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Protecting your trade secret in China

As a business owner or executive, you want to protect your company’s confidential information so as to prevent it from being used by or to benefit your competition.  This confidential information can be as famous as the heavily-guarded Coca-Cola ? formula, or as discrete as your customer list.  In any event, you need this information protected.

A “trade secret” is defined in China Anti-competition Law, and generally means information that has independent economic value which the company takes reasonable means to keep confidential.  The best thing any company can do is to only disseminate trade secrets to those who have a need to know the information.  For most businesses, their most common trade secret is their customer list.  Thus, you shouldn’t leave it laying around for the janitor to see, nor should you publish it in the form of a comprehensive reference list for the world to view.  Next, your employees and outside vendors and consultants should sign a carefully drafted trade secrets acknowledgement which clearly specifies which information your company deems confidential and what the consequences are of misappropriating that information.  As used above, “carefully drafted” means by an attorney who is familiar with trade secret protection (and we are).

Even with proper protection, it is only a matter of time before someone (usually a disgruntled former employee who is now working for your competition) will attempt to misappropriate your trade secrets.  When they do, swift and decisive legal action is necessary to stop the illegal conduct and recover your rightful damages under the law.  For example, if a former employee started using your customer list (full of pricing information and order history) while working for a competitor, they could very quickly turn your customers into theirs, and put you out of business.  If we were your attorney, we would seek an immediate temporary restraining order and preliminary injunction to prevent further damages to preserve the status quo pending the litigation.   Assuming you ultimately prevail in the case, the trade secret holder is entitled to treble damages for having to bring such a claim.

In the absence of a contractual obligation, employees and others may still be held liable for disclosing a trade secret if a court finds they had reason to know that the information was valuable and were expected to keep it confidential. For example, engineers and scientists who consult on a commercial project are ordinarily bound by a duty of strict confidentiality that precludes them from later sharing any information they acquire or using it to facilitate their own research. Although many businesses require consultants to sign a nondisclosure agreement before beginning work on a sensitive project, this duty of confidentiality arises from the circumstances surrounding a particular venture, independent of any formal agreement reached between the parties.

The time to consult an attorney about your trade secrets is now… before disputes occur and before they become public information.  If you do have an unfortunate situation where you believe your trade secrets are being misappropriated, you should immediately consult us to prevent further damages. 

As an external legal counsel experienced in China trade secret law, wee offer free, no-obligation consultations on trade secret matters.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.