August 2023
Karl Zhang and Teresa Huang
I. Overview
Trade secrets are valuable assets for businesses, and infringement on trade secrets not only causes significant harm to the affected companies but also impacts market competition. In response to this, laws provide protection for trade secrets from various perspectives and establish corresponding civil, criminal, and administrative liabilities. These three types of liabilities can sometimes overlap, and within civil liability, there can be an overlap of tortious and contractual liabilities. This article aims to provide a brief overview of such liabilities and their potential overlaps.
II. Civil, Criminal, and Administrative Liabilities for Trade Secret Infringement
(I) Civil Liability
According to Articles 9 and 17 of the Anti-Unfair Competition Law, operators are prohibited from engaging in actions that infringe upon trade secrets. Any individual or entity found to have engaged in unfair competition by violating these provisions may be subject to civil liability for damages. The amount of liability is determined based on the actual losses suffered by the aggrieved party and the profits gained by the infringing party. The law also stipulates that in cases of serious and willful misconduct, punitive damages may be awarded, which can range from one to five times the calculated amount of damages. Furthermore, the term “amount of damages” in this context should also include reasonable expenses incurred by the operator in stopping the infringement.
Moreover, confidentiality obligations are crucial pre-contractual and ancillary obligations in the process of contract formation and performance. The Civil Code establishes the contractual liability for breach of these obligations. Article 501 of the Civil Code provides for the liability for compensating damages in cases where trade secrets are infringed during the process of contract formation due to contractual negligence. Additionally, Articles 872 to 874 of the Civil Code establish the liability for breaching confidentiality obligations in technology licensing contracts. Furthermore, according to Article 23 of the Labor Contract Law, employers and employees are allowed to enter into agreements regarding trade secrets during the course of employment; if an employee violates the relevant confidentiality provisions, he/she shall bear the liability for breach of contract.
In cases involving a combination of breach of contract and tort liability, such as those related to infringement, general breach, and labor disputes, where both types of liability are implicated, the aggrieved party has the right to choose whether to demand the infringing party to bear the liability for breach of contract or tort liability according to Article 186 of the Civil Code. In cases involving labor disputes, according to the opinion of the Supreme People’s Court, if the plaintiff chooses to claim breach of contract liability, the case will be resolved as a labor dispute; if the plaintiff chooses to claim tort liability, it will be classified as an unfair competition dispute.[1]
(II) Criminal Liability
Article 219 of the Criminal Law stipulates the crime of infringing upon trade secrets, and the corresponding criminal acts principally fall into the following categories: (1) Acquiring the trade secrets of the right holder by means of theft, bribery, fraud, coercion, electronic intrusion, or other illicit means; (2) Disclosing, using, or allowing others to use the trade secrets acquired through the aforementioned means from the right holder; (3) Violating confidentiality obligations or the requirements of the trade secret holder to keep the trade secrets confidential, by disclosing, using, or allowing others to use the trade secrets they possess; or (4) Knowingly engaging in the aforementioned acts of acquiring, disclosing, using, or allowing others to use the trade secrets.
For the aforementioned acts of infringing upon trade secrets, if the severity of the circumstances reaches a certain threshold (generally causing losses or illegal gains exceeding RMB 500,000), the offender shall be sentenced to less than three years of fixed-term imprisonment, and may be fined in addition to the imprisonment; if the circumstances are particularly severe (generally causing losses or illegal gains exceeding RMB 2.5 million), the offender shall be sentenced to imprisonment for a period of more than three years but less than ten years, and shall also be fined. Moreover, for individuals who steal, gather, purchase, or illegally provide trade secrets to overseas institutions, organizations, or individuals, Article 219-1 of the Criminal Law directly stipulates a punishment of imprisonment for less than five years and a fine, without considering the severity of the circumstances. If the circumstances are severe, the offender shall be sentenced to imprisonment for more than five years and shall also be fined.
(III) Administrative Liability
Regarding the acts of infringement upon trade secrets committed by operators and other individuals, legal persons, or unincorporated organizations, Article 21 of the Anti-Unfair Competition Law provides for administrative liability, whereby the market supervision and administration authorities shall impose penalties on the perpetrators, including ordering the cessation of the illegal acts, confiscation of the illegal proceeds, and a fine of not less than RMB 100,000 and not more than 1 million; a fine of more than RMB 500,000 but not exceeding RMB 5 million may also be imposed.
III. Liability Overlap
Articles 17, 21 and 31 of the Anti-Unfair Competition Law stipulate the civil, administrative and criminal liabilities for acts of unfair competition, including the infringement of trade secrets. In handling the concurrent liabilities of the three different natured responsibilities, according to Article 27 of the Anti-Unfair Competition Law, Article 187 of the Civil Code, and Article 8 of the Administrative Penalties Law, the three liabilities may be borne concurrently, and it’s not permissible to replace criminal penalties with administrative penalties; the assumption of administrative liabilities or criminal liabilities does not affect the assumption of civil liabilities; however, if a civil subject’s property is insufficient to satisfy the liabilities, priority shall be given to using the property to fulfill the civil liabilities.
[1] The Highest Court Intellectual Property Cases Annual Report (2009) – China Court Network (chinacourt.org)https://www.chinacourt.org/article/detail/2010/04/id/405523.shtml
Related Articles
- Enterprise Trade Secrets Protection Series (1) ─ Legal Determination 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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