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Trade Secrets Protection Reinforced: Another Step Ahead For Chinese IP System
Trade Secrets Protection Reinforced:
Another Step Ahead For Chinese IP System
 | On January 1st, 2018, the new Amendment to the PRC Anti-Unfair Competition Law (the "Amended AUCL") has entered into force. AUCL has always been a crucial weapon for intellectual property rights owners to stop infringement and this Amendment would also have material impact on IP enforcement. More specifically, regarding protection of trade secrets the Amended AUCL, among other things, provides clarity on what constitutes trade secret infringement and increases penalties to strengthen trade secret protection. That will help to create a business-friendly environment and promote business healthy and sustained growth. |
Let us summarize the main points amended by the new law and how they can affect and help companies to defend their trade secrets.
Trade secret new definition under Amended AUCL
According to Amended AUCL “trade secret” means: “technology or business information unknown to the public and of a commercial value for which the right holder has taken corresponding confidentiality measures”.
This new definition has simplified the criteria of “trade secrets” by eliminating the former requirement of “practical applicability” that the information must have to be qualified as trade secret. In practice, this new concept will expand the scope of trade secret protection granting a higher degree of protection
Preventing unfair competition by employees, ex-employees and new employers
The Amended AUCL added or further clarified the provisions that tackle breaches of trade secrets by former employees who use them in their own business or reveal them to third parties without authorization. Now, under the new regulation, such third parties obligations and liabilities on trade secrets are heightened.
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Furthermore, the new law imposes the obligation on the employers not to improperly use, or allow any of its employees to disclose or use any information or trade secret of their former employer or any other person or entity to which the employee owes a confidentiality obligation
Relevant increased of the administrative fines under the Amended AUCL
The new Administrative fines foreseen to punish trade secret infringement acts ranges now from 100.000 to 3 Million RMB. Those figures compared to the previous amounts stated in the former AUCL ranging from 10.000 to 200.000 RMB should be regarded as a very significant increased.
As a matter of fact, such increase together with the new likely more effective enforcement measures also implemented will encourage companies suffering infringement of their trade secrets to act and take legal actions against the infringers.
Enforcement measures and activities enhanced
The previous AUCL was criticized for inadequate supervision, inspection and enforcement. These criticisms have been addressed by the Amended AUCL enhancing the supervisory and investigation powers and duties of the law enforcement agencies.
As a result, law enforcement agencies are now authorized, among other things, “to seal up or seize the property related to the suspected unfair competition, investigate bank accounts of operators involved, request evidences, demanding the investigated operator to temporarily cease suspected activities and especially, request the competent Courts to freeze assets upon their foreseeable concealment”.
Nonetheless, whether this extension of law enforcement agencies powers will have a positive impact from a trade secret protection perspective remains unclear. For instance, where misappropriation of trade secrets is suspected but not found trade secrets of the suspected company might be disclosed involuntarily if administrative authorities access supposedly confidential business information. It is also possible that such enforcement power be abused or taken advantage of by bad faith reports of misconduct.
Consequently, these risks will have to be managed in practice to avoid that these new enforcement options may be counterproductive to achieve the original purpose of these new provisions, which is not other than protect the rights of trade secrets holders.
Damages and compensation as a result of Unfair Competition acts
 | Prior to the Amendment AUCL Courts lacked of statutory guidance in relation to the calculation of damages in cases of infringement of the rights protected by the Unfair Competition Law.
“The amount of compensation for the entity who has suffered damage due to unfair competition is determined according to the actual loss suffered by the infringement; if the actual loss is difficult to calculate, the amount of compensation shall be determined according to the interests obtained by the infringer due to the infringement.” |
In addition to that, such provision further states that “the amount of compensation shall include the reasonable expenses incurred by the operator to prevent, find out and stop the infringement.” , which in cases of trade secret infringements, for instance, are usually quite significant.
As mentioned above, the expectations to obtain a fair and adequate compensation as a consequence of the infringement will encourage companies to take administrative or legal actions to protect their rights against the infringers’ practices.
In conclusion, the Amended AUCL will substantially improve China’s legal regime with respect to protection of trade secrets by clarifying the requirements for trade secret qualification, imposing liabilities on third parties that obtained trade secrets and raising administrative fines and compensations which may be obtained by trade secret owners.
