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Intellectual Property Rights

Trade Secrets & Unfair Competition

TRADE SECRETS and UNFAIR COMPETITION 

Legislation

China provides for protection of trade secrets belonging to both Chinese citizens and citizens of WTO member countries including the United States.  A trade secret is business information that is private and brings economic benefits to the owner, for which the owner has adopted measures to maintain its confidentiality.
 
The Law of the PRC Against Unfair Competition (“Unfair Competition Law”) entered into effect on December 1, 1993. 
The Unfair Competition Law deals with such IPR concerns as the attempt to pass off a product as legitimate, the imitation of trade dress, the infringement of trade secrets, and the unauthorized use of an enterprise name.
 
The Unfair Competition Law has been updated by various regulations.
These include the Several Regulations on the Prohibition of Acts of Unfair Competition Involving the Passing-off of a Name, Packaging or Trade Dress Peculiar to Well-known Merchandise, effective July 6, 1995, and the Several
Regulations on the Prohibition of Acts of Infringement of Trade Secrets
, effective November 23, 1995.
 
Under the SAIC, the Fair Trade Bureau is the entity that is responsible for the implementation of the Unfair Competition Law.  Locally, AICs are entrusted with carrying out the administrative enforcement of the law.   
 

What Constitutes Infringement?


Acts of infringement of trade secrets include:

  • passing off the registered trademark of another party;
  • using, without authorization, the name, packaging or decoration peculiar to well-known goods or using a name, packaging or decoration similar to that of well-known goods, so that the copied goods are confused with the well-known goods of another party, causing buyers to mistake them for the well-known goods of the other person;
  • using, without authorization, the business name or personal name of the other person on his own goods, leading people to mistake them for the goods of the other party;
  • forging or falsely using symbols of quality such as symbols of certification and symbols of famous and high-quality goods, falsifying the origin of the goods, and making false representations which are misleading as to the quality of the goods.

 

An operator may not adopt the following means to infringe business secrets:

  • obtaining business secrets from the owners of rights by stealing, promising of gain, resorting to coercion or other improper means;
  • disclosing, using, or allowing others to use business secrets of the owners of rights obtained by the means mentioned in the preceding item;

The Unfair Competition Law also refers back to the Trademark Law and the Product Quality Law in its provisions dealing with punishment for acts of passing off registered trademarks and falsifying the place of origin.
 

How to Address Infringement


Administrative enforcement
The Unfair Competition Law states that AICs have the power to investigate acts of unfair competition. 
 
Penalities that can be imposed for the passing off of names, packaging or trade dress of well-known merchandise include:
 
• confiscating the illegal income;
• ordering the business operator to cease the illegal act;
• paying a fine;
• revoking the business operator’s business license.
 
It should be noted that AICs do not have the ability to award compensation in unfair competition cases.  If damages are sought, parties must turn to proceedings in the People’s Courts. According to the Unfair Competition, damages are calculated according to the profit gained from the infringing goods. 
 
AICs also have additional authority under the Trade Secret Regulations to:
• instruct the return of drawings, blueprints, and other materials containing the trade secrets; and
• order the destruction of the goods manufactured using the stolen trade secrets if such goods would disclose the secrets to the public if made available.


Criminal penalties

In December 2004, the Supreme People’s Court and Supreme People’s Procuratorate issued a judicial interpretation on intellectual property crimes.  Under the interpretation, prison sentences of up to three years can be imposed for the infringement of trade secrets if the loss caused is “serious”, which for an individual, is defined as a loss of more than RMB 500,000 (US$60,000).  If the defendant is an enterprise, a “serious” loss is defined as more than RMB 1,500,000 (US$180,000).
In cases deemed “exceptionally serious,” (RMB 2,500,000 for individuals and RMB 7,500,000 for enterprises), the defendant can be imprisoned for three to seven years in addition to being fined.