Under Article 9 of the Anti-Unfair Competition Law, a trade secret shall satisfy three essential criteria: secrecy, commercial value and confidentiality. Proof of all three elements is required cumulatively if information is to be eligible for legal protection as a trade secret.
In China, right holders may pursue three primary legal remedies for infringements: civil litigation, criminal prosecution, and administrative complaints:
· Civil litigation: Claim may include cessation of infringement, destruction of confidential documents, compensation for economic losses, and recovery of reasonable enforcement expenses. Punitive damages of one to five times the loss amount may be sought for malicious violations.
· Criminal prosecution: Infringement causing losses exceeding 300,000 yuan may constitute a crime, which is punishable by up to 10 years’ imprisonment and fines upon conviction.
· Administrative complaints: Filing with market supervision authorities may result in orders to cease infringement, confiscation of illegal gains and fines of between 100,000 and 1 million yuan for general violations, and 500,000 to 5 million yuan for severe cases under the Anti-Unfair Competition Law.
Statistics show 93% of trade secret crimes involve internal employees, necessitating rigorous workforce management. Companies should protect confidential information by effectively managing employees who use or access such information.
Upon recruitment –
When necessary, employers should require the employee to sign a commitment not to use, or intend to use, the former employer's confidential information in their new position, thus avoiding the risk of infringing the former employer's trade secrets. Additionally, companies should detail the scope of confidentiality, responsibilities, and default consequences in employee handbooks or sign standalone confidentiality agreements to document confidentiality obligations in writing and thereby lay the foundation for subsequent management.
In-service –
Employees may leakage confidential information due to poor company management and lack of confidentiality awareness. Enterprises should establish a classification permission system matching employees' duties and positions, allocating access rights on a needs basis to prevent excessive information exposure. For employees involved in key projects, employers should ensure that the employee signs a special confidentiality agreement separately to detail project-related confidential content and protection requirements. Furthermore, companies should conduct regular confidentiality awareness training to cultivate employees standardized operational habits, transforming confidentiality into voluntary behavior and mitigating leakage risks from the personnel management perspective.
Resignation and Handover –
Formal handover of all information and data must be enforced throughout the resignation process, covering the stocktaking and filing of tangible materials as well as the verification and permanent deletion of electronic records, so as to ensure proper disposal of all trade secret carriers. Departing employees are required to acknowledge the continuing validity of their confidentiality obligations, which shall remain binding even after their employment terminates.
External Cooperation & Supply Chain Scenarios –
Enterprises shall implement targeted confidentiality controls over high-risk business links in light of their industrial attributes and operational demands. Apart from internal staff turnover, common channels of trade secret leakage cover technical collaboration, commercial partnerships and supply chain cooperation.
Where technology licensing, joint venture investment or other transactions involve confidential materials, parties explicitly define confidential subject matters and corresponding confidentiality obligations within contractual terms and draw a clear distinction between confidential and non-confidential documents during information handover.
Matters requiring attention for technical cooperation largely align with those for commercial collaboration. An additional critical provision to be contracted is the ownership of newly generated trade secrets arising from joint work, which prevents secret loss and infringement liabilities stemming from improper administration of third-party proprietary technologies accessed under the cooperation framework.
In supply chain management, sensitive data including order volumes, pricing and customization specifications face high exposure risks during supplier collaboration, and leaks may also take place in technical support workflows. Enterprises shall mitigate such risks by executing non-disclosure agreements and delineating clear boundaries for information exchange with suppliers.