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Legal Update

Updates on State Secrets and Trade Secrets in the PRC

18 May 2010
Mayer Brown JSM Legal Update

The People’s Republic of China (“PRC”) has recently amended the Law of Guarding State Secrets (“the Law”). The amended Law will come into force on 1 October 2010. Among other changes, the amended Law seeks to introduce clearer definitions and classifications of state secrets, and also imposes an obligation on Internet service providers to co-operate with the enforcement authorities in investigations of leakage of state secrets.

On the other hand, the State-Owned Assets Supervision and Administration Commission (SASAC) also recently issued the Provisional Regulations on the Protection of Trade Secrets for State-owned Enterprises (“the Regulations”). The Regulations seek to fortify the protection of trade secrets of state-owned enterprises (“SOEs”).

The Law

1. Definition of State Secrets

Under the current Law, state secrets are defined to include several specified categories of confidential information, e.g. secret matters in relation to important decisions on national affairs, or secret matters in relation to the national economy and social development. The amended Law confines the definition of state secrets to those said categories of confidential information only if their disclosure may harm the national security and interests in the areas of politics, economy, national defence and diplomacy.

2. Classifications of State Secrets

The amended Law retains the three levels of state secrets, namely, “Top confidential”, “Highly confidential” and “Confidential”. The amended Law stipulates the different levels of powers enjoyed by different authorities in categorising states secrets, e.g. only the central or provincial authorities can classify certain information as “Top confidential”.

The amended Law also spells out the respective durations of the different types of state secrets, and provides that the secrecy shall be released automatically upon the expiry of their terms. Unless otherwise specified, the maximum terms of top confidential, highly confidential and confidential state secrets shall be thirty years, twenty years and ten years respectively.

The exact length of secrecy period shall be determined by the nature and features of the matter and the extent of necessary protection of the state security and interests at stake.

3. Prohibited Acts

In light of the advancement of Internet-related technology, the amended Law introduces a number of corresponding prohibited acts, including:

  • connecting computers or equipment storing state secrets with the Internet;
  • storing or handling state secrets in computers or storage equipment which are not designated for state secrets; and
  • transmitting State Secrets via the Internet.

In relation to personal communications, the scope of the amended Law has been expanded, from the prohibition of the “divulging” of state secrets in private contacts or correspondence, to the prohibition of personal contacts or communication “involving” state secrets.

4. Responsibilities and Liabilities for ISPs

The amended Law obliges Internet/public information network service providers to:

  • cooperate with the authorities in investigating leakages of state secrets;
  • when discovering a leakage of state secrets on the Internet, keep records of the information and report to the authorities; and
  • remove data disclosing state secrets pursuant to the instructions of the authorities.

5. Others

The amended Law also requires enterprises, whose business involves state secrets, to undergo a confidentiality inspection specified by the State Council; and that for employees handling state secrets, to have completed confidentiality training programmes and to have signed confidentiality agreements before the commencement of their duties. Their departures must be approved by the competent authorities.

The Regulations

While the Regulations only apply to the SOEs, they carry a wider impact by casting light on the government’s increasing attention to the protection of trade secrets and also affecting business partners dealing with the SOEs.

The Regulations specify certain examples of trade secrets, including business information of the SOEs in relation to strategic planning, management methods, business models, restructuring and listing, mergers and acquisitions, transactions of property rights, financial information, investment decisions, production purchases and sales strategy, resources reservation, client information, and tender information. Trade secrets also include technical information of the SOEs in relation to designs, procedures, product formulations, production technology, production methods, and technical know-how.

Those trade secrets can also be classified as state secrets by the SOEs if they so qualify under the Law.

The Regulations allow the SOEs to determine the duration of these trade secrets.

The Regulations require SOEs to sign confidentiality and non-competition agreements with their employees. Importantly, the Regulations also oblige SOEs to sign confidentiality agreements with all relevant parties for any business activities involving trade secrets, such activities include consultation, negotiation, technical assessment, results certification, cooperation, technology transfer, joint venture, auditing, due diligence exercises, and asset and capital verification.

For inquiries related to this Legal Update, please contact:

Kenny Wong ( )

Eugene Low ( )

Learn more about our PRC offices and Intellectual Property practice.

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