Should Chinese Enterprise Employees Who Have Not Signed An NDA Still Have A Duty to Not Disclose?


(By Albert Chen) In practice, we have seen numerous companies not signing any NDA or confidential clauses in employment contracts with their staff. But even so, taking into consideration confidentiality measures taken by a company, like making requirements for the handling of client information, and taking into consideration the confidential content of said information, one could easily conclude most companies intend to maintain nondisclosure of confidential information, and as a corollary staff and employees also maintain these efforts at nondisclosure.

Case Summary

The defendant Wu began her employment with the plaintiff, Kekezhuang Company (“Company K”) starting January 1, 2006, with the agreement that she would work there until May 13, 2007. Her specific post was the business officer and general manager PA. During her employment, the company set up a special e-mail account for Wu, whose password was known only to Wu herself and the company’s legal representative. While working there, Wu contacted a Canadian company for the purpose of making specific sales, yet no final transaction had been made. However, Wu thereby obtained certain information concerning the Canadian client, including the requirements of specific products and purchasing ability. On March 15, 2007, Wu established a company with her father, Hongqijia Exporting Company (“Company H”). On April 11, 2007, Company H made a transaction with the aforementioned Canadian Company.

Moreover, Company K’s practice is to arrange the client’s card as indicating its requirements for products or purchasing ability.

Company K thought that Wu had made use of the information accessed during her employment with the company, and therefore had infringed its trade secrets. Based on these allegations, Company K filed a lawsuit against Wu.

After the hearing in the first instance, the court ruled that to confirm disclosure, practicability and benefit of the information involved in the accusation, it must consider the issue as to whether the company had taken measures to retain confidentiality over the information: the court stated that the access permissions carried out by Company K were adequate to prevent any third parties from obtaining the information, considering the fact that the information contained in the e-mails could not be obtained through public channels. Therefore, it could determine that the plaintiff had taken proper measures to prevent the disclosure of its confidential information and that of its clients. Based on these findings, the court found Company H guilty of infringement and misappropriation.

Dissatisfied with the decision handed down in the first instance, the defendants Wu and her father appealed to a higher court, with their primary argument being that Company K had never concluded an NDA with Wu, and no other measures for confidentiality had been taken. Considering the defendant’s argument, the second instance court refused such claims, holding that the measures at maintaining confidentiality undertaken by the plaintiffs had resulted in no disclosure of its information prior, and although the information was not generally known to the public, it did not also follow that if anyone were to access such information without prior permission that Company K’s confidentiality measures were insufficient for the purpose of the case. The court held that in any case where a company’s efforts at maintaining confidentiality of trade secrets it as issue, the court shall comprehensively consider such measures based on the unique characteristics of the trade secrets and confidential information in question, as well as its classification, before making a final judgment. Based on this analysis, the court upheld the decision handed down by the court in the first instance.

Lawyer Comments

In protecting trade secrets, whether the measures taken are equivalent to that of an NDA or confidential clauses agreed to in a Labor Contract is an important question. The court in this case has given us a definite “no” for the time being. In the author’s opinion, however, although I agree with the court’s final opinion, I also have several different views on the issues:

1. Setting a password for an e-mail account containing confidential information and trade secrets should not be seen as sufficient to maintain nondisclosure of said information.

In this case, Company k limited the number of staff with access to its confidential information and trade secrets by only allowing a limited number of people have access to the e-mail account’s password, only allowing those directly practicing the business and its legal representative to access the information. The court assumed this to mean that Company K had taken sufficient confidentiality measures. However, in reality, setting a special password for each work-related e-mail account is rather common in most businesses, and once those measures are taken to prevent disclosure, logically, any information communicated through that e-mail account would be considered “confidential.” However, obviously, information not related to work could also be located within that specific e-mail account. For this reason, to assume that simply protecting confidential information with an e-mail account password is sufficient to show that a party had taken measures to prevent disclosure of its trade secrets and confidential information as complete improper.

2. The simple compilation and storing of confidential client information should not be seen as a sufficient measure for nondisclosure of said information.

In this case, if Company K had simply compiled the client’s information, then for such information, they could not all be confidential information. However, based on the court’s decision, in addition to the client’s contact information, Company K indicated their specific requirements for each client’s products and other useful and valuable business information. This is not general information easily accessible by the public. Moreover, to consider the typical attitude of competitor’s in the market, such editing and compiling of client information could be seen as an NDA measure.

3. Confidential information does not always mean it is never disclosed

In terms of the publication scope of the confidential information, the author is all for the argument of the court. The so-called confidential information is not complete nondisclosed. The value of the information is assessed by those adopting it, and for such companies, taking into consideration benefits to itself, to use such information within a certain scope should not be seen as a removal of all confidential measures on such information. For sure, with regard to the scope of its use, it shall be decided as per the nature of the information itself. Like in this case, the staff in charge of the business and the legal representative only knew of the information involved.

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