26 October 2020

Trade secret theft: China turns up the heat on foreign actors

Red banners atop The National People's Congress, the national legislature of the People's Republic of China, largest parliament in the world, with 2,980 members

The National People's Congress

Amendments to statutes on trade secret crimes are part of the escalating US-China trade war, report Leon Liu and Jacob Clark

As part of the escalating US-China trade war, China has recently turned its focus to trade secret protection.  In July, it proposed amendments to its criminal statutes not only modifying the threshold for trade secret crimes, but also singling out trade secret theft by foreign actors; a direct shot across the bow in the context of the US’s escalating actions against Chinese companies for perceived trade secret theft and data insecurity.

Trade Secret Theft is codified under Article 219 of the PRC Criminal Law. The proposed amendments include increasing punishment for serious offences to include up to ten years in prison.

It also adds “electronic intrusion” (such as hacking) as a punishable method for stealing trade secrets. The new law also specifies that violation of a confidentiality agreement (rather than a simple agreement) in leaking, using, or allowing others to obtain a trade secret is a punishable behaviour. The definition of a trade secret is amended to remove reference to it bringing about “economic benefit” to the trade secret owner. 

The increase in punishment for serious offences shows that the authorities will place more emphasis on prosecuting these cases and are attempting to further deter offenders with harsher punishments.  Including electronic intrusion as a method for stealing trade secrets acknowledges technological advancements and methods used in economic espionage and allows for broader coverage of modern methods of trade secret theft.  

Specifying violation of confidentiality agreements narrows the scope of how a company can show the information was, in fact, protected, and clarifies the type of documents needed for companies for protection under the law.  

Finally, removing reference of an economic benefit in the definition of trade secret” affords companies a lower burden of proof in defining whether the stolen materials are in fact a trade secret and broadens their ability to obtain protection under PRC criminal laws.

Additionally, the proposed amendment states: “If any person steals, spies upon, sells, purchases, or otherwise illegally provides trade secrets for an overseas institution, organisation, or person, then that person may be subject to up to five years imprisonment or detention, and a fine; if circumstances are serious, then they may be sentenced to five years or more of imprisonment and a fine.” 

This added provision sets apart trade secret theft involving foreign companies as a separate, and possibly more serious, violation of trade secret provisions than standard, domestic trade secret theft.  

The US continues its use of executive and administrative actions to clamp down on Chinese IP theft and data infringement, targeting Tik Tok, Tencent, and now Chinese semiconductor manufacturers.  China’s response has been not only to create new export control restrictions regarding sales of sensitive technologies to foreign companies, but also to criminalise trade secret theft by foreign entities in China, to an extent even harsher than the US.  

This demonstrates that the ongoing trade war between the US and China will be fought on several fronts, and those caught in the cross-hairs must take notice of how to not only defend themselves from private actors, but what actions and strategies they can take to avoid the wrath of the US or Chinese governments.

Leon Liu is a partner and Jacob Clark is an associate at YuandaWinston, Yuanda China Law’s strategic alliance with Winston & Strawn

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