Overview of Trade Secret

Author:Dr. Ke MOU, Liu Shen & Associates | UpdateTime:2016-11-30 | Hits:

As an important form of intellectual properties, trade secret is attracting more and more attentions, especially for operational information such as customer list and technical information within the software filed.

In China, trade secret is mainly protected by “Unti-unfair Competition Law of the People's Republic of China” and “Criminal Law of the People's Republic of China”. Article 10 of the “Unti-unfair Competition Law” prescribes the situations of infringing on the trade secret, and also gives a definition to the trade secret: the technical information and operational information which is not known to the public, which is capable of bringing economic benefits to the owners of the rights, which has practical applicability and the owners of the rights have taken measures to keep secret. Accordingly, there are three main constitutive elements for the trade secret: secrecy (not known to the public), economic value (economic benefits and practical applicability) and protecting measures (measures to keep secret).


In judicial practice, the court reviews the trade secret case sequentially on the following factual issues: constitutive elements of the trade secret, act of infringement, and liability of infringement.


1) constitutive elements of the trade secret

Constitutive elements of the trade secret is the crucial and difficult points of the court review, and the court hearing is focused on the secrecy and protecting measures of the information at issue.


1.1) secrecy

As the secrecy “not known to the public” is a negative fact, it is very difficult for the plaintiff to testify, and thus in practice, the court usually appropriately lowers the standards of proof. The burden of proof is regarded as fulfilled, if the plaintiff proves the information at issue differs from and improves the public information, and if the conclusion of judicial evaluation and expert witness support the establishment of the trade secret. On the other hand, the defendant may prove the information at issue is known to the public as defense.


1.2) protecting measures

Hearing on protecting measures is to examine whether there are measures to keep secret (such as whether a confidential contract is signed) and whether the measures are appropriate (whether there are only general confidentiality clauses), so as to determine the intention of the right holder to protect the trade secret, the recognition of the defendant on the information and the subjective malice of the infringer.


1.3) economic value

Both parties usually do not have many disputes on this point.


1.4) others

In addition, the plaintiff should point out the protection scope of the trade secret (i.e., the trade secret points), and usually it should be specified to the concrete information of the technical solution for a technical information, and name and contact information of the customer, prices, transaction habits, terms of payment and so on for operational information. Furthermore, the plaintiff should provide evidences such as technical drawings, original records and contract signed to prove the ownership of the trade secret.


2) act of infringement

After proving the establishment of the trade secret, the hearing will turn to the act of infringement. In practice, the burden of proof for the plaintiff is adjusted to further reduce the burden on testification, and the commonly used rule is as follows: “substantially identical + contact - lawful origin”.


The plaintiff firstly proves the accused information is identical or substantially identical to the trade secret, and the defendant has contacted the trade secret. Then, after the plaintiff fulfills the testification, the burden of proof will be shifted to the defendant to prove the lawful origin of the accused information.


The lawful origin of the accused information includes transfer, inheritance, reverse engineering, independent research and so on. The latter two are unique for the trade secret cases. Reverse engineering requires the legitimacy of act; otherwise, the defense will hardly be accepted. When independent research is used as defense, the defendant has to prove the information made from independent research is formed before the trade secret of the plaintiff; otherwise, the defendant will take the consequences of failure on burden of proof due to unclear facts.


3) liability of infringement

There are mainly three kinds of liabilities of infringement: refrain from infringement, and the defendant should keep the trade secret non-disclosed until it is known to the public; compensation, considering the actual losses suffered by the right holder because of the infringement, profits the infringer has earned from the infringement, and statutory damages (referring to statutory damages prescribed in the Patent Law) in sequence; and criminal liability, depending on the actual losses caused to the right holder because of the infringement, the infringer will be sentenced to fixed-term imprisonment of no more than 3 years for 500,000 RMB losses or more and fixed-term imprisonment of not less than 3 years but not more than 7 years for 2,500,000 RMB losses or more.

In summary, the protection of the trade secret mainly depends on the self-protection of the right holder. Rational protecting measures and preservation of evidences are vital to win the litigation.