Could User Information Be Considered Trade Secret in China?

Abstract: trade secret must have three basic features: confidentiality, practicability, and security. Therefore, whether user information in a website could be considered as trade secret or not, it shall also be judged based on these three basic features.

(By Luo Yanjie) User information is very important to a website daily operation. To judge it from the legal protection perspective, it is generally protected as a trade secret. The case introduced in this article is a typical dispute on whether the user information could be considered a trade secret, and thereby could infringement be decided.

Case Summary:

On May 28th 2001, Wanlian Company (the “Company”) was founded, and thereafter it hired Mr. Zhou Huimin and four other employees were hired to “make use of their spare time to design websites and develop PC programs.” Also, the parties involved agree that “Party B (namely the employees) shall not lease any program of the software owned by the company to others without the license of Party A (namely the employer)”. In late May and beginning of June 2004, the five employees were preparing to leave the company, and register a new website. They claimed that they would retake the source program and data information from the plaintiff’s website. The plaintiff believing that the defendant’s behaviour has infringed upon its trade secret, filed the lawsuit in court.

The first instance court’s decision after the hearing:

1. The user information is the operation information developed in the long term operation of the website involved in the dispute

To attract on-line gaming fans, the plaintiff has participated in website registration and interaction, and at the same time devoted considerable creative effort. The user information demonstrates that the website has a very large group of users and a high volume of visits. Furthermore, the number of visits to the website is closely related to the ad income. Therefore, the user information could bring economic gains to the plaintiff. The plaintiff had set a password only known to main technician like the defendant in the case and Qiu Qi, the legal representative of the plaintiff. Also, the Employment Contract contained a Confidentiality Clause. Therefore, it could be argued that the plaintiff has taken confidential measures for its user’s information. Based on these facts, the user information in the data base , as well as the tablet of those in the website are considered a trade secret, and shall be protected by the law.

2. The infringement by the defendant

The defendant used the password to copy and download user information and thus infringed the trade secret of the plaintiff.

The defendant appealed to the higher court which ruled that, Wanlian is the holder of all user information. This information could constitute a trade secret. The defendant, without the consent of Wanlian, copied and used the information stored in the website database and thus, infringed the trade secret of Wanlian. Based on these facts, the court denied the appeal.

Lawyer Comment:

The focus of the dispute in the case is whether user information constitutes a trade secret, and we would like to analyse it based on the legal regulation and the feature of the user information as follows:

  1. The three features of the trade secret

According to the Anti Unfair Competition Law of China, a trade secret has three basic features: 1. Confidentiality: the information constituting the trade secret shall be the secret itself, but it is noted that, the scope of the secret is that of competitiveness; 2. Practicability: the trade secret shall have a commercial value; 3. Security: right holder shall preserve the information through certain measures.

  1. What user information could constitute a trade secret?

User information have to meet the above standards to be judged trade secret:

  1. Confidentiality

    Concerning the information in the whole database, other than the web site operators, no third party website or individual user can get it through lawful channels. For this reason, the user information without a doubt meets the confidentiality criteria.

  2. Practicability

According to the profiting model of the Internet, user visit volume is the lifeline for all website, directly influencing the amount of ads put into market by the website as well as the size of its business. For this reason, user information is information which may directly influence the profits of the website. Therefore, both the first and second instance court determined that user information is practical.

  1. Security

In the case, the website operator signed a confidential agreement with staffs that has access to the confidential information, and to judge it from the normal process, the information could only be obtained upon receiving the signature of the company’s legal representative. As long as the right holders adopt measures that could be identified and judged by others to be reasonable, the measure meets the confidentiality requirement for a trade secret. Based on this analysis, the user information involved in the case meets the feature of “security”

In conclusion, the user information involved in the case constitutes a trade secret.The defendant used the information without consent, which constituted an infringement. Therefore, the defendant shall take the relevant legal liability for their action.

We posted this article several months ago which might be too long to read it on. Our intern Mr. Le Duc helped us to abstract it again. You may click here for the detailed post, if you prefer to know more on the case.

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