01 Jul 2020 in Newsletter
Impact of Shifting Burden of Proof Provision for Trade Secret Civil Proceedings in the US-China Economic and Trade Agreement and China’s Most Recent Response
By Han-Mei Tso
After more than two years of negotiations, China and the United States in January 2020 signed the Economic and Trade Agreement. As a result of “phase 1,” the Trade Agreement sets forth the provisions relating to intellectual property in Chapter 1, indicating a fundamental consensus between the countries on strengthening the protection of intellectual property. Following the general obligations set forth in Section A of the Intellectual Property Chapter, seven articles set forth in Section B relate to strengthening of trade secret protection, which further demonstrates the concerns of both China and particularly the US regarding effective trade secret protection in China.
On January 15, 2020, China and the United States signed the Economic and Trade Agreement in Washington, D.C. As a result of the “phase 1” economic and trade negotiations, the Trade Agreement sets forth the provisions relating to intellectual property in Chapter 1, which shows the fundamental consensus between China and the US on strengthening the protection of intellectual property. Following the general obligations set forth in Section A of the Intellectual Property Chapter, seven articles set in Section B are all related to strengthening the trade secret protection, which further demonstrates the concerns of both China and particularly the US regarding trade secret protection in China.
In the Trade Agreement, Article 1.5 prescribes burden-shifting in a civil proceeding for trade secret misappropriation. According to Article 1.5, Paragraph 1, the US and China shall prescribe that the burden of proof should shift to the defendant in a civil judicial proceeding for trade secret misappropriation if the right holder of the trade secret has produced prima facie evidence, including circumstantial evidence, to reasonably show that the trade secret was misappropriated by the defendant. Regarding the burden-shifting in the trade secret misappropriation cases, Article 1.5, Paragraph 2 further requires China should prescribe:
- the burden of proof or burden of production of evidence, as appropriate, shifts to the accused party to show that it did not misappropriate a trade secret once a holder of a trade secret produces:
- evidence that the accused party had access or opportunity to obtain a trade secret and the information used by the accused party is materially the same as that trade secret;
- evidence that a trade secret has been or risks being disclosed or used by the accused party; or
- other evidence that its trade secret(s) were misappropriated by the accused party; and
- under the circumstance that the right holder provides preliminary evidence that measures were taken to keep the claimed trade secret confidential, the burden of proof or burden of production of evidence, as appropriate, shifts to the accused party to show that a trade secret identified by a holder is generally known among persons within the circles that normally deal with the kind of information in question or is readily accessible, and therefore is not a trade secret.
Generally, to constitute a trade secret, it is required that the information should be confidential, necessary measures to maintain confidentiality should be taken, and the confidential information should possess economic value. Identifying confidentiality is an important step in the trial of trade secret infringement cases. In China’s judicial practice, regarding the burden of proof and the standard of proof of confidentiality, the court usually adopts the rule “the one who makes a claim shall bear the burden of proof” while applying the standard of proof based on the circumstance of each specific case. That is, the plaintiff will have to provide preliminary evidence that the claimed trade secret is distinct from the information known to the public. Based on the preliminary evidence, the court will combine the defendant’s defense, common knowledge of the society and general recognition in the art and determine confidentiality comprehensively.
According to our experience and observation, in China’s trade secret-related litigation, the court is strict on identification of trade secret. If technical secret information is claimed, the court may require the plaintiff to provide a search report, technical drawings, a process flow, technician’s testimony on the research and development process, the technical effects achieved by the technology involved and other evidence to show the difference and inventiveness of the claimed technical information from the common technology, so as to prove that the technical information involved is not known to the public. These burdens of proof are tantamount to requiring the plaintiff to prove the claimed technology possesses patentable novelty and inventiveness. Due to such heavy burden on the plaintiff, failure to prove existence of trade secret has become the main reason why it is so difficult to establish a trade secret misappropriation case in China.
The Trade Agreement specifically requires burden-shifting of proof for trade secret misappropriation cases, which will reduce the difficulty of proof for right holders and increases the burden of proof for alleged misappropriators. This significant change underscores that China’s civil judicial proceeding for trade secret protection will be friendlier to the rights holders, which also matches the US’s expectations that China should strengthen the enforcement against intellectual property infringement and optimize the international business environment. In fact, in the 2019 Revision of China’s Anti-Unfair Competition Law, the provision of newly added Article 32, Paragraph 1 has adopted this new mechanism of burden-shifting of proof for trade secret misappropriation cases, which also shows that China has continually tried to adjust its legal system for intellectual property protection and make the system more reasonable and conformable to the international trend.
This direction of the policy in China is also reflected in the new Interpretation on Several Issues Concerning the Application of Law in the Trial of Civil Cases Infringing on Trade Secret Infringements (Draft for Comment) (hereinafter referred to as “Interpretation Draft”) issued by China’s Supreme People’s Court on June 10, 2020. Despite the concerns of the global pandemic and tension between two countries, the Chinese Government seems to be indicating that it does not slow down its pace to reform the judicial system on intellectual property protection. In the latest Interpretation Draft issued by the Supreme People’s Court, several provisions are obviously in response to the articles prescribed in the Trade Agreement.
Regarding the burden-shifting of proof for trade secret cases in the civil proceeding, Article 8 of the Interpretation Draft has responded to Article 1.5, Paragraph 2 of the Trade Agreement, which provides: the right holder submits preliminary evidence to show that: the corresponding measures were taken to keep the claimed trade secret confidential, the alleged infringer has access or opportunity to obtain the trade secret, and the alleged infringer is more likely to infringe on the trade secret, then the alleged infringer has to bear the burden of proof to show that the trade secret is generally known or it did not misappropriate the trade secret. Article 7 of the Interpretation Draft specifically stipulates that the corresponding confidentiality measures taken by the right holder may include the following circumstances:
(1) Signing a confidentiality agreement or stipulate a confidentiality obligation in a contract;
(2) Putting forward confidentiality requirements through the company’s article, bylaw, rules, regulation, or training, etc.;
(3) Putting forward confidentiality requirements for suppliers, customers, visitors, etc. who can access to or obtain a trade secret;
(4) Distinguishing and managing a trade secret and its carriers by means of marking, classification, isolation, sealing, etc.;
(5) Taking measures such as prohibition or restriction of access, storage and copying of computer equipment, electronic equipment, network equipment, storage equipment, software, etc. that can access to or obtain a trade secret; and
(6) Requiring the employee left the company to register, return, delete, destroy the trade secret and its carriers that they accessed to or obtained, and continue to undertake the obligation of confidentiality.
Regarding the degree of the corresponding confidentiality measures taken by the right holders, Article 6 of the Interpretation Draft sets forth that confidentiality measures shall be compatible with the commercial value and importance of the claimed trade secret. For the determination of the corresponding confidentiality measures, the people’s courts may comprehensively consider the following factors:
(1) Nature of the trade secret carrier;
(2) Right holder’s willingness to keep secret;
(3) Identifiability of confidentiality measures;
(4) Compatible level of confidentiality measures with a trade secret; and
(5) Complexity for other parties to obtain a trade secret through improper means.
The latest Interpretation Draft not only responds to the provisions in the Trade Agreement that require China to prescribe new procedures with respect to trade secret protection, but also goes beyond the Trade Agreement. The Interpretation Draft further provides the specific and comprehensive interpretation on the various issues relating to the application of the laws with respect to trade secret based on the relevant provisions of the Anti-Unfair Competition Law, Civil Procedure Law as well as the actual judicial practices. The goal is to set the expectation that the courts are capable of making accurate judicial decisions in trade secret civil cases, balance the interests between the parties, and provide reasonable protection to the right holders of intellectual property. Comments to the Interpretation Draft are due by July 27, 2020. More details of the Interpretation Draft will be introduced in Osha Liang’s Monthly Insights in the near future.
 Article 32, Paragraph 1 of China’s Anti-Unfair Competition Law: in the civil trial procedure for infringement of a trade secret, if the right holder of the trade secret provides prima facie evidence that it has taken confidentiality measures for the claimed trade secret and reasonably indicates that the trade secret has been infringed upon, the alleged infringer shall prove that the trade secret claimed by the right holder is not a trade secret as described in this Law.