US-China Business Council Recommendations for Trade Secret Protection

Trade secrets as defined by the TRIPS Agreement is secret information that has commercial value and is the subject of reasonable steps to protect it (TRIPS Art. 39). Inadequate protection of technical trade secrets, including technologies that may benefit from not being disclosed as a patent, can be a hindrance to the development of innovative companies.  In addition, business  confidential trade secret information, such as client lists, can be immensely valuable to any company. IPR stakeholders not only have to worry about trade secret theft from their activities in China, but the theft of trade secret information from the US for delivery to China also remains a concern.

The USCBC has issued a report, which was the result of active conversations with companies from a variety of sectors on their views of trade secrets. The report describes challenges as reported by member companies and makes recommendations to address the challenges. The report focuses on six major challenges in the area of trade secrets in China: the lack of a national unified law on trade secrets, concerns about protection of trade secrets collected during government regulatory processes, limited government experience with trade secrets, high evidentiary burden of trade secret plaintiffs, limited use of relevant and potentially useful judicial procedures such as preliminary injunctions, and insufficient information about judicial practices with regard to the trade secret provisions in employment agreements.

Many of these challenges are rooted in the general lack of familiarity and experience on the part of Chinese government officials in dealing with trade secrets. Trade secrets were a relatively late arrival on China’s intellectual property scene, having been legislated with China’s Anti-unfair Competition Law (1993).  With regard to the challenges to judicial enforcements, this blog has covered many of the challenges described in the report, including high evidentiary thresholds and difficult procedural burdens, overall low likelihood of success, a high reliance on criminal remedies, and challenges in obtaining provisional remedies. 

The Business Council report also advocates use of doctrines such as “inevitable disclosure” by urging that the Chinese courts use “common sense” tests regarding when trade secrets are being disclosed or are likely to be disclosed.  Based on discussions we have had with Chinese judges over the years, such tests have in fact been used, but on an ad-hoc basis.  Regarding the closely related issue of preliminary injunctions against threatened trade secret misappropriation where courts must act to prevent a risk of loss, the Civil Procedure Law, which went into effect recently, legislated that preliminary injunctions would be available to plaintiffs in trade secret cases. Indeed, in August, the Shanghai No. 1 Intermediate Court cited this provision in granting a preliminary injunction for Eli Lilly in its trade secret suit against a former employee.   

Unfortunately, another issue is the difficulties the courts have in managing protective orders and/or releasing non-confidential versions of cases involving confidential information, which also makes it difficult to understand this recent case involving Eli Lilly, as well as other cases which involve confidential information, as the full cases may not be disclosed to the public.   Moreover this lack of familiarity and uncertain rules regarding appropriate handling of confidential information may also make litigants reluctant to bring cases where they may be asked to disclose confidential information to their competition or other third parties.  Discussions on use of protective orders have been held for many years with the Chinese judiciary, and some courts such as Xiamen intermediate court have been experimenting with different methods of protecting confidential information.

Trade secret has emerged as a priority concern. In the most recent USCBC member company survey, 40% of respondents named trade secrets as the intellectual property of most concern, ahead of trademark, copyrights, and patents. In recognition of the importance of trade secrets, the Chinese government has begun to pay greater attention to trade secrets and increased their engagement with foreign stakeholders. It has been a topic of discussion for the U.S.-China Strategic and Economic Dialogue meetings in the last two years. Many of the recommendations included in this latest report were also submitted by the USCBC for consideration by the JCCT in their collaboration.

 

For detailed description of these challenges and USCBC’s recommendations with regard to these challenges, you can read the whole report here.

Prepared by Jae Zhou and Mark Cohen

One thought on “US-China Business Council Recommendations for Trade Secret Protection

  1. chinaipr2 says:

    Here’s the link to the Chinese text of the report: http://www.uschina.org/sites/default/files/2013.1USCBC%20Recommendations%20for%20Strengthening%20Trade%20Secret%20Protection%20in%20China%20(Chinese).pdf. (美中贸易全国委员会关于在中国加强商业秘密保护的建议)

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