The Choice of Remedies for Rights Protection on Enterprise Trade Secret

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2019-06-06 | 来源:劳动法苑


In practice, infringement of trade secrets occurs constantly. In order to maximize the protection of trade secrets, enterprises usually take various legal measures at all costs. Prevention mainly includes formulating rules and regulations for confidentiality management, entering into confidentiality agreement or non-competition agreement, requiring the employee or the third party to assume the obligation of trade secrets protection and/or non-competition agreement (mainly for employees), etc. Post-event measures are taken when enterprises choose the path of judicial remedy for  protecting their rights in the event of an obligors' breach or infringement of contract or infringement,. This paper discusses the rights protection strategy after the occurrence of infringement.

1. Path of  rights protection on trade secrets

At present, China has established a relatively complete system to safeguard trade secrets. Generally speaking, the obligee can protect their trade secrets through administrative remedy and judicial remedy. Among them, judicial remedy includes civil litigation and criminal litigation.

1.1 Administrative remedy

The obligee usually requests the Administration for Industry and Commerce to investigate and punish the action of infringement of trade secrets. Administration for Industry and Commerce will investigate the infringement of trade secrets according to the newly revised Anti-Unfair Competition Law and give corresponding administrative penalties.  However, there is no civil compensation in this case.

1.2 Civil Litigation

According to the Anti-Unfair Competition Law, the aggrieved party can file a civil lawsuit to obtain compensation, and the recent amendments also stipulates the calculation method of compensation for losses. In practice, where trade secret disputes occurs between the enterprise and the employee, rights can be protected through labor dispute arbitration . In practice, the above disputes are mainly resolved through these two judicial procedures. In the light of co-opetition relation of lawsuits, the rights defender can only choose one of the above-mentioned approaches.

1.3 Criminal Litigation

The Article 219 of the Criminal Law stipulates criminal actions constituting the crime of infringing on trade secrets. Where the obligee of trade secrets suffers "serious" or "extremely serious" losses, he should consider criminal remedy to protect his right of trade secrets protection. All the evidence detained by public security organs in investigating criminal cases attributes to the promotion of follow-up administrative remedy and civil litigation. Generally speaking, criminal litigation is very effective in case of infringement on trade secrets, but it may be difficult to satisfy the more concerning appeals of the obligee relying only on criminal litigation , such as stopping infringement and compensation for damages. At the same time, not all cases meet the requirements of initiating criminal litigation. Therefore, generally, the obligee is inclined to file a civil lawsuit to realize the above demands.

2.Analysis and comparison of ways of  rights protection on trade secrets

First of all, it should be noted that administrative and civil remedies, as well as civil and criminal remedies, are not mutually exclusive among different ways of rights protection, except that administrative remedy and criminal remedy cannot be applied simultaneously. Under appropriate circumstances, the obligee can use multiple strategies to maximize their own interests. The following is a summary of the corresponding elements of the choice of different remedies for readers' reference.


2.1.1 About Grade Jurisdiction

If the tort liability of the infringer is investigated, the court under jurisdiction should be the Intermediate People's Court. A small number of Basic People's Courts can also accept civil cases on trade secrets protection assigned by the Supreme People's Court. Where the infringer's liability for breach of contract is investigated, two cases will be distinguished, that whether it is a labor dispute or not. In a labor dispute, arbitration should prevail. Otherwise, it is an ordinary contract dispute, which shall be directly accepted by the Basic Court.

2.1.2 About territorial jurisdiction

If the tort liability of the infringer is investigated, it shall be under the jurisdiction of the Intermediate People's Court in the place where the actions of infringing on trade secrets is committed or where the defendant resides.

If the obligee applies for listing the employer by which he was newly recruited or the enterprise invested by the employee as the co-defendant, the Intermediate People's Court in the place where the new employer or the enterprise which the laborer invests resides, may also have jurisdiction.

If a lawsuit is brought for a contract dispute, it shall be under the jurisdiction of the people's court of the place where the defendant resides or where the contract is performed. If it is a labor dispute lawsuit case, it shall be under the jurisdiction of the Basic People's Court, where the employer is located or where the labor contract is performed.

2.2 About burden of  proof

In civil litigation, first of all, according to the  principle of burden of proof " the burden of proof rests with the person who claims ", the plaintiff in a trade secret torts lawsuit shall bear the burden of proof of the four constitution elements of  infringement on trade secret. In non-compete labor arbitration cases, the employer shall bear the burden of proof to prove that both parties agreed on the non-competition, its scope and liquidated damages. Secondly, the difficulty of proof is different. The proof of torts over trade secret is harder than that of non-competition breach. For instance, it is hard to prove the actions of torts, since it is covert, and it is generally difficult for the obligee to obtain evidence of infringement on trade secrets. In addition, it is difficult to prove, in judicial practice, whether the trade secret conforms to the elements defined by law and whether the economic loss claimed by the victim is directly caused by the torts action. It is comforting to know that in the newly revised Anti-Unfair Competition Law  stipulates that the obligee of trade secrets shall provide preliminary evidence to prove that he has taken measures to keep the claimed trade secrets confidential. This completes the initial burden of proof, thereby clarifying the transfer of the burden of proof of the parties in the civil trial procedure of infringing  on trade secrets.

In criminal litigation, it is difficult for most cases to meet the requirements for filing criminal lawsuit, considering the existence of trade secrets (non-public knowledge, adopting confidentiality measures), the infringement evidence submitted for consistency identification, and the loss basis that causes direct economic losses of more than 500,000 yuan.

2.3 Scope of legal remedies available

In terms of economic compensation, the plaintiff in torts lawsuit over trade secrets can claim damages, of which the amount is not limited by law and can not be capped. It is stipulated in the newly amended edition of Anti-Unfair Competition Law that  punitive damages may be awarded for malicious and serious infringement on trade secrets.

In a non-competition labor dispute , the applicant may claim liquidated damages. It is stipulated in Article23 of  the Labor Contract Law of the People's Republic of China that where the employee breaches the non-competition agreement, the employee shall pay liquidated damages to the Employer. In practice, it can be divided into the following situations.

2.3.1 Where there is no agreement on liquidated damages,the applicant may claim damages, but shall bear the burden of proof of actual losses. 

2.3.2 Where there is an agreement on liquidated damages and the actual loss is greater than the agreed liquidated damages, in theory, the applicant can claim damages higher than liquidated damages, but the legal basis of claim for damages in labor law is vague, and the burden of proof required by the judicial organ is more stringent, so it is difficult to obtain support for damages. 

2.3.3 Where the agreed liquidated damages are excessively higher than the actual loss, which according to judicial interpretation, if the agreed liquidated damages are higher than 30% of the actual losses, it can be considered as "excessively higher", the party may request a reduction. Therefore, the validity of high liquidated damages still depends on the actual loss caused by the breach of contract.

Administrative remedy and criminal remedy are generally difficult to meet the obligee's demands for economic compensation mentioned above. In general practice, the obligee tends to bring a civil lawsuit separately.

2.4 Prescribed period  for litigation

Prescribed period for litigation is generally applied to civil lawsuit. Torts lawsuit on non-competition for infringement on trade secrets shall be subject to a limitation of three years after the implementation of  General Principles of Civil Law. However, according to Mediation and Arbitration of Labor Disputes Law, the case of labor dispute on non-competition shall be applied to one year of prescribed period for litigation, which is much shorter than the former.

3.Choice of ways to rights protection on trade secrets

 As mentioned above, different remedies of rights protection in the administrative, civil and criminal realm have their own advantages and disadvantages. With deliberate choice and self condition consideration, only under the comprehensive assessment of whether business secrets can be identified, merits of trade secrets, security measures taken, the existence of  confidentiality agreement, actions of breach of contract or torts, consequences caused to the oblige, time invested due to different rights protection paths, economic costs and litigation result and risk, etc., can the obligee obtain the expected result in the process of rights protection.

Hou Shan



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