China tightens trade secret protection in updated competition law

HONG KONG – Amendments to China’s Anti-Unfair Competition Law (the AUCL) which become effective on January 1, 2018 provide clarity on what constitutes trade secret infringement in China. The amendments increase penalties to strengthen trade secret protections. 

In a Client Alert, lawyers Baker McKenzie say the key changes include:

Information is more likely to qualify as a trade secret –the phrase "having business value" is added, loosening the criteria to determine whether a piece of information qualifies as a trade secret.  
 
New focus on preventing unfair competition by employees, ex-employees and ex-employees' new employers –The Amended AUCL reflects a focus on prohibiting acts of unfair competition committed by employees or by ex-employees and their new employers.
 
Significantly increased administrative fines –Under the Amended AUCL, the administrative fine for trade secret infringement now ranges from CNY 100,000 to CNY 3 million.
 
Civil damages potentially higher – The damages payable to the victim under the Amended AUCL are not limited to the costs to investigate the unfair competition activities but cover any reasonable expenditure for stopping the misconduct, which implies that litigation costs and attorney fees could potentially also be recoverable.
 
Expanded governmental supervisory authority – The Amended AUCL grants the governmental supervisory authority the power to seal or seize property as well as additional powers to check bank accounts of business operators who have allegedly committed acts of unfair competition, such as theft of trade secrets.

Baker McKenzie says that, to mitigate risks of having trade secrets infringed, employers should enter into confidentiality agreements with their employees who have access to trade secret information, preferably with a relatively detailed definition of what constitutes confidential information, since then the company can argue that it took appropriate measures to protect that particular type of information.

Furthermore, employers can issue warning letters to ex-employees and their new employers if it appears the ex-employee and the new employer are infringing or potentially may infringe on the former employer's trade secrets. www.bakermckenzie.com (ATI).