preservation order to legally obtain and
maintain materials (i.e., you will want to
prevent a misappropriator from making
Chinese lanterns out of them and setting
them on fire). You will need to know
ahead of time what specific (the more
specific, the better) documents you are
trying to protect to advise the court.
What can you get done to “fix” the
problem if you win? In an AIC branch,
if there is a finding that trade secret misappropriation occurred as a violation of
anticompetitive laws, then they can force
return of the trade secret materials, destroy goods produced using the stolen
trade secret, and issue fines – the government, not you, gets the money – up to
about $32,500 (¥200,000) at current exchange rates. The advantage of the AIC is
they can conduct raids and issue penalties
within minutes if given sufficient evidence
– though that standard is high for trade
secret cases.
In Civil Court, you can get permanent
injunctions as well as damages. Damages
may be in the form of a reasonably royalty, profits from the infringer or your
lost profits much like in Western courts.
Because of the ability to get a permanent injunction, many companies seek
regress in Civil Court rather than an
AIC. However, in Civil Court it may take
a year for the case to reach conclusion,
giving plenty of time for serious damage
to your business to occur. Fortunately,
the Civil Procedure Law was revised in
2012 to allow preliminary injunctions if
a party’s conduct could cause irreparable
damage or make judgment more difficult.
This has been applied by the Shanghai
First Intermediate People’s Court in the
past couple of years in two trade secret
cases, opening the prospect of more wide-
spread application. In the more recent
case, the chief judge stated that five fac-
tors were used to issue the injunction:
the potential threat of irreparable dam-
age or injury to the petitioner, whether
or not the claim was totally frivolous, the
urgency of the petition, a balancing of po-
tential costs/harms of each party, and the
public interest. But, have all your eviden-
tiary ducks in a row if you want to have
a crack at getting a preliminary injunc-
tion issued should the process become
widespread. In the meantime, seriously
consider doing business in the Shanghai
First Intermediate Court’s jurisdiction.
If you suffer big financial losses at the
hands of the misappropriator, the Public
Security Bureaus (the cops) are responsible for investigating whether or not
the offender may be liable for criminal
penalties. Public Security Bureaus are
focused on violent crimes and (
sometimes) product safety issues. They
have little interest in economic crimes
in which the Bureau does not have an
economic interest (police departments
making money from speed traps and forfeiture seizures have an economic interest in such crimes). The Public Security
Bureau has the ability to seize evidence,
conduct searches, and order defendants
to release information, unlike the civil
agencies. The results are admissible in
administrative or civil proceedings – a
potentially hard-nosed substitute for the
discovery process in US courts.
At the “serious” loss level of about
$81,000 (¥500,000) or more when the
defendant is an individual defendant or
$244,000 (¥1,500,000) when the defendant is a business, the losing defendant
can face 3 years in prison and fines.
“Exceptionally serious” losses of about
$406,000 (¥2,500,000) or $1,219,000
(¥ 7,500,000), for an individual or business defendant, respectively, can put them
away between 3 to 7 years. Of note, a way
to invoke the criminal statute for trade
secret misappropriation is “Disclosing,
using, or allowing others to use a trade
secret in breach of an agreement or a confidentiality obligation imposed by a legal
owner.” This same language is also used
in the Anti-Unfair Competition Law that
is used in administrative and civil proceedings. The Supreme People’s Court
also lists “Entered into a confidentiality
agreement” as a satisfactory measure to
demonstrate that the misappropriated information was being protected as a trade
secret. So, be sure to have confidentiality
agreements for everyone in your Chinese
operations. The threat of pursuing a
criminal case has some deterrent value
to be considered when doing business, as
who wants to do time in a Chinese prison, so mention it in these agreements.
Additional law suits may be filed
for trade secret misappropriation during contact negotiation, during use under a licensing agreement, an employee
violating a labor contract’s confidentiality agreement, as well as directors or
managers harming the company by disclosing secrets under Company Law. A
breach of an applicable confidentially
clause in an employment contract may
also be brought before a labor arbitration commission, keeping in mind that
these agencies tend to favor employees
over employers.
Ok, given the limitations of the options above, how do you prepare ahead
of a trade secret misappropriation event
to win in court – or more importantly,
intimidate possible bad actors from
starting the ball rolling. Document everything. In detail. Not just a paper
trail . . . you want a paper road, a paper Autobahn! The information is your
trade secret. Document this. The education employees got on maintaining a
trade secret is critical. Document this.
You have policies that are implemented
to protect your trade secrets. Document
this. What employee had access to a
trade secret? Document this.
You will need this stack of paper
to show reasonable efforts were taken
to protect your trade secret, to prove
misappropriation, and hopefully identify when and who was involved. With
this information in hand, one or more
of the agencies described above can be
more easily persuaded to commit limited resources to investigate your case
(i.e., take you evidence seriously since
most of the investigation is done by
you). Only about 20% of civil court
plaintiffs win – so come loaded for
bear. Also, you may seek to build positive relationships with your local AIC
and public security bureau beforehand
through local experts familiar with the
authorities so they will be more conducive to listen to your complaint if the
need arises.
“I’d rather be lucky than smart,” you
hear it said in the U.S. I am not Chinese,
but I never heard of that advice being given in a Chinese proverb. Not in the land
of Lucky the Dragon, buddy. CW
