Answer: Non-competition is a restriction stipulated by an employer, prohibiting its employees from engaging in specific competitive work (including by self-employment or employment) either during or after their employment. The employee’s access to the employer’s trade secrets is the first prerequisite for both parties to agree upon that the employee undertakes the obligation of non-competition. Employees who have no access to trade secrets do not need to undertake the obligation of non-competition. However, the obligation of employees to protect trade secrets is different from the obligation of employees¡¯ non-competition.
First of all, the duration of trade secret protection is the period of existence of the trade secret, that is to say, as long as a trade secret does not become public information and lose its confidentiality, employees or anyone else are obligated not to infringe upon the rights of the employer. The period of non-competition for employees shall not exceed statutory length of two years. That is to say, after two years, employees are no longer bound by the obligation of non-competition and free to work in competitive industries, but as long as the trade secret still exists, employees are still obligated not to infringe on the trade secret.
Secondly, trade secret right is a kind of property right, like other property rights of the employer, such as their machinery and equipment. Irrespective of whether the employer pays confidentiality fee to the employee or not, the employee bears the obligation not to infringe upon the right. On the contrary, the obligation of non-competition must be based on the employer’s payment of non-competition allowance. If the employer unilaterally requires the employee not to engage in the competitive industry without paying the non-competition allowance, the employee may cancel the restriction. For details, please refer to “The non-competition agreement signed by my employer and I does not stipulate a non-competition allowance. What can I do?” It should be noted that even if the employee cancels the restriction, they are still subject to the obligation of protecting the employer’s trade.
Right holder of trade secret may, of course, grant paid license to others to use the trade secret. An interesting case related to a dispute after a trade secret license agreement expired is the case of Shijiazhuang Zexing Amino Acid Co., Ltd in 2020. In the case, both parties agreed upon a paid license of a trade secret without providing the licensee¡¯s rights after the contract expires. The Supreme Court held that although the licensee stopped license fee payment after the expiration, it might continue to use the trade secret while having no right to permit others to use it.1The Appellant Shijiazhuang Zexing Amino Acid Co., Ltd., Hebei Daxiao Biotechnology Co., Ltd. and the Appellee Beijing Junde Tongchuang Biotechnology Co., Ltd. in the case of disputes over infringement of technical secrets-the confidentiality obligation after the expiration of the agreed confidentiality period. Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) ZuigaoFaZhiMinZhong No.621.2The Supreme court probably interpreted both parties contractual purpose, finding that the parties intended a long-term permission after the contract expiration. It was unlikely to recognize the licensee¡¯s right of infringement after the contract expiration.
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Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
Email: wangdong@royalaw.com
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