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Legal Update

'Trade Secrets' Under The PRC Anti-Unfair Competition Law

21 February 2007
Mayer Brown JSM Legal Update


The PRC Anti-Unfair Competition Law ("Law") contains a relatively brief provision which prohibits the violation of trade secrets. The recently-enacted Judicial Interpretation on the Law by the PRC Supreme Court (came into effect on 1 February 2007) sheds light on the scope of protection of trade secrets under the Law.   

(For more information on other aspects of the Judicial Interpretation, please refer to our separate Legal Update "Judicial Interpretation On The PRC Anti-Unfair Competition Law (21 Feb 2007)").

Full Update

Article 10 of the Law provides that a trader shall not obtain others' trade secrets by way of theft, inducement, duress or other improper measures. It further prohibits the disclosure or use of trade secrets in breach of a confidentiality agreement. A third party who obtains, uses or discloses trade secrets which he knows or ought to know have been obtained by another in violation of the Law will be deemed to be in breach of the provision.

Under the Law, "trade secrets" means technical and business information which is: (i) not known to the public; (ii) of practical use and capable of bringing economic benefits to the owner of the information; and (iii) subject to confidentiality measures adopted by the owner of the information.

In 1998, the State Administration of Industry & Commerce issued certain regulations concerning the trade secrets provision under the Law. The Interpretation now provides further clarification on the scope of protection of trade secrets by the Law.

The Interpretation elaborates on the constituents of "trade secrets" ((i) to (iii) above). "Not known to the public" is interpreted as information which is not commonly known to and not easily obtained by the relevant members in the trade. The Interpretation gives examples of what do not satisfy this requirement, e.g. information which is common knowledge or industrial practice in the relevant sector, information which can be easily obtained without any charge, information which solely concerns a product's size or structure which is readily discernible by the relevant public.

Information which has existing or potential commercial value and thus can give the information owner a competitive edge, will satisfy limb (ii) of the definition of "trade secrets" under the Law.

A number of factors have to be taken into account by the court when deciding whether certain information is "subject to confidentiality measures adopted by the owner of the information". Those factors include the nature of the information, the intention of the information owner, the form of measure(s) adopted. Under a number of circumstances, confidentiality measures will be deemed to have been taken by the information owner. Examples include the affixing of a confidentiality label on the device storing the information, the use of a confidential code on the information, and the execution of a confidentiality agreement.

The Law however does not provide a blanket protection for trade secrets. Obtaining trade secrets through reverse engineering, for example, will not be regarded as violating the Law.

The Interpretation also explains that client lists and contact information may be protected as "trade secrets". An ex-employee who solicits clients of his former employer may thus fall foul of the Law. In such a case, subject to any agreement to the contrary, the employee may have a defence by proving that those clients follow him out of their own volition and no improper measures have been involved.     

In litigating a claim for violation of trade secrets under the Law, the claimant bears the burden to prove all the relevant facts including the qualification as "trade secrets", the improper means the defendant adopted to obtain the information, etc. The Interpretation expressly provides that a licensed user of trade secrets may, either solely (in case of an exclusive licence) or jointly with the licensor (in case of a normal licence), bring a claim against the infringer.

In light of the Interpretation, the scope of protection for trade secrets under the Law is now clearer. In particular, there should no longer be any doubt that the Law applies to an employment relationship in the PRC which involves confidentiality or non-solicitation arrangements.

For further information, please contact:

Name: Kenny K. S. Wong
Position: Partner
Phone: +852 2843 4414
Fax: 852 2103 5055

Name: Eugene I. Low
Position: Associate
Phone: +852 2843 4572
Fax: +852 2103 5416

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