Our client, European Company A, faces the following situation. Before resigning, employee B takes confidential information from Company A in Europe, in breach of the employment contract, and shares it with a new employer, Company C in China.
Company C competes with Company A. Company A asks whether its know-how is protected in China and what steps it should take.
The following analysis outlines the available protection and possible responses.
1. Applicable laws and remedies
In China, know-how that qualifies as a trade secret is protected by civil, criminal, anti-unfair competition and contract law. Three types of remedies are available for trade secret infringement: administrative enforcement, civil litigation and criminal proceedings. The injured party may pursue one or more of these remedies, depending on the circumstances.
2. Proving Infringement
Proving trade secret infringement in China has traditionally been difficult. Article 14 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition requires a claimant to establish both the statutory basis for its rights and infringement by the defendant’s technical solution. This can make proof more difficult than in some other jurisdictions, including European countries.
The amendment to the Anti-Unfair Competition Law announced on April 23, 2019 introduced Article 32, which changes the allocation of the burden of proof as follows:
In civil proceedings for trade secret infringement, where the rights holder provides preliminary evidence of confidentiality measures and reasonably indicates that infringement has occurred, the alleged infringer must prove that the information claimed by the rights holder does not constitute a trade secret under the law.
Where the rights holder provides preliminary evidence reasonably indicating infringement and one of the following types of evidence, the alleged infringer must prove that no infringement has occurred:
(1) Evidence proving that the alleged infringer has channels or opportunities to obtain trade secrets and that the information used by the alleged infringer is substantially identical with the trade secrets;
(2) Evidence proving that the trade secret has been disclosed, used or suspected of being infringed by the alleged infringer;
(3) Other evidence indicating that the alleged infringer has infringed the trade secret.
This amendment substantially reduces the evidentiary burden on trade secret owners and clarifies the shift in the burden of proof in civil infringement proceedings.
3. Enforcement advice
Company A should first confirm that its asserted rights meet the statutory requirements and collect evidence addressing the points above. On that basis, it can consider administrative enforcement or a civil action. If evidence indicates that the employee’s and the new employer’s suspected disclosure has caused significant losses, Company A may also consider reporting the matter to the public security authorities or pursuing a private criminal prosecution. If enforcement in China is a concern, proceedings in Europe, or parallel proceedings in Europe and China, may also be considered.
