Supreme People’s Court Releases Trade Secret JI

On September 11, 2020,the SPC released its trade secret JI on civil enforcement of trade secrets.  Here is a link to a Chinese text comparing the final version with the draft released for public comment.  The USPTO unofficial translation of the prior draft is available here.

While we wait for the translations and commentaries, Article 14, which is newly inserted, caught my eye:

“第十四条  通过自行开发研制或者反向工程获得被诉侵权信息的,人民法院应当认定不属于反不正当竞争法第九条规定的侵犯商业秘密行为。

 前款所称的反向工程,是指通过技术手段对从公开渠道取得的产品进行拆卸、测绘、分析等而获得该产品的有关技术信息。

被诉侵权人以不正当手段获取权利人的商业秘密后,又以反向工程为由主张未侵犯商业秘密的,人民法院不予支持.”

A rough translation is:

“14. When the alleged infringer obtains information developed its own R&D or through reverse engineering, the People’s Court shall determine that these are not violations of trade secrets pursuant to the provisions of Article IX of the Anti-Unfair Competition Law.

 Reverse engineering referred to in the preceding paragraph refers to the disassembly, mapping, analysis, etc. of products obtained from public channels through technical means to obtain relevant technical information of the product.

When the alleged infringer obtains the right holder’s business secrets by improper means, and thereafter claims that the business secrets have not been infringed on the grounds of reverse engineering, the People’s Court shall not support [this defense].”

This language replaces proposed Article 8: “Where the alleged infringer asserts that it has obtained the alleged infringing information by means of research and development, transferee, license, reverse engineering,
inheritance, etc., the alleged infringer shall provide evidences to prove so.”

The more thoughtful approach in this final text should reduce the viability of defenses based on changes to technology made by the alleged misappropriator which had subsequently given rise to overly broad reverse engineering defenses in China.  A similar case was presented in an earlier case: 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). 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).  US law tends to focus on unauthorized access rather than use of the unauthorized information.  Adoption of this change may also bring China a step closer to US practice.

SAMR Releases Draft Trade Secret Rules for Public Comment

On September 4, 2020, the State Administration for Market Regulation (SAMR) released Draft Trade Secret Protection Rules for public comment  [商业秘密保护规定(征求意见稿)] including an accompanying explanation. Comments are due by October 18, 2020. 

SAMR announced its intention to draft these rules in its 2020 legislative work plan.   As with the earlier rules that these supersede, they are directed towards handling of trade secret administrative enforcement by SAMR.  The earlier rules had been criticized for only providing protections for Chinese citizens and not foreign nationals in Article 2, which provided that  “the term ‘rights holder’ in these regulations refers to citizens, legal persons or other organizations that have ownership or use rights over trade secrets according to law. ” 本规定所称权利人,是指依法对商业秘密享有所有权或者使用权的公 民、法人或者其他组织.  This apparent discrimination against foreigners was identified to the Chinese delegation at the WTO in 2002. See WTO, IP/C/W/374, Sept. 10, 2002, “Review of Legislation” at p. 44.   These new rules appear to be far more comprehensive, and do not carry the same regrettable language about citizens. 

Statistics generally show a low level of utilization of the trade secret administrative enforcement mechanism.  In 2011, for example, the State Administration for Industry and Commerce yearbook (predecessor agency to SAMR), revealed that SAIC had only brought 57 administrative trade secret cases, with 2, 579 RMB in average fines (about $390.00) (SAIC Yearbook, at p. 855).  Notwithstanding this low level of utilization of the administrative enforcement system and discriminatory language in the earlier rules,  improving administrative enforcement of trade secrets was agreed to bilaterally in the 2012 Strategic and Economic Dialogue, by which China committed to place trade secret protection in the “2012 Annual Work Plan of the State Council Leading Group on Intellectual Property Enforcement.”  About that time, the State Council Leading Group had been especially active in coordinating and improving administrative enforcement.  One problem posed by this commitment is that trade secret enforcement is especially not susceptible to the kind of investigations of virtual or physical markets that SAMR (or SAIC) have historically excelled in.  It is therefore not surprising that despite the commitments by China in the Phase 1 Agreement on several IP-related special administrative campaigns involving various markets, the trade secret provisions focus on civil and criminal enforcement.  Perhaps the caseload will increase with the additional powers granted to SAMR and the increased focus on trade secret enforcement by China.  However, many people, including myself, believe that trade secret protection may be best handled by the courts.  Moreover, if the subject of the trade secret infringement involves technology, the IP courts may be best equipped to handle those matters.

Aaron Wininger has written a useful general overview of the draft which is available here.

Draft NMPA and CNIPA Rules on Patent Linkage Released for Public Comment

China’s National Medical Products Administration on September 11, 2020, in conjunction with the China National IP Administration  released the draft “Implementation Measures for the Early Resolution Mechanism for Drug Patent Disputes (Trial) (Draft for Comment)” (the “Draft Measures”) for public comment (  国家药监局综合司 国家知识产权局办公室公开征求《药品专利纠纷早期解决机制实施办法(试行)(征求意见稿)》意见).  The announcement includes the text of the draft measures and an accompanying explanation.  Note that this drafting is occurring at the same time as the patent law is undergoing amendment, and the Supreme People’s Court had also  announced a plan on March 31, 2020 to issue a judicial interpretation on patent linkage (Provisions on Several Issues concerning the Application of Law in the Trial of Pharmaceutical Patent Linkage Dispute Cases 关于审理药品专利链接纠纷案件适用法律若干问题的规定).   

Some background: patent linkage is contemplated by the Phase 1 Agreement which calls for an “Effective Mechanism for Early Resolution of Patent Disputes.” (Sec. 1.11), and by the draft patent law amendments released in July 2020 (Art. 75).  SAMR’s earlier legislative plans  and CNIPA’s 100 IP project list for 2020 did not specifically call for enacting of linkage regulations.  The Phase 1 Agreement calls for “procedures for judicial or administrative proceedings and expeditious remedies, such as preliminary injunctions or equivalent effective provisional measures, for the timely resolution of disputes concerning the validity or infringement of an applicable patent claiming an approved pharmaceutical product or its approved method of use.” It does not notably, call for only a judicial or administrative system to implement the linkage regime, nor does it identify a requirement of “artificial infringement” whereby a generic company’s seeking to challenge an innovator’s marketing exclusivity would constitute patent infringement.  Some observers have thought that the recent experiment by the national appellate IP court combining an infringement and validity trial might serve as a useful judicial pilot for patent linkage determinations.

The Draft Measures refer back to the patent law for authorization, and also appear to govern both judicial and administration actions.  Although a detailed analysis will require further examination and review, the Draft Measures appear on first glance to be an effort by NMPA and CNIPA to anticipate proposed legislative changes by beginning the work on what might ultimately become an agency rule.  NMPA has issued many similar “implementing provisions” over the past several years.  A further clue in this regard is that comments are to be prepared on a form, which is then to be sent to NMPA, rather than to the State Council or Ministry of Justice – who normally prepare State Council regulations.  Chinese IP agencies have in the past announced draft rules or implemented them in advance of actual legislative changes, perhaps out of confidence in the ultimate passage of superseding legislation, but also, in my view, to advance the discussion on important issues and help advocate for particular positions.

Please send me your comments and any translation that you can share on this important document.

Update of September 16, 2020: Courtesy of King & Wood Mallesons, here is an English translation of the draft proposed rule for public comment.