Answer: Trade secrets are essentially intellectual property information generated by the right holder’s investment of money, manpower, material resources, knowledge, experience, and time, including licensee’ payment for use. Therefore, the law protects the right holder’s interests in trade secrets. Ordinary information are not protected by law.
The Anti-Unfair Competition Law provides that “Trade secrets refer to technical information and business information that are not known to the public, can bring economic benefits to the right holder, are of instrumental nature, and have been taken confidentiality measures by the right holder.” Therefore, the trade secret has three characteristics: the information is not known to the public, that is, it is not public; the information has commercial value; and the right holder has taken confidentiality measures. Without any of the above characteristics, an information does not constitute a trade secret.
Firstly, trade secrets must be the information that is not known to the public, and public information does not belong to trade secrets. The term “not known to the public” refers to information of common sense or practice known to the public or personnel in the relevant industry, or information that cannot be obtained from public channels such as publications, networks, exhibition reports, etc., or information that cannot be obtained from observing the structure, dimensions, and materials of publicly marketed products. However, an innovative information developed or processed from publicly available information may still constitute trade secrets if it bears the three characteristics of trade secrets.1Article 4 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). “Under any of the following circumstances, the people’s court may determine that the relevant information is known to the public: (1) The information belongs to general knowledge or industry practice in its field; (2) The information only involves the size, structure, material, simple combination of components and other contents of the product, which can be directly obtained by the relevant personnel in the field by observing the listed products; (3) The information has been publicly disclosed in public publications or other media; (4) The information has been made public through public reports, exhibitions, and other means; (5) the relevant personnel in the field can obtain the information from other public channels. If the new information formed by sorting out, improving, and processing the information known to the public conforms to the rules of Article 3 of these Provisions, it shall be determined that the new information is not known to the public.”
The second necessary condition of trade secret is that the right holder has taken confidentiality measures for the information. Information not under confidentiality measures shall not constitute trade secrets. 2Liu Yulian and Huizhou Tianhong Shopping Mall Co., Ltd., Labor Dispute Appeal Case, Civil Judgment of Huizhou Intermediate People’s Court of Guangdong Province (2017) Yue13MinZhong No.2555. Civil Judgment of the Second Instance of the Labor Dispute Case between Lin Yu and Pan Jiao Dance Training School in Haizhou District Civil Judgment of Fuxin Intermediate People’s Court of Liaoning Province (2019) Liao 09 Min Zhong No.215.When determining whether the right holder has taken confidentiality measures, the courts will consider the appropriateness of confidentiality measures according to the nature of trade secrets and their carriers, the commercial value of trade secrets, the degree of identifiability of confidentiality measures, the degree of correspondence between confidentiality measures and trade secrets, and the right holder’s willingness to keep confidential.3The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7), “Article 5, the reasonable confidentiality measures taken before the alleged infringement occur in order to prevent the disclosure of trade secrets shall be recognized by the people’s court as the corresponding confidentiality measures referred to in Paragraph 4 of Article 9 of the Anti-Unfair Competition Law. The people’s court shall determine whether the right holder has taken corresponding confidentiality measures according to the nature of the trade secret and its carrier, the commercial value of the trade secret, the identifiable degree of confidentiality measures, the corresponding degree of confidentiality measures and trade secrets, and the right holder’s willingness to keep confidential. Article 6, the people’s court shall determine that the right holder has taken corresponding confidentiality measures under any of the following circumstances, which are sufficient to prevent the disclosure of trade secrets under normal circumstances: (1) signing a confidentiality agreement or stipulating the obligation of confidentiality in the contract; (2) requiring employees, former employees, suppliers, customers, and visitors, who have access to or obtain trade secrets to keep them confidential by means of articles of association, training, company rules, written notification, etc.; (3) imposing differential management measures over, or restricting visitors’ access to, production and operation facilities such as factory buildings and workshops involving secrets; (4) distinguishing and managing trade secrets and their carriers by means of marking, classifying, isolating, encrypting, sealing up, and restricting the scope of persons who can contact or obtain them; (5) taking measures to prohibit or restrict the use, access, storage, and reproduction of computer equipment, electronic equipment, network equipment, storage equipment, and software, that can access or obtain trade secrets; (6) requiring employees who leave their jobs to register, return, remove, or destroy the trade secrets and their carriers that they have access to or obtained, and to continue to undertake the obligation of confidentiality; (7) taking other reasonable confidentiality measures.” For cases involving reverse engineering defence, it is also necessary to see whether the products sold by the right holder in the market have measures against reverse engineering, and the company’s internal confidentiality management measures alone may not be sufficient to pass the threshold of confidentiality measures having been taken. Please refer to “What are the immunities for trade secrets infringement in practice?”
The third necessary condition for a trade secret is that the information has commercial value. This condition is the least controversial in practice. The right holder’s use of the information for profit, the investment of funds and human resources in the information, the confidentiality measures taken, and the illegal acquisition of the information by employees or tortfeasors themselves can directly or indirectly prove the commercial value of the information.
However, in the process of disputes, especially in the process of judicial proceedings, the most important factor affecting whether the three conditions of trade secrets are established may be the burden of proof involving complex legal issues. Why? Please refer to “How does the right holder prove the existence of trade secrets?”
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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
- 1Article 4 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). “Under any of the following circumstances, the people’s court may determine that the relevant information is known to the public: (1) The information belongs to general knowledge or industry practice in its field; (2) The information only involves the size, structure, material, simple combination of components and other contents of the product, which can be directly obtained by the relevant personnel in the field by observing the listed products; (3) The information has been publicly disclosed in public publications or other media; (4) The information has been made public through public reports, exhibitions, and other means; (5) the relevant personnel in the field can obtain the information from other public channels. If the new information formed by sorting out, improving, and processing the information known to the public conforms to the rules of Article 3 of these Provisions, it shall be determined that the new information is not known to the public.”
- 2Liu Yulian and Huizhou Tianhong Shopping Mall Co., Ltd., Labor Dispute Appeal Case, Civil Judgment of Huizhou Intermediate People’s Court of Guangdong Province (2017) Yue13MinZhong No.2555. Civil Judgment of the Second Instance of the Labor Dispute Case between Lin Yu and Pan Jiao Dance Training School in Haizhou District Civil Judgment of Fuxin Intermediate People’s Court of Liaoning Province (2019) Liao 09 Min Zhong No.215.
- 3The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7), “Article 5, the reasonable confidentiality measures taken before the alleged infringement occur in order to prevent the disclosure of trade secrets shall be recognized by the people’s court as the corresponding confidentiality measures referred to in Paragraph 4 of Article 9 of the Anti-Unfair Competition Law. The people’s court shall determine whether the right holder has taken corresponding confidentiality measures according to the nature of the trade secret and its carrier, the commercial value of the trade secret, the identifiable degree of confidentiality measures, the corresponding degree of confidentiality measures and trade secrets, and the right holder’s willingness to keep confidential. Article 6, the people’s court shall determine that the right holder has taken corresponding confidentiality measures under any of the following circumstances, which are sufficient to prevent the disclosure of trade secrets under normal circumstances: (1) signing a confidentiality agreement or stipulating the obligation of confidentiality in the contract; (2) requiring employees, former employees, suppliers, customers, and visitors, who have access to or obtain trade secrets to keep them confidential by means of articles of association, training, company rules, written notification, etc.; (3) imposing differential management measures over, or restricting visitors’ access to, production and operation facilities such as factory buildings and workshops involving secrets; (4) distinguishing and managing trade secrets and their carriers by means of marking, classifying, isolating, encrypting, sealing up, and restricting the scope of persons who can contact or obtain them; (5) taking measures to prohibit or restrict the use, access, storage, and reproduction of computer equipment, electronic equipment, network equipment, storage equipment, and software, that can access or obtain trade secrets; (6) requiring employees who leave their jobs to register, return, remove, or destroy the trade secrets and their carriers that they have access to or obtained, and to continue to undertake the obligation of confidentiality; (7) taking other reasonable confidentiality measures.”