What the new Anti-Unfair Competition Law changes on trade secrets
The revised Anti-Unfair Competition Law, in force from 1 January 2018, rewrites the trade secret provisions of a statute drafted in 1993. It redefines a trade secret as information not known to the public, of commercial value, and subject to corresponding confidentiality measures taken by the rights holder, so bringing negative results such as failed experimental data within protection. It also names employees and former employees among those whose acts may be attributed, and raises administrative fines to a maximum of RMB 3 million, with damages of up to the same figure and a credit record for offenders.
On 4 November 2011 the Anti-Unfair Competition Law (the new Anti-Unfair Competition Law) was adopted at the 30th session of the 12th National People's Congress, and it came formally into force on 1 January 2018. The old law was enacted in 1993, and after 24 years of rapid social development some of its content no longer suits present conditions and has met with many difficulties in judicial practice. Trade secret cases are harder than ordinary intellectual property cases, since proof and the gathering of evidence are difficult and comparatively few such cases are brought; the present revision is intended on the one hand to raise companies' awareness of protecting trade secrets and on the other to refine and complete the system of protection. The new law makes a number of changes to what concerns trade secrets, chiefly the following:
(1) It redefines the trade secret and strengthens protection
Article 9 of the new law provides: "The trade secrets referred to in this Law mean technical information and business information that is not known to the public, has commercial value, and for which the rights holder has taken corresponding confidentiality measures."
The revision replaces the former description, "can bring economic benefit to the rights holder and has utility", with "has commercial value", strengthening protection for material that has a negative commercial value and bringing within protection such things as the data of failed experiments and customer lists within business information; it reduces the ambiguous disputes that arise in judicial practice and the unnecessary burden of proof on a rights holder seeking to enforce its right, and so protects trade secrets more effectively.
(2) It expressly lists the range of unlawful actors
Competition in the market grows ever fiercer, and wherever there is research and development there is leakage; some competitors even resort to bribing employees or inducing them to move jobs, unlawful means to the improper end of stealing trade secrets. At the same time employees who hold a certain amount of a company's resources leave unbound by any non-compete clause, keep in touch with its former suppliers and customers, and in the end "poach" the company's customers, causing it huge loss of profit; and since obtaining and producing evidence is so difficult, this goes on unchecked across every industry today.
Addressing this problem, article 9 of the new law provides: "Where a third party knows or ought to know that an employee or former employee of the trade secret rights holder, or another unit or individual, is committing an unlawful act listed in the preceding paragraph, and still obtains, discloses, uses or permits another to use the trade secret, this shall be deemed an infringement of the trade secret."
Compared with the old law, the words "an employee or former employee of the trade secret rights holder, or another unit or individual" have been added. The provision lists the actors affirmatively, expressly prohibiting the infringing acts by which an employee who has left carries trade secrets away to trade on his own account or discloses information to others in the same trade; it strengthens the certainty of the law, deters those who used to walk along the edge of it, and gives better support to adjudication and enforcement thereafter.
(3) It raises the administrative penalties and the ceiling on compensation
Article 17 of the new law provides: "Where a business operator, in breach of this Law, causes damage to another, it shall bear civil liability in accordance with law. ... Where the actual loss suffered by the rights holder through the infringement and the profit the infringer has gained through it are difficult to establish, the People's Court shall, according to the circumstances of the infringing act, award compensation of not more than RMB 3 million."
In China today, the protection of trade secrets has much room for improvement in theory and in judicial practice alike. Compared with the old law, the revision raises the fine from "not less than RMB 10,000 and not more than RMB 200,000" to a maximum of RMB 3 million, greatly strengthening administrative penalties; and it provides that "where a business operator, in breach of this Law, engages in unfair competition and receives an administrative penalty, the supervision and inspection department shall record this in its credit record and make it public in accordance with the provisions of the relevant laws and administrative regulations", linking infringement of trade secrets and other unfair conduct to the credit record and again raising the cost of breaking the law. The maximum civil compensation is raised from the former RMB 1 million to RMB 3 million. From the standpoint of public law and of private law alike, the revision is undoubtedly a good thing for the protection of trade secrets.