Overview

In 2023, China continued to uphold its commitment to stringent protection in the realm of trade secrets, striving to maintain fairness in market competition, fuel innovation, enhance the protection of technical secrets, intensify the enforcement of infringement compensations and rigorously apply the punitive damages system. Those concerted efforts unveil China’s robust judicial stance on protecting intellectual property legally and uprooting the infringement of trade secrets. This overview will delve into the state-of-the-art trends and the judicial dynamics in China’s trade secret sector.

Adjustment to the Appellate Jurisdiction over Technical Secret Cases by the Supreme People’s Court

On 1 January 2019, the Intellectual Property Court of the Supreme People’s Court (“the IP Court”) was officially established, centralising the appellate jurisdiction over technical intellectual property cases nationwide, including those involving technical secrets.

In October 2023, the Supreme People’s Court made a strategic adjustment to the jurisdiction of the IP Court. In accordance with the current provisions (Fa Shi 〔2023〕No 10), as of 1 November 2023, appeals on technical secrets, within the jurisdiction of the IP Court, have been refined to cover “significant and complex” disputes over technical secret ownership, civil infringement and administrative decisions. The term “significant and complex” refers to appeals filed against decisions of first-instance cases by the High People’s Courts.

Consequently, from 1 November 2023, “ordinary” appeals on technical secret ownership, civil infringement and administrative decisions, not initially tried by the High People’s Courts, have reverted to the jurisdictional framework that was in place prior to the establishment of the IP Court in 2019.

Active Procuratorate Initiatives and Escalated Enforcement Against Criminal Infringement of Trade Secrets

Throughout 2023, there was a surge in criminal infringement cases of trade secrets, which were rampant in technology-intensive sectors such as information technology, bio-medicine, advanced manufacturing, and new energy.

In a concerted effort to bolster the criminal judicial protection for intellectual property, the Supreme People’s Procuratorate and the Supreme People’s Court jointly issued the “Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Intellectual Property Infringement (Draft for comments)” (the “Draft for comments”) in January 2023. The Draft for comments sets forth the threshold for criminal liability in criminal infringement of trade secrets.

In April 2023, the Supreme People’s Procuratorate released the “Guidelines on Handling Intellectual Property Cases for People’s Procuratorates”, introducing 45 prosecutorial actions to provide specific guidance for performing case-handling duties.

Furthermore, in June 2023, the Supreme People’s Procuratorate issued the “Opinions on Comprehensively Strengthening the Intellectual Property Procuratorial Work for the New Era” (the “Opinions”). The Opinions highlights enhancing the protection of trade secrets and intensifying the processing efforts for trade secret cases.

These above initiatives underscore that China is steadfast to establishing a pioneering standard for the prosecutorial protection of intellectual property rights, showcasing the nation’s determined approach towards escalating the crackdown on criminal infringement of intellectual property.

Intensified Protection of Trade Secrets and Establishment of the “Mega-Protection” Framework Through Administrative, Judicial, and Industry Collaborations

The Administration for Market Regulation in China leverages the efficient and streamlined framework of the administrative protection for trade secrets, steadfastly focusing on bolstering the oversight and enforcement against trade secret infringements.

Since 2018, the State Administration for Market Regulation has spearheaded nationwide initiatives against unfair competition for six consecutive years. The 2023 campaign, named “Guardian”, specifically mandated more stringent safeguards for corporate trade secrets.

In September 2020, the Administration drafted the “Rules on Trade Secret Protection (Draft for Solicitation of Comments)”, advancing the legislative agenda for administrative protection for trade secrets.

July 2022 marked the commencement of a national pilot programme for trade secret protection, with a second phase launched in October 2023. These pilot initiatives, prioritising multidimensional and effective mechanisms for trade secret protection, have used targeted efforts to drive a nationwide enhancement in protection standards.

As the Administration for Market Regulation joins hands with judicial and industry regulatory authorities, China is gradually establishing a robust “mega-protection” framework, characterised by the synergy among administrative, judicial and industry protections of trade secrets. Moving forward, China will leverage the systemic strength of the “mega-protection” framework, elevating the overall protection of trade secrets across the nation.

New Directions in Adjudication Principles for Trade Secret Cases: Insights From the Supreme People’s Court’s Guiding and Typical Cases

On 22 February 2024, the Supreme People’s Court unveiled the “Fifth Anniversary of the IP Court: Top Ten Influential Cases and 100 Typical Cases”, among which technical secret cases numbered 21, accounting for approximately 20% of the total. A review of the case types adjudicated by the IP Court in 2023 shows 3,222 civil cases are accepted in total, with technical secret cases amounting to 113, representing merely 3.5% of the overall caseload. The proportion of technical secret cases selected as model examples significantly exceeds that of other types of cases. This disparity not only reflects the Supreme People’s Court’s steadfast commitment to reforming the adjudication rules for technical secret cases within civil litigation but also indicates its intent to bolster technical secret protection. The highlighted cases demonstrate numerous significant shifts from traditional approaches, signalling essential developments.

Recent alterations to the practice of determining the trade secret point

As right-holders file a lawsuit, courts generally require them to clarify the content and boundary of trade secrets, namely by defining “the trade secret point”. In cases where a drawing serves as a carrier for the trade secret, courts conventionally conclude that drawings, as the fixed carrier of the technical information, are ineligible for specifying the exact nature and limits of the technical secret. As a result, the right-holder is mandated to further elucidate the specific element of the trade secret within drawings and define its composition, distinguishing it from the publicly known information. Otherwise, failure to do so may lead courts to conclude that the right-holder’s claim doesn’t meet the statutory conditions.

In the “Hood-Type Furnace Lifting Device” technical secret infringement case (Docket No: (2022) Supreme People’s Court Zhi Min Zhong No 719), the Supreme People’s Court has adopted unprecedented approaches for its judgment. In the current context, the right-holder submitted a set of 29 technical drawings, asserting that this entire collection constituted the technical secret. The first-instance court concluded that the right-holder failed to provide the detailed contents of the confidential technical solution or features within the asserted set of drawings. Given the ambiguous nature of the trade secret point within the drawings and the unclear distinction from the publicly known technical information, the court found it unfeasible to affirm the right-holder’s claim that the technical information qualified as the technical secret. As a result, the court dismissed his claim. Upon appeal, the Supreme People’s Court held an unconventional view, recognising the aggregation of specific technical information within 29 drawings as the technical secret beyond dispute, as the right-holder contended. Therefore, on the grounds of the above claim, the court required a review of the secrecy, value, and confidentiality of the technical information, as asserted by the right-holder.

The judicial perspective revises the traditional view when claiming that technical secrets are based on drawings, the right-holder cannot assert that all the technical information within those drawings constitutes the technical secret.

The trade secret point may correspond to components of a technical solution or the complete technical solution itself. When the trade secret involves a complete technical solution, the right-holder typically documents this solution in a single document carrier. The right-holder is then required by the court to distinguish and clarify information which is not known to the public from those which is publicly accessible. However, in the “Virus Detection Reagents” technical secret infringement case (Docket No: (2020) Supreme People’s Court Zhi Min Zhong No 1889), the Supreme People’s Court stepped in a different judicial direction. The Court held that the technical secret, namely a technical solution as asserted by the right-holder, could either be a complete solution documented within a single technical file or a solution developed from a reasonable summary, generalisation, and refinement of technical information which is not known to the public, across various technical documents. Right-holders are encouraged to integrate their confidential information with the prior art and common knowledge, forming a complete technical solution for protection, when summarising, generalising, and refining confidential information from their technical documents.

The above judicial stance has revised the prevailing belief that there must be a direct match between the carrier of the technical secret and its corresponding technical solution. Furthermore, it updates the standard practice of excluding publicly known information from the overall technical solution when determining the trade secret point.

Easing the burden of proof for the right-holder and establishing reasonable inference of infringements

To address challenges that right-holders face in providing evidence, the 2019 revision of the Anti-Unfair Competition Law, particularly Article 32, redefines the apportionment of the burden of proof between the right-holder and the accused infringer. This article was initially hailed as a crucial move to ease the burden of proof. Nonetheless, its implementation in legal practice has ignited significant controversy. The vagueness of phrases such as “preliminary evidence” and “reasonably indicates” has resulted in inconsistent judicial interpretations, making it challenging for right-holders to discern the extent of evidence required to satisfy the initial burden of proof and trigger a shift in this burden to the accused infringer.

Taking the determination of technical secret infringement as an example, it is common for infringers to conduct their business covertly. As a result, the secretive nature significantly hinders the right-holder’s ability to produce evidence substantiating the actual use of the contested technical secret by the infringer.

In the “Vanillin” technical secret infringement case (Docket No: (2020) Supreme People’s Court Zhi Min Zhong No 1667), disputed technical secrets were recorded in the carrier of 287 equipment drawings and 25 process flow diagrams for piping and instrumentation. The accused infringer unlawfully accessed 185 of these equipment drawings and 15 process flow diagrams. The difficult and focal point hinged on proving the accused infringer employed the implicated technical secrets in actual use. During the appeal, the Supreme People’s Court invoked the obstruction of justice guideline and best evidence rule. Given the established facts and the right-holder’s claim that the accused infringer had illicitly acquired full details of the product’s process flow and entire production equipment data, thus proceeding to manufacture identical products, the court reasonably inferred the accused infringer’s use of the entire technical secrets involved.

The above judicial viewpoint underscores that infringements of technical secrets can be inferred on the grounds of circumstantial evidence. According to the specific circumstances or established facts and common knowledge, the right-holder is eligible to substantiate that the accused infringer has improperly acquired, disclosed, or used technical secrets by virtue of circumstantial evidence. This case reflects a judicial approach that pioneers in addressing the challenge of producing evidence for the protection of technical secrets in a practicable manner.

Practicable enhancement of the infringement compensation and rigorous implementation of the punitive damages system

The “Melamine” invention patent and technical secrets infringement case resulted in a landmark award of CNY218 million (Docket Nos: (2020) Supreme People’s Court Zhi Min Zhong No 1559 and (2022) Supreme People’s Court Zhi Min Zhong No 541). Both parties reached a comprehensive settlement during the enforcement phase, with the right-holder ultimately securing CNY658 million, thereby setting a precedent in China’s intellectual property rights enforcement history. The “Rubber Antioxidant” technical secret infringement case led to a compensation of CNY202 million (Docket No: (2022) Supreme People’s Court Zhi Min Zhong No 816), applying the maximum judicial penalty to the company and its actual controllers for non-compliance with a preservation order. Moreover, in the “Vanillin” technical secret infringement case, damages were set at CNY159 million, with the company’s legal representative fully holding joint and several liability. These cases underline the Chinese courts’ dedication to stringent intellectual property protection and their determination to intensify penalties for infringements.

The 2019 revision of the Anti-Unfair Competition Law has incorporated the punitive damages system. Over recent years, the Chinese judiciary has been proactively applying this framework.

Notably, the “Cabot” technical secret infringement case (Docket No: (2019) Supreme People’s Court Zhi Min Zhong No 562) was recommended as the 219th guiding case in the 39th batch issued by the Supreme People’s Court in 2023. This case is a pioneering example of the IP Court’s application of punitive damages. During the appeal, the Supreme People’s Court concluded that the accused infringer, who was guilty of deliberate and direct infringement, made the infringement his profession, characterised by an extensive scale, prolonged duration, substantial profit, and obstruction of justice, warranting the maximum fivefold punitive damages. This case represents a crucial step in correlating the severity of the infringement with the punitive damages multiplier, significantly contributing to the precise and effective application of the punitive damages system for intellectual property rights infringement.