42 | Coatings World www.coatingsworld.com September 2014
Protecting the P&C Industry’s Intellectual Assets
by Steve McDaniel, JD, PhD
Contributing Editor
Chinese art and cultural beliefs have been dominated by dragons for thousands of years. The Han
Dynasty scholar Wang Fu, sometime be-
tween 206 B.C. and A.D. 220, described
precisely the complex characteristics of a
Chinese Dragon:
• Camel head
• Demon eyes
• Cow ears
• Stag antlers
• Snake neck
• Clam belly
• Tiger feet
• Eagle claws
• 117 carp scales around the body,
most benign but some malevolent.
This composite creature (let’s call it
“Lucky”) might also be an apt description of another Chinese body – namely, its
body of trade secret protection laws and
regulations, which are just now evolving
to resemble laws that would be recognizable in a Western court of law (to the credit
of the Chinese lawmakers and regulators).
The bottom line is this, don’t count on
Lucky. One should not challenge a dragon
without being armed with considerable
fore knowledge . . . likewise, you would be
ill-advised to get mixed up in a trade secret
battle within the Land of the Dragon without tons of local intel and help.
With that stern and heartfelt forewarning, if you get your trade secrets
ripped off in China, you can chose to pursue justice through governmental civil,
administrative, or criminal (e.g., a Public
Security Bureau) agencies.
The civil and administrative routes
both have similar standards of admis-
sible/persuasive evidence. However, be-
cause of the relatively small number of
trade secret cases in China, local courts
and officials are often unfamiliar with
the concepts and procedures governing
such cases. If you make a request for
investigation to a Chinese agency, you
will need to provide a thorough pile of
evidence and be prepared to educate the
officials involved about your trade secret.
To bolster your position (i.e., to avoid
having the AIC, a Civil Court, Criminal
Court, etc. look at you like you are crazy), the VERY BEST approach would be
to describe the trade secret in detail in a
written licensing agreement to a Chinese-based business entity with whom you
are in an established business. This will
greatly aid in establishing the existence
and your ownership of the trade secret.
Frankly, this is just about the ONLY approach you should take with “Lucky.”
For the remainder of this article, we will
assume you have taken this prudent step.
Unfortunately civil cases often begin with time consuming expert review
panels determining what, if any, materials qualify as a trade secret. In criminal
cases, you generally have to provide the
police the documentarily based evidence
of trade secret ownership and theft on
a silver platter before they will take action. And then, often a state controlled
research institute may evaluate whether
the defendant and the plaintiff’s products
are similar enough to indicate theft and
use of a trade secret. Because of these
tough standards, of the various intellectual property related cases filed in China
in 2012, about 1 percent were for trade
secret violations, with 1,123 being civil
versus. 43 criminal cases.
Where will you find the descriptions
of Lucky (and which carp scales are be-
nign/malevolent)? In China, there is no
counterpart to the consolidated body of
trade secret laws such as the Uniform
Trade Secrets Act. The current legal
framework for trade secret protection in
China is dominated by the 1993’s Anti-
Unfair Competition Law, which defines
trade secrets as “technical and business
information that is unknown to the
public, which can bring economic value
to the rights holder that has applicabil-
ity, and for which the rights holder take
measures to protect their confidentiali-
ty.” Obtaining, disclosing or using a mis-
appropriated trade secret by third party
is also covered by this statute when the
thief knows or should have known that
the trade secret was misappropriated.
Trade secrets in China held to fall in this
definition include techniques and pro-
cesses for management, sales (e.g., cus-
tomer lists), manufacturing, and product
designs/blueprints/formulas. Other
documents that cover trade secret pro-
tection include the State Administration
of Industry and Commerce’s Provisions
Regarding the Prohibition of Trade
Secret Infringement for administrative
procedures, as well as business related
statutes regarding contract and labor
laws (e.g., confidentially agreements,
employment agreements, etc.).
In 2007, the Interpretation on Certain
Issues Related to the Application of Law
in Trials of Civil Case Involving Unfair
Competition published by the Supreme
People’s Court clarified that the plaintiff in
a civil case needs to produce clear evidence
on how and when the trade secret was mis-
appropriated. This is much, much harder
than the procedures that allow misappro-
priation to be found by reasonable infer-
ence from the evidence in Western courts.
There are practical and procedural
limits to a plaintiff’s ability to submit
evidence provided by a private investi-
gator or by witness testimony, and that
proof is not given as strong weight as in
Western courts. Documentation, docu-
mentation, documentation . . . let me say
that again . . . DOCUMENTATION is
the only way to sway the court. China’s
civil courts lack a discovery process (you
won’t be given an automatic opportu-
nity to question the defendant about
a suspected misappropriation as you
would in a Western court) so you should
seek to have the court issue a document
Trusting Your Trade Secrets
to “Lucky” the Dragon
