Ms. Cynthia Yahui CHANG, Trademark Attorney

 

In the process of production and operation, an innovative technology owned by an enterprise is its core competitiveness, distinguishing it from other enterprises. The protections afforded to this innovative technology by laws around the world, China included, are mainly patents and trade secrets, which respectively correspond to the Patent Law, and the Trade Secret Protection Law or Anti-Unfair Competition Law.

 

A patent is a monopoly property right publicized, examined and granted by a special state authority or agency. Under the Chinese law, the subject matters under the patent protection include inventions, utility models and designs, which refer to new technical solutions developed in relation to products and processes, technical solutions with practical utility for the shape, structure or their combination of products, and new designs with both aesthetic and industrial applications of product designs.

 

Trade secrets, including business secrets and technical secrets (the following discussion will be focusing on technical secrets, also known as the "know-how"). Technical secrets include technology-related structures, raw materials, formulas, samples, models or styles, propagation materials of new plant varieties, processes, methods or their steps, algorithms, data, computer programs and their related documents, which are not known to the public and have commercial value after the right holder has taken corresponding measures to keep them confidential.

 

Patents are accessible to the public. To obtain patent protection, the applicant is required to file a patent application and disclose the technological information he claims. When a patent application passes the preliminary examination and is published by the special authority, anyone can access the claims, description and drawings of the patent application to get to understand the technical content therein.

 

Technical secrets are kept secret. The most important thing for technical information to be recognized as a technical secret is the fact that the right holder has taken measures to keep it confidential so that the technical information would not be accessible in or from any public channel.

 

Patents are exclusive. The right holder has the exclusive or monopoly rights over its patented technology within a certain period of time and country/region, and no other person is allowed to obtain a patent for the same or similar technology, or exploit the right holder's patented technology without his permission, unless the other person has used it before the right holder files his patent application and continues to use it within the same scope.

 

Technical secrets are non-proprietary. For a technical secret, the same technical information is also accessible to, or obtainable by, others through legal means, such as independent research and development, or reverse engineering to dissect and analyze the right holder’s products obtained from the market or other legal channels, and infer the technical information contained in the products. If another person obtains the same or similar technical information as the right holder in the above way, rather than obtaining the technical information from the right holder by improper means, such as theft, coercion or inducements, the trade secrets of the right holder would not be considered to be infringed, and the other party may jointly use the same or similar technology or technical information with the right holder.

 

The above distinguishing characteristics determine the differences in the protection of the patent and trade secret.

 

I. Difference in Scope of Protection

 

Patentable technical information must meet the explicit law requirements, including provisions requiring inventions and utility models to possess novelty, inventive step and industrial applicability. Designs are not existing designs, are clearly different from existing designs or combinations of existing design features, and are not subject matter that are not patentable under the laws and regulations. Only technologies that are originally developed by the right holder and significantly different from the prior arts/designs are patentable, while it is possible for any technical information designed or developed by the right holder in the course of production and operation, having commercial value, with measures taken to keep it confidential to be his trade secret.

 

Trade secrets do not require novelty and inventive step other than the practical and economic value of the protected technical information. In other words, it is possible for any technical information to be protected as a trade secret, even if it is not patentable for lack of sufficient inventiveness.

 

II. Difference in Ways to Seek Protection

 

To patent a technology requires drafting and filing an application, going through examination and getting grant and registration before the patent authority, which, in China, may take about half a year for a utility model/design patent or about 3 to 5 years for an invention patent. Trade secret protection, on the other hand, does not require application or examination, and a trade secret is protected as such once developed or designed.

 

III. Difference in Term of Protection

 

The term of a patent varies from country to country depending on their respective law provisions. In China, after a patent is granted, the term of the invention patent is 20 years, the term of utility model 10 years, and that of the design 15 years, but the right holder needs to pay the annual fee to maintain the protection of the patent, otherwise the patent right will be terminated. In addition, territorially, Chinese patents can only be protected within China, and the right holder must also seek the patent right in other countries/regions to obtain protection there.

 

So long as the technical information is kept confidential, it is possible to be always protected as a trade secret, and the right holder does not need to deliberately seek a right for it in a region to claim that some infringer there has infringed his trade secret.

 

IV. Difference in Burden of Proof in Enforcement

 

In the event of infringement, the patentee only needs to provide the patent certificate issued by the patent authority, supplemented by the proof of payment of the patent annuity (and a positive patent evaluation report for utility model or design patent) to prove the existence and validity of the patent right and obtain protection relief. For a trade secret, the right holder needs to provide a large amount of evidence to prove that the technical information involved was designed or developed, legally owned, and kept confidential by him, and his burden of proof is much higher than that of the patentee. In practice, the right holder is required to make appraisal and provide appraisal report to determine that the technological information he claims is a technical secret and show its scope of protection.

 

V. Difference in Constitution of Crime and Criminal Liability

 

First of all, the Criminal Law mainly punishes acts of counterfeiting patents and trade secret infringement with serious circumstances, as well as the acts of theft, espionage, buying or illegally trade secrets for foreign entities.

 

In China, the crime of counterfeiting a patent refers to acts of illegal business operation with an amount of more than CNY 200,000 or an amount of illegal income of more than CNY 100,000, causing direct economic loss of more than CNY 500,000 to the patentee, or acts of counterfeiting other people's two or more patents with an illegal business amount of more than CNY 100,000 or an amount of illegal income of more than CNY 50,000. It is a serious act, and the criminal liability under the Chinese Criminal Law is fixed-term imprisonment of not more than three years or criminal detention, and a fine, or a fine alone. If an organization commits a crime, in addition to the criminal punishment imposed on the person in charge and other persons directly responsible, the organization will also be fined.

 

The crime of infringement of a trade secret refers to acts causing the amount of loss to the right holder of trade secrets, or the amount of illegal income due to infringement of trade secrets up to more than CNY 300,000, or acts directly causing the right holder of trade secrets to go bankrupt or close up his business due to major business difficulties, with serious circumstances, and the criminal liabilities shall be fixed-term imprisonment of not more than three years, and a fine, or a fine alone. Where the amount of loss caused to the right holder of trade secrets or the amount of unlawful income due to infringement of trade secrets is more than CNY 2.5 million, it will be deemed to have caused particularly serious consequences, and the law provides for a maximum sentence of 10 years' imprisonment and a fine. If an organization commits a crime, in addition to the criminal punishment imposed on the person in charge and other persons directly responsible, the organization will also be fined.

 

Patents and trade secrets have their own characteristics and special uses, trade secrets have wider scope of protection, while patents have more specified scope of protection. In practice, the right holder may first adopt strict confidentiality measures to keep and separately put his key technologies that he will use for a long time, that is critical to the competitiveness of his products, and that are not easy for others to imitate or derive through reverse engineering. The right holder may also make additional confidentiality-related agreements or clauses when signing contracts with employees or business partners that have access to such technical secrets, and impose certain non-compete restrictions on the departure of important technical personnel to prevent disclosure of the technical secrets. Second, the right holder may apply for patents for his original and breakthrough technologies, so as to make a full use of the advantages of the patents. After a patentee is granted a patent, he may use or license others to use his patented technology to seek economic benefits and competitive advantages.

 

 

 

Author:

Ms. Cynthia Yahui CHANG

Ms. Chang received her LL.B. Degree from Southwestern University of Political Science and Law in 2020, received LL.M. from Boston University School of Law in 2022. Ms. Chang joined Panawell in 2023, and focused on trademark registration and IP litigation, customs recordals, IP infringement online complaints and investigations.