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China: Trade Secret Provisions Under Anti-unfair Competition Law Revised

(June 6, 2019) On April 23, 2019, the National People’s Congress (NPC) Standing Committee of the People’s Republic of China (PRC or China) adopted an amendment to the PRC Anti-unfair Competition Law, revising provisions of the Law concerning trade secrets. The amended Law took effect on the same day. (NPC Standing Committee Decision of Amending Eight Laws Including the PRC Construction Law (Apr. 23, 2019), NPC website (in Chinese); PRC Anti-unfair Competition Law (adopted by the NPC Standing Committee on Sept. 2, 1993, revised Nov. 4, 2017, amended Apr. 23, 2019) (2019 Law), NPC website (in Chinese).)

The Anti-unfair Competition Law went through a major revision in November 2017, which was the first revision of the Law since its original enactment in 1993. The 2017 revised Law entered into effect on January 1, 2018. (Laney Zhang, China: Amendment of Unfair Competition Law Proposed, GLOBAL LEGAL MONITOR (Mar. 20, 2017); PRC Anti-unfair Competition Law (adopted by the NPC Standing Committee on Sept. 2, 1993, revised Nov. 4, 2017, effective Jan. 1, 2018) (2018 Law), NPC website (in Chinese).)

The 2019 amendment revises three articles of the Anti-unfair Competition Law and adds a new article concerning the burden of proof in trade secret lawsuits. Major changes made by the amendment are as follows:

  1. Definition of Trade Secrets

The amendment changes the previous Law’s definition of “trade secrets” to include all “commercial information,” rather than only “technical information” and “business operation information.” Under the 2019 Law, the term “trade secrets” refers to “technical information, business operation information, and other commercial information that are not known to the public, have commercial value, and for which the trade secret owner has adopted corresponding measures to maintain its confidentiality.” (2019 Law art. 9 (all translations by author).)

  1. Cybertheft of Trade Secrets and Indirect Infringement of Trade Secrets

The amendment adds to the Law new types of trade secret infringements, especially the acquisition of trade secrets through “cyber invasion.” The 2019 Law also prohibits indirect infringement of trade secrets that “instigates, induces, or helps others to obtain, disclose, use, or allow others to use the trade secrets of the rights holders in breach of confidential obligations or in violation of the requirements of the relevant rights holder on keeping confidential trade secrets.” (Id.)

  1. Persons Subject to the Trade Secret Infringement Provisions

The amendment expands the scope of persons who are subject to the provisions of trade secret infringement to include all individuals and entities, rather than only business operators as under the previous Law. Under the 2019 Law, natural persons, legal persons, and nonlegal person organizations other than business operators are deemed as infringing on trade secrets if they commit the acts prohibited by the Law. (Id.)

  1. Penalties

The amendment increases penalties for trade secret infringement. First, it adds punitive damages for malicious trade secret infringement, which could be one to five times the actual loss or illegal gains. (Id. art. 17.) Second, the amendment increases the maximum damages a court may award for trade secret infringement from 3 million yuan renminbi (RMB) (about US$434,000) in the 2018 Law to RMB5 million (about US$724,000). (2018 Law art. 17; 2019 Law art. 17.) Third, the amendment increases the administrative fines that may be imposed for trade secret infringement. Under the 2019 Law the maximum fine would be RMB5 million in addition to the confiscation of the illegal gains. (2019 Law art. 21.)

Trade secret infringement that causes serious losses to the owner may also constitute a crime under the PRC Criminal Law. Such a crime resulting in “exceptionally serious” losses is punishable by up to seven years in prison and a fine. (PRC Criminal Law (promulgated July 1, 1979, revised Mar. 14, 1997, effective Oct. 1, 1997) art. 219, NPC website.) The definition of “trade secrets” under the Criminal Law is similar to that under the 2018 Anti-unfair Competition Law and does not appear to have been changed.