpretations, the information that is not generally known to, or not easily obtainable by, the relevant personnel in the same area is deemed to be unknown to the public. Valuable information refers to the information which brings actual or potential commercial value or competitive advantages to the owner. “Confidential Measures” are the appropriate protection measures adopted by the owners in order to prevent information disclosure. The Interpretations further list the following instances for confidential measures:

  • Limit the scope of knowledge of confidential information and only notify its contents to the concerned personnel who must know the said information; 
  • Adopt locking and other preventive measures for confidential information carriers;
  •  Mark confidential signs on the confidential information carriers; 
  • Adopt passwords or codes for confidential information; 
  • Sign confidentiality agreement; 
  • Restrict visitors to, or put forward confidentiality requirements for, confidential information-involving machines, factory buildings, workshops, and other venues.

Reverse Engineering

According to the Interpretations, reverse engineering is a legal method to obtain trade secrets. Under the Interpretations, “reverse engineering” means the use of technical means to dismantle, measure, map, and analyze a product obtained from public channels to get the relevant technical information about the said product. The Interpretations, however, state that if a party obtains technical information through unfair methods and then claims such information is lawful on the ground of reverse engineering, the court will not support such claim.

Remedies

The Interpretations expressly state that the remedies for trade secret infringement include injunctions and damages.

The injunction is an order to prohibit the unauthorized use or disclosure of trade secrets. The period for the injunction lasts until the trade secret in question is known to the public.

In order to determine the damages caused by the infringement of the trade secrets, the court may refer to the methods for determining the damages caused by infringements of patent rights and trademark rights. The court may also take into account the following factors:

  • The costs for research and development of the trade secret; 
  • The profits gained from the use of the trade secret; and 
  • The duration of the competitive advantages of the trade secret.