Protection of Trade Secrets (Draft for Comments). Part I



In order to further strengthen the protection of intellectual property rights and encourage independent innovation, the General Administration of Market Supervision (the “General Administration) issued the notice of Provisions on Protection of Trade Secrets (Draft for comments) – the “Draft” - on September 4, 2020 for the public comments, which on the basis of the Provisions on the Prohibition of Infringement of Trade Secrets implemented in 1998 and the Anti Unfair Competition Law revised in 2019. 

We will sort out the key terms of the first three chapters of the Draft for comments.

Note: the deadline of Draft for comments is October 18, 2020

Chapter I - General Provisions

On the basis of the existing legislation, the applicable scope of the Draft is further indicated.

Applicable Scope: Regardless of the nature of the subject is domestic or abroad, as long as they carry out the act of infringing on the trade secrets of the owner of trade secrets in China or provide assistance for the infringement.

Chapter II - Definition of Trade Secrets

The Draft further explains the infringement act of trade secrets of the Article 9 of Anti Unfair Competition Law

1. Defines the trade secrets, technical information, business information and commercial information

Trade Secrets: Technical information, business information and other commercial information that are unknown to the public, have commercial price and have commercial value and are subject to corresponding confidentiality measures taken by the obligee.

Technical Information: Technical solutions obtained by using scientific and technological knowledge, information and experience, including but not limited to design, program, formula, product formula, manufacturing process, production method, research and development records, experimental data, technical know-how, technical drawings, programming specifications, computer software source code and relevant documents.

Business Information: All kinds of information related to the business activities of the obligee, including but not limited to management know-how, customer list, employee information, source information, production and marketing strategy, financial data, inventory data, strategic planning, purchase price, profit model, base bid price and tender content in bidding.

Commercial Information: related to the commercial activities, any type and form of information including but not limited to technical information and business information.

2. The Draft further lists the three most important elements of identifying trade secrets

Unknown to the publicexcluded:

- It has been publicly disclosed in public publications or other media at domestic and abroad, or has been made public through public reporting meetings, exhibitions, etc..

- It has been publicly used at domestic and abroad.

- Common sense or industry practice generally mastered by relevant personnel in the field.

-  Easily obtained without cost or from other open channels.

- Only involves the product size,structure, simple combination of components and other content information. After entering the public, the relevant public can obtain it through simple methods such as observation, mapping and disassembly.

Commercial value - Because of the information’s secrecy, the information has real or potential commercial value, which can bring commercial benefits or competitive advantages to the obligee.

Included one of the followings:

- Bringing economic benefits to theobligee.

- Having a significant impact on its production and operation.

- In order to obtain the information, the obligee has paid the corresponding price, R & D cost or operation cost and other material input.

- It is suspected that the infringer obtains or attempts to obtain the trade secrets of the obligee by improper means.

Comment: According to Article 10 of Interpretation of the Supreme People’s Court on Some Matters about the Application of Law in the Trial of Civil Cases Involving Unfair Competition (the Interpretation), the commercial value shall be ascertained as capable of bringing about benefits to the obligee. 

However there has been lack of official explanation on the specific content of commercial value. The current provisions explain the determination of commercial value from the economic benefits, operating capital, material input costs or other can bring competitive advantages can be identified as having commercial value.

Take corresponding confidentiality measures

- Limit the confidentiality level, confidentiality period and scope of knowledge of confidential information, and only inform the relevant personnel who must know the content.

During the post leaving interview, remind and warn the current employees and the resigned employees to fulfill their confidentiality obligations.

- The information carrier is encrypted, locked, decompiled and other preventive measures, or the relevant carrier is marked with security signs or encryption tips.

- Password or code shall be adopted for confidential information.

- For confidential machines, factories, workshops and other places to restrict visitors, take basic physical isolation measures, such as access control, monitoring, authority control, etc.

- Formulate corresponding confidentiality management system and sign confidentiality agreement with relevant personnel.

The confidentiality obligation is clearly stipulated in the non-competition agreement.

The scope of trade secret is clearly defined by the obligee in the labor contractor confidentiality agreement and is consistent with the scope of the secret claimed by the obligee.

Comment: Compared with the interpretation, the provisions in bold stated above are new added that are all relevant to the confidentiality obligation of employees. In recent years, the disclosure of trade secrets becomes a common phenomenon, especially for the employees who are in the position which is able to reach and control the trades secrets of enterprise more easily. 

This provision provides more practical operability for the confidentiality and management of trade secrets.

Chapter III - Infringement of trade secrets

The Draft further defines the forms of infringing trade secrets of the Article 9 of Anti Unfair Competition Law

1. Define the situation of obtaining trade secrets by theft and other improper means

- Sending commercial spies to steal trade secrets of obligees or holders.

- By providing financial, tangible or intangible benefits, high salary employment, personal threats, design traps and other means to lure, cheat and coerce the employees or others of the obligee to obtain trade secrets for them.

- Entering into the obligee's electronic information system without authorization or beyond the scope of authorization to obtain trade secrets or implant computer viruses to destroy the trade secrets, among which, electronic information system refers to all electronic carriers storing the obligee's trade secrets, including digital office system, server, mailbox, cloud disk, application account, etc.

- Unauthorized access to, possession or reproduction of documents, articles, materials, raw materials or electronic data under the control of the obligee, containing or deriving trade secrets, so as to obtain the business secrets of the oblige.

2. Define the "Confidentiality obligations" or "the requirements of the obligee on keeping trade secrets"

- The agreement on keeping trade secrets with the obligee in labor contract, confidentiality agreement, cooperation agreement, etc. through written or oral express contract or implied contract, etc.

- The unilateral requirements of the obligee on the holder who knows the trade secrets include but are not limited to the confidentiality requirement for the counterpart who knows the trade secrets through the contractual relationship, or the confidentiality requirement for the holder who knows the trade secrets through participating in research and development, production and inspection, etc.

- In the absence of confidentiality agreement, labor contract, cooperation agreement, etc., the obligee, through other rules and regulations or reasonable confidentiality measures, puts forward other requirements for keeping trade secrets of employees, former employees and partners.

Comment: The provision can be considered as the supplement to the Labor Contract Law - the employer and the employee may agree in the labor contract to keep the employer's business secrets and confidential matters related to intellectual property rights - which obviously states that the compliance with confidentiality obligation is not only based on the labor contract, and also includes  the other form of employment, cooperation and any relationship that has the opportunity to know trade secrets.

3. Define "restricted use of trade secrets"

Restricted use of trade secrets: The legal or agreed restrictions on the use of trade secrets concluded with the obligee in the confidentiality agreement, labor contract, cooperation agreement, contract, etc. are excluded from the knowledge, experience and skills formed by the employees or former employees in the working process.

4. Define the situation of infringing others' business secrets by instigating, luring and assisting

- Convincing, persuading and encouraging others to violate the obligation of confidentiality or the requirements of the obligee to keep trade secrets by providing technical and material support through words, behaviors or other means, or by means of position promises and material rewards.

- The act of providing convenience for others in violation of confidentiality obligations or the obligee's requirements for keeping trade secrets in various ways, so as to obtain, disclose, use or allow others to use the obligee's trade secrets.

5. Define the “Customer list” as the protection of trade secrets

Customer list: The customer's name, address, contact information, trading habits, intentions, contents, etc. constitute the special customer information which is different from the relevant public information, including the customer roster of numerous customers and the specific customers who maintain long-term stable trading relationship.

After paying the commercial cost, the obligee has formed a relatively fixed list of customers with unique trading habits in a certain period of time, which can be protected by trade secrets.

6. Define the behavior that does not belong to the infringement of trade secrets

- Independent discovery or self-development.

- Obtaining trade secrets by reverse engineering or other similar means, except for reverse engineering in which trade secrets or products are obtained by improper means or in violation of confidentiality obligations.

- The shareholder obtains the company's trade secrets by exercising the right to know in accordance with the law.

- The employee, former employee or partner of the owner or holder of the trade secrets must disclose the trade secrets based on the needs of public interests or national interests such as environmental protection, public health, public security, exposing illegal and criminal activities, etc.

It does NOT constitute reverse engineering that the person who contacts and understands the technical secret of the obligee or the holder obtains the technical secret of the obligee by recalling and dismantling the end product.

The above is the Part I of the Draft for comments, to be continued.

Karen Wang

HFG Law&Intellectual Property