With China announcing changes to its Anti-Unfair Competition Law to target trade secret theft, in-house counsel say the shift of burden of proof from the plaintiff to defendant is a blessing that will drive more companies to take their trade secret cases to court.
The lack of comprehensive trade secret law has traditionally made it challenging for businesses to seek compensation for trade secret misappropriation in China. The change in the law, which took effect on April 23, aims to tackle the issue by increasing damages and shifting the burden of proof.
The statutory maximum compensation in penalties will go from Rmb3 million ($445,000) to Rmb5 million ($577,000). Additionally, exemplary damages will be up to five times higher in cases of willful and malicious appropriation.
The shift in burden of proof to defendants means that trade secret owners only needs to show prima facie evidence that an infringer had misappropriated a trade secret. The burden then shifts to the defendant to show that the information is not a trade secret or that said defendant did not engage in misappropriation. The plaintiff previously had to show that the trade secret in question was not known to the public.
“It has been challenging for businesses to bring cases to court because of the difficulty in proving these cases,” says an in-house counsel at an international technology company. “But now it will be much easier and I expect that more businesses will take their cases to court.”
While the proposed changes are welcomed by IP practitioners, many are still concerned with how they will be implemented in practice.
“While the law might look good on paper, how useful it will be depends on how it’s implemented,” says an in-house counsel at an international chemicals company. “The law needs to be effectively enforced for it to be effective.”
The lack of trade secret cases that have been successfully brought to court will also make it difficult for in-house lawyers to understand how the courts have handled cases in the past. But IP practitioners are optimistic that the changes to the law will make the process more transparent.
While the law has provided more clarity on trade secret cases, there are aspects that remain unclear. “It’s not clear what is a prima facie case,” says Erick Robinson, partner at Dunlap Bennett & Ludwig in Beijing. “The proof is relatively light according to the regulation change. It could be an affidavit signed by an IT department showing something was kept confidential but is in the hands of the other party. But without discovery, proving this may still be difficult.”
Another challenge is proving damages – especially on lost profit. “Proving actual loss is what I’m most concerned about,” says Robinson. “If someone steals a trade secret, you don’t know how many people it’s gone to and it’s not commercially feasible to wait a few years to find out because you’re suing to prevent.”
An area that lacks clarity is how injunctions will be addressed, both in terms of whether they will be used by the courts and if the courts will enforce them. “If it’s a case between two competitors, the plaintiff would want to stop the defendant’s actions immediately and that depends on how quickly you can enforce injunctions,” says Robinson. “It’ll be interesting to see whether early preliminary injunctions will be allowed and, if they are, whether the courts will enforce them.”
