Meaning
Legal actions taken to protect confidential business information from unauthorized disclosure or use provide a remedy for the loss of competitive advantage. This trade secret litigation targets the theft of technical data, customer lists and operational methods that have been kept secret and have independent economic value. It stops applying once the information becomes public through legitimate means or when the owner fails to maintain reasonable measures to protect its secrecy.
Within the Chinese judicial system, these cases are governed by the Anti-Unfair Competition Law and the specific interpretations of the Supreme People’s Court regarding the burden of proof.
Burden of Proof
Establishing a claim for the theft of information requires the plaintiff to demonstrate three specific elements before the court will consider the merits of the case. Trade secret litigation begins with proof that the information was indeed secret, meaning it was not generally known to people in the relevant industry. The plaintiff must then show that the information had commercial value and that they took reasonable steps to protect it, such as using non-disclosure agreements and restricted access protocols.
If a company leaves its technical drawings on an unprotected server, the court will likely find that the information does not qualify for protection. Once these elements are proven, the burden often shifts to the defendant to show that their information was obtained through independent development or reverse engineering. This shift is a key feature of the 2019 amendments to the law, making it easier for plaintiffs to win cases against former employees or dishonest partners.
Administrative Enforcement
Involvement of the State Administration for Market Regulation provides an alternative to the court system for the investigation of suspected theft. Trade secret litigation can be preceded or supported by an administrative raid where government officials seize computers and documents from the offices of the defendant. This process is often faster than a court-ordered preservation of evidence and can provide the “smoking gun” evidence needed for a successful lawsuit.
The administrative body has the power to issue fines and to order the destruction of infringing products, but it cannot award damages to the victim. For this reason, many companies use the administrative route to gather evidence and then follow up with a civil claim for financial compensation. This dual-track system is a common strategy for foreign firms facing large-scale industrial espionage in China.
Remedial Scope
Compensation for the loss of secrecy can include the actual loss suffered by the plaintiff, the profit made by the infringer or a reasonable royalty rate for the use of the information. In cases of serious misconduct, trade secret litigation can also lead to the award of punitive damages, which can be up to five times the calculated loss. The court can also issue a permanent injunction that prevents the defendant from using the information or working in a specific field for a period of time.
This is often the most important remedy, as it prevents further damage to the market position of the owner. The boundary of this remedy is the difficulty of enforcing an injunction against a company that can easily change its name or move its operations to a different city. Success requires a combination of aggressive legal action and constant monitoring of the market to ensure that the stolen information is not being used in a new form.
The final outcome often depends on the ability of the plaintiff to show that the defendant’s product could only have been created by using the stolen data.
