The Chinese IP environment continues to pursue its own domestic needs-driven agenda. Criminalization of trade secret matters, while an area of concern to the United States, is also important to China’s development of an innovative economy. Certain improvements in China’s criminal trade secret regime are also contemplated in the coming year, including a lowering of criminal thresholds, as required by the Phase 1 Trade Agreement (Art. 1.7) and the SPC’s judicial interpretation plans for the year.
It is not surprising, then, that a recent Nanshan (Shenzhen) criminal trade secret case involving employee misappropriation of 5G-related technology from ZTE has caught the attention of the media, including Aaron Wininger and Jacob Schindler (behind a paywall), as well as the Chinese press. As Western reporters have noted, how much is such a case a harbinger of changes to come?
There are three significant concerns with reading this case as an example of criminal trade secret reform in China: (a) it took place in Shenzhen; (b) it involved an SOE as a victim (ZTE); and (c) it involved an important technology to China (5G).
Shenzhen has long been a center of criminal trade secret litigation, with a typical scenario involving a well-connected local Chinese company suing its ex-employees for theft of trade secrets. I recall a meeting I had with the Shenzhen police department many years ago, where their case statistics suggested that they may have investigated as many as one fourth of the total number of criminal trade secret cases in China that year. My back of the napkin calculation at that time seems to have been accurate. For example, during the period from mid-2013 to -2014, Shenzhen courts heard 23 criminal trade secret cases involving 25 people. By comparison, in 2017, the total number of criminal trade secret cases handled nationwide by the courts was 26.
Whatever the current number, the police department from Shenzhen is proactive in that area. It has brought several cases on behalf of local companies. The Shenzhen police even polls companies on how they manage trade secret concerns. Moreover, as with the recent cases, and China’s administrative enforcement mechanisms for trade secrets, defendants are typically SME’s or individuals.
Concerns have also been expressed in the past about excessive criminalization of trade secret cases in China. If there are high damages where there is adequate proof or other measures to compel evidence (such as under recent revisions to the Anti-Unfair Competition Law), civil cases should also be brought, and might thereafter be referred to criminal prosecution by the civil judge as suggested by Prof. Huang Wushuang 黄武双 . Prof. Huang is a leading Chinese academic in this area; 34 of his recent lectures on trade secretion protection in Chinese are found here. .
How much of a “ripple in still water,” without any durable impact, is this recent case? One important test will be whether a foreign victim of trade secret theft involving a priority technology for the Chinese government would have similar access to criminal trade secret enforcement resources, particularly if the defendant is an important local Chinese company.
I will discuss a few other potential “ripples in still water” in forthcoming blogs…