Treating the “Foreign” Differently in Trade Secret Enforcement

Chinalawtranslate has translated the second reading of the Criminal Law amendments (XI) 中华人民共和国刑法修正案(十一), including proposed changes to the trade secret provisions of the Criminal Law.  The Chinese is available here.  The NPC Observer is tracking the passage of these amendments here.  Comments were due by November 19, 2020.  The second reading provisions on trade secrets did not change from the first reading, which I discussed here.

Both the proposed amendments to the Criminal Law and the administrative rules on trade secret enforcement establish differential treatment for trade secret enforcement when a foreign element is involved. The proposed Criminal Law provisions provide enhanced penalties when a trade secret theft is undertaken on behalf of a foreigner.  Article 3 of SAMR’s  draft proposed trade secret enforcement rules offer administrative enforcement only for Chinese trade secrets.

For readers’ convenience, here are the excerpts from Chinalawtranslate:

“17. Amend Article 219 of the Criminal Law to read:

Where any of the following acts violating commercial secrets are committed and the circumstances are serious, a sentence of up to three years imprisonment or short-term detention is to be given, and/or a fine; and where circumstances are especially serious a sentence of between three and ten years imprisonment is to be given and a concurrent fine.

(1) Obtaining commercial secrets by theft, enticement, fraud, intimidation, electronic trespass, or other improper tactics;

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

(3) Disclosing, using, or allowing others to use commercial secrets in their possession, in violation of confidentiality obligations or the rights holders’ demands for preserving commercial secrets.

Where one clearly knows or should know of acts listed in the preceding paragraph, but obtains, leaks, uses or allows others to use commercial secrets, it is viewed as infringements of the commercial secrets.

The Rights-holder as used to in this article refers to the owners of commercial secrets and those permitted to use commercial secrets by the owner.

18. Add one article after Article 219 of the Criminal Law to be Article 219-1:

Where commercial secrets are stolen, spied upon, sold, or illegally provided to overseas institutions, organizations, or persons, a sentence of up to 5 years imprisonment or short-term detention is given, and/or a fine; and where the circumstances are serious, the sentence is to be 5 years or more imprisonment and a concurrent fine.”

2nd Round of Patent Law Amendments Released for Comment

According to the NPC Observer and other sources, the NPC Standing Committee is now seeking comments to the second review draft of the  Patent Law amendments专利法修正案草案二次审议稿.  The official NPC comments released with the draft are here.  A longer report on the status of the revisions of the Patent Law dated June 28, 2020 is found here.  Comments are due by July 31, 2020.

In reviewing this draft, it may be worth referring to the prior draft including a translation provided by the Anjie law firm.

Please send in any translations that you have as well as any comments that you would like to share (chinaipr@yahoo.com).

Along with the recently proposed revisions to the Copyright Law, as well as drafts of recent judicial interpretations and further implementation of the Phase 1 Trade Agreement, this has been a busy season for law and policymaking in IP in China

The Patent Law will be discussed at the concluding webinar that Berkeley will be hosting July 15, 2020.  Prior to that, on July 8, 2020 there will also be a webinar on the Copyright Law including the proposed amendments.  Information on this successful series is available here.

An Unwelcome Addition and A Welcome Subtraction in the Technology Transfer Provisions of the New Civil Code

The Civil Code of China has now been enacted by the National People’s Congress (eff. January 1, 2021).  As previously discussed in this blog, the Civil Code now incorporates the technology contract provisions of the former Contract Law, with certain revisions.   

There are two significant changes in the enacted technology contract provisions from the prior public draft.  One constitutes an unwelcome addition, while the other is a welcome removal.

The Unwelcome Addition

The unwelcome addition is the underlined text below:

第八百四十七条   职务技术成果的使用权、转让权属于法人或者非法人组织的,法人或者非法人组织可以就该项职务技术成果订立技术合同。法人或者非法人组织订立技术合同转让职务技术成果时,职务技术成果的完成人享有以同等条件优先受让的权利。 职务技术成果是执行法人或者非法人组织的工作任务,或者主要是利用法人或者非法人组织的物质技术条件所完成的技术成果。

Article 847 Where the right to use or transfer a service technical achievement belongs to a legal person or an unincorporated organization, the legal person or unincorporated organization may conclude a technical contract for the service technical achievement. When a legal person or an unincorporated organization concludes a technology contract to transfer service technology achievements, the person who completed the service technology achievements has the right to receive priority transfer on equal terms. The service technical results are the technical results of performing the work tasks of a legal person or an unincorporated organization or mainly using the material and technical conditions of a legal person or an unincorporated organization.

This provision is like Article 29 of SIPO’s draft service invention remuneration regulations which provided:

第二十九条 单位拟转让职务发明的知识产权的,发明人享有在同等条件下优先受让 的权利。

29. Where an entity intends to assign intellectual property rights of a service invention, the inventor is entitled to priority transfer on equal terms.

This provision is similar to Articles 339 and 340 of the Contract Law (1999), which had however established that this right was subject to other terms separately negotiated (除当事人另有约定的以外), however it is now non-negotiable.  The IP and International Law Sections of the American Bar Association had commented on the non-negotiable draft regulation (April 20, 2015).  It noted that such language was “contrary to international norms”, but also was contrary to the ownership rights of the acquiring company.  Moreover, such a right may be in conflict with the employee’s labor contract with her company.  As drafted this language may also entail an additional layer of approvals from the inventor and could impede subsequent commercialization through sublicensing or assignment to third parties by the owner by establishing a non-waivable first right of first refusal which is also not limited by time.  It may thereby weaken China’s ability to commercialize higher value service invention patents at precisely the time when its technology markets appear poised to take-off.  I hope that subsequent laws, regulations and court practice will limit its potentially expansive scope.

The Welcome Removal:

Article 850 addresses appears to address a long-standing contract in the technology contract law, namely its overlapping jurisdiction with China’s Antimonopoly Law.   As I noted in my prior blog, an added level of ambiguity is interposed because the Civil Law is more recent that the revisions to China’s Technology Import/Export Regulations, and is at higher level of legislation than these regulations.  Moreover, it is considered major legislation,  as it is enacted by the NPC as a whole and therefor might be considered as having significant persuasive weight.  Vague language in the technology transfer contract provisions of the Civil Code such as “mutual benefit”, “monopolize technology”,  “hindering technology progress”, ‘infringing technological achievements”, create unpredictability in China’s burgeoning technology markets.  The the removal of “hindering technology progress” as a basis for invalidating technology contracts (Art. 850) is therefor welcome:

第八百五十条 非法垄断技术、妨碍技术进步或者侵害他人技术成果的技术合同无效。

Article 850 A technology contract that illegally monopolizes technology, hinders technological progress, or infringes on the technological achievements of others is invalid.

The removal of this phrase  may serve to limit discretion of courts or administrative agencies in invalidating contracts to circumstances more clearly defined by third parties.  Contractual provisions that are determined to be anti-competitive under China’s Antimonopoly law or are determined in a court or administrative proceeding to infringe on the rights of third parties are now more clearly within the scope of Article 850.   Moreover, the Antimonopoly Law already contains eight separate references to technology development and thus may be said to adequately reflect concerns over contracts that seek to monopolize technology.  Contrariwise, there is no separate agency specifically tasked to determine what constitutes “technological progress” in a contract, so its removal makes clear that invalidity determinations may depend on separate antimonopoly or infringement proceedings.  

Article 850 was originally promulgated in Article 329 of the Contract Law  (1999).  Its adoption occurred eight years before China enacted its Antimonopoly Law.  With the passage of the Antimonopoly Law, it created an unnecessary ambiguity over its scope and role. this Civil Code revision is a welcome rejoinder to the concerns I had previously raised in a book I coauthored on the AML (2011), and in testimony before the US-China Economic and  Security Review Commission (2015). At that time I expressed concern about China’s desire to pursue antimonopoly regulation in licensing contracts in the absence of an antimonopoly law. Those concerns now appear to have been addressed.

Conclusion:

I hope you will considering joining me and several other great speakers when we discuss these and other issues in a timely webinar on Licensing and Antitrust in China, Wednesday June 3, 2020 at 4:30 PM PST.