Protect your trade secrets in China: an improvement!

On September 4, 2020, China’s State Administration for Market Regulation released the Draft Provisions on the Protection of Trade Secrets in order to strengthen the protection of trade secrets, stop the infringement of trade secrets, encourage research and development and innovation, and maintain the market order of fair competition.

And, as of September 12, 2020, the Provisions on Several Issues Concerning the Application of Law in Trial of Civil Cases of Infringement (Theft) of Trade Secrets (“Provisions”) published by the Supreme People’s Court of China has taken effect, which has strong practicality and provides clear guidance for the companies concerning trade secret protection.

What are trade secrets?

There is no uniform law for protecting trade secrets in China, so the definition of "trade secrets" slightly varies in laws, regulations and judicial interpretations. Under the laws mentioned above, a trade secret is technical, operational, or other commercial information unknown to the public, which is of commercial value for the ‘right’ holder of that information and who has taken corresponding confidentiality measures.

How to protect trade secrets?

1. Design a compliance management framework for the protection of the trade secrets of your company.

If appropriate measures are not taken, the confidentiality of relevant information will be easily lost and its value will be damaged. Therefore, we would suggest if you have a company in China, you should incorporate the protection of trade secrets into your daily compliance work. By studying the definition of "trade secrets" in laws, regulations and judicial interpretations, and combining with the characteristics of your products, formulas, processes, sales channels, customer networks, and other business characteristics of your company. Based on those considerations, designing a compliance management framework is the first step.

2.Article 6 of the Provisions provides a practical guidance on confidentiality measures for a company, including:

• sign a confidentiality agreement or stipulate confidentiality obligations in the agreement;
• put forward confidentiality requirements for employees, former employees, suppliers, customers and visitors who can contact and obtain trade secrets by means of articles of association, training, rules, and regulations, and written notification;
• restrict visitors or conduct differentiated management on confidential factories, and other production and operation places;
• distinguish and manage trade secrets and their carriers by means of marking, classifying, isolating, encrypting, sealing up and limiting the range of personnel who can be contacted or obtained;
• prohibit or restrict the use, access, storage, and copying of computer equipment, electronic equipment, network equipment, storage equipment and software that can contact and obtain trade secrets;
• require employees who have left your service to register, return, clear, and destroy the business secrets and their carriers contacted or obtained, and continue to undertake the confidentiality obligations.

The more reason to protect

In the case of trade secret infringement, the Chinese courts would also consider whether the owner of the trade secrets has taken reasonable protection measures corresponding to the commercial value of its specific trade secret. Therefore, it is advisable that companies should take appropriate confidentiality measures according to different security levels to ensure that those measures are in line with the commercial value of trade secrets.