This entry is dedicated to “trade secrets, in fact these can be considered part or a sort of Intellectual Property Rights and thus are to be protected.
(A very useful web-site to help the foreign investor understanding IPR in China is the following:
http://www.chinaipr.gov.cn/
).
Keep access to what is secret limited to those who truly need to know is another key factor when doing business in China. Make confidentiality clauses or agreements a routine part of your contractual negotiations and employment contracts should be a priority and always kept in mind before executing any contract.
As is the case in most countries, the protection of confidential information in a business context, such as commercial secrets, including formulas, business methods, recipes, technical specifications, marketing strategies, manufacturing techniques, is of paramount importance when operating a business in China, and it depends largely on the owner keeping these information confidential.
It is worth to underline the content of Article 10 of the
Law against Unfair Competition
, (
http://www.wipo.int/wipolex/en/text.jsp?file_id=125970
) which protects
Trade Secrets
in compliance with Article 39 of the TRIPS Agreement (Article 39 del
TRIPS Agreement
deals with the information to be protected) According to the mentioned Article 10 a “trade secret” refers to any technology information or business operation information which is unknown to the public, can bring about economic benefits to the obligee, has practical utility and about which the obligee has adopted secret-keeping measures. Therefore, a business operator shall not use any of the following means to infringe upon trade secrets:
(1) obtaining an obligee’s trade secrets by stealing, luring, intimidation or any other unfair means;
(2) disclosing, using or allowing another person to use the trade secrets obtained from the obligee by the means mentioned in the preceding paragraph; or
(3) in violation of the agreement or against the obligee’s demand for keeping trade secrets, disclosing, using or allowing another person to use the trade secrets he/she possesses.
Obtaining, using or disclosing another’s trade secrets by a third party who clearly knows or ought to know that the case falls under the unlawful acts listed in the preceding paragraph shall be deemed as infringement upon trade secrets.
Similarly, if a third party is aware of the illegal conduct and obtains, uses or discloses these secrets, he/she will be held responsible and prosecuted for violations under the terms of the law. It is also important to note that in cases of violation of trade secrets, Article 219 of the
Criminal Law
provides that if the violation causes serious losses to the owner of such (confidential) information, the court may impose a fine and/or impose up to three years imprisonment, and if the violation causes serious consequences, the Authority may impose a fine and imprisonment from three to seven years.
Confidentiality and non-compete provisions: Employers often impose confidentiality and non-compete provisions on employees in order to protect their IPR and commercial secrets upon an employee’s departure. Although the inclusion of such provisions was previously permitted, the
Labor
Contract Law
(into effect on January 1, 2008) contains certain provisions relating to confidentiality and non-compete obligations that foreign employers should be aware of. Although all existing contracts signed in accordance with the existing
Labor
Law
of 1995 will remain in force, it is likely that any clauses that do not comply with mandatory rules under the
Labor
Contract Law
will cease to have effect. It may be desirable to incorporate any non-compete clauses in a dedicated non-compete/ IPR agreement separate from the main labor employment contract.
Under the
Labor
Contract Law
, non-compete clauses may be included subject to the following:
(1) They may be included only in contracts with senior management, high-level technical personnel and other employees who are under a specific obligation of confidence.
(2) Although the geographical restriction can be agreed, the term of the obligation must not exceed two years after termination of employment.
(3) Employees are entitled to compensation for loss caused by compliance with non-compete obligations.
The
Labor
Contract Law
does not provide guidance on compensation levels. However, past judicial practice suggests that any agreed compensation must be reasonable.
This entry was intended to explain “trade secrets” and their importance as an asset to be protected. In the next entry I will expose other regulations having an impact on IPRs.
(Some of these articles are extracted from my work titled M&A and Takeovers in China, so if you are interested in this topic, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).
Cristiano Rizzi