SAIC Announces Its Latest Draft of IP Abuse Guidelines

“[T]he word transparency [is] the ‘most opaque in the trade policy lexicon.’” Sylvia Ostry

On Feb. 4, 2016, SAIC published for public comment its draft Guidelines On Anti-Trust Enforcement Against IP Abuse, dated February 2, 2016,  <关于滥用知识产权的反垄断执法指南(国家工商总局第七稿>公开征求意见的公告> .  SAIC advises that this is their seventh draft. The deadline for SAIC’s receiving comments is February 23, 2016.   The draft is also accompanied by an explanation, which briefly reviews the earlier drafts and notes that the numbers of comments received throughout the commenting process, which was first initiated in 2009.

This guideline draft is in addition to the IP abuse rules that SAIC promulgated in 2015, with an effective date of August 1, 2015.  Unlike the guidelines, which will be adopted under the auspices of the Antimonopoly Commission of the State Council, the rules were adopted pursuant to SAIC’s own legislative authority.  It will be interesting to compare the guidelines with the rules.  If both rules and guidelines ultimately co-exist, and there are differences in wording and policy, there will inevitably be concerns over how these differences will be enforced.

I have previously discussed NDRC’s drafting process here, and on a non-public SAIC draft here.  In fact, my comments on the SAIC fifth draft go back nearly to the time this blog was established, in 2012. As noted in the book I co-authored with Steve Harris and others, Anti-Monopoly Law and Practice in China (2011), SAIC’s engagement on IP abuse dates back to 2004 – before the AML was itself enacted — when it published a paper “The Competition Restricting Measures of Multinational Companies in China and Counter Measures.”

SIPO is also reportedly involved in drafting or commenting on IP abuse guidelines.  As with SAIC, SIPO’s involvement goes way back.  SIPO’s 2009 IPR Action Plan specifically contemplated that it would “step up research on abuse of IP rights, and strengthen communication and negotiation with relevant foreign government authorities on this issue.”

When I wrote the chapter on IP for my book, in fact there were various copies of the IP Abuse Guidelines of SAIC circulating, but none had been made available for public comment.   Much has changed since then.  In recent years, many laws and regulations have been subject to multiple opportunities for commenting at different stages of legislative drafting. Along with copyright law amendments, these guidelines have been very long in the making with many such commenting opportunities.  As with the copyright law amendments, I also believe that comments on these IP abuse guidelines are not only intended to enhance the quality of the subject legislation, but also intended to show support for legislation that may be subject to claims of different agencies.

 The current AML policy environment is also suggestive of the type of IP environment that Martin Dimitrov outlined in his book Piracy and the State: The Politics of Intellectual Property Rights in China, where he attributed China’s inconsistent enforcement to campaign based, redundant approaches, responsive to external pressures, and unduly complex.  I previously blogged that one important step might be for the State Council to take a more active role in this area, consistent with current plans to reform China’s legislative process.  Another, small positive first step might be for the AML-related agencies to publish an annual report which outlines their policy and enforcement mechanisms, much as is currently done for other areas, such as intellectual property, and which forces a degree of coordination.

I hope to post comments from others on this draft later on this blog.

Another positive note: SAIC has also made it site available in large type and with audio accompaniment for those who have visual impairments.

Updated: 2/8/2016



Of NDA’s and Smoking Guns: China’s Evolving Landscape of Trade Secret Protection

A recent class at Fordham law school with seasoned IP lawyer Benjamin Bai, of Allen & Overy’s Shanghai office, brought home to me some of the differences in substantive technological secret protection between the US and China.  The SI cases in particular, where technical trade secrets were litigated in both the United States and China suggested that some major differences between the US and China are that US IP practices tends to emphasize access over similarity of technology, while Chinese practice tends to focus on similarity.  In this sense, Chinese courts may appear to be “misappropriator friendly,”  although a more accurate assessment may be that the courts are friendly to the party acquiring or developing proprietary technology.

According to Mr. Bai, Chinese courts may tend to analyze each claim of trade secret protection in a manner similar to a patent litigation and be less inclined to accept arguments from plaintiff that a given technology is similar to the technology claimed by a plaintiff.   In Benjamin’s estimation, the Chinese courts in the SI group cases may have been correct in noticing that small differences in the subject technology have significant implications.   China’s trade secret law specifically provides, in a judicial interpretation, that reverse engineering is a defense to a claim of trade secret misappropriation.  This “similarity” approach goes a step further by providing a non-infringement defense based on modifying misappropriated technology.

The notion of whether a technology is “similar” is evocative of the “doctrine of equivalents” (“DOE”) in patent infringement matters.  However, patent law cases generally do not accept notions of reverse engineering as a defense to infringement claims.    The DOE also acts as an incentive to early disclosure of a patented invention by insuring that a given technology receives an adequate breadth of protection.  Trade secret cases do not share similar policy motivations.  Trade secret law is intended to protect instead against unfair misappropriation.   An undue focus on similarity can obscure the unfairness of the underlying  misappropriation.  Indeed, one of the few cases in China that determined that similarity by itself was not a defense Chongqing Long Life Xinxieli Chemical Company Ltd vs. Hu Xiantang et al. (重庆长寿新协力化工有限公司等诉胡宪堂等侵犯商业秘密纠纷案) was based in part on the original fraudulent acquisition of the technology. The court noted in that case that “the illegal obtaining of trade secrets and its subsequent modification still is a trade secret infringement.” (本院认为,首先,被告东荣公司通过非法手段获取了涉案商业秘密,不管其是直接实施还是略加改进后再实施,其行为的侵权本质并未改变。即非法获取并实施商业秘密是侵权行为,对非法获取的商业秘密进行改进同样是侵权行为。) (2010) 渝一中法民初字第00055号).

Evolving trade secret jurisprudence in China suggests that a plaintiff is more likely to succeed while the “gun still smokes” and before the technology has actually been applied.  The Shanghai Eli Lilly case  involved a preliminary injunction while there was still a smoking gun, with no need to consider “similarity.”   This “early stage” access case  is also reflected in the dispositions of Chinese and US law enforcement.  One Shanghai police official told the press in 2012 “Only [trade secret] cases in which there are no reported perpetrators tend to be complicated.”   A recent criminal conviction in the United States involving theft of Dupont/Monsanto seed suggests is another example of early stage / smoking gun misappropriation.

US companies when they become obligees under non-disclosure agreements may find themselves in a difficult position in an access-oriented jurisdiction, as their NDA’s can easily become smoking guns for claims of trade secret theft if a court has an access-oriented approach.  A recent example of such a case in the United States was the recent decision involving Caterpillar’s “Bug Coupler” technology, which involved disclosure of technical secrets from a supplier pursuant to an NDA, and a court’s determination that Caterpillar continued to benefit from such disclosure in its subsequent product development.  Caterpillar was ordered to pay damages of $73.6 million, the largest in Illinois history for a trade secret claim.

As US lawyers use increasingly stronger non-disclosure, non-use and non-circumvention type agreements in China, the risks exists that they will also be subject to similar agreements from Chinese companies seeking to co-develop technology or products.  In such instances, a US company may wish to ensure application of Chinese law, which might give it the benefit of a less access-oriented approach to technology development.

The differences in approach of China and the United States also may reflect differences in legal culture in both countries.  As trade secret cases are adjudicated by IP judges, these same judges may be unduly informed by patent notions of prior art (or public availability of trade secret information), as well as the doctrine of equivalents (in looking at similarity).   US federal and state judges are likely to have less specialized backgrounds.  Moreover, state judges and federal appellate judges other than the Federal Circuit, do not adjudicate patent matters at all and may therefore be less inclined to make these comparisons.  China’s employee-friendly labor laws also view non-compete agreements with some skepticism, including not utilizing doctrines such as “inevitable disclosure” with as much frequency as US courts.

My hope is that as the bilateral technology transfer environment develops, there is greater harmonization in our trade secret regimes. smokinggun