China IPR

China’s Judiciary Publishes Its Views on Trade Secret Protection

Several prominent Chinese judges recently published a Chinese language book on “The Judicial Protection of Trade Secrets” (商业秘密司法保护实务) (China Legal Publishing House May 2012) (536 pp, 98 RMB).   The book is an important summary, compilation and reprinting of many key documents involving trade secret protection in China.  It was edited by SPC IPR Tribunal Chief Judge Kong Xiangjun 孔祥俊 with the support of several prominent judges including Lang Guimei 郎贵梅(SPC), Song Jian 宋健(Jiangsu High Court), Dai Lei  戴磊  (Shandong High Court), Gu Tao 顾韬 (Jiangsu High Court), and  Wu Xin 吴欣and Wang Chao 王潮 (Shanghai Number 2 Intermediate Court).The book is an essential reference for understanding the enforcement of trade secrets by the courts in China and provides a useful basis for comparative analysis with other countries.  It is divided into three major sections: (a) an overall summary of judicial protection of trade secrets, which contains case-specific and candid analyses of challenges to civil and criminal trade secret enforcement; (b) survey reports from 31 high courts and intermediate courts, including numbers of cases for each province, success and settlement rates for each case; and (3) legal materials that can be considered in deciding cases, including national laws and regulations, as well as numerous documents issued by sub-national courts.   This third section is selective.  It does not include all of the materials referenced elsewhere in the book, including local legislation on trade secret protection, but instead focuses on judicial documents.

Many of the policy documents referenced in the book were previously little known outside judicial circles, including speeches by leading members of the court on the difficulties of bringing trade secret cases.  For example,  I was struck by a speech by former SPC  Vice President, now Chief Procurator  Cao Jianming 曹建明, who noted in 2005 that trade secret enforcement was the area with the “greatest difficulties” for the courts (p. 28).

The editors’ observations on the trade secret judicial enforcement environment in China include the following:

A) Trade secret cases are a small part of intellectual property cases, but a large share of cases under the Law to Counter Unfair Competition.  The data suggests they may also constitute a declining proportion of civil IPR cases.   In 2009, for example, there were 1,282 cases under the Law to Counter Unfair Competition in the courts, of which 253 involved trade secrets, out of 30,626 civil IPR cases generally.  By 2012, the number of cases under the Law to Counter Unfair Competition had declined slightly to 1,123 cases, despite a civil IPR docket that had almost tripled to 87,419.

B) Trade secret cases are geographically concentrated in more economically developed regions.  Beijing, Shanghai, and Jiangsu, in particular, had the most cases for the period 2006-2009.  Certain provinces, such as Hainan, Jilin, and Guizhou heard no trade cases during this period.

C) Compared to other IP cases, a high proportion of trade secret cases are withdrawn 撤诉 before final disposition, and a very low number of cases are mediated by the courts.  The Shanghai High Court identified three reasons for this: (1) plaintiffs are ill-prepared or don’t understand the standards for identifying what is a trade secret; (2) plaintiffs become concerned about risking the second disclosure of trade secrets during the case; and (3) judges encounter problems with technical aspects of the case which extend the cases beyond the periods normally required for adjudication, which results in their dismissal (P. 35).

D) Most cases involve business information, rather than technical information.

E) There are a high proportion of criminal cases.  For example, there were 46 criminal trade secret cases in 2009, compared to 253 civil cases.

F) As of the writing of the book in 2011, the general sense of the writers was that preliminary injunctions and evidence preservation were not available for trade secret cases (pp. 47-48). This has however since changed, with the recent amendments to the Civil Procedure Law (CPL).   Nonetheless, we have little information to date on trade secret provisional measures since the CPL was recently amended.

G)  The book also underscores that a non-compete agreement has a “utility when compared to other common measures of protecting trade secrets that is especially strong.” (p. 238), and that it also “reduces the litigation burden” (p. 239).  This is a point that my former colleague Benjamin Bai, now at Allen & Overy, has made in his writings.   Nonetheless, the authors suggest that courts should still consider the legality of the non-compete agreement, and they appear to stop short of recognizing a doctrine of “inevitable disclosure” in trade secret and non-compete agreements which would not require proof of trade secret misappropriation in certain employment cases.  The authors instead insist on proof of use of the trade secrets in an employee’s new position.

The book is also helpful in telling foreigners about the various documents that they may be unaware of that are issued by local courts that could impact the adjudication of their cases.  For example, the courts at various levels in Beijing issued 10 separate judicial documents to help guide adjudication of trade secret cases there, including one that specifically set standards for trade secret adjudication by the Beijing Number 2 Intermediate Court and one that considers the relationship between non-compete agreements and trade secret adjudication, by the Chaoyang Basic Court in Beijing.

With its rich data and references, this book should be consulted when making decisions on whether, where and how to conduct a trade secret case in China.

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