A company's assets include both tangible and intangible
assets. Tangible assets may include for example buildings, land
and equipment, and intangible assets include both reputation
assets and intellectual property in which only patents and
trade secrets protect ideas. A trade secret is information that
is valuable for being not generally known in the trade and that
the information holder takes reasonable measures to keep
secret. Trade secrets may exist in all facets of the company's
operations, and may include information that is not actively
used in the company's operations as well as information about
what does not work. The economic value of a trade secret may be
destroyed through disclosure or a failure to take reasonable
measures to protect the secrecy of the information. What is a
trade secret in the context of Chinese law, how can you defend
it and how can you protect it?
Definition of trade secret in Chinese law
In China, there is no an individual Trade Secret Law.
However, a trade secret is defined in the Chinese Anti-Unfair
Competition Law. According to Article 10 of this Law, a trade
secret is defined as:
'Trade secrets' mentioned in this Article
refers to any technology information or business operation
information which is unknown to the public, can bring about
economic benefits to the obligee, has practical utility and
about which the obligee has adopted secret-keeping
The first thing to notice is the broadness of the
definition: trade secret means any technology information or
business operation information. Trade secret protection is thus
much broader than patent, copyright or trade mark protection in
its potential inclusion of any information possessed by the
The first requirement on the information in order to be
considered as a trade secret is that "it is unknown to the
public, can bring about economic benefits to the oblige".
Notice also that this economic benefit is dependent on the
information not being known to others. In other words,
disclosure of the information will destroy the economic value
of the trade secret.
Note also the requirement regarding "has practical utility",
which does not require the trade secret is actively used in the
company's business. For example, a company invents a new
compound: the previous 10 tries are all failures before the
eleventh try is successful. All the previous 10 formulas may
also be deemed as a trade secret because a competitor would
economically benefit from knowing that those 10 formulas did
not work, saving it the time and expense of trying all of these
formulas in developing its own compound.
The second requirement for the information to be considered
as a trade secret is that "about which the obligee has adopted
secret-keeping measures". That is, the owner of the trade
secret must try to keep it a secret, and this effort is not
optional. Failure to make such an effort will destroy the trade
secret rights and inherent economic value of the trade
How to defend trade secrets
Given that trade secrets are so valuable and important to
the company, how to defend trade secrets in the context of
Chinese Law becomes an inevitable issue.
The only way to validate a trade secret is through
litigation. Absent a court finding that trade secret property
rights in information exist, the trade secret status of the
information remains alleged but unproven.
Generally, litigation of trade secret rights occurs after an
alleged misappropriation of the information. The trade secret
owner files suit as a plaintiff that the defendant violated the
plaintiff's trade secret property rights in the information.
The plaintiff bears the burden of proving the following
Is there information qualified as a trade secret?
It is a basis of the litigation. In doing so, the plaintiff
must prove the information to be claimed as a trade secret is
unknown to public, can bring economic benefit to the plaintiff
and has practical utility and about which the plaintiff has
adopted secret-keeping measures.
It is noted that the information must be specified, and the
plaintiff cannot allege everything in his company is a trade
secret; otherwise, the court would reject the suit.
The secret-keeping measure also must be specific for the
specified trade secret, as in Beijing Qiwei Hangce Ltd Co v
Beijing Beidou Navigation technology Ltd Co, where the
court held that when the plaintiff alleged that someone has
infringed his trade secret, the plaintiff bore the burden of
proving that the trade secret claimed complied with the
conditions provided in the Law. One of the legal requisites for
the trade secret is secret-keeping measure, that is, the
plaintiff has taken particular secret-keeping measures for the
claimed trade secret, and the measures should be specific and
effective, and directly aimed at the trade secret itself.
Does the plaintiff own rights in the information?
Ownership is often overlooked in trade secret litigation,
but it does come up in specific cases. The plaintiff must prove
that it owns the information alleged to be a trade secret, and
there are traps with regard to the ownership of trade secret
rights that can ensnare the unwary.
Without a written agreement, a trade secret made by an
employee may be owned by the creator himself, rather than by an
employer. And this is also applied to independent contractors,
outside manufactures and other suppliers to the company. The
agreement needs to be executed to transfer the ownership rights
of the trade secret from the creator to the company.
As in Beijing Puran Track Transportation Technology Ltd
Co v Anan He, the court held that the plaintiff does not
own the trade secret because although the plaintiff claimed the
formula for a certain material is a trade secret, the plaintiff
did not even know the content of the formula.
Had the defendant had actual, constructive or implied
notice of the trade secret status of the information?
The notice proof requires the plaintiff to demonstrate that
the defendant has realised the information he obtained is a
trade secret. Especially in litigation between an employer and
a former employee, the employee is free to use their general
skills, knowledge, and experience in competition with their
former employer. Therefore, the plaintiff must draw a line
between the employee's general knowledge, skills and experience
and the company's alleged trade secrets.
It is not sufficient to claim that "everything in the
company is a trade secret" because we all know that some
information possessed by the company does not qualify as a
trade secret. Failure to do so would be fatal to the
plaintiff's case in litigation.
However, sometimes it is easy to fulfil this task, for
example by labelling documents containing trade secret
information with "confidential" or "proprietary" stamps or
legends. Actual notice can also take the form of a list of
trade secrets presented to a visitor, a customer or a potential
Had the defendant access to the information qualified as
Everybody has the right to develop or reverse engineer the
trade secret information independently, so the plaintiff must
show that such independent development or reverse engineering
does not exist, rather the defendant came into possession of
the alleged trade secret through their access to the
Sometimes, access may be easy to prove. The defendant may
either have written or been on the distribution list for the
information. Alternatively, the defendant may have been in a
position where it had opportunity to access the
In other cases, proving access can be much more difficult.
Did the defendant pick up or read a sensitive document to which
he or she should not have had access, and which was carelessly
left out in the open when someone left their desk for a moment?
Is the defendant accessing the information through some illegal
act, such as by bribing, spying or computer hacking?
In practice, access control and safeguards, together with
access tracking, will provide affirmative proof that the
defendant had access to the trade secret information.
Had the defendant used or disclosed the information?
Sometimes, it is difficult for the plaintiff to collect
solid evidence proving the defendant has used the plaintiff's
trade secret. The plaintiff may request an appraisal, to prove
that the defendant's product involves the plaintiff's trade
secret. In addition, the plaintiff may also resort to the power
of the Public Security Bureau by reporting a criminal liability
for trade secret infringement, so as to collect the evidence of
the defendant by taking advantage of the power of the
authorities, as in SIGroup, SI Shanghai v Huaqi (company),
XU Jian (individual).
Plaintiff was impaired by defendant's use of the
information or defendant was unjustly enriched thereby.
If the plaintiff was harmed by the defendant's use of the
trade secret information, he is entitled to claim damage from
the defendant. How to determine damage is provided in Article
17 of the judicial Interpretation of Anti-Unfair Competition
Trial issued by the Supreme Court of China, and the damage can
be calculated by referring to the method used in trade mark
Article 17. As regards determining the
damages for the acts infringing on business secrets as
stipulated in Article 10 of the Anti-unfair Competition Law, it
may be performed with reference to the methods of determining
damages for patent infringement, and as regards determining the
damages for the unfair competition acts as stipulated in
Article 5, 9 or 14 of the Anti-unfair Competition Law, it may
be performed with reference to the methods of determining
damages for infringing upon registered trade mark rights.
If any business secret has been made aware to the general
public due to any tort, the damages shall be determined subject
to the commercial value of this business secret. The commercial
value of this business secret shall be ascertained in light of
such elements as the research and development costs, the income
from implementing this business secret, possible benefits and
the time for maintaining competitive advantage.
How to protect trade secret
Security against outsiders
Outsiders may access the company's trade secret information
through both proper and improper means.
Access to trade secrets by proper means occurs typically,
for example, by careless or inadvertent disclosure during for
example trade shows, conferences, promotions and interviews,
unprotected disclosures to potential customers, contract
employees and potential employers, discussion between insiders
in public locations, errors in transmission of trade secret
information in the mail and over the internet or careless
disposal of company records, documents, computers and storage
media. The only effective prevention method is employee
management and education, so as to carefully handle the
company's trade secret information. The company cannot claim
damage by establishing litigation before the court.
Access to trade secrets by improper means or illegal access
can occur through fraud, trespass, theft, hacking and
inducement of an insider to breach their fiduciary or
contractual obligation of confidentiality.
Securing trade secrets against illegal access by outsiders
usually involves taking measures to make the illegal access
difficult, ensuring that the illegal access to the trade secret
is noticed, and ensuring that there is no illegal access to the
trade secrets evidence that allows the company to identify the
Security against insiders
It has been seen that the insider threat to trade secret
information has now surpassed the outsider threat for most
companies. For example, one employee worked in the company for
several years, quit the company and went to a direct
competitor's company or become another competitor, doing
business by using the information obtained from the former
employer. This kind of story has occurred again and again in
the recent years.
Therefore, first, the company should draw a red line between
the general skill or knowledge of the employee and the
company's trade secret, and clearly notify this line to the
Second, the disclosure of trade secrets to employees should
be limited to the disclosure of those trade secrets the
employee needs to know in order to fulfil his job.
Compartmentalization is one method for limiting the disclosure
of the trade secrets within the company. In
compartmentalization, the trade secrets are disclosed only
within the areas of the company that are required to perform
assigned tasks. For example, manufacturing trade secrets remain
in manufacturing, engineering trade secrets remain in
engineering, and so on.
Third, there is an access tracking system for the trade
secret information in the company. Access tracking is also
important for proving access in any future trade secret
misappropriation lawsuit, and access tracking can also provide
a method for detecting unauthorised access and attempts at
unauthorised access, as well as documenting unauthorised
accesses and attempts.
Fourth, the protection of the trade secret should be started
as soon as the employee is initially interviewed. The
prospective employee should be informed of the obligations he
or she will undertake to his or her new employer to respect and
protect IP rights, so that his or her acceptance of employment
under these conditions is an explicit acknowledgement of the
expected obligations to the new employers.
Fifth, one of the high risk periods of an employee copying,
disclosing or using the company's trade secrets is just before
his or her departure from the company. It is therefore
recommended that an exit interview containing trade trade
secrets is carried out. During the trade secret exit interview,
the employee is shown a list of the company's trade secrets to
which he or she had access or was exposed during employment.
The employee may be requested to sign a statement acknowledging
that the information on the list is the company's trade secret,
and that he or she agrees not disclose or use the information
in future, and so on.
Due to a trade secret's non-disclosure character, trade
secret misappropriation is often not discovered until evidence
of the company's proprietary information appears in the
marketplace; at that time, disclosure of the trade secret would
bring unrecoverable damage to the company's operation.
Therefore, the company should repair the house before a rainy
day, and take good secret-keeping measures to lower the risk of
disclosing trade secrets.
||Ran Wang joined Liu Shen
in 2000. He qualified as a patent attorney in 2002 and an
attorney at law in 2004, and specialises in patent
protection. He has experience in a variety of areas,
including mechanical engineering, automobiles, engines,
elevators and rolling mill machinery. Before joining this
firm, he worked for North Vehicle Research Institute of
China for three years as a mechanical engineer.. Wang
provides legal services in patent application/inquiry,
patent re-examination and invalidation, patent
infringement analyses, patent administrative and legal
proceedings, and other matters related to IP rights. Wang
has a master’s degree from Beijing Institute
of Technology in 1997. He also joined the law degree
training programme jointly provided by China University
of Political Science and Law and the John Marshall Law
School, Chicago, USA from 2005 to 2007, and got his LL M
degree. In addition, he participated in the master of
intellectual property programme at the University of
Melbourne, and has extensive knowledge of patent practice
in China, America, and Australia.
||XiaoJing Wang is a
partner, patent attorney and attorney-at-law focusing on
patent prosecution, patent invalidation and patent
infringement litigation. He specialises in patent
prosecution work in the fields of vehicles, industrial
device, sports equipment and other mechanical
Wang received a bachelor degree in vehicle engineering
from Hebei Industrial University in 1998 and a masters
degree from China Academy of Machinery Science &
Technology in 2006. He worked in the Beijing Research
Institution of Mechanical & Electrical Technology
(BRIMIT) for nine years and joined the law firm Liu, Shen
& Associates in 2007.