Answer: Even if a right holder can preliminarily prove the existence of the trade secret and the defendant’s impugned infringement act, the defendant may still be able to be exempted from the liability under special circumstances (that is, immunities). Common grounds for immunities include: independent research and development, reverse engineering, the information involved in the case being different from the relevant trade secrets, no access to trade secrets, and lawful acquisition.
The first immunity is independent development. Independent development means that although the defendant’s relevant information is identical or substantially identical as the right holder’s trade secrets, the defendant can prove that the relevant information does not come from the right holder, but from their own research and development. Compared with copyright infringement cases in which two original works are almost impossible to be identical, it is not entirely impossible for different people to develop a same technical secret (such as a mechanical device). The defendant needs to provide evidence to prove their original creation and submit information on research and development. Based on these research and development evidence, the history of contact with the trade secret involved in the case, the time line of independent development claimed by the defendant, and the characteristics of the trade secrets involved in the case, the courts may comprehensively judge whether the defendant’s independent development is established.1Zhuhai Qianyou Technology Co., Ltd. and Xu Hao, et al., Civil Judgment of Guangdong Provincial People’s High Court (2019) Yue Zhi Min Zhong No.457. The court held that “in this case, from the establishment time of Strategy Company and Nanpai Company and the online operation time of the accused game, the development time of the accused game can be calculated, which is obviously shorter than the industry experience. Therefore, the rationality of its independent development is doubtful.”
Independent development immunity is essentially the defendant’s claim that they are not infringing, because the information they use is independently developed, not a theft of other people’s achievement. The judicial interpretation and judicial cases from the Supreme Court on technical secret cases in 2020 show that independent development is an immunity of infringement.2The first and second paragraphs of Article 14 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7) stipulate that if the alleged infringing information is obtained through self-development or reverse engineering, the people’s court shall determine that it is not an infringement of trade secrets as stipulated in Article 9 of the Anti-Unfair Competition Law. Ningbo Wandai Punch Technology Co., Ltd. v. Kunshan Yamada Punch Co., Ltd. and other disputes over infringement of technical secrets, Zhejiang Provincial People’s High Court Civil Judgment (2014) Zhe Zhi Zhong Zi No.60. The court held that “Longyou Wandai Company and Hu Haoxiang could not prove that their acquisition of the same technical information as Yamada Company was the result of independent development, that he obtained the above technical information through reverse engineering, or that there are other legitimate sources. In addition, in light of the facts that Hu Haoxiang is the investor and legal representative of Longyou Wandai Company and Ningbo Wandai Company, Hu Haoxiang and Wang Guangbing are the inventors of the utility model patents of “a cooling system for connecting rods of high-speed precision punches” and “a locking device for high-speed precision punches” owned by Ningbo Wandai Company, and that Longyou Wandai Company and Ningbo Wandai Co mpany in a short time after their establishment produced the punch products, being against the common sense. We found that Hu Haoxiang and Wang Guangbing disclosed the technical secrets of “connecting rod cooling system” and “mold locking device” in Yamada’s punch products involved in the case to Longyou Bandai Company and Ningbo Bandai Company in violation of the agreement with Yamada Company or the requirement of Yamada Company to keep trade secrets. Longyou Bandai Company and Ningbo Bandai company illegally used the above technical secrets of Yamada company.”This is tantamount to say that the law protects trade secret, but also allows others to use and sell the same or similar information independently developed.
The second immunity is reverse engineering. According to the Supreme Court’s judicial interpretation of trade secrets in 2020, reverse engineering refers to a technical means by which relevant personnel in the field can directly obtain trade secret information, such as size, structure, materials, and components by observing products on the market,3According to Article 4 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7), the information only involves the size, structure, materials, and simple combination of components of products, which can be obtained directly by relevant personnel in the field by observing the products on the market.by disassembling, mapping, and analyzing the product obtained from open channels through technical means.4Jinan Sike Testing Technology Co., Ltd. v. Jinan Languang Electromechanical Technology Co., Ltd. Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) SFZMZ No.538. The court point out that “reverse Engineering refers to obtaining the relevant technical information of the product by disassembling, mapping, and analyzing the product obtained from open channels through technical means.”At present, the judicial decisions of reverse engineering related to trade secret published in China are very rare, and there is still a lack of systematic legislative and judicial interpretation of the important factors such “personnel in the field” and “obtain by observation” that reflect the difficulty of acquisition of technical information.5Intermediate People’s Court of Hangzhou City, Zhejiang Province, (2020) Zhe 01 Min Chu No.287, in the case of disputes over infringement of trade secrets between Nanfang Zhongjin Environment Co., Ltd. and Zhejiang Nanyuan Pump Industry Co., Ltd. The court held that “it is necessary to distinguish whether the defendant’s defence is easy availability or non-infringement according to the degree of difficulty of reverse engineering. Specifically, simple reverse engineering can be regarded as a defence of easy availability, a denial of secrecy; Article 9 of the Interpretation of Unfair Competition Cases should be applied to judge whether the technical information involved is easy to obtain; The more difficult reverse engineering should be regarded as a defence of non-infringement, a denial of infringement; the provisions of Article 12 of the Interpretation of Unfair Competition Cases should be applied to make decision, taking account into whether the defendant can prove that he actually carried out the dismantling, mapping, analysis and other facts.”
The essence of the immunity of reverse engineering is that the defendant claims that the right holder of the trade secret has not taken confidentiality measures, such as technical protection measures, to prevent product buyers from obtaining trade secret information through normal technical means, such as observation or disassembly. This renders the trade secret unestablished due to the absence of the element of “having taken confidentiality measures”. For example, in the case of Jinan Sike Testing Technology Co., Ltd. in 2020, the Supreme Court held that the products produced and sold by the plaintiff in the market could be simply disassembled to obtain the confidentiality points of the trade secrets involved, and the plaintiff did not take measures against reverse engineering, so the information involved did not meet the legal condition of taking confidentiality measures, and the trade secret was not established.6Jinan Sike Testing Technology Co., Ltd. and Jinan Languang Electromechanical Technology Co., Ltd. Civil Judgment (2020) No.538 of the Supreme People’s Court of the People’s Republic of China on the Dispute over Infringement of Technical Secrets. The court held that “in view of the fact that the carrier of technical secrets involved in the case is a market circulation product, it belongs to an external carrier. Therefore, the confidentiality measures taken by Sike Company to achieve the purpose of confidentiality should be able to resist the acquisition of its technical secrets by an unspecified third party through reverse engineering. This resistance can be achieved in at least two ways: one is that according to the nature of the technical secret itself, even if others disassemble the product containing the technical secret, they can not know the technical secret through analysis; the other is to take physical security measures to resist the reverse engineering of others, such as adopting an integrated structure, disassembly will destroy the technical secrets.”However, if the defendant first illegally infringes on a trade secret and later resorts to immunity of reverse engineering, they are not free from tort liability.7Paragraph 3 of Article 14 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). This provision seems to imply that trade secrets can still be protected due to unjustified acts of defendant even if the conditions of “taking confidentiality measures” are flawed in the resistance against reverse engineering.
To prevent the first defense of independent development and the second defense of reverse engineering, the right holder of trade secrets may consider registering trade secrets for protection, such as through the registration of trade secrets as patents. Under the patent legal system, as long as the patentee has submitted a patent application, they have the right to pursue others to use the same technology even independently developed and completed after the application date. This is different from trade secrets protection exempting others for independent development of the same information.8Article 75 of the Patent Law of the People’s Republic of China. “The following circumstances shall not be deemed as an infringement of the patent right: (2) where the same product has been manufactured, the same process has been used, or the necessary preparations for manufacture or use have been made before the date of application for the patent, and the manufacture or use continues only within the original scope.”Of course, the disadvantage of this method is that the technical secret must be disclosed under the patent system. In addition, under the patent system, the tortfeasor’s reverse engineering does not constitute an immunity.
The third exemption is that the information is different from the trade secret. As the master of the defendant’s information, if the defendant can prove the difference between the key technical points of the defendant’s information and the confidentiality points of the plaintiff’s trade secret, so as to prove that the information of the defendant is different from or not substantially identical as the plaintiff’s trade secret, of course, there is no trade secret infringement.
The fourth immunity is lawful acquisition. Lawful acquisition means that the defendant legally acquired the trade secret of the right holder, or that the defendant’s impugned information has a legitimate source, such as through a legitimate technology transfer agreement. At present, laws or judicial interpretations have not included it as one immunity, and it is only a judicial practice.9 The retrial of disputes over infringement of trade secrets between Maidakel (Tianjin) Technology Co., Ltd. and Huamou 1 Xing Technology (Tianjin) Group Co., Ltd. in the Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2019) No.268. The court held that “in summary, Wang Chenggang, Liu Fang and Zhang Hongxing violated the legal and agreed confidentiality of Huayang Company, disclosed the trade secret business information in its possession, and allowed Maidakeer Company to use the above customer list; Maida Keer Company knowingly used the above customer list without the permission of Huayang Company. According to the method of “identical (substantial identical) + contact-legal source” for judging the infringement of trade secrets, it was not improper for the court of the first instance to find that Maida Keer Company, Wang Chenggang, Liu Fang and Zhang Hongxing jointly committed the infringement of the trade secret of Huayang Company.”
The fifth exemption is that there is no access to the trade secret. If the defendant can prove that it has no access to the trade secret, then of course the defendant has no chance to obtain the plaintiff’s trade secret by unlawful means, and the infringement of trade secret can not be established.
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Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
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- 1Zhuhai Qianyou Technology Co., Ltd. and Xu Hao, et al., Civil Judgment of Guangdong Provincial People’s High Court (2019) Yue Zhi Min Zhong No.457. The court held that “in this case, from the establishment time of Strategy Company and Nanpai Company and the online operation time of the accused game, the development time of the accused game can be calculated, which is obviously shorter than the industry experience. Therefore, the rationality of its independent development is doubtful.”
- 2The first and second paragraphs of Article 14 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7) stipulate that if the alleged infringing information is obtained through self-development or reverse engineering, the people’s court shall determine that it is not an infringement of trade secrets as stipulated in Article 9 of the Anti-Unfair Competition Law. Ningbo Wandai Punch Technology Co., Ltd. v. Kunshan Yamada Punch Co., Ltd. and other disputes over infringement of technical secrets, Zhejiang Provincial People’s High Court Civil Judgment (2014) Zhe Zhi Zhong Zi No.60. The court held that “Longyou Wandai Company and Hu Haoxiang could not prove that their acquisition of the same technical information as Yamada Company was the result of independent development, that he obtained the above technical information through reverse engineering, or that there are other legitimate sources. In addition, in light of the facts that Hu Haoxiang is the investor and legal representative of Longyou Wandai Company and Ningbo Wandai Company, Hu Haoxiang and Wang Guangbing are the inventors of the utility model patents of “a cooling system for connecting rods of high-speed precision punches” and “a locking device for high-speed precision punches” owned by Ningbo Wandai Company, and that Longyou Wandai Company and Ningbo Wandai Co mpany in a short time after their establishment produced the punch products, being against the common sense. We found that Hu Haoxiang and Wang Guangbing disclosed the technical secrets of “connecting rod cooling system” and “mold locking device” in Yamada’s punch products involved in the case to Longyou Bandai Company and Ningbo Bandai Company in violation of the agreement with Yamada Company or the requirement of Yamada Company to keep trade secrets. Longyou Bandai Company and Ningbo Bandai company illegally used the above technical secrets of Yamada company.”
- 3According to Article 4 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7), the information only involves the size, structure, materials, and simple combination of components of products, which can be obtained directly by relevant personnel in the field by observing the products on the market.
- 4Jinan Sike Testing Technology Co., Ltd. v. Jinan Languang Electromechanical Technology Co., Ltd. Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2020) SFZMZ No.538. The court point out that “reverse Engineering refers to obtaining the relevant technical information of the product by disassembling, mapping, and analyzing the product obtained from open channels through technical means.”
- 5Intermediate People’s Court of Hangzhou City, Zhejiang Province, (2020) Zhe 01 Min Chu No.287, in the case of disputes over infringement of trade secrets between Nanfang Zhongjin Environment Co., Ltd. and Zhejiang Nanyuan Pump Industry Co., Ltd. The court held that “it is necessary to distinguish whether the defendant’s defence is easy availability or non-infringement according to the degree of difficulty of reverse engineering. Specifically, simple reverse engineering can be regarded as a defence of easy availability, a denial of secrecy; Article 9 of the Interpretation of Unfair Competition Cases should be applied to judge whether the technical information involved is easy to obtain; The more difficult reverse engineering should be regarded as a defence of non-infringement, a denial of infringement; the provisions of Article 12 of the Interpretation of Unfair Competition Cases should be applied to make decision, taking account into whether the defendant can prove that he actually carried out the dismantling, mapping, analysis and other facts.”
- 6Jinan Sike Testing Technology Co., Ltd. and Jinan Languang Electromechanical Technology Co., Ltd. Civil Judgment (2020) No.538 of the Supreme People’s Court of the People’s Republic of China on the Dispute over Infringement of Technical Secrets. The court held that “in view of the fact that the carrier of technical secrets involved in the case is a market circulation product, it belongs to an external carrier. Therefore, the confidentiality measures taken by Sike Company to achieve the purpose of confidentiality should be able to resist the acquisition of its technical secrets by an unspecified third party through reverse engineering. This resistance can be achieved in at least two ways: one is that according to the nature of the technical secret itself, even if others disassemble the product containing the technical secret, they can not know the technical secret through analysis; the other is to take physical security measures to resist the reverse engineering of others, such as adopting an integrated structure, disassembly will destroy the technical secrets.”
- 7Paragraph 3 of Article 14 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (FaShi (2020) No.7). This provision seems to imply that trade secrets can still be protected due to unjustified acts of defendant even if the conditions of “taking confidentiality measures” are flawed in the resistance against reverse engineering.
- 8Article 75 of the Patent Law of the People’s Republic of China. “The following circumstances shall not be deemed as an infringement of the patent right: (2) where the same product has been manufactured, the same process has been used, or the necessary preparations for manufacture or use have been made before the date of application for the patent, and the manufacture or use continues only within the original scope.”
- 9The retrial of disputes over infringement of trade secrets between Maidakel (Tianjin) Technology Co., Ltd. and Huamou 1 Xing Technology (Tianjin) Group Co., Ltd. in the Civil Judgment of the Supreme People’s Court of the People’s Republic of China (2019) No.268. The court held that “in summary, Wang Chenggang, Liu Fang and Zhang Hongxing violated the legal and agreed confidentiality of Huayang Company, disclosed the trade secret business information in its possession, and allowed Maidakeer Company to use the above customer list; Maida Keer Company knowingly used the above customer list without the permission of Huayang Company. According to the method of “identical (substantial identical) + contact-legal source” for judging the infringement of trade secrets, it was not improper for the court of the first instance to find that Maida Keer Company, Wang Chenggang, Liu Fang and Zhang Hongxing jointly committed the infringement of the trade secret of Huayang Company.”