May 2023
Karl Zhang and Teresa Huang
Trade secrets, as a kind of intellectual property rights, are important intangible assets of enterprises. Trade secrets can be used as the core competitiveness of enterprises, which brings great advantages for business operations. Therefore, the protection of trade secrets is very important to enterprises, and the legal protection of trade secrets is the most important. When talking about the legal protection of trade secrets, first of all, we should clarify the legal definition of trade secrets, and then determine the scope of protection required, the protection measures that can be taken, etc.
According to the Anti-Unfair Competition Law, trade secrets are technical information, business operation information, and other commercial information that are unknown to the public, have commercial value, and have been subject to appropriate confidentiality measures taken by the right holder. According to the above provisions, trade secrets have three constituent elements: the first is the secrecy, which means that the information is not known to the public, i.e., the information is not directly accessible from public channels; the second is the value, which means that the information can bring economic benefits to the right holder; the third is the confidentiality, which means that the right holder of the information has taken confidentiality measures. This article will analyze the three elements of trade secrets.
1. Secrecy: not known to the public
Article 3 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringements upon Trade Secrets (hereinafter referred to as the “Judicial Interpretation on Trade Secrets”) stipulates that, where any information requested for protection by a right holder is not generally known and easily accessible by relevant personnel in the relevant field when an alleged infringement occurs, the people’s court shall determine that the information is unknown to the public as provided for in paragraph 4, Article 9 of the Anti-Unfair Competition Law.
According to the provisions of the Judicial Interpretation and relevant cases, “being unknown to the public” includes the following aspects: (1) the element of time: the point of time for consideration of being unknown to the public domain shall be when the infringement sued occurs; (2) the public: the public in “being unknown to the public” shall be the relevant persons in the field to which they belongs, not the general public; (3) the circumstances of being unknown to the public: according to Article 4 of the Judicial Interpretation on Trade Secrets, under any of the following circumstances, the information is known to the public: the information falls under common sense or industry practices in the field to which it belongs; the information only involves such contents as the product size, structure, materials, and simple combination of components, which may be directly obtained by relevant personnel in the field to which the party belongs through the observation of products on the markets; the information has been disclosed to the public in any open publication or any other media; the information has been disclosed to the public through public seminars, exhibitions, and other methods; the information may be obtained by relevant personnel in the field to which the party belongs through other public channels.
For the determination of being unknown to the public, the court may take into account the appraisal opinion and the difficulty of obtaining technical information by observing the relevant products, and determine whether the technical information of the right holder is unknown to the public according to law. For example, in the case over trade secrets infringement dispute of Hong Kong East Technology Company vs. Ruigan Technology Company, et al. [1] , the court held that “The technical information involved in the product in question is of a certain technical complexity and concealment, and it has been identified that the technical information has not been disclosed through other documentary materials. The relevant public cannot obtain the relevant technical information by merely observing the product externally and dismantling it non-destructively, and obtaining the technical information from the products already on the market still requires extensive technical testing and parameter analysis. Therefore, such information does not belong to the circumstance where the relevant public can obtain it directly by observing the product.”
2. Value: having real or potential commercial value
According to Article 7 and Article 20 of the Judicial Interpretation on Trade Secrets, a trade secret should have real or potential commercial value because it is unknown to the public, and the amount of commercial value may be determined by taking into account such factors as the cost of research and development, the proceeds from implementing the trade secret, the benefits to be gained and the period during which a competitive advantage may be maintained.
For the value of a trade secret, the court will generally judge whether the trade secret has commercial value according to the common sense of the society or the characteristics of the industry. For example, the Supreme Court held in Case (2021) Zui Gao Fa Zhi Min Zhong No. 1687 that, “The technical information in question is a computer program developed by BETON Data for the specific purpose and industry requirements of providing technical support to pharmaceutical enterprises and the technical information contained therein, which is practical for practitioners in the relevant industry to reduce work costs, shorten working time and enhance competitive advantages. Although the technology has not yet been put into market application, it has potential commercial value in terms of the purpose of its development, technical functions, and input costs.” The Supreme Court held in Case (2020) Zui Gao Fa Zhi Min Zhong No. 726 that “according to the characteristics of the petrochemical industry, Ruichang must collect, follow up and maintain information through its business personnel to understand the trading habits, price affordability, quality requirements, and competitors of its customers in order to form a competitive advantage in the competition in the same industry, obtain trading opportunities more easily, reduce transaction costs and create more economic benefits. Therefore, the information on the 32 customers has real or potential commercial value and can bring competitive advantage and value to Ruichang.”
3. Confidentiality: reasonable confidentiality measures should have been taken
According to Article 5 of the Judicial Interpretation on Trade Secrets, the right holder of a trade secret shall take reasonable confidentiality measures corresponding to the specific situation of its commercial value to prevent the leakage of information.
The “corresponding confidentiality measures” shall be determined comprehensively based on such factors as the nature of the trade secret and its carrier, the commercial value of the trade secret, identification degree of confidentiality measures, degree of correspondence between confidentiality measures and the trade secret, and the right holder’s willingness to keep the trade secret confidential. For example, the Jiangsu High People’s Court Guidelines for the Trial of Trade Secrets Infringement Civil Dispute Cases (Revised)[2] stipulates that, “the reasonableness of the confidentiality measures may be reviewed with reference to the following factors: (1) effectiveness: the confidentiality measures taken by the plaintiff shall be appropriate to the object of confidentiality, which shall be determined based on the standard that it is difficult for others to obtain the information without taking improper means or violating the agreement; (2) identifiability: the confidentiality measures taken by the plaintiff shall be generally sufficient to make the counterparty aware that the information is confidential information; (3) appropriateness: the confidentiality measures shall be appropriate to the confidentiality requirements that the confidentiality measures taken to protect the information itself shall meet, which shall be judged on a case-by-case basis. Normally, the principle of appropriateness does not require that confidentiality measures be infallible.”
At the same time, Article 6 of the Judicial Interpretation on Trade Secrets also lists some specific and effective confidentiality measures, to which enterprises may refer: “(1) A confidentiality agreement has been signed or confidentiality obligations have been agreed upon in the contract; (2) Confidentiality requirements are raised to employees, former employees, suppliers, clients, and visitors, who are able to access and obtain trade secrets in such forms as bylaws, training, rules and regulations, and written notification; (3) Visitors’ access to factory premises, workshops and other production or distribution premises involving the trade secret is restricted or such premises are differentiated for separate management; (4) Trade secrets and their carriers are differentiated for separate management by such methods as marking, classification, isolation, encryption, sealing-up, limiting the scope of persons who are able to access or obtain the trade secrets and their carriers; (5) Measures are taken to prohibit or restrict the use of, access to, storage in or reproduction from computer equipment, electronic equipment, network equipment, storage equipment, and software that can access or obtain trade secrets; (6) Employees leaving their office are required to register, return, clear and destroy the trade secrets accessed or obtained by them and their carriers, and continue to assume the confidentiality obligation; (7) Other reasonable confidentiality measures have been taken.”
The above is the analysis of several basic elements on the legal determination of trade secrets, enterprises may follow the above basic principles to take confidential measures to protect their technical information and business operational information. Of course, the protection of trade secrets is more than that, and the Firm will provide more articles focusing on the protection of trade secrets, to which interested readers may continue to pay attention.
[1] See Model Cases of Judicial Protection of Intellectual Property Rights in Tianjin Courts, released on October 22, 2020, at: https://tjfy.tjcourt.gov.cn/article/detail/2020/10/id/5540982.shtml.
[2] See Jiangsu High People’s Court Guidelines for the Trial of Trade Secrets Infringement Civil Dispute Cases (Revised), released on April 16, 2021, at: http://jsfy.gov.cn/article/87806.html.
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- Enterprise Trade Secrets Protection Series (2) ─ Legal Liabilities for Infringement of Trade Secrets (Mainland China)
- Enterprise Trade Secrets Protection Series (3) ─ Recognition of Confidentiality of Customer Information in Business Information (Mainland China)
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