Legislative Status and Trend of Trade Secret Protection

Author | Intellectual Property Center, Lawyer Wang Qionghua

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Legislative Status and Trend of Trade Secret Protection

The first partCurrent main laws governing the protection of trade secrets

I. Provisions on trade secrets in the Civil Code of the People's Republic of China

II. Provisions of the Anti-Unfair Competition Law on Trade Secrets

III. Provisions on trade secrets in the Criminal Law of the People's Republic of China

Part IIRecent major judicial interpretations on the protection of trade secrets

I. Overview of the main judicial interpretations related to the protection of trade secrets

II. Interpretation of major judicial interpretations related to the protection of trade secrets

Part IIIOther laws and regulations on the protection of trade secrets

First, the labor law protection of trade secrets

II. "Opinions of the Supreme People's Court on Strengthening the Judicial Protection of Intellectual Property Rights in Traditional Chinese Medicine"

Trade secret rights belong to the field of intellectual property rights. In the current legal protection system of trade secrets in our country, no separate law has been promulgated for the protection of trade secrets. Laws and regulations on trade secrets are scattered in the Civil Code, Anti-Unfair Competition Law, Employment contract Law, Criminal Law and other laws and regulations, judicial interpretations and industry norms.

This paper focuses on the current effective laws, regulations, judicial interpretations, local regulations and departmental rules on the protection of trade secrets, and systematically sorts out the latest legislative status and trends (exposure draft represents trends).

The first part, the main existing laws concerning the protection of trade secrets

I. Provisions on trade secrets in the Civil Code of the People's Republic of China

Article 123 provides that civil subjects enjoy intellectual property rights according to law, and makes it clear that trade secrets are one of the objects of intellectual property protection.

Article 501 provides that the parties shall not disclose or improperly use trade secrets or other information that should be kept confidential during the conclusion of a contract, regardless of whether the contract is established; if the parties disclose or improperly use the trade secrets or information, causing losses to the other party, they shall be liable for compensation.

Article 1185 Where the intellectual property rights of others are intentionally infringed upon, and the circumstances are serious, the infringed party shall have the right to request corresponding punitive compensation.

II. Provisions of the Anti-Unfair Competition Law on Trade Secrets

The Anti-Unfair Competition Law passed on September 2, 1993 makes special provisions on the protection of trade secrets, and was revised for the first time in 2017. The Sino-US Economic and Trade Agreement began negotiations in 2018 and put forward a series of requirements for the protection of intellectual property rights in our country. In order to facilitate the agreement and effectively implement relevant obligations, our country has successively revised many laws in the field of intellectual property rights. Among them, the Anti-Unfair Competition Law revised in 2019 is a revision related to the protection of trade secrets.

In this amendment, the scope of responsible persons is expanded, the scope of prohibited infringement is expanded, the burden of proof is shifted, and the concept of "trade secret" is expanded.

In response to the outstanding problems existing in the practice of supervision and law enforcement, in order to supplement and improve the existing manifestations of unfair competition and strengthen the protection of trade secrets, it is stipulated that the state promotes the establishment and improvement of a trade secret protection system that integrates self-protection, administrative protection and judicial protection of trade secrets. On November 22, 2022, the State Administration for Market Regulation issued a notice on publicly soliciting opinions on the Anti-Unfair Competition Law of the People's Republic of China (Revised Draft Exposure Draft), soliciting opinions from the public, and once again launched a new round of revision procedures.

Article 10, Article 27, Article 31 and Article 46 of the exposure draft are related to the protection of trade secrets, and further strengthen the systematic construction of the protection of trade secrets and strengthen the legal responsibility of trade secrets.

(1) The provisions and changes of the Anti-Unfair Competition Law on the infringement of trade secrets

The second paragraph of Article 1.4 of the U.S.-China Economic and Trade Agreement on the scope of prohibited acts that constitute infringement of trade secrets requires China to list other acts that constitute infringement of trade secrets, in particular: (1) electronic intrusion; (2) violation or inducement of violation of the obligation not to disclose confidential information or information intended to be kept confidential; and (3) unauthorized disclosure or use of trade secrets obtained under an obligation to protect trade secrets from disclosure or an obligation to restrict their use.

Article 9, paragraph 1, of the Anti-Unfair Competition Law adds "electronic intrusion”asOne of the ways to obtain the right holder's trade secrets by improper means. Subsection (4) is added to abet, lure, or help others to violate confidentiality obligations or violate the right holder's requirements for keeping trade secrets, and obtain, disclose, use, or allow others to use the right holder's trade secrets.

Article 10 of the "exposure draft" adds a new fifth paragraph "The state promotes the establishment and improvement of a trade secret protection system that integrates self-protection, administrative protection, and judicial protection of trade secrets," placing administrative protection before judicial protection, highlighting the importance of administrative protection, and releasing a signal that it wants to strengthen administrative protection and build a comprehensive trade secret protection system in the future.

In recent years, our country has taken frequent actions on the administrative protection of trade secrets. Article 4 of the "Exposure Draft" issued by the General Administration of Market Supervision on September 4, 2020 echoes Article 10 of the "Exposure Draft", and further on the basis of the "Several Provisions on the Prohibition of Infringement of Trade Secrets", the requirements for the right holder to submit materials, entrusted identification, case suspension, etc. have been added, highlighting the role of administrative organs in the protection of trade secrets.

In addition, the State Administration for Market Regulation also issued the "National Trade Secret Protection and Innovation Pilot Work Plan" on March 2, 2022 to guide the implementation of the national trade secret protection and innovation pilot work.

(2) Provisions and Changes of the Anti-Unfair Competition Law on Civil Compensation for Infringement of Trade Secrets

The Anti-Unfair Competition Law amended in 2019 increased punitive damages and increased the amount of discretionary damages to five million

(3) Provisions and Changes of the Anti-Unfair Competition Law on Administrative Penalties for Infringement of Trade Secrets

The 2022 "exposure draft" raises the lower limit of administrative penalties applicable when the circumstances of infringement of trade secrets are serious, and increases the penalties for infringement of trade secrets.

(4) Provisions and Changes of the Anti-Unfair Competition Law on the Rules of Evidence in Cases of Infringement of Trade Secrets

According to Article 1.5 of the Sino-US Economic and Trade Agreement on "the transfer of the burden of proof in civil proceedings", the provisions of Article 32 are added.

In order to strengthen and protect the fifth paragraph of Article 10 of the exposure draft, Article 46 of the exposure draft adds a new second paragraph on the basis of Article 32 of 2019, which clarifies the allocation of the burden of proof for administrative investigations of trade secrets and fills the gap in administrative protection.

III. Provisions on trade secrets in the Criminal Law of the People's Republic of China

The Criminal Law of our country provides for the crime of infringing on trade secrets in Article 219. The Amendment to the Criminal Law of the People's Republic of *********) adds the crime of infringing on trade secrets, emphasizing the illegality of "electronic intrusion", "bribery", "fraud" and other means to obtain trade secrets. Add the crime of "commercial espionage"; create a new Article 219-1, which clearly defines the illegality of overseas acquisition of trade secrets.

Article 219: [Crime of infringing on trade secrets] Anyone who commits any of the following acts of infringing on trade secrets, if the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than three years, and shall also be fined or fined; if the circumstances are particularly serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years, and shall also be fined:

(1) Obtaining the trade secrets of the right holder by theft, bribery, fraud, coercion, electronic intrusion, or other improper means;

(2) Disclosing, using, or allowing others to use the trade secrets of the rights holder obtained by the means of the preceding paragraph;

(3) Disclosing, using or allowing others to use the trade secrets in their possession in violation of confidentiality obligations or in violation of the right holder's requirements for keeping trade secrets.

Anyone who knowingly acquires, discloses, uses or allows others to use the trade secret, knowing the acts listed in the preceding paragraph, shall be considered as infringing on the trade secret.

The right holder as mentioned in this Article refers to the owner of the trade secret and the user of the trade secret authorized by the owner of the trade secret.

Article 219-1 [Crime of stealing, spying, buying, or illegally providing trade secrets for foreign institutions, organizations, or personnel] Whoever steals, spies, buys, or illegally provides trade secrets for foreign institutions, organizations, or personnel shall be sentenced to fixed-term imprisonment of not more than five years and shall be fined concurrently or solely; if the circumstances are serious, he shall be sentenced to fixed-term imprisonment of not less than five years and shall also be fined.

The second part, the main recent judicial interpretations on the protection of trade secrets

I. Overview of the main judicial interpretations related to the protection of trade secrets

In April 2019, the Anti-Unfair Competition Law was revised (it has been revised according to the relevant content determined in the Sino-US economic and trade agreement negotiation), in January 2020, the Sino-US Economic and Trade Agreement was signed, and on April 15, 2020, the Supreme People's Court issued the "Opinions on Comprehensive Strengthening of Judicial Protection of Intellectual Property Rights", which put forward new requirements for judicial protection of intellectual property rights.

Specific requirements are put forward for strengthening the protection of trade secrets: Correctly grasp the boundaries between civil disputes and criminal offenses for infringing trade secrets. Reasonably apply the rules on the burden of proof in civil litigation to reduce the burden of rights protection on rights holders in accordance with the law. Perfect the standards for identifying criminal acts of infringing trade secrets, standardize the scope and method of calculating major losses, and the reasonable remedial costs incurred in order to reduce commercial damage or re-ensure safety can be used as the basis for determining "causing major losses" or "causing particularly serious consequences" in criminal cases.

Strengthen the protection of confidential business information and other trade secrets, ensure fair competition among enterprises, the rational flow of talents, and promote technological innovation.

In order to implement the idea of top-level design, exposure drafts of many laws, judicial interpretations, and administrative regulations for the protection of trade secrets have been centralized and frequently introduced and implemented.

II. Interpretation of major judicial interpretations related to the protection of trade secrets

(1) Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets

A total of 29 articles provide comprehensive provisions on the judicial protection of trade secrets, including: the object of trade secret protection, the constituent elements of trade secrets, confidentiality obligations, infringement judgments, civil liability, the intersection of civil and criminal laws, and relevant procedural provisions. It is worth mentioning that Article 1 explicitly includes algorithms and data in the scope of trade secret objects and expands the connotation of the concept of trade secrets; Article 4 further clarifies the definition of being known to the public and provides exemplary provisions for five typical situations of "being known to the public"; Article 6 specifies six specific situations in which the court should determine that the right holder has taken confidentiality measures; Article 7 affirms the commercial value of the phased results.

Compared with the 2007 "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Unfair Competition", it mainly has the following characteristics: First, the content is richer and the system is more complete. Judicial interpretation formulated separately for the application of law in civil cases of trade secrets.

Closely combining the characteristics of trade secret civil cases, according to the amendments to the Anti-Unfair Competition Law and the legislative purpose, make more comprehensive provisions on the main issues in trial practice, and effectively enhance the overall effectiveness of judicial protection. The second is to adhere to the problem-oriented, more powerful protection. For key nodes such as evidence, rights protection costs, and infringement costs, provisions are made on conduct preservation, confidentiality obligations, and tort liability.

At the same time, clear and specific provisions have also been made on the relatively concentrated disputes in trial practice, such as not being known to the public, corresponding confidentiality measures, the determination of confidentiality obligations, and the protection of trade secrets related to employees and former employees, which not only provide a clear basis for judicial decisions, but also provide guidance for rights holders to strengthen the construction of the trade secret protection system.

Third, the procedural entities are given equal weight, and the protection is more comprehensive. Unlike patent applications that are disclosed to the public after they are authorized, trade secrets are not known to the public and have their own characteristics. In addition to relevant entity regulations, the focus is on relevant procedural issues, including confidentiality measures in litigation, people's court investigation and collection of evidence, and issues related to the intersection of criminals and criminals.

(2) "Interpretation on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Intellectual Property Infringement (3) "

Article 4 of the "Interpretation on Several Issues Concerning the Specific Application of Law in Handling Criminal Cases of Intellectual Property Infringement (3) " specifies the specific amount of serious circumstances and particularly serious consequences in criminal cases of infringement of trade secrets.

The specific circumstances under which the implementation of the acts stipulated in Article 219 of the Criminal Law has caused significant losses (serious circumstances) to the right holder of a trade secret: the amount of losses or the amount of illegal gains from infringing on a trade secret is more than 300,000 yuan; it directly causes the right holder to go bankrupt or go bankrupt due to major business difficulties.

It constitutes "causing particularly serious consequences" as stipulated in Article 219 of the Criminal Law: the amount of losses or illegal gains from infringing trade secrets is more than 2.5 million yuan.

In addition, the provisions on criminal cases of infringement of trade secrets are still being continuously improved and refined. For example, on January 18, 2023, the Supreme People's Court and the Supreme People's Procuratorate's Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Intellectual Property Infringement (exposure draft) Article 14 added two situations that constitute serious circumstances: those who obtain trade secrets by improper means more than three times within one year; those who have received administrative penalties more than twice within two years for violating trade secrets and other acts, and then commit trade secret infringement.

(3) The exposure draft of the Provisions on the Protection of Trade Secrets

The "exposure draft", as the first departmental regulation specifically on the protection of trade secrets, is a comprehensive revision and upgrade of the "Several Provisions on the Prohibition of Infringement of Trade Secrets" implemented in 1998 in combination with the spirit of the provisions of the newly revised "Anti-Unfair Competition Law" in 2019.

The State Administration for Market Regulation was issued on September 4, 2020, but as of the time of publication of this article, the regulation has not yet been issued.

After inquiring about relevant information, the latest progress is as follows: The State Administration for Market Regulation's reply to the Recommendation No. 5466 of the Fourth Session of the Thirteenth National People's Congress on June 23, 2021: In terms of trade secret protection, the State Administration for Market Regulation will focus on the following work: First, the "Regulations on the Protection of Trade Secrets" will be issued to provide guidance for enterprises to operate in compliance with the law, and actively put forward legal and legislative suggestions for the protection of trade secrets to promote greater protection.

In 2021, the State Administration for Market Regulation listed the formulation of the "Regulations on the Protection of Trade Secrets" as the first category of the State Administration's annual legislative plan, and it is currently being advanced in an orderly manner. The State Administration for Market Regulation's reply to Recommendation No. 0996 of the Fifth Session of the 13th National People's Congress on June 29, 2022: The State Administration for Market Regulation attaches great importance to the protection of trade secrets, strengthens overall planning and top-level design, and drafts and revises the "Regulations on the Protection of Trade Secrets".

The "exposure draft" consists of six chapters and 39 articles, which have been optimized in style and are divided into general provisions, definition of trade secrets, infringement of trade secrets, investigation and punishment of suspected infringement of trade secrets, legal liability and supplementary provisions. Considering the prohibition of infringement of trade secrets, its ultimate purpose is to protect the intellectual property rights and related interests of trade secret rights holders, the title of the original regulations has been adjusted and revised to "Regulations on the Protection of Trade Secrets".

The main amendments to the main text are as follows:

1. General provisions. On the basis of the legislative purpose and basis of the original provisions, the basic principles, scope of application, and work requirements have been added.

2. Concepts related to trade secrets. According to law enforcement practice, adhere to the problem orientation, and explain and refine the relevant concepts in Article 9 of the newly revised Anti-Unfair Competition Law on trade secrets and their constituent elements. Mainly include: First, define the concepts of trade secrets, technical information, business information, and business information.

The second is to define and refine the three most important components of trade secrets, namely "not known to the public", "commercial value", and "taking corresponding confidentiality measures". The third is to clarify the rights holders, infringers, and ownership of rights of trade secrets.

3. Infringement of trade secrets. This chapter refines the methods of infringement of trade secrets stipulated in Article 9 of the newly revised Anti-Unfair Competition Law to enhance the applicability of the law. First, it refines the circumstances of illegally obtaining trade secrets by means of theft. Second, it defines concepts such as "disclosure" and "use".

The third is to define "confidentiality obligations or violations of the right holder's requirements for keeping trade secrets". The fourth is to define "restricted use of trade secrets". The fifth is to refine the circumstances of infringing on other people's trade secrets by abetting, inducing, assisting, etc. The sixth is to clarify the circumstances in which a third party constitutes infringing on trade secrets.

Seventh, clarify the circumstances under which "customer lists" are protected as trade secrets. Eighth, clarify the circumstances under which reverse engineering does not constitute infringement of trade secrets.

4. Investigation and punishment of suspected infringement of trade secrets. This chapter adds requirements for the right holder to submit materials, entrust appraisal, and case suspension on the basis of the original provisions on law enforcement agencies and administrative mediation. First, it makes it clear that the market supervision departments at or above the county level shall supervise, inspect, and identify and deal with the infringement of trade secrets.

The second is to clarify the evidentiary materials that the right holder should provide when reporting infringement. The third is to clarify the circumstances in which appraisal or expert opinion is introduced into trade secret cases; the fourth is to clarify the rules for the identification and admissibility of the evidentiary materials provided by the market supervision departments. The fifth is to stipulate the circumstances in which the market supervision department preserves evidence involving infringement of trade secrets.

The sixth is to refine the procedural content such as case suspension, judicial transfer, and order to stop infringement.

5. Legal liability. On the basis of retaining the original provisions on legal liability, handling of infringing products, and requirements for state organs and their staff to keep trade secrets, this chapter adds content such as the determination of "serious circumstances", the calculation of illegal income and the damage caused to the right holder.

6. Supplementary Provisions. First, it clarifies the exceptional circumstances for the protection of trade secrets. Trade secrets that fall within the scope of state secrets, or violate laws and regulations, harm national interests, social public interests, and violate the principle of good faith are not within the scope of protection of these Provisions. Second, it clarifies the hierarchical jurisdiction provisions for foreign-related cases. Third, it makes clear provisions on the implementation date of the Provisions and the repeal of relevant regulations.

Part III: Other Laws and Regulations on the Protection of Trade Secrets

First, the labor law protection of trade secrets

Article 23 of the employment contract law of the People's Republic of China stipulates: The employer and the employee may agree in the employment contract to keep the employer's trade secrets and confidential matters related to intellectual property rights. For workers who are obliged to keep secrets, the employer may agree with the worker in the employment contract or non-disclosure agreement on non-compete clauses, and agree that after the termination or termination of the employment contract, the worker will be limited monthly economic compensation.

If a worker violates the non-compete agreement, he shall pay liquidated damages to the employer as agreed.

II. "Opinions of the Supreme People's Court on Strengthening the Judicial Protection of Intellectual Property Rights in Traditional Chinese Medicine"

"Opinions of the Supreme People's Court on Strengthening the Judicial Protection of the Intellectual Property Rights of Traditional Chinese Medicine" (Fafa [2022] No. 34, issued on December 21, 2022) 7. Strengthen the protection of traditional Chinese medicine trade secrets and state secrets. Protect traditional Chinese medicine trade secrets in accordance with the law, effectively curb infringement of traditional Chinese medicine trade secrets, and promote the inheritance and innovation of traditional Chinese medicine technology.

Accurately grasp the relationship between information disclosure and trade secret protection, and protect the traditional Chinese medicine information disclosed to administrative organs in accordance with the law due to listing registration, supplementary application, drug re-registration and other reasons. Properly handle the relationship between the protection of traditional Chinese medicine trade secrets and the reasonable flow of practitioners in the field of traditional Chinese medicine, while protecting trade secrets in accordance with the law, safeguard the legitimate rights and interests of practitioners in the field of traditional Chinese medicine to engage in legitimate employment and entrepreneurship.

Special protection shall be implemented for the composition and production process of traditional Chinese medicine prescriptions that have been legally determined to be state secrets, and severe punishment shall be imposed on the theft and disclosure of state secrets of traditional Chinese medicine.

Completed on June 30, 2023

Author: Wang Qionghua

On the 22nd floor of the Radio and Television Financial Center

Lawyer Profile

Lawyer Wang Qionghua

Secretary General of Zhiheng Intellectual Property Center and Deputy Director of Copyright Committee

Secretary General, Copyright Professional Legal Business Committee, Shenzhen Law Association

Member, Intellectual Property Lawyer Service Group, Shenzhen Law Association

Specializing in intellectual property (criminal and civil), corporate compliance, corporate legal counsel, civil and commercial dispute resolution; has represented American Leirou Software Company and American Autoneum Technology Co., Ltd. in litigation of about 200 company software copyright disputes.

Participate in the writing of major books: "Online Law Course" (Internet Copyright Edition) "Guidelines for compliance of network operators in the collection and use of personal information" "Long'an Lawyers Interpretation of the Civil Code" (Contract Edition) "Anti-Monopoly Lawyer Practice of Mergers and Acquisitions in China"

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Intellectual Property Center

Objective of Zhiheng Intellectual Property Center: To build a first-class intellectual property legal service center.

The Intellectual Property Center has a complete set of specialized intellectual property departments such as patents, trademarks, copyrights, trade secrets, rights protection, international, layout analysis, and operation transactions, forming a complete industrial chain from basic applications, planning and layout, risk prevention and control, anti-counterfeiting rights protection, operation transactions, and international protection.

The Intellectual Property Center is led by a team of first-class intellectual property experts, with a complete service process and an integrated service system. It provides professional legal advice and solutions in various fields of global intellectual property, striving to ensure that every case and project can receive the best solutions developed by experts, so that customers can experience the most rigorous and professional services.

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