146.How to prove use infringement of trade secrets?

Answer: This answer article analyzes the deficiencies of the existing laws and cases on use infringement of trade secrets (mainly technical secrets), and deduces a reasonable rule for the allocation of the burden of proof for the infringement of trade secrets, so as to help both parties to predict a likely outcome on whether an act constitutes an infringement of trade secrets in China, right holder to learn how to pursue infringement liability, and defendant to establish non-infringement. Readers can skip the analysis section and go straight to the answer at the end of the passage.

The allocation of the burden of proof in trade secret infringement cases is a very complex legal issue. On the one hand, without the cooperation from the defendant in surrendering the alleged infringement information for comparison, the right holder cannot prove that the defendant’s information infringes the trade secrets involved. On the other hand, if the right holder requests the defendant to provide their own information for comparison without good reasons, the defendant may suffer an unfair full disclosure of their own information that is self-developed and lawful.

The Anti-Unfair Competition Law, as amended in 2019, provides for a two-step rule for the allocation of the burden of proof to prove the infringement of trade secrets: the first step is for the plaintiff to preliminarily prove that the defendant has access to the trade secret and that the information used by the defendant is substantially identical as the trade secret, or to prove that the trade secret has been disclosed or used or is at such risk; the second step is to shift the burden of proof to the defendant to prove that they have not infringed trade secrets.1 Article 32 of the 2019 Anti-Unfair Competition Law, “if the right holder of a trade secret provides preliminary evidence reasonably showing that the trade secret has been infringed, and provides one of the following evidences, the suspected tortfeasor shall prove that he has not infringed the trade secret: (1) There is evidence showing that the suspected tortfeasor has access to or opportunities to obtain the trade secret, and the information he uses is substantially identical as the trade secret; (2) There is evidence showing that the trade secret has been disclosed or used by the suspected tortfeasor or that there is a risk of disclosure or use; (3) There is other evidence showing that the trade secret has been infringed by the suspected tortfeasor.”

However, courts at all levels, including the Supreme People’s Court, have not strictly followed this rule. In the case of Qu Zhanbin before the Supreme People’s Court in 2021, the employee resigned after four years working as technical director and vice president of the plaintiff, a software company. Six days before his resignation, the employee set up a new software company (the defendant), with himself as the legal representative. The defendant then provided similar software project services to the plaintiff’s customer, Luoyang Bank. If, according to the aforementioned rules, it appears that the plaintiff has proved the high risk of the former employee’s disclosure or use of the trade secret (having contacted the trade secret, set up a new company, and provided services directly to the right holder’s client), the burden of proof should be shifted to the defendant. However, the Supreme Court held that the plaintiff failed to prove that its software technical secrets were identical or substantially identical as the defendant’s software, and ruled that the plaintiff lost the lawsuit.2Beijing yuanding Times Technology Co., Ltd., Qu Zhanbin, etc. Civil Judgment of the Second Instance of the Civil Dispute over Infringement of Technical Secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2021) SFZMZ No.2389.

What is the problem with the aforementioned two-step burden of proof allocation rule? Perhaps in the eyes of the Supreme Court judge in the case of Qu Zhanbin in 2021, this rule lacks operability. There are two avenues for the plaintiff to fulfill the initial burden of proof: to prove that the defendant has access to trade secrets and that the information used by the defendant is substantially identical as the trade secret, or to prove that the trade secret is disclosed or used or at risk of it. The first avenue requires to prove that the information of the plaintiff and the defendant is substantially identical, meaning that it is necessary to answer whether the defendant has the obligation to hand over their own information for the plaintiff to compare; and the technical comparison is likely to involve complex and expensive technical appraisal, which obviously is not a “preliminary proof”. The second avenue is that the trade secret is at risk of being disclosed or used. What is the threshold for the degree of such risk? Must every employee, who has had access to trade secrets of an right holder and who establishes a company, surrender all their production and operation information to their former employer to prove that they have not infringed the trade secrets of the employers?

These analyses show that the two-step burden of proof allocation rule is a flawed one. For technical information in use infringement case, the principle of balance of probability in civil evidence rules should be extended to shifting of 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 new evidence or facts arise, both parties should be given further opportunities to provide 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.

Take the case of Qu Zhanbin of the Supreme Court in 2021 as an example, the focus of the dispute between the two parties is whether defendant and the employee have used the plaintiff’s trade secret software to serve Luoyang Bank. The relevant factors are as follows: the employee was the vice president before his resignation, established a new software company (the defendant) with himself as the legal representative six days before his resignation, provided similar software system construction services to Luoyang Bank, the plaintiff’s customer, immediately after the establishment of the defendant, and served Luoyang Bank when the employee worked in the plaintiff’s company. The aforementioned factors, combining the fact that the employee could have also infringed the former employer’s another trade secret, the customer information, are a strong tendentious signals of the employee’s infringement of the employer’s trade secret. That is, from the perspective of the judge, the probability of the existence of infringement is much higher than the opposite. Then the burden of proof should be assigned to the defendant and the employee to prove his innocence. Unless the employee and the defendant company provides evidence of software development, or can prove that the software for service project for Luoyang Bank is completely different from the plaintiff’s software, the infringement should be established. We are of the view that the Supreme Court’s assignment of burden of proof to the plaintiff in the case is improper.

Therefore, our answer the question as follows: a reasonable allocation rule of burden of proof in use infringement cases should be that the court should make a preliminary judgement on the probability of infringement or non-infringement based on the existing evidence and the proposition and depositions of both parties. The factors to be considered in this judgement include: the timing and behavioral characteristics of the employee’s exposure to trade secret and suspicious infringement acts, the unlawful means of acquisition or disclosure trade secrets by the employee, the defendant’s R & D details and investment, the defendant’s past work experience and the ability of independent R & D, the method and characteristics of the employee’s suspicious infringement acts after termination, the technical characteristics of trade secrets involved, whether the information is originally created by the right holder or comes from or is transformed from a third party, the agreement or recognition of the nature of the relevant information between the two parties, etc.

If the preliminary conclusion is that the employee or the defendant are more likely than not to have committed an infringement, the court should assign the burden of proof to the defendant to prove that it did not infringe. This is the key to who has the obligation to apply for and pay for the technical appraisal of comparison of trade secrets and information involved in the case. If the defendant refuses to apply for the comparative appraisal and fails to provide other exemption evidence, such as the evidence of independent research and development, the evidence of the possibility of its non-exposure to trade secrets, the non-use of trade secrets, or the fact that the technology used is not substantially identical with the trade secrets of the right holder, or the legal reverse engineering,3Hubei Nayu New Energy Technology Co., Ltd., You Pengyu and other civil judgments of the second instance of disputes over infringement of technical secrets, Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2022) ZGFZMZ No.275. An employees had access to the computer containing technical secrets and had contacts with the employer’s customers after entering the position. Four months later, he left his job and set up a company to produce coking inhibitors of the same kind, but the employee had no education or experience in producing the product. The court finally found that the plaintiff had completed the preliminary proof and the defendant had not proved that he had not infringed, so the defendant was ordered to bear the responsibility.then the defendant should bear the consequences of the inability of proof, and the court should determine that the defendant committed infringement.

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  • 1
    Article 32 of the 2019 Anti-Unfair Competition Law, “if the right holder of a trade secret provides preliminary evidence reasonably showing that the trade secret has been infringed, and provides one of the following evidences, the suspected tortfeasor shall prove that he has not infringed the trade secret: (1) There is evidence showing that the suspected tortfeasor has access to or opportunities to obtain the trade secret, and the information he uses is substantially identical as the trade secret; (2) There is evidence showing that the trade secret has been disclosed or used by the suspected tortfeasor or that there is a risk of disclosure or use; (3) There is other evidence showing that the trade secret has been infringed by the suspected tortfeasor.”
  • 2
    Beijing yuanding Times Technology Co., Ltd., Qu Zhanbin, etc. Civil Judgment of the Second Instance of the Civil Dispute over Infringement of Technical Secrets Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2021) SFZMZ No.2389.
  • 3
    Hubei Nayu New Energy Technology Co., Ltd., You Pengyu and other civil judgments of the second instance of disputes over infringement of technical secrets, Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2022) ZGFZMZ No.275. An employees had access to the computer containing technical secrets and had contacts with the employer’s customers after entering the position. Four months later, he left his job and set up a company to produce coking inhibitors of the same kind, but the employee had no education or experience in producing the product. The court finally found that the plaintiff had completed the preliminary proof and the defendant had not proved that he had not infringed, so the defendant was ordered to bear the responsibility.

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