The Trade Secret Protection in China

In January 1991, China and the United States signed their first memorandum on the protection of intellectual property and Chinese government promised in the memorandum to pass a legislature to protect trade secret before January 1994. Article 4 (1) of the Memorandum reads as:

“For the purpose of ensuring effective protection against unfair competition as provided for in Article 10bis of the Paris Convention for the Protection of Industrial Property, the Chinese Government will prevent trade secrets from being disclosed to, acquired by, or used by others without the consent of the trade secret owner in a manner contrary to honest commercial practices, including the acquisition, use, or disclosure of trade secret by third parties who knew, or had reasonable grounds to know, that such practices were involved in their acquisition of such information.”

In September 2, 1993, China passed its Unfair Competition Law, which went into effect on December 1, 1993. Article 10 of the Unfair Competition Law provides for the protection of trade secret.

It seemed that the protection of trade secret in China was influenced by the Sino-American Memorandum, or especially under the pressure of the United States. However, the legislature for the protection of trade secret, and even the Sino-American Memorandum were highly influenced by the draft of the TRIPS Agreement of WTO. The fact is that when China and the United States negotiated their first memorandum on the protection of intellectual property rights, the draft of the TRIPS Agreement had emerged. Because the draft was going to establish an international standard for the protection of intellectual property rights and acceptable by both sides, China and the United States reached their memorandum on the basis of the draft of the TRIPS Agreement, and many articles in the Memorandum were derived from the draft. With respect to the protection of trade secret, we may illustrate this by the following two examples.

The first example is that the article 4 of the Memorandum was derived from the draft of TRIPS Agreement. Article 39 (1) of TRIPS agreement provides: “in the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Member shall protect undisclosed information in accordance with paragraph 2…….” And article 39 (2) provides: “Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices…….”

In comparing the passages above and the article 4 of the Memorandum, one can realize that the later was derived from the draft of TRIPS Agreement.

Another example is that the definition of trade secret in China is directly derived from the draft of TRIPS Agreement. According to Article 10 of the Unfair Competition Law, trade secret “refers to the technical information and business information which is not known to the public, which is capable of bringing economic benefits to the owner of rights, which has practical applicability, and which the owner of rights has taken measures to keep secret.” While Article 39 (2) of TRIPS Agreement provides that the undisclosed information shall be protected “as long as such information:

--is secret in the sense that is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

--has commercial value because it is secret; and

--has been subject to reasonable steps under the circumstances, by person lawfully in control of the information, to keep it secret.”

In comparing the passages above in TRIPS Agreement and the article 10 of the Unfair Competition Law of China, one can realize that the definition of trade secret in the later one is directly derived from the former one.

Because the protection of trade secret in China is highly influenced by the draft of TRIPS Agreement, and article 10 of the Unfair Competition Law is directly derived from the draft of TRIPS Agreement, if there is something not clear about the protection of trade secret in China, or not clear about the article 10 of Unfair Competition Law of China, one may refer to article 39 of the TRIPS Agreement.

Furthermore, this view is strongly supported by the civil law of China and the civil procedure law of China. In light of article 142, General Principles of Civil Law of China, if the civil law of China has some provisions that are different from an international treaty that China adhered to or signed in, the international treaty shall apply, unless the provisions are ones on which China has any reservation. Article 238 of the Civil Procedure Law of China has the same provision. Because TRIPS agreement is the first and the only international agreement until now referring to the protection of trade secret, and to which China adhered, the agreement shall be referred if there are some questions about the protection of trade secrets in Chinese Law.

2. The Scope of the Trade Secret in China

Article 10, Unfair Competition Law of China defines “trade secret” as “technical information and business information which is not known to the public, which is capable of bringing economic benefits to the owner of rights, which has practical applicability, and which the owner of rights has taken measures to keep secret.”

According to the definition above, “trade secret” is constituted by technical information and business information. The technical information and business information include devices, designs, formulas, methods, techniques, processes, procedures, programs, customer lists, market plans, sales data, bid price information, bookkeeping method, etc. Actually, the definition of trade secret here bears the most extensive meaning. In other words, the trade secret in China has a broad scope. As some scholars comment that all secrets can be divided into three types: state secret, privacy, and trade secret. Therefore, any secret information, if it is not a state secret or privacy, it can be brought into the scope of trade secret.

In some countries, besides the concept of trade secret, there are some other concepts concerning secret information, such as confidential information, know-how. Although there are no such concepts in Chinese law, the confidential information or know-how, to the extent that they are exiting, is protected in China as trade secret. The reason is very simple. Because the trade secret in China has a very broad scope, because confidential information and know-how do not belong to the state secret or the privacy, they are within the scope of trade secret.

To say that the concept of trade secret in China has the most extensive meaning does not mean that any information can be protected as a trade secret if the information does not belong to the state secret and the privacy. In fact, an item of information can only be protected as trade secret after it qualifies as a trade secret.

In light of the definition of trade secret in the Unfair Competition Law, to qualify as a trade secret, the information involved must meet the following requirements: (1) it must be unknown to the public. If it is in the public domain, or can be easily obtained by others, it does not qualify as trade secret; (2) it must be capable of bring economic benefits to the owner of rights. If it has no economic value, it does not qualify as trade secret; (3) the owner has taken measures to keep it as secret. If the owner does not take any measure to keep the information as secret, it does not qualify as trade secret.

On the basis of the definition above, and the law related, if a plaintiff is going to accuse a defendant of breaching a contract and divulge its trade secret, he or she must prove the following three points.

First, the information involved must be secret, or unknown to the public. If the information is from the public domain, or can be easily obtained by others, it is not a trade secret. In light of TRIPS Agreement, the public shall refer to the persons within the circles that normally deal with the kind of information in question. That means that these persons are in a specific industry circle, or the information is not easily obtained by those persons in a given industry circle.

Second, the information involved is capable of brining economic benefit to the plaintiff. If it has no economic value, it is not a trade secret. Generally speaking, this requirement is easily met because the capability of bringing economic benefits to the owner of the trade secret may be direct or indirect.

Third, the plaintiff has taken measures to keep the information secret. As for the constitution of a trade secret, to keep the information as secret is a key issue. If the plaintiff does not take any measure to keep it as secret, it is not a secret. In light of TRIPS Agreement, the measures here refer to “reasonable measures”. That means that the owner of trade secret has taken some reasonable measures to keep the information as secret.

3. The Owner of the Information and the Divulger

If one has proved the three points above, he or she only proved that the information involved is a trade secret. If one is going to successfully establish a prima facie case that other person divulged his or her trade secret, one must prove that he or she is the owner of the information. This means that the information involved is derived from, or created by the plaintiff, or the plaintiff has a legitimate right on the information. If the information involved is created by someone else and the plaintiff has not legitimate right on the information, or the information is from the public domain, the plaintiff is not the owner of the information.

Furthermore, the plaintiff must prove that it is the defendant who divulged or disclosed the trade secret. If the information or trade secret is divulged by others, it has nothing to do with the defendant.

4. The Difference between TRIPS Agreement and the Unfair Competition Law of China

Although the article 10 of Unfair Competition Law of China is derived from TRIPS Agreement, there are three differences between the Law and TRIPS Agreement.

The first difference is that although the Unfair Competition Law of China uses the term of trade secret, the TRIPS Agreement takes the term of “undisclosed information”. However, it is understandable that the concept of undisclosed information in TRIPS Agreement equals to the concept of trade secret in Chinese law. Therefore, this difference causes no problem to the protection of trade secret in China.

The second difference is that while there are three requirements in the TRIPS Agreement for an item of information to qualify as a trade secret, there are four requirements in the Unfair Competition Law of China for an item of information to qualify as a trade secret, such as which is not known to the public, which is capable of bringing economic benefits to the owner of rights, which has practical applicability, and which the owner of rights has taken measures to keep secret. In contrasting with the TRIPS Agreement, an additional requirement, practical applicability is appeared in the Unfair Competition Law of China.

Generally speaking, this additional requirement is a redundancy. In fact, the second requirement “capable of bring economic benefits to the owner of rights” in the Unfair Competition Law bears a broad meaning, which can cover this additional requirement “practical applicability”. In other word, if an item of information is capable of bring economic benefits to the owner of rights, it does have practical applicability. Thus it is no necessary to set up this additional requirement for an item of information to qualify as trade secret. And again this difference between TRIPS Agreement and the Unfair Competition Law of China causes no problem for the protection of trade secret.

The third difference between TRIPS Agreement and the Unfair Competition Law of China is that although there is a requirement in former one that government staff have a confidential obligation for certain secret information that the owner submitted to them, there is no such requirement in the Unfair Competition Law of China. Article 39 of TRIPS Agreement provides that:

“Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”

This is a shortcoming in the Unfair Competition Law of China. However, this shortcoming is overcome by the specific administrative regulations. For example, the State Council enacted a regulation for the export and import of technology in January 2002, which provides that the government staff have a confidential obligation for the secret information submitted by the applicants who is applying for a license to export or import some key technology.