Legal Confusions and Difficulties of Industry and Commerce Department in Trade Secret Investigation

The power to administrative punishment on trade secret is enforced by State Administration of Industry and Commerce (SAIC) and local administrations, and in a recent essay (note: the link is in Chinese) by Shanghai Industry and Commerce Administration on the trade secret investigation and evidence collection, the difficulties and confusion faced by the organ are highlighted. The post today is the digest and our comments hereby made:

(I) The technology information examination and reverse problem

Technology information is often taken as trade secret, while normally the technology information is relatively professional and exclusive, which demands the professional aid from third party when the state of industry and commerce comparing the identity of the confidential information. There was a failed case of Chongming Branch of the administration in the second instance of a lawsuit due to the unreasonable expert opinion after the examination, and that troubled and puzzled the law enforcement by the administration afterwards. Therefore, it’s demanded to clarify the problems related once the examination is necessary as possibly legislated in the future that how to determine the similarity in identity comparison, for, as an example, mechanic structures are most general products and it’s probably to be identical in the examination. Moreover, technology information is possible to be reversed objectively, and it’s also argued whether the design comes from the new opinion of the related parties or just copy of others’ commercial secret.

Opinions from us: By the Interpretation on Several Issues concerning Law Application in Hearing Anti-unfair Competition by Supreme People’s Court, it’s Article 12 says that any trade secret gained from the own research or reverse engineering shall not be determined as the infringement against trade secret provided in paragraph 1 and 2 of Article 10 of Anti-unfair Competition Law.

(II) The business information determination and monopoly

Comparing with technology information, the business information is more difficult to be decided as a trade secret and a higher demand on evidence relevance. To take client list as an example, the client is open as the trading partner instead of the confidential unit or individual, and that is usually the defense of the parties involved in the trade secret case. It also shall not be neglected that some clients are following the salesman on their own decision and choice, especially for some special product and service, the resource of clients is open in some circles. Therefore, the infringement determination shall be made on a comprehensive consideration, otherwise it’s suspected to be arbitrary.

In addition to client list, the trade secret could also appear in fact, quotation, written application, sales plan and other forms, also it could be recorded in a professional investigation report, which is difficult to determine in law enforcement.

(III) The punishment on inner infringement by employees

In practices, the employees, including those in service, temporarily working, retired, job-hopped or self-employed are all accessible to the trade secret, and their infringement is a main channel of trade secret losing of the company, against which the legal punishment is inadequate and replaced by inner punishment. However, the legal punishment is close-linked with the development of Shanghai talent market, and is essential to the combat on illegal talent broker, the construction of overall talent market supervision and regulated operation within relatively sound legal structure of the open talent market. And it’s also a major way to protect trade secret and prevent its illegal losing.

(IV) The Calculation on infringement compensation

According to Article 20 of the Anti-unfair Competition Law, there are two main calculation methods of the compensation, namely the losses of the right owner and the gains of the infringer. However, the doctrine of full-compensation could not be enforced in practices, and it’s lacked in the standard of the quantization calculation of the compensation, which lead to the general inadequate compensation. What’s even worse us that the infringer may gain from its misconduct after the liability taking under the current making up principle, and thus the frightening on the infringer is poor.

Opinions from us: the minimum amount for the criminal case filing of trade secret is 500, 000 yuan, which is hard to prove by the parties in practices.

(V) The disposal of infringing articles

It’s not specified in Anti-unfair Competition Law on the disposal of the infringing articles, while two methods for the disposal are regulated in Several Provisions on the Exhibition on the Infringement of Trade Secret issued by the SAIC in 1995, including the order to return the material with trade secret by the infringer and supervision on the destruction of the related product unless the right owner agrees to purchase, sell or dispose the articles in other ways. The provisions above are more applicable in disposing the infringing technology information rather less reasonable to the infringing articles.

Opinions from us: it’s actually a head aching problem to dispose the articles involved in the business information infringement, like the unauthorized possession of the client list or quotation of the original unit, both the unit and the administration of industry and commerce could feel no way to handle the issue, and the solution to the problem is the punitive compensation adjudicated on it when detained again.

(VI) The limited enforcement measures

On 3rd December of 1998, the State Administration of Industry and Commerce issued the Regulations on the Modifications on Power Exceed of the Punishment Provided in “Several Provisions on the Exhibitions on Trade Secret Infringement” to the Provisions in “Administration Punishment Law”, which cancelled the power of the detaining of the party’s articles. The exercise of coercive enforcement plays an important role in the evidence collection of trade secret cases, but the existing laws are poorly enforceable in this aspect which may influence the effect of the law enforcement.

Editor: Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Law Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
You can also find us on Facebook, Twitter and Linkedin.

Bridge IP Law Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works. And all news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only and are our original works. You may contact us shall you have any opinions or suggestions.

Short Link: