Presenting a live 90-minute webinar with interactive Q&A Protecting Trade Secrets, Confidential Information and NDAs in China Maintaining Confidential Information, Preventing Infringement, and Enforcing Trade Secret Rights TUESDAY, JULY 22, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: May Tai, Partner, Herbert Smith Freehills , Beijing, China Brenda Horrigan, Partner, Herbert Smith Freehills , Shanghai, China Damien McDonald, Registered Foreign Lawyer, Fangda Partners (in Association with Peter Yuen & Associates), Hong Kong, China The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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TRADE SECRETS IN CHINA - ENFORCEMENT July 2014 May Tai, Partner, may.tai@hsf.com Brenda Horrigan. Partner, brenda.horrigan@hsf.com Damien McDonald, Foreign Registered Lawyer, damien.mcdonald@fangdalaw.com
TRADE SECRETS Statutory • PRC Criminal Law • PRC Anti-unfair Competition Law • Interim Regulations on the Protection of Trade Secrets in Central Enterprises issued by the State-owned Assets Supervision and Administration Commission (“ SASAC Regulations ”) Contractual • PRC Contract law • PRC Labor Contract law 6
TRADE SECRETS Definition • The PRC trade secrets law is limited to confidential technical or operational information. • Art 219 Criminal Law / Art 10 Anti-unfair Competition Law: “Technical information and operational information that are unknown to the public, which can bring economic benefits to their owner, are functional, and are kept as secrets by their owners.” • SASAC Regulations for protection of trade secrets contains the above definition and further “examples” which makes potentially broadens the scope of secrets 7
TRADE SECRETS SASAC Regulations • The Regulations effectively require SOEs to classify all non public information as a trade secret • The SASAC Regulations apply to all 125 “centrally administered” SOEs (includes CNOOC, CNPC, SINOPEC etc.) • Trade Secrets are graded according to their economic harm to the SOE (core trade secrets and ordinary trade secrets). This may have some evidential value in any criminal prosecution • The Regulations require a Confidentiality Agreement where the dealing with a counterparty involves: “ consultation, negotiation, technical assessment, technology consulting, cooperative development, technology transfer, joint ventures, external audit and due diligence relating to trade secrets (Art 21 )” 8
TRADE SECRET ENFORCEMENT • Criminal prosecution under PRC Criminal Law • Civil prosecution under PRC Anti-unfair Competition Law / Contract law • Administrative protection • Commercial Arbitration under Contract • Arbitration under PRC Labor Contract law 9
TRADE SECRETS OFFENCES Offences (under Art 219 of the Criminal Law and Art 10 of the Unfair Competition Law) Acquiring trade secrets through theft, lure by promise of gain, threat, or other improper means Disclosing, using, or allowing others to use trade secrets which are acquired through the above acts Disclosing, using, or allowing others to use, in breach of the agreement with the rightful owner Infringer is aware or ought to be award that it has acquired or disclosed trade secrets. 10
CRIMINAL PROSECUTION • Causing “significant losses” • Sanction – If causing losses of RMB500,000 or more: up to 3 years imprisonment and/or a fine – If causing losses of RMB2,500,000 or more: 3-7 years imprisonment and a fine (Art 7 of the Interpretation Issued by the SPC and SPP on Several Issues in the Application of Law in Handling Intellectual Property Infringement Cases) 11
CIVIL PROSECUTION • Anti-unfair Competition Law, Art 10 / Confidentiality Agreement • Case brought to intermediate court • Sanction – Fine between RMB10,000 to RMB200,000 (Anti-Unfair Competition Law, Art 25) – Compensation – Art 20 provides: • (1) losses • (2) if losses difficult to calculate then “profits that the damaging party has obtained during the period of infringement” • Remedies – Injunction – Damages (Contract Law, Art 112) 12
ADMINISTRATIVE PROTECTION – Administrative protection by Administration for Industry and Commerce (AIC) • Pre-action measure • Investigation • Injunction – order return or destruction of trade secret • Review/administrative action – SAIC regulation of “Certain Provisions on Prohibition of Infringement of Trade Secrets" gives the AIC powers to investigate and penalise. – Sanction (penalty but not damages) • Fine between RMB10,000 to RMB200,000 (Certain Regulations on Prohibiting Infringement of Commercial Secrets issued by the State Administration of Industry and Commerce, Art 7) 13
ENFORCEMENT OF TRADE SECRETS IN COURT Elements to be proved • unknown to the public • technical and operational information • functionality • secret keeping measures • rightful owner Possible defences • Information is available to the public • No secret keeping measures in place • Unclear scope of what is a trade secrets • Reverse engineering 14
ENFORCEMENT OF TRADE SECRETS IN COURT Evidentiary issues and burden of proof • Claimant establishes prima facie evidence, then the burden of prove shifts to the defendant • No discovery and evidence has to be notarised and legalised Injunctive relief • Injunctive relief as a final remedy - Opinion of the Supreme People's Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition • injunctive relief as an interim remedy - now available by virtue of the new PRC Civil Procedure Law that came into force in January 2013 15
ENFORCEMENT IN OTHER VENUES Commercial arbitration under a contractual arbitration agreement • Contractual protection of trade secret should include”: – Define what is the trade secret – Set out the obligation of non-disclosure • Interim injunctive relief could be ordered by the court in aid of arbitration Arbitration under PRC Labor Contract Law • Article 23 : Employer and employee may provide for the protection of the confidentiality of the employer's trade secrets and intellectual property in the employment contract • Post employment, employer should consider paying employer to maintain confidentiality and non-competition for a reasonable term (i.e. 2 years) • Remedies – Injunction – Damages • Venue is favorable to employees 16
RECOMMENDATIONS Mitigate risks of breaching PRC trade secret laws by: • Identifying and documenting the areas of cooperation between client and counterparty or reasons why sensitive information will be disseminated (so long as it is legitimate, risk of prosecution will be reduced). • Entering into a Confidentiality Agreement where appropriate (narrow definition of Confidential Information) • Considering obtaining representations and warranties • Keeping a detailed record of any documents handed over to you • Preparing an information/document handling protocol including what are the proper and improper means of obtaining information (the “dos and don’ts”) 17
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