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Judicial interpretation of the China Unfair Competition Law on trade secrets

Time:2014-03-13 Hit:167

Judicial interpretation of the China Unfair Competition Law on trade secrets


   Since the Unfair Competition Law allows for courts to exercise a high degree of subjectivity, the Supreme People's Court (2006) issued an Interpretation on Several Issues Concerning Law Implementation in Hearing Civil Cases in Respect of Unfair Competition. The Interpretation lists specific factors that courts should use in determining if the owner of a trade secret has undertaken confidentiality measures. These include: (1) restricting disclosure to relevant people; (2) 'locking' or encrypting confidential information; (3) marking the information 'confidential'; (4) using passwords or codes on the confidential information; (5) entering into confidentiality agreements; (6) restricting access/visits to machines or sites with confidential information; and (7) other reasonable measures (art. 11). This checklist of considerations adds a great deal more specificity to the law and the kinds of measures courts will consider when determining if the employer has taken adequate measures to keep trade secrets confidential.

  Importantly, the Interpretation also addresses what is or is not a trade secret under the Unfair Competition Law. It clearly states that trade secret information obtained through one's own research and development or reverse engineering does not constitute infringing action under the Unfair Competition Law (art. 12). As such, reverse engineering or obtaining technical information on any product acquired" by dismantling, surveying, mapping, and analyzing products obtained through open channels" does not constitute a violation of the Unfair Competition Law (art. 12). Under the Interpretation, customer lists are recognized as trade secrets if they refer to special customer information that is not publicly available, such as names, addresses, deal details, and contact methods (art. 13). If a customer conducts business with a company based on the trust of a certain individual employee and the customer voluntarily continues to do business with the former employee at his new employer, this does not constitute a violation of the Unfair Competition Law. The Interpretation also clarifies burden of proof for (e.g., detailed content and commercial value of the trade secret, as well as specific confidentiality measures taken); (2) that the information used by the opposing party is identical or materially identical to its trade secret; and (3) that the opposing party obtained the information by improper means (art. 14).

   Lastly, the Interpretation refines the method for determining violations of damages under the Unfair Competition Law. If any infringing act causes trade secrets to be known to the public, the damages shall be determined in accordance with the commercial value of the secrets, including such factors as research and development costs, benefits from implementing trade secrets, prospective interests, and the time during which competitive advantages can be maintained (art. 17). Overall, the Interpretation clarified and created more detailed guidelines for the protection of trade secrets in China. Plaintiffs claiming a violation of the Unfair Competition Law. To prove a violation, the plaintiff must show: (1) that it complied with the statutory requirements (e.g., detailed content and commercial value of the trade secret, as well as specific confidentiality measures taken); (2) that the information used by the opposing party is identical or materially identical to its trade secret; and (3) that the opposing party obtained the information by improper means (art. 14). Lastly, the Interpretation refines the method for determining violations of damages under the Unfair Competition Law. If any infringing act causes trade secrets to be known to the public, the damages shall be determined in accordance with the commercial value of the secrets, including such factors as research and development costs, benefits from implementing trade secrets, prospective interests, and the time during which competitive advantages can be maintained (art. 17). Overall, the Interpretation clarified and created more detailed guidelines for the protection of trade secrets in China.




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