Patent Protection in China Protection of trade secret

Patent Protection in China 中国的� 利保� Protection of trade secret in China

Protection of trade secret in China 中国的商业秘密保护 • • • 1. Historical Evolution in China 2. Source of law protecting TS 3. Defining a TS 4. Misappropriation of a TS 5. Enforcement 6. Non-competition clause

• Trade secret : generally customer lists, supplier information, manufacturing processes and product formulations… • Know-how • Other business info.

Espionage & spying story 间谍 • GM v. VW 1996 (Jose Ignacio Lopez) • Foxconn Vs BYD 2006 富士康诉比亚迪 • Die gelben Spione - Wie China deutsche Technologie ausspähen von Spiegel 2007 People´s Republic of Cheats • China Vs Rio Tinto Ltd (Stern Hu) Original charges of engaging in espionage charges of infringing trade secrets and bribery

1. Historical Evolution

• Traditional Chinese Medicine • i. e. acupuncture, cupping 中医、针灸 Laws never really implemented 1. 1889 Emperor Guanxu’s regulation 清朝 光绪皇帝 2. Republic of China 中华民国

After 1949 • Soviet Model 苏联模式 • Central planed economic system – state ownership • Voucher system 票制 • Land reform 土改 – collective ownership

Prior 1978: From Folk Secret to State Secret 从民间秘密到国家秘密 • Porcelain making skill in Jinde Town 景德镇陶瓷 • Ingredients of Guizhou Maotai 贵州茅台 • Anhui Rice Paper 安徽米纸 • Cultivation of Narcissus in Fujian 福建水仙

After 1978 • 1978 Reform and Opening-up policy 改革开放 • 1982 Amendment of PRC’s Constitution 宪法修正案 Constitution was placed above all political parties including the CPC!! • 1982 Trademark Law – 1984 Patent law －1990 • 1985 Regulation on Administration of Technology Import Contract confidential technological know-how started to be separated from state secret • 1986 General Principle of Civil law 民法通则 • 1987 Law on Technology Contract • 1991 revised Civil Procedure 民事诉讼法修改 first statutorily mentioned Trade Secret • 1993 Anti -Unfair Competition Law 反不正当竞争法 • 1997 Amendment of PRC’s Constitution Rule of Law！

After 2001 • From Joint-venture to wholly foreign-owned enterprises

IP cases and TS cases heard by Courts in China • IP Cases - a rapid increase 1991～ 1995 15，543 2003～ 2007 64，625 • Trade Secret Cases - a moderate increase 1991～ 1995 2，141 1995～ 2005 6，547

2. Major Laws governing trade secret in china • the primary law on the topic is China’s Anti. Unfair Competition Law （1993） • Interpretation of the Supreme People’s Court on several Issues relating to the Application of Laws in the Civil Trial of Unfair Competition Cases (Judicial Interpretation) , （Feb. 2007） • Labor Contract Law （2007）

Hierarchical structure of Chinese legal system （on Trade secret） Legislation of basic law (NPC) National legislation Legislation of other laws (SCNPC) Legislation of administrative regulation by State Council Legislation of local regulation by City/Province Congress Judicial Interpretation Ministry rules of the State Council Labor law; Contract law; Criminal law Anti-Unfair Competition Law Patent law; i. e. Implementing Regulations of the Patent Law i. e. The Regulation of Shenzhen SEZ on Protection of Technological Secrets of Enterprise

How to protect yr trade secrets in China Step 1: defining a trade secret Step 2: locating the improper means of acquisition, disclosure, etc. Step 3: collecting your evidences Step 4: enforcement – go to the AICs or Courts …

3. Defining a trade secret • “Technical and operational information which is not known to the public, which is capable of bringing economic benefits to the owner of rights, which has practical applicability and which the owner of rights has taken measures to keep secret. ” -- Article 10 AUCL “商业秘密，是指不为公众所知悉、能为权利人带来 经济利益、具有实用性并经权利人采取保密措施 的技术信息和经营信息。 ” Could be …

• information of purely technical character, like production methods, chemical formulae, blueprints or prototypes • Commercial secrets include sales methods, distribution methods, contract forms, business schedules, details of price agreements, consumer profiles, advertising strategies and lists of suppliers or clients.

Name list of customers • Article 13, Judicial Interpretation 2007 • The name list of customers among business secrets shall generally refer to the name, address, contact information, trading habits, trading intent, and trading contents of customers that consist of the specific client information different from relevant public information, and include the name roll of customers that collects a great deal of customers as well as the specific customers that have kept a longterm and stable trading relationship. Where a customer is relied on an employee and thus conducts market transactions with the employer of the said employee, after this employee leaves his post, if it could be proved that this customer voluntarily chooses to conduct market transactions with the said employee or his new employer, it shall be affirmed that no unfair means is adopted, unless it is otherwise stipulated between this employee and his former employer.

《反不正当竞争法》（ 1993）第十条 　商业秘密是指： 　　　不为公众所知悉、 　　　能为权利人带来经济利益、 　　　具有实用性 　　　并经权利人采取保密措施的 　　　　　－－“技术信息和经营信息” Anti Unfair Competition Law， Art. 10 "Business secret" in this Article means technical information and operational information which is not known to the public, which is capable of bringing economic benefits to the owner of rights, which has practical applicability and which the owner of rights has taken measures to keep secret.

• 1) “Not known to the public” • 不为公众所知悉 “Unknown” means secret and not accessible through public channels. -- not an absolute unknown standard ! The “public” in this definition refer only to the general public？－ Esp. to current or prospective industry competitors or people who want to obtain economic benefit by exploiting the secret. The “public” is also limited to the Chinese “public” ? – if a trade secret is known outside of China but not inside China, it is considered “unknown to the public” under this definition.

• Article 9 Judicial Interpretation, 2007 • In case the relevant information is unknown to and is difficult to be obtained by the relevant personnel in the relevant field, it shall be affirmed as “unknown to the public” prescribed in Paragraph 3 of Article 10 of the Anti-unfair competition Law. If it is under any of the following circumstances, it may be affirmed that the relevant information is not unknown to the public: (1) The information is the common sense or industrial practice for the personnel in the relevant technical or economic field; (2) The information only involves the simple combination of dimensions, structures, materials and parts of products, and can be directly obtained through the observation of products by the relevant public after the products enter into the market; (3) The information has been publicly disclosed on any publication or any other mass medium; (4) The information has been publicized through reports or exhibits; (5) The information can be obtained through other public channels; (6) The information can be easily obtained without any price.

• 2) “Potential economic benefits” 经济利益 Through tangible or intangible means, the trade secret must be able to generate profit or commercial value, or provide a competitive advantage. • 3) “Practical applicability” 具有实用性 The information should be specific and immediately useful and applicable to industrial and business applications. It cannot be mere theory or a general principle.

• 4) “Measures to keep secret” 保密措施 Before an owner of a trade secret can claim infringement, he must show that he took proper and reasonable steps to keep the information secret, and he should be able to trace those steps through written records.

• Art. 11 Sec. II, Judicial Interpretation, 2007 • In case any of the following circumstances is sufficient to prevent the divulge of any classified information, it shall be affirmed that the obligee has adopted the confidentiality measures: (1) Limiting the access scope of the classified information, and only notifying the contents to relevant persons that should have the access to the information; (2) Locking the carrier of the classified information up or adopting any other preventive measure; (3) Indicating a confidentiality mark on the carrier of classified information; (4) Adopting passwords or codes on the classified information; (5) Concluding a confidentiality agreement; (6) Limiting visitors to the classified machinery, factory, workshop or any other place or putting forward any confidentiality request; or (7) Adopting any other proper measure for guaranteeing the confidentiality of information.

Advices: implement strong prevention and safeguard measures • Companies should take a series of steps to protect trade secrets in the workplace. • 1. Companies should identify their trade secrets and review who has or could have access to them. • 2. Companies should control access to trade secrets by implementing proper security measures and restricting access to relevant computers and equipment, documents and areas. Documents and materials that are trade secrets should be labeled so. • 3. Companies would do well to impose a strong and clear contractual obligation on employees at each level to protect the firm's trade secrets. Upon hiring, companies should ask each employee to sign an agreement that confirms the employee's obligation to protect the firm's trade secrets.

• Rosenberger Asia Pacific Eletronic Co. Vs Li Yong, et al, for trade secret infringement 2006 Beijing No. 1 Intermediate People’s Court （1）Information (Product’s clients specification，quantity，price) cannot be acquired through public channels （2）Information capable of bringing economic value （3）Defendants have confidential obligation pursuant to employment contract （4）Plaintiff has proved the identity of the two INFOs （5）Defendants have access to plaintiff’s TS Beijing High People’s Court reversed and dismissed! （1） Only the price of the involved products is unknown to the public （2） One important issue is whether protective measures has been taken Rosenberger’s employment contract is too simple to cover the said SECRET. The only clause relevant in contract said: “The Staff must abide by the company’s stipulations on confidentiality materials. ”

4. Infringing on a trade secret 侵犯商业秘密的形态 • 1) Obtaining trade secrets from the owner by stealing, promising gain, using coercion or other improper means; • reverse engineering? • 2) Disclosing, using or allowing others to use trade secrets obtained by stealing, promising gain, using coercion or other improper means;

• reverse engineering • Article 12 The business secrets obtained through independent development and research or reverse engineering shall not be affirmed as an infringement upon business secrets prescribed in Items (1) and (2) of Article 10 of the Anti-unfair competition Law. The “reverse engineering” mentioned in the preceding paragraph refers to the relevant technical information on the products as obtained through dismantling, mapping or analyzing the products gotten from technical means or other public channels. In case any party knows the business secrets of someone else by unjustifiable means and then claims its acquisition as lawful for the reason of reverse engineering, it shall not be supported

Infringing on a trade secret 侵犯商业秘密的形态 • 3) Disclosing, using or allowing others to use trade secrets that a party has obtained by breaking an agreement or disregarding the confidentiality requirements of the trade secret owner; 最常见，90％的案件（中国） • 4) Third-party Liability: Where a third party obtains, uses or discloses someone else’s trade secret when he had, or should have had, awareness of the illegal acts mentioned above.

5. Enforcement !

Both judicial and administrative actions may be undertaken • Judicial enforcement 1. seeking compensation for damage under Art. 20 of the Anti-Unfair Competition Law; 2. profit obtained by the infringing party; 3. expenses and fees arising from the investigation are included in damage 4. available injunctive relief

Who is entitled to sue? • Article 15 , Judicial Interpretation, 2007 • In the case of infringement upon any business secret, if the licensee of the license contract for sole use of the business secret lodges a lawsuit, the people's court shall accept it according to law. In case the licensee of the license contract for exclusive use lodges a lawsuit jointly with the obligee, or the licensee lodges a lawsuit alone under the circumstance that the obligee does not want to do so, the people's court shall accept it according to law. In case the licensee of the license contract for common use lodges a lawsuit jointly with the obligee, or the licensee lodges a lawsuit alone upon written authorization of the obligee, the people's court shall accept it according to law.

Burden of Proof • Article 14 , Judicial Interpretation, 2007 • In case any party claims that someone else has infringed upon its business secret, it shall assume the burden of proof to prove that its business secret meets the statutory requirements, the information of the other party is similar or substantially similar to its business secret, and the other party has adopted unfair means. • In particular, the evidence for proving that its business secret meets the statutory requirements shall include the carrier, specific contents, commercial value of this business secret as well as the specific confidentiality measures adopted for this business secret.

Injunction -- How long？ • Article 16, Judicial Interpretation, 2007 • When the people's court adjudicates the civil liability of stopping the infringement on any business secret, the time for stopping the infringement shall generally be extended to the time when this business secret has become known to the general public. In case the time for stopping the infringement adjudicated according to the preceding paragraph is clearly improper, the tort feasor may be ordered to stop the use of this business secret within a certain term or scope under the circumstance that the competitive advantage of the right holder to this business secret is protected.

Damage • Article 17 The determination of damages for the acts infringing on business secrets as prescribed in Article 10 of the Anti-unfair competition Law may be governed by the methods of determining damages for patent infringements by analogy…. In case a tort causes any business secret to be known by the general public, the damages shall be determined according to the commercial value of this business secret. The commercial value of this business secret shall be determined according to the research and development costs, the proceeds from implementing this business secret, possible benefits, and the time for maintaining the competitive advantage to this business secret, etc.

• Administrative enforcement 1. the offices of Administration for Industry and Commerce (AIC) 商管理局 2. Order to cease the infringing acts 3. Impose a fine from 10, 000 to 200, 000 RMB 4. Decisions of AIC can be appealed to the People’s Court

GE vs. Jiuxiang Co. & Wang Xiaohui 通用电器 诉 九翔公司和王晓辉 • 1. Facts of the case 2002 summer, Wang left GE(China) Wang: a maintenance engineer in charge of the after-sale service of CT equipment sold by GE Healthcare(Shanghai); head of CT team in the Hangzhou Office 2. Few years Later, Xi’an Jiu. Xiang Electrical Technology Co. Ltd Wang: corporate officer main business: repair and maintenance of medical appliances Introduction: Jiu. Xiang used to be a GE’s maintenance service agent Training Courses: on the Servicing techniques of GE’s CT Equipment Lecturer：Wang (the experienced maintenance engineer for GE CT) Covered Topic: principle analysis; procedure introduction; function inspection; maintenance; fault diagosis, etc.

3. Nov. 2006, GE sent two employees to attend the training course, simultaneously filed a complaint with Hangzhou AIC 4. Dec. 2006, Enforcement of Hangzhou AIC Inspect the training site and seized a large amount of training materials, text and image bearing GE’s internal logo and copyright marking 5. Jan. 2007, GE brought complaints in the Intermediate Court of Xi’an against both Jiuxiang and Wang Xiaohui for misappropriation of TS and copyright infringement 6. Mar. 2007, US GE joined the plaintiffs as the alleged TS and Copyright

7. May. Court heard the case in private session 8. Aug. 2007, decision: (1) TS and copyright are valid and infringed; (2) Injunction; (3) compensatory damages of RMB 900, 000 (500, 000 for TSM and 400, 000 for Copyright Infringement) 9. Both withdrew their appeal and this judgment has been enforced.

• Key Issues 1. Whether an exiting employee have taken confidential documents with him? 2. Whether the materials detained were identical to GE’s internal Info. 3. Whether these Info. constitute TSs? 4. Whether confidentiality exist and was breached? • Key efforts: collection of evidence 1. Notarization of defendant’s website 2. Attendance of defendant’s training course, keep the receipt and materials, kinescope the lecture, etc. 3. Contact local AIC and seized Wang’s computer on the spot 4. Safeguard measure (Internal management): confidential label and copyright marking

6. TS, Covenant Not to Compete and Labor’s right • Article 23 Labor Contract Law • An employer may enter an agreement with his employees in the labor contract to require his employees to keep the business secrets and intellectual property of the employer confidential. For an employee who has the obligation of keeping confidential, the employer and the employee may stipulate non-competition clauses in the labor contract or in the confidentiality agreement and come to an agreement that, when the labor contract is dissolved or terminated, the employee shall be given economic compensations within the non-competition period. If the employee violates the stipulation of non-competition, it shall pay the employer a penalty for breaching the contract. • non-competition period – How long? • compensations - How much?

Covenant Not to Compete, continued… • Article 24 Labor Contract Law • The persons who should be subject to non-competition shall be limited to the senior managers, senior technicians, and the other employees, who have the obligation to keep secrets, of employers. The scope, geographical range and time limit for non-competition shall be stipulated by the employer and the employee. The stipulation on noncompetition shall not be contrary to any laws or regulations. After the dissolution or termination of a labor contract, the noncompetition period for any of the persons as mentioned in the preceding paragraph to work in any other employer producing or engaging in products of the same category or engaging in business of the same category as this employer shall not exceed two years.