Tips for Trade Secrets Protection When Doing Business in China

Trade secrets refer to technical information and operational information which is not known to the public, has commercial value and where owners have taken confidentiality measures to protect its secrecy. This will mean keeping and maintaining the secrecy of aspects such as designs, formulas, recipes, research records, manufacturing methods, business strategies, client lists, sales data and financial information.

In China, trade secrets-related cases have traditionally had low prosecutions, difficult trials, and a low success rate for plaintiffs. Based on the research report from the Beijing High Court last December, there have been 338 cases related to trade secret infringement from 2013 to 2017. It is interesting to note that in 65% of the cases, the decision has not been favourable to the plaintiff (the claimed trade secret owners).  Of the 210 cases in which the plaintiff failed, the court found in 140 cases that it did not constitute a trade secret. The key issue in a trade secret infringement case is whether it shall be considered as a trade secret or not.

According to the revised Anti-Unfair Competition Law released on 23 April 2019, three requirements must be met to determine what constitutes a trade secret:

1)it is not known to the public;

2)   it has commercial value; and

3)   the owner has taken confidentiality measures to protect it.

It is crucial that the trade secret owner takes reasonable and corresponding confidentiality measures to identify their trade secrets.

We would like to share few tips on some trade secret protective measures to consider when doing business in China:

  1. Mark trade secrets with a brief introduction and request that anyone who may have access to trade secrets, such as potential distributors, potential manufacturers, investors, visitors, to keep it confidential, in a form of written notification.

  2. Sign a confidentiality agreement (or add a confidentiality clause) with employees, distributors, manufacturers, in order to mitigate the risk of a manufacturer using your trade secrets to manufacture the same or similar products for themselves or others. It is highly recommended that you specify in the agreement that manufacturers are not allowed to manufacture the same or similar products to your products.

  3. Request that Licensees (such as manufactures, distributors) take all necessary measures to protect your trade secrets. Provide express provisions in Agreements directing what these measures must be.

  4. Demand that manufacturers, ex-employees/and the like return or clear any trade secret information they have. You need to continue to enforce the obligations of confidentiality after the end of agreement.

  5. Set up trade secret protection mechanisms with a list of protective measures and provide the corresponding training to all employees to make sure it is followed.

Due to the geographical and law differences, trade secret protection can be challenging in China, especially for those companies who only manufacture products in China.  In addition to taking all of these confidentiality measures, it is recommended this is combined with other registered rights, such as patents, to protect your valuable Intellectual Property in China.

If you would like tailored advice on your trade secret protection in China, please feel free to contact us today.

Article written by Solanda Chen, March 2021