142.How to prove the non-publicity of trade secrets?

Answer: Non-publicity of trade secrets is the prerequisite of existence of trade secrets and accountability for infringement. This answer article makes an in-depth analysis of the current flawed laws and cases in China, aiming to find out a reasonable judicial rule to determine who is responsible for proving, and how to prove, the non-publicity of trade secret information (that is, the first condition), so as to help determining whether there are a trade secret and further an infringement. This article’s conclusion is a summary of judicial decisions and therefore is informative to practical questions.

The key issue to prove the existence of trade secrets is the burden of proof. When it comes to proving the non-publicity of trade secrets, the burden of proof becomes the issue on whether it is for the plaintiff to prove that the related information is not publicly available or for the defendant to prove the opposite. The consequence of the burden of proof in a court case is that the party who bears the burden of proof is likely to bear the consequences of losing the case if the evidence is insufficient to prove the facts it claims. The burden of proof is related to the success or failure of litigation.

At present, China’s law and judicial practice do not give a clear answer to who should bear the burden of proof for the non-publicity of trade secret.

The case of Nanjing Jinpeng Petrochemical Research Institute in 2015 shows that courts at all levels have not reached a stable consensus on the burden of proof for non-publicity of trade secret information. In the case, the plaintiff provided the defendant with a fuel additive technology, and the defendant paid nearly one RMB million for the use of the technology during the three-year contract period; the defendant then produced technically similar products for sale without authorization after the contract ended. The plaintiff sued the defendant for infringement of technical trade secret. The first instance court, Nanjing Liuhe District Court, found that the plaintiff had the burden of proof to prove the technology being not public and the plaintiff failed to apply for non-publicity appraisal, leading to the plaintiff’s insufficient evidence and the consequent loss of the case. On the appeal of the case, the Nanjing Intermediate Court held that, in view of the high amount of technology license fee and the confidentiality clause provided in the contract, it is for the defendant to bear the burden of proof to prove the technology being public, and it finally ruled that the trade secret was established and overturned the first-instance judgment.¹

This case is a microcosm of the divergence in the understanding of the burden of proof of trade secrets in China’s judicial decisions. In 2007, the Supreme Court’s judicial interpretation of the Unfair Competition Law stipulates that the plaintiff shall be responsible for providing evidence to prove that trade secrets meet the legal conditions (including the non-publicity of trade secrets).²This rule has resulted in the plaintiff’s heavy burden of proof to prove the non-publicity of trade secrets, and judicial decisions have been very divergent. The courts have not only held that the plaintiff assumes the obligation to prove non-publicity of the relevant information,³but also held that the defendant has the obligation to prove that the information belongs to public information.⁴

The amendment to the Anti-Unfair Competition Law in March 2019 tried to clarify the burden of proof for determining the non-publicity of trade secrets: “In the civil trial procedure of infringement of trade secrets, the right holder of trade secret shall first provide preliminary evidence to prove that they have taken confidentiality measures for the claimed trade secret and reasonably show that the trade secret has been infringed; then the suspected tortfeasor is obligated to prove that the trade secrets claimed by the right holder are not the trade secrets stipulated in this Law.”⁵According to the revised law, the Supreme Court pointed out in the case of Jinan Sike Testing Technology Co., Ltd. in 2020 that “the right holder of trade secrets should first provide preliminary evidence to prove that they have taken corresponding confidentiality measures for the trade secrets they claims to protect, and that the accused tortfeasor has perpetrated “infringement”. Based on this, the right holder of trade secret does not need to provide evidence to prove that the trade secret they claim to protect is “not known to the public”, but that the accused tortfeasor must provide evidence to prove that the trade secret does not meet the requirement of “not known to the public” rendering it is not the trade secret stipulated in the Anti-Unfair Competition Law.⁶

Although this burden of proof rule tries to strike a balance between the burden of proof of both sides and to reduce the burden of proof of the plaintiff, it still has manifest defects. From the perspective of judicial practice, there are generally three types of trade secret infringements (please refer to “What are the types of infringement of trade secrets?”), acquisition (where an employee wrongfully acquires a trade secret), disclosure (where an employee wrongfully discloses a trade secret to another person), and use (where an employee illegally uses, or help other to use, a trade secret, for example, produce products).

The aforementioned new rule on burden of proof is appropriate for acquisition and disclosure torts. The right holder needs to preliminarily prove the confidentiality measures taken for the information, the commercial value of the information, and the tortuous acts of the employee’s unlawful acquisition or disclosure. Based on the existing evidence, the employee is of course obligated to prove that the information is not of the nature of non-publicity of trade secrets, otherwise they should bear the tort liability. This is not much controversial.

However, when this rule is applied to use-based infringement, there is a serious defect that the burden of proof on the right holder is unreasonably increased. The most common trade secret infringement is use-based infringement, where the right holder does not find the defendant’s unlawful behavior of acquiring or disclosing, but only finds the infringement clues at the use end, such as discovering products produced with the same technology as the right holder’s trade secret. In this case, if the right holder has to “reasonably show that the trade secret has been infringed “, there may be no other way than providing a technical appraisal report to compare the right holder’s trade secret information with the technical information contained in the defendant’s product to determine whether they are identical or substantially identical.

This means that the actual effect of this rule violates the original intention of reducing the burden of proof of the right holder, because the cost and technical complexity of the technical appraisal are far higher than that of the right holder proving the non-publicity of their trade secrets. Moreover, such a proof process actually requires the right holder to prove the existence of the infringement fact in advance, conflicting the traditional practice of “proving rights first before proving infringement” in intellectual property infringement cases.

In fact, there are many cases, from the Supreme Court after the revision of the Anti-Unfair Competition Law in 2019, not following the burden of proof when allocating the burden of proof between the two parties for the non-publicity of trade secrets. For example, in the case of Beijing Lizheng Software Co., Ltd. in 2020, the Supreme Court directly examined the nature of the information software database involved in the case and preliminarily identified its non-public nature, and then pointed out that although the defendant objected to the non-public nature of the information, he failed to provide evidence to refute it, and finally determined the establishment of trade secrets taking account into confidentiality measures and commercial value.⁷This reminds us that the courts should first examine existing evidence to preliminarily judge the nature of the information, and then shift the onus to the unfavorable party to provide evidence to refute it.

Let’s go back to the case of Nanjing Jinpeng Petrochemical Research Institute in 2015. The glaring facts in this case are that the defendant paid nearly RMB one million for using the technology and that the contract stipulated the defendant’s obligation of confidentiality. They obviously constitutes a preliminary proof of the technology being non-public information, because no rational company would pay a high fee to use a publicly available technology. Therefore, the burden of proof should of course be assigned to the defendant: unless the defendant can prove that the technology is a publicly available technology, the non-publicity of the information is certainly established. In fact, the reasoning of the court of second instance echoed this in setting aside the first instance judgment.

These cases show that the principle of balance of probability in civil evidence rules should be extended to shifting the burden of proof of both parties, rather than limiting to the judge’s one-off allocation of burden of proof. If the version of fact claimed by one party prevails according to the existing evidence and propositions and depositions, the other party shall be responsible to prove that that version of fact is less likely than the fact claimed by itself. When a new fact prevails, one party should be given further opportunities to provide counter-evidence. In reality, facts of cases, particularly sciences and technologies contained, are very complex, and it is difficult for judges to apply their legal knowledge to complex facts at one time. The courts should allow both sides to have multiple opportunities to prove with the deepening of technology and factual disclosure, so as to find out the facts as close as possible to the truth.

Therefore, we answer the question with the following reasonable rules for the allocation of the burden of proof:

For use-based infringement cases, the court should first make a preliminary judgment on whether the relevant information is more likely to be public or non-public based on the preliminary existing evidence and the propositions and depositions of both parties. The factors to be considered in this alternative judgement include: the content or technical features of the trade secret, the difficulty for both parties to prove the publicity (or non-publicity), the research and development investment of the right holder, the confidentiality measures taken by the right holder, whether the information is originally created by the right holder or is derived or transformed from information of a third party, evidence of the defendant’s own research and development, the agreement or cognition of both parties on the nature of relevant information, etc. If the prima facie conclusion is that the information is more likely to be public, the court should assign the burden of proof to the plaintiff to prove that the information is not public; otherwise, the defendant should be required to prove that it is public.

If the case is an acquisition or disclosure infringement, the court should first consider the evidence of the acquisition or disclosure infringement, the confidentiality measures taken by the plaintiff, and the evidence of the commercial value of the information, provided by the plaintiff. If these evidences show that the defendant’s unlawfulness (that is, unlawful acquisition and disclosure of the right holder’s information) is established, then the court should assign the burden of proof to the defendant to prove that the information is publicly available. This path of burden of proof is consistent with the provisions of Article 32 of the Anti-Unfair Competition Law.

Right holders and infringement defendants can gather evidence based on this answer regarding the burden of proof for either pursuing infringement liability or defending against allegations of infringement.

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Mr. Wangdong

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

1
Nanjing Jinpeng Petrochemical Research Institute v. Nanjing Rongsen Chemical Co., Ltd. for Infringement of Trade Secrets Nanjing Liuhe District People’s Court Civil Judgment (2014) Liu Zhi Min Chu Zi No.22. The Nanjing Intermediate People’s Court in the judgment of the second instance quashed the first instance judgment (Nanjing Intermediate People’s Court of Jiangsu Province Civil Judgment (2015) NZMZZ No.140) and confirmed that the technology should be presumed to be a trade secret after technology transfer and confidentiality agreement, and the defendant bears the burden of proof to prove its openness. This case shows that the allocation of the burden of proof for the disclosure of trade secrets is a complex issue.
2
Article 14 of the repealed Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Unfair Competition (Fashi (2007)No.2) stipulates: in a suit, a party claiming that the other has infringed its trade secret shall bear the burden of proof for the fact that its trade secrets meet the legal conditions, that the information of the other party is identical or substantially identical as its trade secrets, and that the other party acted in an illegal manner. Among them, the evidence that the trade secret meets the legal conditions includes the carrier, specific content, commercial value of the trade secret and the specific confidentiality measures taken for the trade secret.
3
Civil Judgment of First Instance of Dispute over Infringement of Technical Secrets between Dongguan Qingsong Optics Co., Ltd. and Wei Zongtao Civil Judgment of Guangzhou Intellectual Property Court (2018) Yue 73 Min Chu No.3114. The court held that the plaintiff failed to prove the difference between the product in circulation on the market and the drawing of the lens barrel mould that the plaintiff claimed to protect, so the trade secret did not exist. Civil Judgment of First Instance of Unfair Competition Dispute of Beijing Jisu Applied Technology Co., Ltd., Beijing Ganyun Applied Technology Co., Ltd., Jia Pengfei, etc. Handan Intermediate People’s Court of Hebei Province Civil Judgment (2020) Ji 04 Min Chu No.55.
4
Qingdao Shengfengda Industry and Trade Co., Ltd. v. Han Zhongxin and others for infringement of trade secrets, Qingdao Intermediate People’s Court of Shandong Province issued a civil judgment (2006) Qing Min San Chu Zi No.30. “This court held that it was a negative fact that certain information was not known to the public. As the plaintiff claimed that the technology of velvet belt machine was the first in China, it indicated that he believed that the technology was not known to the public. The burden of proof that the technical information has been known to the public should be borne by the defendant accused of infringing trade secrets.”
5
Article 32 of the 2019 Anti-Unfair Competition Law.
6
Jinan Sike Testing Technology Co., Ltd. v. Jinan Languang Electromechanical Technology Co., Ltd. Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) SFZMZ No.538
7
Beijing Lizheng Software Co., Ltd. and Beijing Dacheng Huazhi Software Technology Co., Ltd. Civil Judgment of the Second Instance of Trade Secret Infringement Dispute Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) Supreme Law Zhimin Zhong No.1638. “The technical content of the trade secret involved in the case includes 66 database tables and 31stored procedures/functions contained in the four databases LZMISCommon, LZMISPM, LZMISWF and LZ MISFrame of the “Lizheng MIS System Database” software, which belong to the software background code files that are not easy for ordinary technicians to know and obtain. It is not known to the public, and the finding has factual and legal basis and can be confirmed.”

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142.How to prove the non-publicity of trade secrets?

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