Ways to Protect Trade Secrets of Computer Software -- Review of a Dispute Concerning a District Market Supervision Bureau of Shanghai's Refusal to Accept Administrative Punishment Decision June 21, 2017 China Intellectual Property News Page 08: Right Protection. Weekly （By Chen Huizhen） [Case Number] (2016) Hu-73-Xing-Chu No.1 (2016) Hu-Xing-Zhong No.738 [Judicial highlight] The existence of trade secrets is the premise for determining trade secret infringement, and the establishment of trade secrets shall be based on the elements provided by law rather than agreement. “Unknown to the public” means the relevant information is not generally known or easily acquired by relevant people in the pertaining field. The conclusion of confidentiality agreement by the parties is nothing but a secret-keeping measure and cannot be taken as a condition for the determination of “unknown to the public”. Computer software programs are protected by both copyright law and trade secrets, but copyright law protects the expression of software programs while trade secrets protect the ideas in the software programs. [Basic facts] In February 2012, the market supervision bureau of a district of Shanghai (hereinafter “district market supervision bureau”) received a report from third parties Company A and Company B who claimed that a company (hereinafter “Company C”) maliciously poached employees from them with high salary in order to acquire trade secrets such as software source codes and make false publicity on website and requested investigation and punishment. After receiving the report, the district market supervision bureau reported the jurisdiction of the case to Shanghai Administration for Industry & Commerce (SHAIC). In March of the same year, SHAIC made a reply that the case should be investigated and handled by the district market supervision bureau. Afterwards, the district market supervision bureau filed the case and investigated through legal procedures. In June 2015, the district market supervision bureau made a decision of administrative punishment, determining that Company C committed false publicity and trade secret infringement. Refusing to accept the decision, Company C brought a charge to Shanghai Intellectual Property Court. Company C alleged the facts for the district market supervision bureau’s determination of Company C’s trade secret infringement were unclear, and that determination of trade secrets only based on the the conclusion of confidentiality agreement was unlawful. Through trial, Shanghai Intellectual Property Court held that the punishment on Company C’s false publicity was appropriate, but the facts and evidence for determining Company C’s trade secret infringement based on which the punishment was given were inadequate, thus affirming the district market supervision bureau’s administrative punishment decision for Company C’s false publicity and reversing the administrative punishment for Company C’s trade secret infringement. After the ruling is rendered, the district market supervision bureau and companies A and B brought an appeal. Shanghai High People’s Court held through trial that the first-instance court’s judgement is correct, rejected the appeal and affirmed the original judgment. [Judicial opinion] Whether the third parties’ software source codes and documents constitute trade secrets is the premise and basis for determining Company C’s trade secret infringement in this case. In order to determine a trade secret infringement, we should first determine the scope of trade secret and whether the information is a trade secret and then decide whether the behavior has infringed the trade secret and the degree of the infringement. Nevertheless, in this case Company C’s infringement upon trade secret was determined before the defendant judged on the scope of the trade secret involved and whether the information constituted a trade secret according to law. Therefore the defendant’s basic fact finding for the administrative punishment is unclear. I. The constitution of trade secrets is the premise for the determination of trade secret infringement The constitution of trade secrets should be determined based on the elements prescribed by law rather than the agreement of the parties. According to paragraph 3, Article 10 of the Law of the People’s Republic of China Against Unfair Competition, “trade secrets” should be unknown to the public, can bring about economic benefits, have practical utility and be protected with secret-keeping measures. Here the “unknown to the public” means the information is not generally known or easily acquired by relevant personnel in the pertaining field. On the one hand, the scope of knowledge is relative, which means the information is protected with secret-keeping measures and is not absolutely unknown. On the other hand, the trade secrets are generally confidential and are not easily acquired, that is, such information can be acquired through creative work, and information that can be acquired by ordinary association is not a trade secret. The parties’ agreement on the protection of some information as trade secret is only a secret-keeping measure. The protected information is not necessarily a trade secret. Therefore, the confidential state only meets the requirement of protection with secret-keeping measure and doesn’t mean the requirement of “unknown to the public” is also met. In terms of infringement upon trade secrets, there are four types in the Law of the People’s Republic of China Against Unfair Competition: obtaining, disclosing, using or allowing others to use trade secrets. No matter for which type, the establishment of the infringement takes the existence or constitution of trade secrets as the prerequisite. II. The difference between trade secret’s and copyright’s protection over software There are many ways to protect interests concerning computer software in our law. People may resort to copyright law or seek protection as a trade secret. But different laws protect different objects. Copyright law protects computer software based on the Regulations for the Protection of Computer Software (hereinafter “Regulations”). According to Article 2, 3 and 5 of the Regulations, the computer software under its protection means computer programs and its relevant documents. But what copyright law protects is the expression in the software program works rather than the ideas contained in the software. Accordingly, it’s provided in Article 6 of the Regulations that: “The protection over software copyright under the Regulations shall not cover ideas, procedures, processes or mathematical concepts, etc.”. The trade secret protection means protecting computer software according to the provisions on the protection over trade secrets in the Law of the People’s Public of China Against Unfair Competition. Trade secrets can protect interests concerning computer software which refer to the information in the software programs and documents that may constitutes trade secrets rather than the software programs and documents themselves, and refer to intangible information, be it know-how or business secrets, rather than the tangible carrier, namely, the “ideas, procedures, processes or mathematical concepts, etc.” for software development reflected in the programs and documents. Therefore there is need to sort out the information in the software programs and documents that constitutes trade secrets, and then analyze and judge whether these trade secrets are unknown to the public, can bring about economic benefits, have practical utility and are protected with secret-keeping measures by the right holder. Only comparison of whether the trade secrets are identical or similar with the information obtained, disclosed or used on this basis makes legal sense for determining the infringement upon trade secrets in the software. III. Mistake on fact finding in the administrative punishment in this case In this case, the two third parties failed to identify which technical information fell under the protection scope, and the defendant also didn’t discriminate, review or determine the scope of trade secrets by law. Instead they treated the software programs and documents, which are the objects of copyright protection, as the objects of trade secret protection. Without determining the scope of technical information, it was impossible for the defendant to review and judge whether the technical information “is not generally known or easily acquired by relevant personnel pertaining to the field”. Determining “unknown to the public” only on the ground that the source programs and documents are confidential and unpublished goes against the basic legal principle for the constitution of trade secrets. Indeed, in practices it’s very likely that some software source programs and documents contain technical information. Hence source programs and documents are often the carriers of trade secrets. But even the biggest possibility cannot be taken as facts, and the carriers of trade secrets are not equal to trade secrets, particularly as now there are many kinds of online distribution software on the market and the third parties also provide open-source software. Furthermore, which are technical information and how much technical information is there in the software programs and documents should be specific and definite. This is also the factual basis and premise for determining the infringement and the infringement degree. Without telling the technical information under protection in the software and judging whether the information constitutes a trade secret, the district market supervision bureau entrusted an expertise institution with judicial expertise to compare the software codes, etc. The expertise conclusion is thus of no pragmatic significance for the judgment of trade secret infringement. As for the software industry association’s answer and supplementary explanation to the defendant’s question, the associates started from the importance and value of the source programs and documents and held that the software source codes involved in the case, which were not publicized and couldn’t be acquired through public channels, were trade secrets unknown to the public. It didn’t make any detailed analysis on the technical information in the software programs involved, thus lacking of pertinence and factual basis. The essence is it equates “unpublished” to “unknown to the public”. Therefore, it can’t be accepted as the basis for determining the software programs and documents involved as trade secrets. To sum up, the district market supervision bureau didn’t determine the constitution of trade secret by law, equated the conclusion of confidentiality agreement to “known to the public”, and treated the possible carriers of trade secrets, i.e. source programs and documents, as trade secrets. Therefore, there is lack of evidence and clear facts for the district market supervision bureau’s determination of Company C’s trade secret infringement. (Written by Shanghai Intellectual Property Court)
