TRADE SECRET LAW AND LITIGATION Confidential - For Class

Discussions Only

October 22, 2022

Huang Haifeng
 OVERVIEW

• Importance, Sensitivity and Seriousness of Trade

Secrets
• Legislative Overview – U.S. & China
• Trade Secrets – What Constitutes Trade Secrets
• Trade Secrets – Misappropriation and Protection
• Trade Secret Litigation – Looking into China

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IMPORTANCE, SENSITIVITY AND SERIOUSNESS OF
TRADE SECRETS

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 WHY IS THIS IMPORTANT?

• Trade secrets are an increasing percentage of all company-owned IP

• Most common type of IP asserts
• It has been estimated that economic espionage costs American
businesses over $300 billion per year
• 60% of companies polled experienced attempts to steal proprietary
info
• In over 85% of cases, alleged misappropriator is a trusted employee
or business partner
• Trade secret litigation is growing exponentially

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 WHY IS THIS IMPORTANT?

$2.3 billion jury award Pacesetter Inc. v. Nervicon Co. (Cal. Sup. Ct, Los Angeles 2011)

$765 million jury award Motorola Solutions v. Hytera Comms. Corp. (ND Ill. 2020)

$919.9 million jury award E.I. du Pont de Menours & Co. v. Kolon Industries (EDVA 2011)

$845.1 million jury award ASML US v. XTAL, Inc. (Cal. Sup. Ct., Santa Clara 2019)

$245 million settlement Waymo LLC v. Uber Technologies (NDCA 2018)

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 WHY IS THIS IMPORTANT?

• By getting into the public domain, the loss of a trade secret can have
dire consequences
• Loss of competitive edge/market differentiator
• Loss of cost advantage
• Threat to (or loss of) first-to-market position
• Threat to your brand
• Significant business distraction

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WHY IS IT SENSITIVE AND SERIOUS?

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 WHY IS IT SENSITIVE AND SERIOUS?

• Convicted after two-month jury trial in San Francisco

• Agents knew of 1991 meeting where Liew was informed of

the priority of certain technology.

• Liew convicted of obstruction and false statements, not

just the underlying offense

• Liew sentenced to 15 years prison, ~ USD $27 million

forfeiture, and ~ USD $500,000 restitution

• Appealed to the Ninth Circuit Court of Appeals. Affirmed in

part and reversed in part.

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LESSONS LEARNED (CONT’D)
• Understand and comply with all applicable laws

• Espionage laws

• Export control

• Computer crime laws

• Understand and comply with applicable employer or client non-disclosure agreements

(NDAs), IP protection policies and rules

• Understand potential use as “evidence” of whatever is sent or taken to China, whether as

employee or personally
– Emails, text messages, faxes
– Smart phones, tablets, laptops, flash drives, etc.
– Best course is to be fully aware of one’s legal responsibilities under applicable law
and to avoid conduct that would create potential violation risks or appearance of
such risks!
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LEGISLATIVE OVERVIEW – U.S. & CHINA

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 UNITED STATES TRADE SECRET LAWS

1985 1996 2016

Uniform Trade Secrets Act Economic Espionage Act Defend Trade Secrets Act
(“UTSA”) (“EEA”) (“DTSA”)
Adopted by 49 states Federal criminal statute Federal civil statute

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LEGISLATIVE OVERVIEW – US

The Economic Espionage Act of 1996 (“EEA”)

(i) Economic espionage: theft/misappropriation of trade secrets for the benefit of a

foreign government, foreign instrumentality, or foreign agent. See 18 U.S.C. §
1831.

(ii) Theft of trade secrets: theft/misappropriation of trade secrets for pecuniary gain.
See 18 U.S.C. § 1832.

A trade secret is information that ：

(A) the owner thereof has taken reasonable measures to keep
such information secret; and/
(B) [ ] derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable through proper means by, the public.
18 U.S.C. § 1839(3)

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ECONOMIC ESPIONAGE ACT OF 1996

• It is a federal crime to steal trade secrets,

• For the benefit of a foreign government (“economic espionage”)
• For the benefit for anyone other than the owner of the trade secret, for example,
another company (“commercial theft”)
• Penalties are high
• Fines and restitution to the victim
• Prison (up to 10 or 15 years)
• Seizure of relevant property and substitute assets

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“ECONOMIC ESPIONAGE”

• Whoever, intending to benefit a foreign government or agent,

knowingly
– (1) steals or takes a trade secret;
– (2) copies or communicates a trade secret without
authorization;
– (3) receives or possesses a trade secret, knowing it was
stolen or obtained without authorization; or
– (4) attempts or conspires to do any of the above
• Government must prove all elements beyond a reasonable
doubt

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“COMMERCIAL THEFT”

• Whoever, with intent to obtain a trade secret related to a product or service used in
interstate or foreign commerce, for the economic benefit of anyone other than the
owner and intending to injure the owner, knowingly

– (1) steals or takes a trade secret without permission;

– (2) copies or communicates a trade secret without authorization;

– (3) receives or possesses a trade secret, knowing it was stolen or obtained

without authorization; or

– (4) attempts or conspires to do any of the above .

• Government must prove all elements beyond a reasonable doubt.

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 LEGISLATIVE OVERVIEW – US
The Defend the Trade Secret Act (“DTSA”)

• New federal civil claim for misappropriation of trade secrets (18 USC 1836
et seq.)

• Effective May 11, 2016

• Governs if the trade secret is related to a product or service in interstate or

foreign commerce

• Owner can bring civil action

• Co-exists with state civil claims appropriation (such as through purchase

relationships)

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WHAT IS A TRADE SECRET? – U.S.

All forms and types of financial, business, scientific, technical, economic, or engineering information,
including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or
how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing
if:

1) the information derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; and

2) the owner has taken reasonable measures to keep such information secret

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EXTRATERRITORIAL REACH OF U.S. LAW

DTSA designed to combat international wrongdoing

Applies to conduct occurring outside the United States
U.S. allows action against:
• Extraterritorial offender who is a U.S. citizen,
permanent resident, or entity organized under US
laws
• Foreign person or entity if committed any act IN
U.S. in furtherance of theft

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CLAIMS IN THE UNITED STATES
BASED ON OVERSEAS CONDUCT
• U.S. claimants often prefer U.S. courts
• More discovery
– Electronic information
– Email
– Forensics
• Broader remedies
• Consistent, uniform application
of laws

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U.S. GOVERNMENT TRADE
SECRET ENFORCEMENT

• As U.S. / China competition

increases, this is a priority for the
U.S. Justice Dept (“DOJ”).
• U.S. trade secret enforcement is
now more active than at any time
in the past and involves several
U.S. agencies beyond DOJ.
• One of the few issues on which
both major U.S. political parties
agree.
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OTHER U.S. AGENCIES – EXAMPLES

COMMERCE Entity List (Huawei is on it); CFIUS; other controls

FCC “National Security Threat”; removal from networks

TREASURY FinCen “beneficial owner” database; sanctions

EDUCATION Section 117 (requiring university disclosures)

STATE/ DHS Border scrutiny and immigration restrictions

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LEGISLATIVE OVERVIEW – CHINA

• 《反不正当竞争法》 Anti-Unfair Competition Law

• 《最高人民法院关于审理侵犯商业秘密民事案件适用法律若干问题的规定》 / Provisions
of the Supreme People's Court on Several Issues Concerning the Application of
Law in Hearing Civil Cases of Trade Secret Infringement

• 《刑法》 / Criminal Law

• 《最高人民法院、最高人民检察院关于办理侵犯知识产权刑事案件具体应用法律若干问题
的解释 ( 三 ) 》 / Interpretation (III) of the Supreme People's Court and the Supreme
People's Procuratorate Concerning Some Issues on the Specific Application of
Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights

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TRADE SECRETS – WHAT CONSTITUTES TRADE
SECRETS

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Click icon to add picture
TRADE SECRETS 商业秘密

• Formula/ 公式 • Technique/ 技术
• Pattern/ 模式 • Process/ 工艺
• Design/ 设计 • Procedure/ 程序
• Compilation/ 汇编 • Prototype/ 原型
• Program/ 程序 • Plan/ 计划
• Device/ 设备 • Code/ 代码
• Method/ 方法

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TRADE SECRETS 商业秘密
• Advertising strategies/ 广告策略
• Bidding methods/ 招标方式
• Cost information/ 成本信息
• Customer lists/ 客户名单
• Databases/ 数据库
• Engineering drawings/ 工程图纸
• Formulas in notebooks/ 笔记本电脑中的公式
• Machinery processes/ 机械加工
• Marketing strategies/ 营销策略
• Negative research/ 负面研究
• Payment terms/ 支付条款
• Pricing information/ 定价信息
• Production techniques/ 生产技术
• Profit margins/ 利润率
• Promotional discounts/ 促销折扣
• Strategic plans/ 战略计划
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WHAT MATTERS MOST TO YOU?

• Scientific Data/ 科学数据

• Customer Lists and Related Data/ 客户名单和相
关数据
• Strategic Plans and Roadmaps/ 战略计划和蓝图
• Financial Data/ 财务数据
• Research and Development/ 研究与开发
• Know-how/ 专门技术
• Other/ 其他

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 TRADE SECRETS ARE NOT . . .

• Information generally known in the field or readily ascertainable by proper

means by those skilled in the art at the time of the alleged misappropriation
• Professional skills, talents or abilities developed by employees in their
employment
• versus specific engineering solutions or information developed as a trade
secret while working for former employer (which are trade secrets)
• In the US, jury decides whether known/readily ascertainable, and whether part of
general skills, talents or abilities

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LEGAL ASSESSMENT

Is it a trade secret? Lawful v unlawful acts Enforcement & remedies

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KEY CONCEPTS: IS THE INFORMATION ‘SECRET’?

• The information must not be generally known or readily accessible to relevant

persons – consider:
– Common manufacturing techniques or processes

– Multi step processes where the steps are each individually known

– Financial / commercial information

• Consider who are relevant ‘audience’ for the information?

• There is no novelty threshold – ‘secret’ does not mean new!

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KEY CONCEPTS: “REASONABLE MEASURES”

• What constitutes ‘reasonable’ measures not specifically defined

• The focus is on proportionality (relative rather than absolute value)
• Courts are likely to take into account:
– Size of company

– Commercial value of information

– Measures taken to limited access (NDAs, IT security)

– Internal policies and compliance

• Many companies may not have adequate systems in place to protect

confidentiality of its electronic infrastructure

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KEY CONCEPTS: “REASONABLE MEASURES”

PRACTICAL IMPLEMENTATION OF REASONABLE MEASURES

• Above all: “need to know” principle, access to potential trade secrets should be
limited to the smallest number of persons possible, both inside and out side the
company!

• Marking as “confidential” can be helpful but is not sufficient if document is not treated
confidential otherwise

• Signing of NDAs should be the first step on any retention of outside contractors

• Non disclosure clauses should be standard content of employment agreements

• On and off-boarding processes for employees should make sure no confidential

information leaves the company system

• Limitations to copy/extract data from company IT systems

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TRADE SECRET MISAPPROPRIATION

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WHY DOES TRADE SECRET INFRINGEMENT OCCUR?

Intentional Negligence Objective

Competitor Failure to provide Inadequate information
inducement proper education and security precautions
Personal gain training
Inadequate internal
Revenge against Failure to provide confidentiality measures
the former proper notice of
employer resignation

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SPECIFIC CASES OF TRADE SECRET INFRINGEMENT

• Who infringes on a company's trade secrets?

Suppliers Internal
& Partners Employees

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SPECIFIC CASES OF TRADE SECRET INFRINGEMENT

• Possible infringement on a company's trade secrets

Deliberate Actions
Omission of account and password Email
protection
Small talk between colleagues and
Printing
friends Internet Transmission
When working outside the office USB and Storage
Devices
VPN
Photos

Unintentional Actions
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 TOP REASONS EMPLOYEES TAKE DATA

Financial Gain Revenge Mistakenly take They “believe” the

information not knowing or information belongs to
remembering them
that they have it

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HOW DO EMPLOYEES TAKE INFORMATION?

• Copy or print documents

• E-mail information
• Use external hard drive
• Use flash drives
• Use Dropbox or other cloud services
• VPN access remains open
• Take photographs with smart phones
• Obtain information from other employees
• Hack into computer networks
• Memorize information

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HOW CAN YOU REDUCE
THE RISK?

• Arriving employees
• Departing employees

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WHAT TO DO…WITH ARRIVING EMPLOYEES

What Possibly Could Go Wrong?

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WHAT TO DO . . . ARRIVING EMPLOYEES
Before Arrival

• Ask about NDAs, non-competes and non-solicitation agreements, restrictive covenants

• Consider if employee’s position creates risk of disclosure of prior employer’s confidential information
• Background check
• Reference check
• Instruct prospective employee to give proper, honest notice of departure
• Instruct prospective employee to:
• honor confidentiality obligations and to return everything to former employer
• not to bring materials from the former employer
• not to solicit or induce prior colleagues
• Offer letter: reiterate confidentiality obligations and instruct not to bring any materials from former employer
• No advance offer of indemnity

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WHAT TO DO . . . ARRIVING EMPLOYEES
Upon Arrival

• Do not let recruit start work until after departure from prior employer
• Confidentiality agreement with clear description of policies and ramifications for
breach, i.e., use or disclosure of confidential information and trade secrets
• Reiterate in detail prohibitions against bringing or using former employer
information
• Can be done in separate, standalone document
• Re-sign periodically

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WHAT TO DO . . . WITH ARRIVING EMPLOYEES
Upon Arrival – “Code Red” Level Employee

• Third-party forensic analysis of all electronic devices

• Include home computers
• Run search terms and scrub all suspect data
• May image electronics and have 3rd party preserve
• Take cease and desist letters seriously
• Have IT review any information that the new employee may seek to bring
• Review new employee’s compliance
• Ongoing education and reminders

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WHAT TO DO . . . WITH DEPARTING EMPLOYEES

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WHAT TO DO . . . WITH DEPARTING EMPLOYEES

• Use a checklist/
• Determine appropriate last day of work
• Consider immediate departure
• Notify IT and consider immediate cutoff from computers, email, apps,
company cell phone/
• Cut off physical access to sites
• Conduct an exit interview (with witness)
• Interview co-workers when necessary
• Be aware that co-workers may be leaving too
• Control who knows what

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WHAT TO DO . . . WITH DEPARTING EMPLOYEES

• Remind employee of confidentiality obligations and have

employee resign NDA
• Accompany employee during collection of company materials:
employee’s office, car, home
• Have employee sign document certifying that all corporate
assets have been returned
• Review employee’s computers and digital habits over past 90-
180 days
• Preserve/Image hard drive
• Do not repurpose hardware

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WHAT TO DO . . . WITH DEPARTING EMPLOYEES

• Ask employee about future employment plans to assess risk

• Reminder letter reiterating obligations, agreements

• Consider written notification to employee and/or new employer

• When necessary:

• Involve outside counsel

• File police report

• Notify FBI

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IMPROPER ACCESS TO CONFIDENTIAL DOCUMENTS BY DEPARTING
EMPLOYEES – CURRENT CONFLICTS
• Typical scenario – Departing employees transferred confidential files containing trade
secrets to personal email accounts.

• In practice, Chinese courts have taken different positions on whether such access
constitute trade secret misappropriation.

No Finding of Infringements
Zhejiang High People’s Court: Shiyuan Technology (Jiaxing) Medical Electronics Co., Ltd. v. Cao Youwei
[Case Number: (2010) Zhe Zhi Zhong No. 267]

Shanghai First Intermediate People’s Court: Etis Biotechnology (Shanghai) Co., Ltd. v. Pangfei [Case
number: (2018) Hu 01 Min Zhong No. 3148]

• Defendant had legitimate access to those confidential files when working for the current employer.
• Defendant did not disclose those confidential files to third parties.
• No third parties can access those confidential files saved at defendant’s personal email account via
legitimate means.

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IMPROPER ACCESS TO CONFIDENTIAL DOCUMENTS BY DEPARTING
EMPLOYEES – CURRENT CONFLICTS
• Typical scenario – Departing employees transferred confidential files containing trade
secrets to personal email accounts.

• In practice, Chinese courts have taken different positions on whether such access
constitute trade secret misappropriation.

Finding of Infringements
Shenzhen Intermediate People’s Court: Huace Testing and Certification Group Co., Ltd. v. Kong Lei,
[Case Number: (2015) Shen Zhong Fa Zhi Min Zhong No. 1222]

• Defendant had legitimate access to those confidential files when working for current employer.
• However, the employer had strict internal confidentiality policies, including prohibiting any employees
from forwarding confidential company files to personal email accounts.
• By forwarding them to personal email account, the defendant directly occupied those files and can freely
review, use or disclose them to third parties at any time.
• Defendant’s violation of employer’s policies constituted improper access to trade secrets.

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Trade Secret Protection (Measures)

49
 LIMIT ACCESS

• Create internal data protections so that

a single employee is unable to download
large blocks of information at once.
• Password protections and encryption
are critical.
• Limit ability to copy, share, send outside
of the network

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BUILD VERSUS BUY ISSUES

• Manage “Build versus Buy” protocols for concurrently exploring partnering versus
going solo on a new technology
• Internal clean rooms for product development
• Separate teams and leadership
• Third party assistance

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REVERSE ENGINEERING

• Reverse engineering as component of product

development
• Designing reverse engineering plan
• Memorializing a reverse engineering plan

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INVENTION DISCLOSURES

Documenting trade secret discoveries

Managing Preparation for Licensing

assets litigation

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DOCUMENT RETENTION PROGRAMS

• Developing a document preservation

program
• Ensuring that the Company is not subject
to accusations of improper document
destruction

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Collection and preservation of evidence

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WHEN AN INFRINGEMENT OF TRADE SECRETS IS DISCOVERED IN
THE COMPANY

• Definitely just the tip of the iceberg

Discovering the theft of trade secrets

How to conduct further internal

investigations

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WHEN AN INFRINGEMENT OF TRADE SECRETS IS DISCOVERED
IN THE COMPANY

• How to discover and conduct internal investigations?

Behaviors Recording and Employee Interviews Competitive Product

Monitoring
• Outgoing mail monitoring,
alerting
• File downloads, USB monitoring
• Access control records
• Keep track of employee Analysis
turnover trends • Product similarity
• Rapid technological progress

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WHEN AN INFRINGEMENT OF TRADE SECRETS IS DISCOVERED
IN THE COMPANY

• How to stop loss?

Terminate the
Find out the scope of employment
Seek help from relationship
Check related records employees involved in
lawyers instantly immediately
the case

Take emergency
Collect and preserve Change cooperation
measures through the Backup files
evidence manufacturers
courts

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WHEN AN INFRINGEMENT OF TRADE SECRETS IS DISCOVERED
IN THE COMPANY

• How to collect evidence - employee theft

Firms’ laptops Personal and

Storage of
and phones business USB/Netdisk
outgoing Printing history
WeChat history
emails
history

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WHEN AN INFRINGEMENT OF TRADE SECRETS IS DISCOVERED
IN THE COMPANY
• How to collect evidence - suppliers and partners, competitors

The similarity of opponents’ products and semi-finished products (obtaining evidence):

Inferring possible trade secret infringement from product similarity

• Comparison of Product Results （ WeChat Investigation, Identification Report,

Reverse Engineering): Having traces of our trade secrets
• The Product History of the Opponent
• Whether the Opposing Team Has Development Capabilities

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THE BEST TIME TO INVESTIGATE INTERNALLY AND SEEK
OUTSIDE HELP?

The company conducts When to seek public

internal investigations authority intervention?

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REMEDIES

• Money damages
• Injunctions
• To prevent actual or threatened misappropriation
• Can require affirmative action to protect trade secret
• Civil seizure
• Attorney fees

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TRADE SECRET LITIGATION IN CHINA

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TRADE SECRET LITIGATION IN CHINA – OVERVIEW
Published civil decisions (2010-2020): 2631 in total

NUMBER OF DECISIONS BY YEAR*

*Source: Alpha Database

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TRADE SECRET LITIGATION IN CHINA – OVERVIEW
Published civil decisions (2010-2020): 2631 in total
NUMBER OF DECISIONS BY REGION*

Guangdong

Shanghai

Zhejiang

Jiangsu

Beijing

*Source: Alpha Database

65
TRADE SECRET LITIGATION IN CHINA – OVERVIEW

Among the 377 fully

Business Secrets Technical Secrets
published first
instance judgments:
Winning Rate 31% （ 85/274 ） 43.9% （ 36/82 ） • 82 involved
technical secrets;
Average Damages RMB 347,000 RMB 283,000 • 274 involved
business secrets;
Highest Damages RMB 7.94 Million RMB 5.92 Million • 21 involved both.

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 TRADE SECRET LITIGATION IN CHINA – OVERVIEW

Rejected - Others Supported in Full Average: RMB 400,000

2%
8%
Rejected - No Trade Secrets Supported in Part Average: RMB 346,000
31%
0 10 20 30 40 50 60 70 80 90
Failure to Show Economic
Value 15

Failure to Show Confiden-

37% Failure to Show Trade
Secret Specifications 15
tial Measures 72
Failure to Show Misap-
Failure to Show Non-pub- propriations 79
licity 116

0 20 40 60 80 100 120 140

23%
Rejected – Insufficient Evidence

• Approximately 89% of cases are related to disputes concerning former employees.

• Among the 377 fully published first instance judgments (out of 434 published first instance judgments)

67
 RECENT LEGISLATIVE AND JUDICIAL DEVELOPMENTS IN CHINA

2020.1.15 2020.5.1 2020.9.14 2021.2.26 2021.4.26

Phase I Economic and Trade The Provisions of the Interpretation on Several Issues Concerning The IP Tribunal of The Supreme
Agreement Between the Supreme People’s Court the Specific Application of Law for Handling Supreme People’s People’s Court and
Government of the People's on Evidence in Civil Criminal Cases of Intellectual Property Court issued local courts
Republic of China and the Procedures (“New Infringement III (“Criminal Regulation”) and typical cases on published guiding
Government of the United Evidence Rules”) went Opinions on Increasing Sanctions for IP protection. cases on IP
States Of America (“Trade into effect. Intellectual Property Infringement (“Sanction protection.
Agreement”) was signed. Regulation”) became effective.

2019.4.23 2020.4.26 2020.9.12 2020.11.18 2021.3.1

Newly revised Anti-Unfair The Supreme People’s Provisions of the Supreme People's Court on Several The Supreme People’s Court issued Several Criminal Law 2020
Competition Law 2019 Court and local courts Issues Concerning the Application of Law in the Trial of Provisions on Evidence of Civil Litigation for became effective
(“AUCL”) became effective. published guiding cases Civil Cases Involving Infringements upon Trade Secrets Intellectual Property (“IP Evidence Rules”).
on IP protection. (“Trade Secret Regulation”) became effective.

68
 NEW CHANGES: EXPAND THE SCOPE OF INFRINGERS
China has expanded the scope of
infringers to include:
1. Natural persons;
2. Persons or entities in
violation of a confidentiality
obligation, including any
implied confidentiality
obligation.
See Article 9 of AUCL and Article 1.3 of
Trade Agreement
The Article 10 of TS JI further Such amendments provide a legal
provides that an implied basis to sue an individual, such as
confidentiality obligation can be an ex-employee, who is found to
based on the principles of good have infringed upon trade secrets.
faith and the nature and purpose
of the contract, or the nature of
business practices, contracting
processes, etc. Certain types of
information, such as drawings,
source code, or recipes, may also
imply confidentiality obligations.
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NEW CHANGES: LOWERS THE BURDEN OF PROOF

Plaintiff to show that

confidentiality measures have BURDEN OF PROOF IS SHIFTED Defendant to show if the trade
been taken to protect confidential secrets are publicly known
information

• Plaintiff's burden of proof in trade secrets cases is greatly reduced: there is no need
for the plaintiff to establish that the trade secrets are “non-public.”
• Before the new AUCL was effective, a plaintiff only had to show that confidentiality
measures were taken to protect trade secrets, and that the trade secrets were non-
public and had economic value. The burden of proof was heavy.
• With the new AUCL, if a plaintiff can show that confidentiality measures have been
undertaken to protect the trade secrets, the burden of proof will be shifted to the
defendant to show that the trade secrets are generally known by the public.

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 NEW CHANGES: LOWER THE BURDEN OF PROOF – CONT’D

Plaintiff to show BURDEN OF PROOF IS SHIFTED Defendant to show

channel or opportunity to access absence of infringement (e.g.
+ substantial similarity independent development)

• Plaintiff’s burden of proof in trade secrets cases is greatly reduced: there is no need to prove actual access.

• The burden of proof will shift to a defendant if the plaintiff can produce prima facie evidence (including
“circumstantial evidence”) to show trade secrets misappropriation. Such circumstantial evidence includes evidence
that shows the alleged infringer had the opportunity to access the trade secrets, or a risk of the trade secrets’
disclosure.
Article 32 of AUCL
……
If the right holder of a trade secret provides prima facie evidence to reasonably indicate that the trade secret has been infringed
upon, and provide any of the following evidence, the alleged infringer shall prove the absence of such infringement:
1. Evidence that the alleged infringer has a channel or an opportunity to access the trade secret and that the information it uses is
substantially the same as the trade secret.
2. Evidence that the trade secret has been disclosed or used, or is at risk of disclosure or use, by the alleged infringer.
3. Evidence that the trade secret is otherwise infringed upon by the alleged infringer.

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 NEW CHANGES: CHANGES IN PROCEDURAL MECHANISMS

• China has removed the requirements of notarization and legalization for most
types of evidence originated outside of China.
• Only certain documents, such as foreign official documents, need to be notarized for
them to be admissible in Chinese courts.
• Only certain documents showing identities and legal authority, such as powers of
attorney, need to be notarized and legalized.

72
PRACTICAL ENFORCEMENT OPTIONS IN CHINA

Administrative Criminal Civil

• Strong gesture of IP
• Quick
protection • Damages and
• Cost-efficient
Advantages • Cost-efficient injunction will be
• Strong government
• Effect of “killing one to granted
support
warn a hundred”

• No damages will be
granted
• Local protectionism • No damages will be • Heavy burden of
Disadvantages • Lack of capacity and granted proof as right holder
willingness in dealing • Expensive
with complex
technical issues

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 单独诉讼路径比较 COMPARISON OF SEPARATE LITIGATION
PATHS
证据能力 情节严重程度 权利人的打击意愿 公安机关支持程度
Evidence Severity of Right holders' Level of support
Capability Circumstances willingness to fight from public
security organs
单独民事诉讼路径 弱 / Weak 低 弱 刑事立案较难
Separate Civil （例如，损失数额小于 （无意通过刑事手段干 立案意愿不强 / difficult
Procedure Path 三十万） / Low (e.g., 涉侵权人的人身自由） / to file a criminal case,
loss amount less than Weak (no intention to lack of willingness to file
$300,000) interfere with the a case
personal freedom of the
infringer through
criminal means)

单独刑事诉讼路径 强 / Strong 高 强 公安机关支持 / Support

Separate Criminal （例如，损失数额超过 （意图彻底打击、从源 from Public Security
Organs
Procedure Path 三十万，或导致破产、 头止损） / Strong
倒闭等） / High (e.g., (Intention to fight
loss amount more than thoroughly and stop
$300,000 or result in loss from the source)
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bankruptcy, collapse,
etc.)
刑民交叉路径——刑事附带民事路径
CRIMINAL-CIVIL CROSSOVER PATH——CIVIL SUIT COLLATERAL
TO CRIMINAL PROCEEDINGS PATH

• 刑事附带民事路径： / Civil Suit Collateral to Criminal Proceedings Path

• 向法院申请刑事附带民事诉讼 / Application to the court for civil suit
collateral to criminal proceedings
• 适用范围：被害人由于被吿人的犯罪行为而遭受物质损失的 / Scope of
application: the victim suffered material damage because of the
defendant's criminal acts

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 商业秘密刑民诉讼选择 CRIMINAL AND CIVIL LITIGATION
OPTIONS FOR TRADE SECRETS

• 单独民事诉讼路径（仅提起民事诉讼） / Separate Civil

Procedure Path (Civil Procedures Only)
• 单独刑事诉讼路径（仅采用刑事诉讼） / Separate
Criminal Procedure Path (Criminal Proceedings Only)
• 刑民交叉路径 / Criminal-Civil Crossover Path
• 先刑后民路径 / Criminal Procedure Before Civil
Procedure Path
• 先民后刑路径 / Civil Procedure Before Criminal
Procedure Path
• 刑事附带民事路径 / Civil Suit Collateral to
Criminal Proceedings Path

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刑民交叉路径——先刑后民
CRIMINAL-CIVIL CROSSOVER PATH——CRIMINAL
PROCEDURE BEFORE CIVIL PROCEDURE

• 先刑后民： / Criminal Procedure Before Civil Procedure

• 借用刑事侦查手段获取侵权证据 / Obtaining infringement evidence by
means of criminal investigation
• 证明标准：刑事 > 民事 / Standard of proof: Criminal > Civil
• 若刑事案件因证据等原因无法推进，商业秘密权利人可以启动民事案件的诉
讼策略 / If a criminal case cannot proceed due to evidence and other
reasons, the trade secret rights holder may initiate litigation strategies for a
civil case

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刑民交叉路径——先民后刑
CRIMINAL-CIVIL CROSSOVER PATH——CIVIL PROCEDURE
BEFORE CRIMINAL PROCEDURE

• 先民后刑： / Civil Procedure Before Criminal Procedure:

• 刑事案件立案难，先启动民事案件 / Criminal cases are difficult to file; civil
cases are started first
• 在民事案件胜诉之后，权利人进一步启动刑事案件 / After winning a civil
case, the rights holder further initiates a criminal case

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商业秘密民事诉讼选择 – 违约或侵权？ CIVIL LITIGATION OPTIONS
FOR TRADE SECRETS –TORTS OR CONTRACT BREACH?
Substantial
similarity or
Burden of Confidentiality,
identity between Existence and
value and utility
Proof for of asserted
asserted Illicit means validity of Actual losses
Plaintiff information and contract
information
defendant’s
information

Yes (or to
prove the
Torts Yes Yes Yes No profits gained
by
defendants)

Contract
No No No Yes Yes
Breaches

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可以采取的诉讼策略——其他思路
POSSIBLE LITIGATION STRATEGIES——OTHER IDEAS

• 劳动仲裁 / Labor Arbitration

• 行政处罚 / Administrative Punishment
• 刑事：其他案由？ / Criminal: Other Causes of Action?

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CASE STUDY – JIAXING ZHONGHUA CHEMICAL CO., LTD V.
WANGLONG GROUP CO., LTD

• Highest Damages Awarded in Trade Secret Litigation in China: RMB 159 Million
(Approximately USD 24 Million)
• The Plaintiffs Zhonghua Chemical and Shanghai Xinchen New Technology Co.,Ltd.
(“Shanghai Xinchen”) sued defendants Wanglong Group Co.,Ltd. (“Wanglong Group”)
etc. for infringement of trade secrets of new processes to manufacture Vanillin.
• The alleged trade secret has been acknowledged by several national technical awards.
• Before the infringement, Zhonghua Chemical was the largest manufacturer of Vanillin,
occupying 60% of the global Vanillin market.
• Wanglong Group started to manufacture Vanillin from June 2011. In a short time, it
became the third-largest Vanillin manufacturer in the world and Zhonghua Chemical’s
global Vanillin market share slipping from 60% to 50%.
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CASE STUDY – JIAXING ZHONGHUA CHEMICAL CO., LTD V.
WANGLONG GROUP CO., LTD

• Most evidence (including access and technology similarity) was obtained from
corresponding criminal case.
• Access: FENG voluntarily reported to Jiaxing PSB regarding the trade secrets misappropriation
and submitted essential access evidence –USB, payment proof and technical materials.

Zhonghua Chemical Wanglong Group

RMB 400,000 RMB 1M

Ex-employee: FU Xianggen FENG Jiayi WANG Guojun

A USB containing more than 200 drawings, flow charts, key equipment list, etc. 82
CASE STUDY – JIAXING ZHONGHUA CHEMICAL CO., LTD. V.
WANGLONG GROUP CO., LTD

• Jiaxing PSB then formally docketed the criminal case.

• Jiaxing PSB entrusted an appraisal company to issue three certificates on:

1) whether the alleged trade secrets were not known by public;

2) whether Wanglong Group’s patent applications disclosed alleged trade secrets;
3) whether the flow charts and drawings passed by FU to Wanglong Group contain
alleged trade secrets. All the three certificates favored Zhonghua Chemical and
became essential evidence in civil trade secret case.
• Although the criminal case was finally dismissed by PSB, the evidence obtained
from criminal procedure helped plaintiffs win the highest damages ever awarded in
civil trade secret case.

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CASE STUDY – JIAXING ZHONGHUA CHEMICAL CO., LTD. V.
WANGLONG GROUP CO., LTD

• Damages: 159 million RMB (including reasonable expenses of 3.49 million RMB)
• Key factors:
1 2 3 4
Seriousness of the Large quantity of trade secrets Continuous infringement – FU High value of trade secrets –
infringement – Paying ex- – Steeling 185 equipment solicited more ex-employees of Defendant occupied 10% of
employee to steel trade drawings and 15 flow charts plaintiff to join defendants; the global Vanillin market,
secrets; using exactly the including plaintiff’s core continuing to conduct becoming the third-largest
same drawings, etc. technologies. infringement after the first Vanillin manufacturer in a
instance court issued short time.
preliminary injunctions.

5 6 7 8
Defendant established its Sever damages to plaintiff – Defendant refused to prove Defendant refused to enforce
business solely for Plaintiff’s global Vanillin evidence as requested by the preliminary injunction
infringement. market share slipped from Court. issued by first instance court.
60% to 50%.

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 BEST PRACTICES

• Sign confidentiality clause and non-solicitation clause with employees. Over approximately 89% of
civil trade secret cases are related to disputes concerning former employees.

• Take physical and electronic confidentiality measures, such as prohibiting or restricting access,
storage, and copying of electronic versions of the trade secrets.

• Conduct exit interview with employees and request employees to return, delete, or destroy trade
secrets at their departure.

• Remind ex-employees to continue to honor the confidentiality obligations after departure by signing
a certificate.

• Seize the business laptops of suspicious ex-employees and conduct forensic analysis.

• Sue domestic entities to avoid possible delay caused by Hague Convention (around 3 – 6 months).

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 BEST PRACTICES

• Conduct trade secret appraisal to prove “unknown to public” and “economic value”.

• Consider criminal action firstly to gather more evidence. No US-style discovery in China.

• Petition for preliminary injunction.

• Petition for investigation orders.

• Petition for court to request defendants to submit evidence occupied by defendants, such as
financial books.

• Collect as much evidence as possible regarding direct and indirect damages, such as decline of
market share, damages of business reputation, etc. to show seriousness of infringement.

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DISCLAIMER LANGUAGE

Any presentation by a Jones Day lawyer or employee should not be considered or

construed as legal advice on any individual matter or circumstance. The contents of this
document are intended for general information purposes only and may not be quoted or
referred to in any other presentation, publication or proceeding without the prior written
consent of Jones Day, which may be given or withheld at Jones Day's discretion. The
distribution of this presentation or its content is not intended to create, and receipt of it
does not constitute, an attorney-client relationship. The views set forth herein are the
personal views of the authors and do not necessarily reflect those of Jones Day.

87
Any presentation by a Jones Day lawyer or employee should not be considered or construed as legal advice on any individual matter or
circumstance. The contents of this document are intended for general information purposes only and may not be quoted or referred to in any
other presentation, publication or proceeding without the prior written consent of Jones Day, which may be given or withheld at Jones Day's
discretion. The distribution of this presentation or its content is not intended to create, and receipt of it does not constitute, an attorney-client
relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of Jones Day.