CHINA: An Introduction to Corporate/Commercial: Hubei (PRC Firms)

Trade Secret Protection Situation in Central China in 2024

Central China is a crucial base for energy and raw materials, modern equipment manufacturing, and high-tech industries, holding a pivotal position nationwide. Strengthening trade secret protection and establishing a comprehensive trade secret compliance management system are essential requirements for the innovative development of market entities in the central region. At the end of 2023, the Supreme People’s Court of the PRC decided to delegate jurisdiction over non-major, non-complex technical trade secret infringement cases from the Supreme People’s Court of the PRC to local high courts, bringing significant changes to trade secret protection in the central region. This article, based on our practical experience in assisting various entities in handling trade secret cases in the central region over the past year, comprehensively reviews the latest development of legislative information, enforcement practice, and judicial adjudication in trade secret protection in Central China in 2024 for reference.

Overview of annual research and practice in trade secrets

Distribution of trade secret cases

Searching commercial databases (such as Wolters Kluwer and Alpha) for 2024 judgments related to trade secret infringement in China, we obtained 295 statistically significant documents. Geographically, trade secret cases are widely distributed across 26 provinces, autonomous regions, and municipalities, primarily in coastal developed areas, with fewer cases in the central region compared to the coastal areas.

Figure 1 Distribution of Trade Secret Cases in 2024

Academic research trends

Since the revision of the Anti-Unfair Competition Law in 2019, research on trade secrets has surged, with a steady increase in publications. In 2024, this trend remained significant, with a high output of professional articles on trade secrets. Many scholars in the central region have made substantial contributions, further advancing the theory and practice of trade secret protection. Zheng Youde, Ma Yide, and Fan Changjun et al., compiled the “China’s Trade Secret Law Scholar’s Draft Proposal and Legislative Rationale”, providing in-depth theoretical and practical insights into the construction of China’s Trade Secret Law, along with detailed references. Additionally, numerous thematic seminars were held, such as the “Guangdong-Hubei Patent and Trade Secret Protection Exchange” in May 2024 and the “Jingchu Law and Technology Seminar” in November 2024, each attracting hundreds of experts to provide intellectual support for trade secret legislation and practice.

Figure 2 Number of Trade Secret Papers Published

(Source: China National Knowledge Infrastructure)

Latest developments in legislation, enforcement, and judiciary

In 2024, Central China demonstrated a co-ordinated effort in advancing trade secret protection through legislation, enforcement, and judiciary. Hefei in Anhui Province expanded its pilot programme in national trade secret protection innovation from the high-tech zone to the entire city. Wuhan is advancing legislative amendments on data resource management and trade secret protection, optimising the technological system and innovation environment through legislation. In terms of enforcement, market regulatory authorities in the central region have intensified their regulatoryefforts. In the first 10 months of 2024, national market regulatory authorities investigated and handled 113 trade secret infringement cases, with fines totalling RMB35.0586 million. Hefei handled one administrative penalty case, with public security authorities filing eight cases and solving four. Hunan Province adopted a “criminal and civil compensation” model to combat trade secret crimes, such as the Ma XX trade secret infringement case tried by the Zhuzhou Intermediate People’s Court, Hunan, where the defendant was sentenced to four years in prison and ordered to pay compensation RMB18.84 million. Additionally, Wuhan’s procuratorial authority introduced technical investigators to assist in case handling, forming a “legal expert and technical expert” working model to strengthen the punishment of intellectual property crimes.

Characteristics and future trends of trade secret cases in Central China in 2024

Trade secret disputes spread from traditional fields to new quality productive forces

In recent years, Central China has actively promoted the intelligent and green transformation of traditional industries and accelerated the cultivation of emerging industrial clusters. Trade secret cases in the central region have also rapidly spread to new quality productive forces fields such as biotechnology, chips, and advanced materials. Reviewing recent trade secret dispute cases, we note that the conditions and paths for protecting special types of intellectual property rights, such as seeds and data trade secrets, are gradually becoming clearer with an increasing number of cases. In traditional fields, trade secrets are often embodied in specific production processes, with carriers such as drawings and technical documents that are easily identifiable, making the definition and review of trade secrets relatively straightforward. However, in fields of new quality productive forces, defining and reviewing trade secrets face many new challenges. For example, in a trade secret case involving a biological strain for a Hubei client, the trade secret was embedded in the genetic information of the strain itself, merging technical information with the strain. Insisting on the traditional view that the object and carrier of a trade secret must be separate would unduly narrow the scope of trade secret protection, which is detrimental to protecting new quality productive forces.

Significant increase in criminal protection of trade secrets

Based on the cases we have handled and practical observations, the number of criminal cases involving trade secrets continued to rise significantly in 2024, with an increase in the number of defendants held criminally liable and a trend of cross-regional prosecution. In a recent trade secret criminal case we handled, nine defendants were simultaneously prosecuted for their criminal liability by the People’s Procuratorate, and in another case, a company executive was prosecuted by the Procuratorate in a different jurisdiction. A high-profile trade secret civil and criminal case at the end of the year drew widespread industry attention: a listed company in Wuhan announced that it had filed a civil lawsuit with the Hubei High Court against six former employees for trade secret infringement, seeking RMB200 million in damages. In addition to the civil lawsuit, the company also initiated criminal proceedings, with some suspects arrested and others still at large.

Trade secret infringers often have close relationships with rights-holders, with an increase in peaceful dispute resolution through arbitration and mediation

Based on the numerous typical cases published in 2024 and the multiple trade secret cases we have handled, trade secret infringers often have close relationships with the rights-holders, such as former employees (including university students and faculty) or technology development partners. This differs from traditional intellectual property infringement cases, providing favourable conditions for peaceful dispute resolution. Resolving disputes through alternative dispute resolution methods not only avoids lengthy litigation processes, reducing legal fees and time costs for both parties, but also minimises the risk of secondary disclosure of trade secrets during litigation. In a trade secret infringement case we handled for an advanced manufacturing company, the defendant chose to settle with the plaintiff and pay compensation before the formal trial, resolving the case at the Wuhan Intellectual Property Court. In another case involving a trade secret dispute between two universities over patent applications, we entered arbitration based on the arbitration clause, selecting the Wuhan Arbitration Commission to resolve the dispute.

High-compensation trade secret cases continue to emerge, signalling strong protection

In June 2024, the “New Energy Vehicle Chassis Case” was adjudicated by the Intellectual Property Tribunal of the Supreme People’s Court of the PRC, applying punitive damages totalling over RMB640 million, setting a new record. In the Supreme Court’s cases, a significant proportion involved increasing compensation on appeal after the first-instance judgment found the defendant liable for trade secret infringement and ordered compensation. Multiple cases with compensation in the hundreds of millions of yuan, as well as cases supporting punitive damages, continue to signal the Supreme Court’s strong protection of technical secrets, demonstrating a positive attitude towards purifying the market environment and serving technological innovation, which will bring new momentum to trade secret protection in the central region.

Future outlook

Against the backdrop of “accelerating the formation of new quality productive forces” and “promoting high-quality development”, the role of the trade secret system in safeguarding technological innovation in strategic emerging industries will become increasingly important. Technology companies will increasingly use trade secrets as a tool to protect their intellectual property, with high civil compensation and criminal liability cases continuing to emerge. Looking ahead, we predict the following trends in China’s trade secret protection:

• New types of infringement cases in the field of new quality productive forces will continue to emerge, and legal norms for trade secret protection will evolve and be further refined and improved.
• The professional capabilities of trade secret enforcement agencies, cross-departmental collaboration, information sharing, and case linkage mechanisms will continue to strengthen.
• Under the goal of continuously improving the rule-of-law business environment, the balance between strict protection of innovation and the free flow of talent will become more balanced.
• Alternative dispute resolution mechanisms will be widely applied in trade secret disputes, with market entities focusing on resolving disputes through mediation and arbitration.
• Market entities will shift from passive protection to active defence, strengthening employee training, improving technical protection measures, and building comprehensive trade secret protection compliance systems.
• A cultural atmosphere of “respecting intellectual property and protecting trade secrets” will gain widespread recognition across the whole society, contributing Chinese wisdom and solutions to global intellectual property protection.