China Is Working To Keep Up With the Joneses

On April 23, 2019, China’s Anti-Unfair Competition Law (AUCL) and Administrative Licensing Law were amended, taking effect the same day. The only other amendment to the AUCL occurred in 2017.

The new amendments made significant changes to the definition, scope, disclosure procedures, and penalties concerning trade secret protection. However, it appears these amendments do not affect the PRC Criminal Law’s provisions on trade secrets.

The AUCL’s new definition of trade secrets includes all “technical information, business operation information, and other commercial information.” This wording brings China’s definition closer to that of TRIPS.

Previously, the AUCL only applied to “business operator” infringers, that is “individuals and entities conducting production or distribution of commodities or the provision of services.” The scope of infringers was expanded to include individuals and entities, allowing for suits against non-business operators, employees, and former employees. Likewise, the scope of infringement was expanded to cover cybertheft and indirect infringement “instigating, inducing, or assisting in” a breach of confidentiality with intent to “acquire, disclose, use, or allow others to use” the misappropriated trade secret.

In the realm of remedies, the revisions raised punitive damages against repeat offenders, stated as malicious intent, to one to five times the actual loss or illicit profits. Also, the amendment increased the maximum statutory damages and administrative fines to RMB5 million each.

The revisions also modified the point at which burden-shifting occurs, allowing for a presumption of infringement. Establishing a full prima facie case is no longer needed; now the trade secret owner must provide preliminary evidence that protection measures were taken and establish to a reasonable extent that its trade secret was misappropriated before the burden shifts to the alleged infringer for defense. Preliminary evidence may include, inter alia: 1) the opportunity to obtain the trade secret combined with substantial similarity between the trade secret and the information used by the alleged infringer, or 2) evidence that the trade secret has been or is at risk of being disclosed or used.

Under the Administrative Licensing Law amendments, administrative agencies and all those involved in licensing proceedings are prohibited from disclosing trade secrets without the applicant’s consent, except in cases where the law authorizes disclosure. If the agency is authorized to disclose trade secrets, the applicant must be allowed an opportunity to object. Also, agencies may not directly or indirectly demand technology transfer while issuing the license or make the granting of a license conditional upon technology transfer.