December 2017 Update

 

Here are some updates on IP developments in China from this past December 2017:

1.  Xi Jinping: China must accelerate implementation of big data strategy (English) 习近平:实施国家大数据战略加快建设数字中国 (Chinese).  Xi Jinping, during a collective study session of the Politburo on December 8th, has urged the country to accelerate implementation of its big data strategy to better serve social and economic development and improve people’s lives. Xi said efforts should be made to advance national big data strategy, improve digital infrastructure, promote integration and sharing of digital resources, and safeguard data security.

2.  Legal Daily on December 5, 2017 notes that leakage of private data from government  websites is getting attention, all local governments start rectification and protection mechanism  政府网站泄露隐私问题受关注,各地整改升级保护机制 (Chinese)

3.  Ministry of Education, Department of Human Resources and Social Security, and Ministry of Finance regulated information disclosure of private information 教育部人社部财政部三部委规范信息公开 保隐私信息安全自查工作要不留死角(Chinese).  This appears to be related to the developments described in the Legal Daily article described above.  Note that unauthorized disclosure of confidential information of foreigners had been a concern during prior meetings of the bilateral Joint Commission on Commerce and Trade.   Compare 2014 and 2016 U.S.-China Joint Commission on Commerce and Trade (JCCT).   From 2014 JCTT: The United States and China confirm that trade secrets submitted to the government in administrative or regulatory proceedings are to be protected from improper disclosure to the public and only disclosed to government officials in connection with their official duties in accordance with law.  Each side will further study how to optimize its respective relevant administrative and regulatory procedures within its legal system, where appropriate, including by strengthening confidentiality protection measures, limiting the scope of government personnel having access to trade secrets, limiting the information required from companies to include only information reasonably necessary for satisfying regulatory purposes, and stipulating that any requirements on government agencies to publicly disclose information appropriately allow for the withholding of trade secrets.  Government officials who illegally disclose companies’ trade secrets are to be subject to administrative or legal liability according to law.  The United States and China agree to exchange information on the scope of protection of trade secrets and confidential business information under their respective legal systems.  China acknowledges that it is to conduct a legislative study of a revised law on trade secrets.  The United States acknowledges that draft legislation proposing a Federal civil cause of action for trade secrets misappropriation has been introduced in the U.S. Congress.  From 2016 JCCT: Both sides confirm that, in those cases in which a judicial or administrative enforcement authority requests the submission of confidential information in conjunction with a trade secret enforcement matter, such requests will be narrowly tailored to avoid putting at risk sensitive business information and will be subject to appropriate protective orders to control additional disclosure and ensure that information is not further misappropriated and that any decision that is made publicly available in conjunction with a trade secret enforcement matter will have all confidential information appropriately redacted. The United States and China confirm that trade secret investigations are conducted in a prudent and cautious manner.

4.  Overview of China’s intellectual property protection: 32000 suspected criminal cases have been transferred since 2011.  中国知识产权保护状况全景式展示  2011年以来移送涉嫌犯罪案件3.2万起(Chinese).  Note: This is data on referrals from administrative to criminal enforcement. The transfer from admin to criminal seems like part of overall efforts that China took to improve IP protection. The article mentioned that three agencies: National Copyright Administration, SAIC and SIPO, all enhanced IP protection enforcement. For instance, National Copyright Administration, through “Jian Wang” (Swordnet) project, investigated 5560 infringement cases over the past 13 years; SAIC investigated 19,400 trademark infringement cases from Jan to Oct 2017; and SIPO and other IP protection agencies investigated 189,000 all kinds of infringement and counterfeiting cases in 2016.Related background information: State Council Opinion on Improving Administrative/Criminal IPR Enforcement Coordination.

5.  China Intellectual Property Development Alliance was established  中国知识产权发展联盟成立 (Chinese).   The focus of this alliance is to create a good environment for IP application and protection and to build an ecosystem for IP operation.

6.  Notice on establishing national intellectual property pilot parks.  关于确定国家知识产权试点园区的通知 (Chinese).  2017 new list of national intellectual property pilot parks 2017年新一批国家知识产权试点园区名单 (Chinese).  These pilot parks are established by local governments.  They will provide IP services, information sharing services, help incubate IP intensive industries, and provide supporting infrastructure. SIPO approves them, and will monitor pilot parks’ work progress and review document for renewal.

7.  The story behind of independent development of C919 (English); C919背后的自主研制之路 (Chinese).  The Chinese article describes the patents involved in the C919 aircraft project.

8.  China implemented the first national military standards of intellectual property management in the field of equipment construction 我国首部装备建设领域知识产权管理国家军用标准实施 (Chinese).

9.  China’s R&D investment hits a new high.  我国研发投入再创新高 (Chinese).   China’s total GDP in 2016 was $11 trillion and R&D investment is around $230 billion, which is about 2.15% of GDP. For US, R&D investment is estimated to be around 2.8% of GDP in 2016.

10. China’s invention patent applications exceed one million from Jan. to Oct. (English); 前10个月发明专利申请量超百万件 (Chinese).

11.WIPO Stats on Patent Application Filings Shows China Continuing to Lead the World (English);  China Tops Patent, Trademark, Design Filings in 2016 (English).

12,  “China Big Data Rule of Law Development Report 2017” released.   《中国大数据法治发展报告(2017)》发布 (Chinese).  Related:  Presentation on 2017 China Big Data Rule of Law Development Report 2017中国大数据法治发展报告(实录与PPT)(Chinese)

13.  China to boost competitiveness in AI (English) 产业三年行动计划提出在八大领域率先取得突破——人工智能服务渐入千家万户(Chinese).  The Ministry of Industry and Information Technology (MIIT) recently released an action plan to substantially improve the development of the AI industry. This plan set to make breakthroughs in eight areas, including smart cars, service robot, drone, AI medical diagnosis, facial recognition, voice recognition, smart translation and smart home product. The MIIT promised more policy support, including special funds, talent cultivation and a better business environment. Measures will also be rolled out to build industry clusters, set up key laboratories and encourage data sharing.

14.  Encourage indigenous innovation and build strong brands.  鼓励自主创新 聚力品牌经济 (Chinese).  The China Council for Brand Development is working with the National Development and Reform Commission to formulate “China’s Brand Development Strategy.” This program aims to cultivate 1000 well-known international brands in five years.

15.  More than 2000 clues have been received for the “Suyuan” campaign against trademark infringement.  打击商标侵权“溯源”行动已收到2000余条案件线索 (Chinese)  SAIC started a campaign called “Suyuan” against trademark infringement in September 2017. Until the end of November, more than 2000 clues on cases have been reported.

16.  Shenzhen IP court and Shenzhen Finance court were established 深圳知识产权法庭和深圳金融法庭同时揭牌办公 (Chinese).   A new Shenzhen IP court was opened on December 26, 2017. This court will handle intellectual property cases which were under the jurisdiction of the Shenzhen Intermediate People’s Court.

17,. Wang Jinshan was appointed as the Chief Judge of Beijing IP Court.  王金山被任命为为北京知识产权法院院长 (Chinese).  Wang replaces Chief Judge Su Chi, who has guided the court since it was first launched and implemented numerous reform projects. We wish him well. Judge Wang graduated from Peking University with a major in Law. He was the party secretary of Beijing IP Court since May 2017. Judge Wang also previously worked at Beijing Intermediate People’s Court.

18.  China’s software copyright registration exceeds 700,000 in 2017.  2017年我国软件著作权登记量突破70万件  http://www.nipso.cn/onews.asp?id=39313 (Chinese).

We hope to be providing more updates in the year ahead from the Berkeley Center for Law and Technology.

As usual the information contained herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

By Berkeley staff.

Should the NPC also consider Criminal Copyright Reform when it considers Copyright Reform?

Lamacchia.JPG

At this month’s National People’s Congress, an NPC spokesman noted that this year the NPC intends to address reform of the copyright law, which has been long delayed. However, reform of the substantive copyright law will not typically address the need to reform the criminal copyright law and to address the relationship between civil and criminal copyright law. This point was raised in the Weixin platform Zhichanli (知产力), which addressed the key issues of criminal copyright law reform in a lively “cartoon” format (see above):

The four issues from the perspectives of the author of that blog are:

1.       Article 217 of the criminal code, mandates having a “profit motivation” in order for criminality to attach.Should the “profit motivation” requirement be removed from the criminal code?

2.       Whether to criminalize the Internet related right of “communication over information networks”?

3.       How to address secondary and principal liability of internet platforms?

4.       Three separate specific issues, including:

a)       How to criminalize destruction of technological protection measures?

b)      How to criminalize commercial scale use of piratical software?

c)       What are the thresholds to deal with online criminal enforcement?

In my view, these are all important issues, which should be considered in the context of copyright reform.    Many of these  issues were raised in DS/362, the WTO enforcement case which the United States brought against China.    Of particular note was that the United States raised the history of  amending US laws to address willful copyright infringement that caused large scale harm without necessarily causing commercial gain (the LaMacchia case, in the cartoon above).  In addition, the United States also recognized that thresholds based on the numbers of copies would not capture the harm caused by technological changes which permitted large digital quantities to be distributed on line or in compressed formats.   One of the current thresholds involves 500 “flat articles”  ( 500 ) (typically used for CD’s or flat pieces of paper), which the WTO panel called “copies, for the sake of simplicity” and is an awkward determinant for infringement in rapidly moving technologies.

Also of note is that criminal IP enforcement has become more important in China. This was brought to my attention by a Chinese judge who mentioned that while China opposed the WTO case, it was now widely recognized that criminal IP is an important part of an IP enforcement system. In a sense, the US may have lost the 2007 battle over criminal IP at the WTO, but clearly won the war. The data bears this out. When the WTO was filed against China, there were only about 904 criminal IP  infringement cases in China (2007).   In 2013, by comparison there were 7,804 infringement cases – an increase of about 8 times, not including increases in other provisions of the criminal code that also can address IP infringement, such as crimes involving illegal business operations or fake and shoddy goods.

While China recognizes that criminal IP is enforcement it an important part of its enforcement system,  an equally important question concerns the role of the relatively small criminal IP enforcement system in light of China’s civil, administrative and customs enforcement (see chart below).  In addition to the increasing number of criminal IP prosecutions,  the increasing numbers of referrals from China’s administrative copyright enforcement to criminal copyright enforcement is an encouraging trend in this regard.  An even more encouraging sign would be consideration by the NPC of criminal copyright law reform at the same time as it considers substantive copyright law reform.  As criminal law reform goes through different procedures at the NPC, working on both issues simultaneously may entail some coordination, but would help ensure that any changes to China’s copyright regime is comprehensive and would set a good precedent for other IP legislative reforms coming up, such as in reform of the trade secret regime in the Antiunfair Competition Law.

 

criminalcourtdockets.JPG

False Friends (形似神异): Comparing US and Chinese Administrative Patent Enforcement

The China Patents and Trademarks journal has now made publicly available the article I wrote late last year with former USPTO Director David Kappos and former Chief Judge Randall Rader (ret.)  “Faux Amis: China-US Administrative Enforcement Comparison”, in both  English, and Chinese (形似神异:中美专利行政执法制度对比).  Kevin Lu 吕行 of USPTO also assisted in researching the article.

The article discusses the differences between administrative enforcement of patents in the United States International Trade Commission (Section 337) and by SIPO in China and notes that the comparisons of China’s administrative patent system to the USITC system are misleading, as the two systems are different both qualitatively and quantitatively. 

The opinions in the article are of course strictly the authors’ own.

Identical vs. Similar Trademarks in Criminal and Civil Adjudication

Both Judge Bao WenkJiong 包文炯 in Zhichanli, and James Luo on his blog, have recently  published  summaries of a 2014 case in Wuxi (无锡滨湖法院(2014)锡滨知刑初字第0002号刑事判决书) involving the definition an “identical” mark under China’s criminal trademark law.

This case raises the important question of the differing roles and standards for civil and criminal prosecution of trademark infringement – an issue that is especially important in light of the many different manners of enforcing IP in China, which also includes an extensive administrative punishment system.

Judge Bao noted that the court held that attention should be paid to avoiding excessive application of the “trademark similarity” standard of civil trademark cases to criminal cases.  More specifically, the case held that a counterfeit “identical trademark” in the criminal law means one that is identical with the registered trademark or not visually different from the registered trademark and therefor is enough to mislead the public.   Where, however, there is a slight difference between the accused counterfeit trademark and the registered trademark, the close similarity is sufficient to cause the relevant public to be confused and it should also be regarded as an “identical trademark.”

The requirement of an “identical trademark” derives from Article 213 of China’s Criminal Code, which provides:

“Whoever, without permission from the owner of a registered trademark, uses a trademark which is identical with the registered trademark on the same kind of commodities shall, if the circumstances are serious, be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined; if the circumstances are especially serious, the offender shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined.”

A 2004 judicial interpretation on criminal IP matters (关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释 (2004)) further clarified what constituted an “identical trademark” for purposes of China’s criminal IP laws:

“Article 8: An ‘identical trademark’ as provided for in Article 213 of the Criminal Law refers to the same trademark as the counterfeited registered trademark, or one that is substantially visually indistinguishable from the counterfeited registered trademark, and is sufficient to mislead the public.”

“第八条 刑法第二百一十三条规定的“相同的商标”,是指与被假冒的注册商标完全相同,或者与被假冒的注册商标在视觉上基本无差别、足以对公众产生误导的商标.”

Why should a higher degree of similarity of trademarks be required in criminal trademark cases but not for civil cases?    The critical test, to my mind, should be whether the infringement is willful, and not whether a cunning counterfeiter designed a mark that is insufficiently identical but nonetheless potentially confusing to a segment of the consuming population.  From a policy perspective, public criminal enforcement of the trademark laws can and should protect public interests greater than the legitimate trademark itself, including such interests as purchases by innocent consumers, protecting investment in brand creation and deterring brand dilution, and addressing the confusion of third parties who may be harmed by using these products.  These policies suggest that more liberal construction of what constitutes an “identical” trademark could be useful.   Indeed some courts in the United States have used civil standards to determine when a trademark is counterfeit (United States v. Petrosian , 126 F.3d 1232, 1234 (9th Cir. 1997).  Nonethelesss, even if prosecutors declined to prosecute an “identical” trademark case, the rights owner may still be free to bring a civil case under the “similar trademark” civil standard.

The Chinese summary of the case notes that the Jiangsu IP courts, where this case was held, play a role in delineating the role of the civil and criminal IP systems, as these courts have combined civil, criminal and administrative case adjudication in one tribunal.  I hope that these courts can play an even greater role in clarifying addressing the public policy needs behind different standards of IP protection under China’s civil, criminal and administrative enforcement regimes.

GAI and ABA Publish Their AUCL Comments

Attached are the comments of the American Bar Association Sections on International Law and Antitrust Law  on the proposed draft revisions of the Anti-Unfair Competition Law (AUCL)  as well as comments of the Global Antitrust Institute of George Mason University.

The ABA’s comments are comprehensive – addressing IP issues (including trade secret and trade dress), advertising law, competition law issues and commercial bribery.  GAI’s  comments are focused on the interface between the AUCL and the Antimonopoly Law.

Regarding the overlap with the AML, the GAI advocates that “any provisions in the AUCL that relate to conduct covered by traditional antitrust laws, or conduct covered by China’s Anti-Monopoly Law, be either omitted entirely or revised to limit liability to situations when there is substantial evidence of harm to competition.  … The AUCL should be implemented in a manner consistent with these objectives of competition policy.”  The same argument might be applied to other laws in China, such as Section 329 of the contract law, which deals with monopolization of technology.   In fact, China has a long history of industrial policy regulation of competition, much of which was enacted prior to China’s antimonopoly law.

Neither set of comments fully addresses a core concern of the proponents of this draft,  “that the administrative law enforcement is dispersed, that law enforcement standard is not unified, that the legal responsibility system is not perfect, and that the punishment is too lenient.”  Prior experience of administrative trade secret enforcement of the AUCL has shown that foreigners have not been a significant beneficiary, despite high level political attention paid to increased trade secret protection.   In the trademark context, SAIC’s foreign-related docket is several multiples of all foreign-related civil IP cases.  Increased administrative enforcement authorities raise several complicated concerns:  will these authorities be used fairly on behalf of Chinese and foreigners alike,  will trade secrets be protected by administrative agencies, are the courts better situated to adjudicate the various divergent issues,  what priority will AUCL enforcement assume in SAIC’s vast bureaucracy,  how will these expanded authorities be coordinated with criminal law enforcement and the courts, etc.

Update of March 16, 2017:  Attached are the  Comments of the American Intellectual Property Law Association.

 

 

Revised Patent Infringement Judicial Interpretation Released

The Supreme People’s Court published its revised judicial interpretation on patent infringement litigation.  I previously blogged about the early draft here.  Here is a Chinese language article on the press conference announcing the draft Judicial Interpretation, which was held on March 22, 2016.  The JI goes into effect April 1.

The drafting and timing of the JI seems to be drafted in part in response to perceived problems in enforcing patents in China, which have put pressure on the legislative bodies, courts and administrative agencies to seek appropriate reforms.  In particular, the JI may be perceived to be another policy initiative undertaken to address the continuing competition between the courts and administrative agencies over which agency should be the principle patent enforcing agency. Justice Tao Kaiyuan addressed this issue for the courts in an article earlier this year, while SIPO’s efforts to enhance its role were articulated in a draft SIPO revision of the patent law released for public comment by the State Council Legislative Affairs Office at about the same time as the draft law was released.

For those inclined to seek political motivations to legislative and policy actions particularly by competing agencies, the release of this JI is also proximate to the release by SIPO of its revised provisional guidelines for administrative enforcement earlier this month (March 2, 2016) (专利行政执法操作指南(试行).

The court’s press conference noted that the revision of the JI seeks to address concerns over patent litigation involving a high burden of proof, low damages and delay.

Who is winning in this competition – the courts, SIPO, the State or the patentee?  I hope to provide more detailed comments on the JI later.

Update April 3, 2016: : Song Haining has done a good summary of these recent developments in his blog, including an unofficial translation of the JI, available here.

Beginning the Journey for Trade Secret Reform: the Recent AUCL Draft

A much awaited, proposed public draft revision to the Antiunfair Competition Law was released by the State Council Legislative Affairs Office on February 25, 2016. Comments are due by March 25, 2016.  An open source translation is available here.

This is not an easy law to comment on, as the law combines a range of various issues to varying degrees: competition and fair trade law, trade secrets law, trade dress law, cybersquatting and enterprise name infringements, advertising regulation, bidding law, compliance/anti-bribery, network management and other areas.  Strictly speaking it is not an IP law which focuses on giving individuals private rights.  Rather, it is geared towards ensuring that there is fair competition in the market, as its title suggests.

A key focus for me has been on the trade secret provisions of the draft.  Pertinent provisions are discussed and copied below:

“Article 9: A business operator must not carry out the following acts infringing on trade secrets:

(1) Obtaining rights holders’ trade secrets by theft, enticement, intimidation, fraud, or other improper tactics;

(2) Disclosing, using, or allowing others to use a rights holders’ trade secrets acquired by tactics provided for in the previous item;

(3) Disclosing, using, or allow others to use trade secrets in their possession, in violation of agreements or the rights holders’ demands for preserving trade secrets.

Where a third party clearly knows or should know of unlawful acts listed in the preceding paragraph, but obtains, discloses, uses or allows others to use a rights holders trade secrets, it is viewed as infringements of trade secrets.

(一)以盗窃、利诱、胁迫、欺诈或者其他不正当手段获取权利人的商业秘密;

(二)披露、使用或者允许他人使用以前项手段获取的权利人的商业秘密;

(三)违反约定或者违反权利人有关保守商业秘密的要求,披露、使用或者允许他人使用其所掌握的商业秘密。

“Trade secrets” as used in this Law refers to technological information and business information that are not publicly known, have commercial value, and are subject to corresponding secrecy measures taken by the rights holder.”

Importantly, the draft drops the earlier statutory requirement that trade secrets had to have practical applicability, a “TRIPS-minus” provision which may have had the effect of denying trade secret protection to experimental failures.  The distinction between technical information and business information in this draft may also reflect other laws and government agencies some of which, like the Ministry of Science and Technology and SIPO have expressed interest in “technical trade secrets” or “service invention” compensation for trade secrets. Chinas IP courts similarly have jurisdiction over technical trade secrets, but not business confidential information.

The law also expands the scope of a covered business operator, to include natural persons, which is a positive step:

“‘Business operators’ as used in this Law refers to natural persons, legal persons or other organizations engaged in the production or trade of goods, or the provision of services. (“goods” hereinafter includes services). “(Art. 2)

The draft offers very little in the way of improving procedures for trade secret litigation.  There are improvements to trade secret administrative enforcement.

“Chapter III: Supervision and Inspection

Article 15: When supervision and inspection departments investigate acts of unfair competition, they have the right to exercise the following powers of office:

(1) Enter business premises or other venues related to the conduct under investigation to conduct inspections;

(2) Question business operators under investigation, interested parties, or other entities or individuals, and request supporting materials, data, technical support or other materials relating to the acts of unfair competition;

(3) Make inquiries about, or reproduce, agreements, account books, invoices, documents, records, business correspondence, audio-visual materials or other materials relating to the acts of unfair competition;

(4) Order business operators under investigation to suspend suspected unlawful acts, to explain the source and quantity of property related to the conduct under investigation, and to not transfer, conceal or destroy that property;

(5) Carry out the sealing or seizing of property suspected to be involved with acts of unfair competition;

(6) Make inquiries into the bank accounts of business operators suspected of acts of unfair competition as well as accounting vouchers, books, statements and so forth relating to deposits;

(7) Where there is evidence of the transfer or concealment of unlawful funds, an application may be made to the judicial organs to have them frozen.

Article 16: When supervision and inspection departments are investigating acts of unfair competition, business operators under inspection, interested parties or other relevant units or individuals shall truthfully provide relevant materials or circumstances, shall cooperate with supervision and inspection departments performing duties according to law, and must not refuse or obstruct supervision and inspection.”

Although I believe most right holders seek improvements in trade secret enforcement, including more deterrent remedies, I am uncertain how much those desires extend to administrative enforcement.  Transferring of relevant confidential material to an SAIC official tasked with trade secret enforcement will raise concerns of further trade secret leakage, which are probably not of equal concern in the case of administrative enforcement of, for example, trade dress infringements covered under this draft law.    Moreover, the State Council has elsewhere stated that all administrative cases should be conducted ex-officio.  To me administrative ex-officio enforcement of trade secrets, with authority to enter business premises to inspect and conduct investigations, is problematic.

The draft law also seeks to increase administrative fines for trade secret theft, and improve burden of proof issues:

“Article 22: Where business operators violate the provisions of Article 9 of this law, the supervision and inspection departments shall order them to cease the unlawful acts, and shall impose a fine between 100,000 and 3,000,000 RMB depending on the circumstances; where the act constitutes a crime, criminal responsibility is pursued in accordance with law.

Where the rights holders of trade secrets can prove that information used by others is substantially the same as their trade secrets and that those others had the capacity to obtain their trade secrets, those others shall bear the burden of proof to show that the information they used came from lawful sources.”

It is unclear to me from Article 22, that this “burden of proof” reversal in the second paragraph above applies to administrative enforcement or civil enforcement, or even criminal process.  Moreover, the requirement of substantial similarity of the technology for the shifting to take effect, is probably too high a threshold, having been an impediment for plaintiffs in trade secret litigation in China to date.

Does this law go far enough in addressing trade secret issues in China?

Although SAIC has historically conducted many administrative trademark cases on behalf of foreigners, historically trade secret administrative enforcement has not significantly benefitted foreign companies or small enterprises.  As I previously blogged:

That there were 174 trade secret cases [for 2008-2010] out of 110,896 cases involving the Law to Counter Unfair Competition, or about 0.2% of the total. In addition, the data shows that average fines were 11,624 Yuan, and only 7 cases or about 4 % of the trade secret case were referred to criminal enforcement.  Like the civil system, the administrative system also appears to be frequently used to address employee theft of confidential information.  Precisely one third, or 58 of these 174 cases involved individual respondents; 24 involved private companies  (14%) and 23 cases involved individual businesses (13%).   There were no cases where a state owned enterprise or publicly held company was named as a defendant in an administrative action.  

One may question, therefore, whether this draft revision of the AUCL addresses the full range of substantive and procedural improvements that need to be made to improve trade secret enforcement in China, much of which may be more uniquely linked to trade secret protection compared to other IP rights.  Moreover, many of the problems are amplified by comparison with trade dress or other provisions of this draft law.

Much of the problem with trade secret protection has been in the lack of discovery in the civil system.  One significant advantage of improved trade secret administrative enforcement however could be in facilitating the transfer of information obtained in administrative investigations to civil courts or law enforcement authorities, consistent with State Council guidance on facilitating case transfers.  Improving civil procedures for trade secret cases could also greatly help in civil prosecution of trade secret cases, including by making necessary changes in evidence collection, burden of proof reversals, and other areas.

The current draft appears unduly oriented to instances where trade secret theft has actually occurred.  One critical area concerns the availability of relief for threatened misappropriation of trade secrets including preliminary injunctions, adoption of “inevitable disclosure” type doctrines, and evidence or asset preservation measures.  Such measures can be especially important as the harm that may be caused by a misappropriation may be incapable of being compensated for by the misappropriator or beneficiary of the theft. Although revisions to China’s Civil Procedure Law now permit preliminary injunctions for trade secret theft (Eli Lilly vs. Huang Mengwei),  China may wish to consider specific provisions in this law to facilitate more liberal dispensation of provisional remedies.  China had specifically provided for preliminary injunctive relief in other IP laws, before the most recent Civil Procedure law amendments, and may want to consider appropriate provisions for trade secrets.

Regarding threat of trade secret law, the current law also only addresses “disclosing, using, or allowing others” to use the secret information.   This deficiency could easily be remedies by including language on threat or imminent trade secret theft.    The Uniform Trade Secrets Act in the United States, by comparison, specifically addresses “actual or threatened misappropriation” which may be enjoined, and also provides a remedy for trade secret inducement.  The TRIPS Agreement itself clarifies that a key focus of WTO member trade secret obligations is “preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices.” (emphasis added).  The need for preventative measures is also reflected in TRIPS Article 41, which requires WTO members to have “expeditious remedies to prevent infringements.”  In addition, inducement liability is being considered in other China IP laws (patent/copyright) and does not appear to be part of this draft.  A clear definition of inducement liability may be helpful in limiting losses due to third party misappropriation of trade secrets.

China’s trade secret regime also has several other challenges, including difficult criminal thresholds; unclear relationships with labor law, labor mobility regulations, and employee non-competes; difficulties in gathering evidence; unclear divisions among the appropriate role of civil, criminal and administrative remedies;  and even an emphasis on trade secret protection as an aspect of market regulation, rather than as a civil IP right, as is under consideration.    Some of these deficiencies may be cured by judicial interpretation and guidance, as was previously addressed by the Supreme Peoples Court in an earlier Judicial Interpretation.

The focus on market regulation denies trade secret holders in China the ability to address infringement based on where a product that benefits from a trade secret misappropriation is sold, but instead may require litigation where the misappropriation occurred.  See Siwei v. Avery Dennison (Min San Zhong Zi No. 10/2007) (Sup. People’s Ct. 2009) (China).   This may also encourage foreign litigants, concerned about  local protectionism or undue influence of local companies on local courts, to seek remedies elsewhere (such as through Section 337 remedies in the United States).  In addition, the lack of discovery can also lead to the “exporting” of such litigation.  Making these necessary procedural improvements, including improving “success rates” for domestic trade secret cases and improving procedures for gathering evidence, may also enhance China’s position that Chinese judgements in trade secret cases are entitled to res judicata effect in other jurisdictions.

Former SPC Vice President, now Chief Procurator  Cao Jianming 曹建明, noted in 2005,  trade secret enforcement was the area with the “greatest difficulties” for the courts Industry has also raised concerns about many of these deficiencies.  While many of the changes in the AUCL on trade secret protection are positive, a more comprehensive approach could require reforms in other areas, including the practices of law enforcement and the courts, administrative law reform, civil law reform, and/or a stand-alone trade secret law.

My personal estimation: the AUCL draft is a beginning and not an end in the trade secret reform process.