Author: Joe Zhang, Unitalen Attorneys at Law

Comments on the Judicial Interpretation regarding the Trade Secret Infringement Civil Case

issued by the China Supreme Court

September 21th, 2020, the Judicial Interpretation regarding the Civil Case of Trade Secret Infringement issued by the China Supreme Court (hereinafter referred to the Interpretation) entered into force; in contrast to the prior binding legal documents concerning trade secret protection, such as the Judicial Interpretation regarding the Anti-Unfair Competition Law issued by the China Supreme Court in 2007, as well as the China Anti-Unfair Competition Law latest amended in 2019 etc., the purpose of this Interpretation is to re-organize and conclude the prior relevant regulation and the ripe practice. The new content of the Interpretation mainly includes the following,

i. To expand the subject of trade secret protection

ii. To supplement the evaluation criteria for novelty of trade secret

iii. To lower the assessment requirements of measures to keep confidential

iv. To further define the infringing act of trade secret

v. To establish the rule of assignment of evidence burden during determination of damage

vi. To be a qualified plaintiff as the licensee of the trade secret

vii. To determine damage

Here is the discussion of the above-mentioned one by one.

i.To expand the subject of trade secret protection. The first section of the interpretation explicitly mentions that the algorithm and data shall be treated as trade secret. With the soaring surge of the 5G and the artificial intelligence (AI), the big data and the algorithm used for the big data are becoming more and more prominent. At present, there are a few cases found in relation to illegal access to or abuse of data, and yet, few owners hereinto sought remedy based on the move of trade secret infringement, in practice, most of the owners brought litigation against the infringer upon the section 2 of the China Anti-Unfair Competition, given the section 2 is so general, without sufficiently detailed criteria, to some extent, it has prevented the court from effectively determining constitution of infringement and thus weakened the protection for algorithm and data. As a result, it’s expected the section 2 of the interpretation shall add the diversity of the protection measures in the future. In addition, as for the client list, the interpretation re-reiterates what could be protected by the means of trade secret is those of deep information, namely, the exact name of the client; the detail address; the contact information such as email, phone number etc., the regular practice, intention and content of business transaction. Hypothetically, in the absence of the deep information, the owner merely manages to take action based on the existence of the long-term business transaction, it could be hardly to recognized as trade secret and then gain remedy.

ii.To supplement the evaluation criteria for novelty of trade secret. On the basis of the section 9 of the Judicial Interpretation of Anti-Unfair Competition of 2007, the section 3 of this interpretation further defines what so-called novelty is: it refers to the information seeking protection that shall not be well known, or hardly accessible at the time of occurrence of the infringing act, additionally, the section 4 of this interpretation lists a few situation by the way of exemplification as follows,

a.the information in the subjected industry is common sense or routine, in other words, the information is related to the size, structure, material, plain combination of component of the products etc.,

b.the relevant person in the subjected industry could gain the information embodied on the product for sale through observation,

c.the information has been disclosed to pubic per the published or other medias.

In practice, the proper way is to evaluate the novelty of the asserted trade secret before taking action, and the patent evaluation could be used as reference, for example, for the technical secret, it’s available to search whether there exists the prior arts to completely or partially disclose the technical information of the trade secret before the occurrence of the infringing act, and then to evaluate whether the disclosed information has been combined to be a new information. The section 4.2 of the interpretation mentions, if the information is well known by the public has turned to be new information by re-organization, improvement, development, thus the newly combined information could be as the subject of trade secret protection. In short, the novelty of trade secret could not be equal to the one of patent, the novelty requirement of trade secret is far lower than the patent.

iii.To lower the assessment requirement of measures to keep confidential. In some precedents, a few courts’ position was relatively negative to acknowledge a single measure to keep confidential as eligible, that is, only multiple measures that are simultaneously adopted could be held eligible. Specifically speaking, it was required to not only have the signed non-disclosure agreement, but also the rigid measures to keep confidential, such as, encrypting the documents, locking the file cabinet, or even installing the surveillance equipment. However, upon the section 6 of this interpretation, it would be treated as the eligible measure as long as taking one of these measures, not all of them. For example, to merely inform the person that is liable for keeping confidential in written would be eligible, or to raise the requirement to the visitors also would be accepted. Obviously, compared to the prior judicial practice, in a way, the requirement of the measures to keep confidential is lowered, which is definitely good for the owner of trade secret, and largely helpful to enforce the exclusive right of trade secret.

iv.To further define the infringing act of trade secret. Upon the section 9 of the China Anti-Unfair Competition Law, to constitute misappropriation of trade secret includes

a.to acquire the trade secret by a kind of improper way

b.to disclose, use, or license other party to use the trade secret acquired by the above-mentioned way

c.to instigate, induce, or assist other party to violate the confidential liability or the requirement to keep confidential, then to disclose, use, license other party to use the trade secret of the owners.

The section 9 of the interpretation explicitly defines what exactly the exploitation of trade secret is, that is,

a.the accused infringer directly uses the trade secret in the process of production and business operation

b.to alter or improve the trade secret then use it, or to use the trade secret to adjust, optimize or improve the activity of production and business operation

Furthermore, the section 13 stipulates a kind of criteria regarding identification for the constitution of being substantial identical between the accused infringing information and the trade secret.

a.What is the extent of the similarity and the difference between the accused infringing information and the trade secret?

b.Is it easy for the relevant person in the subjected industry could figure out the difference between the accused infringing information and the trade secret at the time of occurrence of the infringing act?

c.Is there substantial difference between the accused infringing information and the trade secret in the aspect of application, use style, purpose, effect etc.?

d.What is the relevant information like in the public domain? And the other elements need to be considered.

v.To establish the rule of assignment of evidence burden during determination of damage. On the basis of the provisions in the section 63 of the China Trademark Law in 2013 as well as the section 27 of the Judicial Interpretation regarding Patent Infringement II issued by the China Supreme Court in 2016, the section 24 of this interpretation also mentions, if the accused infringer declines to disclose or falsely discloses the relevant ledger, the revenue documents, without legitimate excuse, the court could directly determine the amount of damage based on the petition of the trade secret owner and the corresponding evidences.

vi.To be a qualified plaintiff as the licensee of trade secret. With reference to the prior provisions of the Trademark Law and the Patent Law, the interpretation explicitly mentions three categories of the license of trade secret, i.e. exclusive license, sole license, and non-exclusive license. The licensee of the exclusive license hereinto could initiate trade secret litigation in the name of himself or herself. For the sole license, the licensee could bring litigation along with the owner of trade secret, or the licensee of the sole license hereinto could initiate trade secret litigation in the name of himself or herself under the circumstance that the owner of trade secret clearly abandons the right to bring litigation against the infringer. For the non-exclusive license, the licensee could bring litigation along with the owner of trade secret, or the licensee of the non-exclusive license hereinto could initiate trade secret litigation in the name of himself or herself under the circumstance of acquiring the authorization from the owner of trade secret.

vii.To determine damage. The section 17 of the Anti-Unfair Competition Law mentions that, the amount of damage of the business operator suffers from the infringing act depends on the actual loss firstly, if the above loss is hard to determine, then to determine it upon the profit of the infringer, if both of them are hard to calculate, then to determine it upon the statutory damage, and the maximum of the statutory damages can’t exceed 5 million RMB, equivalent to 70 thousands USD. And the interpretation mentions that at the time of determination of damages, the real value of the trade secret could be used as reference, such as section 17 mentions, to consider the R&D expense, the possible profit from the exploitation of the trade secret, the possible interest in the future, the duration to keep competition dominance and so on. In addition, with reference to the provisions on the multiple for the royalty in the section 63 of the Trade Mark Law and the section 65 of the Patent Law, the section 20 of the interpretation mentions that it’s available to calculate the amount of damage upon the multiple of the trade secret royalty, meanwhile, the other elements need to be considered together including the property, content, performance of the license contract as well as the property, and the result of the infringing act etc.