Recently, the Supreme People’s Court issued a judicial interpretation on trade secrets cases (Trade Secrets Judicial Interpretation), effective from 12 September 2020. Following the amendment to the Anti-Unfair Competition Law in 2019, this Trade Secrets Judicial Interpretation further clarifies relevant matters involved in trade secret disputes.
The highlights of the Trade Secrets Judicial Interpretation are summarized as follows:
- Customer information, such as the customer’s name, address, contact information, and transaction habits, intentions, content, etc., are trade secrets.
However, if the company claims that a specific customer is a trade secret only based on the ground that it maintains a long-term stable trading relationship with that specific customer, the court will not support this claim. In addition, if the employee can prove that the customer traded with the employee’s original company based on personal trust in the employee, and after the employee resigned, the customer voluntarily chose to do business with the employee or the employee’s new company, then the court will not uphold this as “obtaining the trade secrets of the former company by improper means”.
- If the company takes one of the following measures, the court will hold that the company has taken measures to protect the confidentiality of information (which is one of the mandatory conditions for a company to establish that such information constitutes a “trade secret”):
– Signing a confidentiality agreement or stipulating confidentiality obligations in the contract;
– Imposing confidentiality requirements through policies, training, written notifications, etc. on employees, former employees, suppliers, customers, visitors, etc. who can access and obtain trade secrets;
– Restricting visitors from visiting, or conducting differentiated management of production and business sites which involve trade secrets such as factories and workshops;
– Differentiating and managing trade secrets and devices carrying trade secrets by means of marking, classification, isolation, encryption, sealing, and limiting the range of people who can access the trade secrets;
– Taking measures such as prohibiting or restricting the use, access, storage, and copying functions of computer equipment, electronic equipment, network equipment, storage equipment, software, etc., that can access and obtain trade secrets;
– Requesting exiting employees to register, return, clear, or destroy the trade secrets, including in relation to any devices containing trade secrets that such employees have accessed or obtained, and requesting employees to continue to assume their confidentiality obligations post-termination;
– Taking other reasonable confidentiality measures.
- If the trade secrets holder has provided preliminary evidence of the benefits obtained by the infringer due to the infringement, but the infringer possesses the account books and information related to the infringement of trade secrets, the court may order the infringer to provide the account books and information at the request of the trade secrets holder. If the infringer refuses to provide it without justifiable reasons or does not provide it truthfully, the court may determine the benefits obtained by the infringer from the infringement based on the claims and evidence provided by the trade secrets holder.
In addition, under a new draft amendment to the Criminal Code, the punishment for stealing Chinese trade secrets to benefit a foreign entity has been increased - the proposed penalty is up to a five-year jail sentence plus penalties in normal cases, and in excess of a five-year jail sentence plus penalties in severe cases.
Key takeaway points:
Following the amendment to the Anti-Unfair Competition Law in 2019, under which the burden of proof rule has changed, the trade secrets holder will probably have a higher chance of success in a trade secrets infringement claim than before. This recent Trade Secrets Judicial Interpretation further clarifies some issues that previously were not entirely clear under the law and may further strengthen a trade secrets holder’s position. Companies should follow the guidance under the Trade Secrets Judicial Interpretation such as signing confidentiality agreements, establishing confidentiality policies, etc., to increase their chances of success in trade secret cases.
– Jonathan Isaacs, Partner,
– Zheng Lu, Partner,
– Bofu An, Partner,