How to Infer the Trade Secret Disclosure by Original Staffs in China?


(By Albert Chen) How to demonstrate one’s original employee has presented the trade secret gained during his/her service to the new employer, who thereafter makes benefit of it? As no direct evidences are available, in the current judicial practices, the principle of “similarity, contactable and excluding lawful origin” has been adopted for the case judging.

Case Summary:

Zhao once had her employment with Jiashan Shengguang Electronics Co., Ltd. (the “Company S”) from February 20th 2002 to March 19th 2006, and was in charge of the sales of the company. During her service there, Zhao, as the representative of Company S, concluded several transactions on vehicles lighting with Mexican DDB Company.

After the end of her employment in 2006, Zhao was then employed by Jiashan Liangchen Electronics Co., Ltd (the “Company L”). Afterwards, Company S found out that the Mexican Company came into trading with Company L of the LEC lighting for vehicles. Considering that was contributed by the trade secret brought by Zhao to Company L, Company S filed the lawsuit in the court accusing Zhao and Company L has conducted the trade secret infringement.

In the first hearing, the court held that the information concerning DDB Company in the case is trade secret. And at the same time, for what is more important, Company L is with the advantage for using the trade secret, among which the most considerable one is Company L came into the transaction with DDB Company after Zhao began to work in it. Moreover, Company L has not proved it has acquired the information through the legitimate method. For these reasons, the first instance court found the infringement liability of Zhao and Company L.

With the dissatisfaction of the decision, Zhao and Company L appealed to the higher court, but was refused then. Regarding whether Company L has used the trade secret, the second instance court has emphasized that it has used the principle of “similarity, contacting and excluding the lawful origin”.

1. On the products sold by Company S and Company L, they are both the lighting products on the vehicles, and therefore they shall be competing with each other in the business.

2. During Zhao’s service in Company S, she was in charge of the business concerning Mexico, and it is the corollary that she shall be aware of the trading information which is the trade secret in the case.

3. Company L claimed that it got into acquitted with the Mexican company during the Auto Shanghai of 2004, but no evidence for that aspect has been presented by Company L. At the same time, Company L has no other ways to prove it has got the trading information with the Mexican company through other lawful methods.

Lawyer Comments:

In practices, it is difficult to directly prove the defendant has used the trade secret, and for the court, they are likely to use the principle “similarity, contactable and excluding the lawful origin” to judge the case. Basing on the ruling in the case herein described, the author would share opinions on the issues as follows:

1. What client information could be taken as trade secret

Both the 1st and 2nd instance court have determined the client information shall be trade secret, and the main reason is that the information involved in the case is more than the contact information, and that also includes the requirements and the details of the transaction of the client, which could not be gained through the public channel. Considering this information is practical, and Company S has agreed with Zhao she shall not disclose any information known to her during the employment, such information could meet the traits as provided in the Anti Unfair Competition Law that any trade secret shall be with the “non-openness”, “practicability”, “benefiting” and “confidentiality”.

2. On the “similarity”

The “similarity” refers to the similar business. The similar business engaged in by the parties would be of no question lead to the competition among the parties, and that competition would on the other hand define the value of the trade secret. Consequently, it could bring the benefit of the subjects involved.

But the “similarity” indicated here does not demand all the people involved shall be holding or once took the similar posts in different companies involved. In the case, Zhao argued that she is only the translator and web page designer in Company L, and that it has no connection with the foreign trading. Although the 2nd instance court has made no interpretation on that appealing reason, to the author’s opinions, that would no influence the new employer to adopt the trade secret in the command of its employee.

3. On the “contactable”

The “contacting” means the possibility that the accused subject to contact the trade secret involved in the case and it includes the contacting made by the disclosing party, and also that of the user. For the specific determination of it (or to say the determination on the possibility of it) shall be made basing on the nature of the work and the result of the transaction.

With regard to the possibility of the disclosing party on contacting the trade secret,  just like what has been argued by the 2nd instance court, if one’s respoinsibility of the work could have the connection with the trade secret involved in the case, then it could detain that the subject has commanded the information. But as to the user’s contacting, it shall be judged basing on the result of the transaction, like Company L has concluded a transaction with the Mexican Company on the vehiclelighting.

4. On the exclusion of the lawful origin

Among the three standards to judge, the author takes that if the accuse party would like to exempt its liability; the most important for it is to prove the lawful origin of the information. If in this case, Company L could demonstrate it has gained the trading information before it employed Zhao or get into contacting the information in the hand of Zhao, then the hearing court is less likely to find it shall take the unfair competition liability.

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