PROTECTION OF TRADE SECRETS THROUGH ANTI-UNFAIR COMPETITION LAW

Trade secrets in general are the Intellectual Property Rights that can be sold or licensed. Basically, trade secrets are the organizational information or data which have a commercial value for the business and is known only to very important (and few) numbers of the organizational personal who are at the top of hierarchy pyramid and are reasonable and responsible for decision making of the business (such personals are the Owner, Executive Managers, CEO’s etc.).

PROTECTION OF TRADE SECRETS THROUGH ANTI-UNFAIR COMPETITION LAW

PROTECTION OF TRADE SECRETS THROUGH ANTI-UNFAIR COMPETITION LAW


INTRODUCTION:

Trade secrets in general are the Intellectual Property Rights that can be sold or licensed. Trade secrets are the organizational information or data which have a commercial value for the business and is known only to a very important (and few) numbers of the organizational personal who are at the top of the hierarchy pyramid and are reasonable and responsible for decision making of the business (such personals are the Owner, Executive Managers, CEO’s, etc.).

If an organization takes some (reasonable) steps and actions to protect a piece of business information by keeping it a secret and not letting anyone but the important person of business know about it, then it stands on the grounds of being a trade secret (for example, if an organization hires its employees or if appoint a business partner only if they accept to terms and conditions of a confidential agreement or the Non-Compete form of a professional firm). Even if trade secrets are categorized as confidential, they still are commercial as they can’t be kept as a perfect secret. For a trade secret to have any practical value, the owner usually must share it with the necessary authorities of business and government agencies in order to collaborate with a limited group of employees and business partners and help businesses stand on legal grounds provided by the government. Any unauthorized acquisition, use, or disclosure of such information of any organization in a manner contrary to honest and ethical commercial practice is regarded as an unfair practice and a violation of trade secrets. In general, any confidential information of any organization which is used by the organization as a competitive edge over its competitors in the market making benefit out of it differently then what their competitors have to offer and is unknown to its competitors or any other person other than organizations own staff may be protected as a trade secret. Information such as technical information (for example, manufacturing process, test data, design, etc) and commercial information (for example, list of suppliers and clients, advertising strategies, distribution methods, etc) are main components of organizational information that can be categorized into a trade secret. Protection of trade secrets differs from country to country depending upon their legal system. It depends on the legal system on what provisions it has for protection from unfair practices, confidential information, or how its special provisions work. So, determination of a violation of trade secret is completely at liberty and discretion of the courts as according to different circumstances of cases it's up to the court how it decides the case must go and how it should be concluded. However, a trade secret owner cannot stop any organization from using the same technical or commercial information if it is generated by the organization's own research and development, reverse engineering, market analysis, or any innovative idea generated with companies' own system.

Role of Anti-Unfair Competition Law (AUCP) In Protecting Trade Secrets:

China being a member of The World Trade Organization (WTO) is also a signatory body to many important conventions of human history (few being the Paris Convention and the Agreement on Trade-Related Aspects of Intellectual Property Rights). China is one of the leading countries to have such a big and prominent market in itself for which it has to create some domestic legislation to protect the legitimate rights and interests of business operators and consumers. One such law is created and used in china as The Anti- Unfair Competition Law (AUCL). The AUCL was created and implemented in China on 2nd September 1993. Which did not give much consideration and protection to trade secrets and many other aspects of the Intellectual property law for which the standing committee of the National People’s Congress promulgated the AUCL on 4th November 2017 and later on 1st January, 2018 and latest revision being on 23rd April 2019. The new law so created focuses on other aspects of Intellectual property rights as well as provides proper protection Unfair competition practices. The revised AUCL mainly focuses on three major things being:

  1. Firstly, it effectively enlarged the scope of protection of the AUCL to cover misappropriation and follow of unfair practices by non-business operators;

  2. Secondly, it increases the amount of damages for any violation or infringement by introducing disciplinary damages against trade secret violation or infringement carried out with wrong and malicious intent and unfair practice to generate profit/ benefits out of it, allowing plaintiffs to get compensated up to five times the loss suffered because of any such violation or infringement and it also increased the maximum amount of statutory compensation from 3 million RMB to 5 million RMB where the loss suffered by the plaintiff cannot be calculated or determined by any evidence or records, and;

  3. Finally, it lessens the substantial hurdle that has caused many trade secret cases in China to falter by creating a burden-shifting mechanism once a prima facie case has been made.

These changes were included in Article 9 (Defining Trade Secrets), Article 17 (Includes Civil Liability), Article 21 (Includes Administrative Sanction), and a newly added Article 32 (Includes Burden of Proof). The amendment also broadened it thinking by defining trade secret as the all commercial information (technical information, operational information, and other business information) of the business which the public and business competitors are not familiar with, has business and commercial value for the owner and has been protected by the right’s holder with all possible measures and strengthens the legal liabilities for trade secret infringement. The amendment clearly defines the terms “Unknown to Public” and “Confidential Measures” under Article 10. The new amendment specifically allows acquiring trade secrets through “independent creation” and reverse engineering, which are not deemed to be a misappropriation of trade secrets under the new Anti-Unfair Competition Law.

Here, Misappropriation means acquiring the trade secret of another by theft, duress, inducement, or using, disclosing, or letting others to use the trade secret of another to get benefits out of it with malicious intent. Interpretation of the amendment is that it is very significant and appropriate, but it lacks proper implementation law and clauses at a practical level, as it mainly makes the cases of violation and infringement which are presented in judicial practice explicitly stipulated and a very lengthy and time-consuming process. Through this amendment, China's protection of trade secrets can be considered as a modern-day in legislation. But there are various difficulties in the implementation of the law which is the main deciding factor of the effectiveness of any legislation so formed. It remains an attention-calling problem for companies to strengthen the protection of trade secrets as whatever law is made there are always some loopholes that need to be filled in as soon as discovered. So, there are always scopes of improvements according to which china’s new AUCL have some consecutive requirements for Trade Secrets. Requirements include:

  1. Improving the management system for Trade secrets;

  2. Evidence collection and Preservation and;

  3. Establishment of Infringement response mechanism;  

It can be concluded that the major revisions will make it easier for trade secret owners to enforce their rights in China. But with all such requirements for further improvement china’s Anti- Unfair Competition law is still a very prominent source of law for protection and safety of trade secrets and various other aspects of Intellectual Property rights.


 

CASE STUDY

YILI VS MENGNIU

In a misleading advertisement case of chine. The case is of two major companies in china Yili and Mengniu. In the case of two famous Chinese dairy-product companies, one is Yili which claimed that Mengniu has practiced unfair competition against Yili. It proceeded to sue because Mengniu's Future Star products which used similar product packaging, decoration, and product names to its QQ Star products.


 

By Comparing the packaging of the two products, it results in concluding that they both share the term 'Nutritious Juice Yoghurt drink' in Chinese characters, the placement of each term is similar and the design and background colour show similar characteristics. The Court decided that Mengniu's activities constituted unfair competition (According to Article 6 of the AUCL), concluding that although there are some differences between the terms of the product but the images on the packaging demonstrate that Mengniu was coping the packaging and decoration of Yili's products, leading to consumer confusion. Hence, concluding Trade secret infringement and practice of unfair competition by Mengniu and giving decision in favour of Yili.


 

BY:-

GAURAV GUPTA