Handling violations of trade secret protection in China

Protecting business secrets in China has always been a concern for every business operating here. With the rapid economic development and increasingly fierce competition, the protection of trade secrets has become a decisive factor for the success of every business. Business secrets are not only a driving force for innovation and creativity but also an important factor to attract investment, improve competitiveness and contribute to the sustainable development of the economy. However, the protection of trade secrets in China also faces many challenges such as a fierce competitive environment, lack of awareness or a limited legal system. To deal with these challenges, businesses need to build a tight security management system, invest in security technology, raise employee awareness, and seek legal support. Viet An Law would like to guide customers on how to protect trade secrets in China through the article below.

The concept of trade secrets in China

Article 9, paragraph 4, of China’s Anti-Unfair Competition Law stipulates:

“Trade secrets in this Law include technical information, business information and other commercial information that is not public, has commercial value and has been subject to corresponding security measures by the owner.”

Therefore, the three elements of trade secrets are defined as:

• Secrecy: they are not public;
• Value-driven: capable of bringing economic benefits to the owner, thus having commercial value; and
• Security: security measures have been taken by the owner.

Technical information is often reflected in design drawings, processes, formulas, technical solutions, etc., while business information typically includes customer information, trading habits, business policies, and financial information.

Violations of trade secret protection in China

Infringement of trade secret protection in China is a serious problem, affecting the development of enterprises, especially high-tech enterprises. According to China’s Anti-Unfair Competition Law, trade secrets are information that is not public, has commercial value, and has been protected by its owner.

Typical violations include

• Unauthorized appropriation: This is the most common behavior, which involves copying, using, or disclosing another person’s business secrets without permission.
• Industrial espionage: Activities that collect confidential information by illegal methods such as hacking into computer systems, phishing, or bribing employees.
• Breach of contract: Violation of confidentiality clauses in contracts, such as labor contracts, cooperation contracts.
• Unfair competition: Using stolen trade secrets to compete unfairly, causing damage to competitors.
• Disclosure of inside information: Employees or former employees disclose confidential information to third parties.
• Impersonation: Unauthorized use of the brand name, logo, or other symbols of the business to deceive customers.

Exceptions

• The information has become public: If the information has been made publicly available through legitimate channels, it will no longer be considered a trade secret.
• Independent Development of Information: If another party independently develops the same information without knowing the existence of the first-party trade secret, they can use that information without violating the law.
• Information in the public domain: Information in the public domain such as common knowledge, industry standards, or published patents will not be protected as trade secrets.
• Information Disclosed as Required by Law: If the information is required to be disclosed by law, such as in lawsuits or investigations, then this disclosure will not be considered a violation.

Guidelines for the implementation of sanctions for violations of trade secrets in China

Use of civil remedies

In the event of illegal appropriation of a trade secret that qualifies under Chinese law, the owner may choose one of the following civil remedies:

• Permanent ban: Prevents the other party from continuing the violation.
• Compensation for damages: Includes direct losses, illicit profits of the other party, reasonable royalties, and other incurred expenses. In cases of serious violations, the form of compensation and fines of 5 times the amount of damage may be applied.
• Compensation for past damages: The owner can claim compensation for damages that occurred within 3 years of the discovery of the violation.

Use of administrative measures

In addition to civil proceedings, the owner of a trade secret can ask for the support of the market management agency to handle violations. This agency has the right to apply administrative measures such as fines and forced termination of violations. However, this form of sanction is usually only suitable for simple cases and cannot fully compensate the owner for damages. Local Market Authorities (MSAs) are state administrative agencies in China, which play an important role in supervising and managing business activities in the area. One of the main tasks of MSAs is to protect intellectual property rights, including preventing and dealing with violations related to trade secrets. Key Functions of MSAs in Protecting Trade Secrets

• Receiving and resolving complaints: When a business or individual is suspected of infringing intellectual property rights, especially trade secrets, they can submit a complaint to local MSAs.
• Investigation and verification: MSAs will conduct investigations and collect evidence to verify the authenticity of the complaint.
• Handling of administrative violations: If detecting violations, MSAs have the right to apply administrative sanctions such as:
  • Fine: Applicable to acts of violating regulations.
  • Forcible termination of infringing acts: Request the violators to immediately stop acts of infringing intellectual property rights.
  • Confiscate material evidences and documents related to violations.
  • Announcing the sanctioning decision as a deterrent.
• Cooperation with other agencies: MSAs closely coordinate with other agencies such as the police and courts to handle complex cases, especially cases with criminal signs.

Use of criminal measures

In case the acts of violating trade secrets show signs of crime, the case will be transferred to the police for criminal investigation. The criminal investigation process can provide additional evidence to strengthen the civil lawsuit, helping the owner of a trade secret effectively reclaim his rights. Public Security Bureaus (PSBs), or Public Security, play an extremely important role in protecting trade secrets in China. Although not a specialized agency in charge of intellectual property, PSBs are the frontline force in preventing and handling violations of the law, including acts of infringing on trade secrets. The specific role of PSBs in criminalizing trade secrets includes:

• Investigation of criminal cases related to trade secrets:
  • When there are sufficient grounds to show that the infringement of trade secrets has constituted a crime, PSBs will conduct an investigation, collect evidence, identify the subject and conduct criminal proceedings.
  • Typical violations can be mentioned such as: theft of confidential information, unauthorized disclosure of information, unfair competition based on confidential information.
• Arrest of subjects: PSBs have the right to arrest those who violate the law on trade secrets, especially in cases where it is necessary to ensure security and order and collect evidence.
• Evidence Collection: PSBs are equipped with tools and techniques to collect evidence in cases involving trade secrets, such as searches, seizure of documents, and technical examinations.
• Coordination with other agencies: PSBs work closely with other agencies such as courts, procuracies, market surveillance departments to ensure that cases are handled comprehensively and effectively.