Trade Secret Protection: What Foreign Firms Must Know

Trade secret protection in China has undergone significant transformation, particularly for foreign firms navigating the complex landscape of intellectual property law. Moreover, with recent legal reforms and record-breaking damage awards, understanding China’s trade secret framework has become crucial for international businesses operating in the world’s second-largest economy.

What Are Trade Secrets Under Chinese Law?

Legal Definition and Core Requirements

According to Article 9(4) of the Anti-Unfair Competition Law (AUCL), trade secrets in China are defined as technical information and business information that meet three essential criteria. First, the information must not be generally known to the public. Second, it must have commercial value because it is secret. Third, the rights holder must have taken reasonable confidentiality measures to protect it.

“Trade secrets refer to technical information and business information that are not generally known to the public, have commercial value, and are protected by reasonable confidentiality measures taken by the rights holder.”
— Article 9(4), Anti-Unfair Competition Law

Furthermore, this definition encompasses a wide range of information types that foreign companies commonly need to protect. Technical information includes manufacturing processes, formulas, designs, and know-how that give businesses competitive advantages. Business information covers customer lists, marketing strategies, pricing data, and supplier relationships that drive commercial success.

What Qualifies as Trade Secrets for Foreign Firms

For foreign companies, trade secrets typically include proprietary technologies, manufacturing processes, and business strategies that provide competitive advantages in the Chinese market. Additionally, information such as customer databases, supplier contracts, and internal operational procedures can qualify for protection under Chinese law.

However, it’s important to note that publicly available information cannot be considered a trade secret. Therefore, once information becomes public through patent filings, publications, or other means, it loses its trade secret status. This creates a strategic decision point for foreign firms choosing between patent protection and trade secret protection.

Duration and Scope of Protection

Unlike patents, which have limited terms, trade secrets can be protected indefinitely as long as they remain secret and continue to have commercial value. Consequently, this makes trade secret protection particularly attractive for certain types of information that may be difficult to reverse-engineer or independently develop.

The protection is relative rather than absolute, meaning that others can independently develop the same information through legitimate means. Nevertheless, misappropriation through improper means such as theft, breach of confidentiality, or industrial espionage is strictly prohibited and can result in significant legal consequences.

China’s Legal Framework for Trade Secrets (2025 Update)

Evolution of Trade Secret Laws

China’s approach to trade secret protection has evolved dramatically over the past decade, with significant reforms aimed at strengthening intellectual property rights. The legal framework now consists of multiple interconnected laws that provide comprehensive protection for trade secrets.

The Anti-Unfair Competition Law serves as the primary legislation governing trade secret protection in China. However, additional laws including the Civil Code, Criminal Law, Labor Contract Law, and Company Law also play crucial roles in creating a comprehensive protection system.

Major Legal Reforms and Their Impact

The 2019 AUCL Amendment introduced groundbreaking changes that significantly strengthened trade secret protection. Most notably, it established punitive damages of up to five times the actual losses, providing a powerful deterrent against misappropriation. Additionally, the amendment reversed the burden of proof in certain circumstances, making it easier for plaintiffs to succeed in litigation.

Following this, the 2020 Trade Secret Judicial Interpretation provided detailed guidance on how courts should handle trade secret cases. This interpretation clarified key concepts such as “reasonable confidentiality measures” and “commercial value,” giving businesses clearer guidance on how to protect their secrets effectively.

Most recently, the 2025 Criminal IP Infringement Interpretation has further strengthened enforcement by clarifying criminal liability for trade secret theft. This interpretation specifically addresses electronic intrusion and theft, recognizing the digital nature of modern trade secret misappropriation.

Key Legal Provisions Foreign Firms Should Know

The 2020 Trade Secret Judicial Interpretation Articles 5 and 6 detail what constitutes “reasonable confidentiality measures.” These include signing confidentiality agreements, implementing access controls, providing employee training, and maintaining physical and digital security measures.

For foreign firms, understanding these provisions is crucial because they establish the framework for both protection and enforcement. Companies that fail to implement adequate confidentiality measures may find their trade secrets unprotectable under Chinese law.

Billion-Dollar Cases: Why Trade Secret Protection Matters

Record-Breaking Damage Awards

Chinese courts are increasingly willing to award substantial damages in trade secret cases, demonstrating the growing judicial support for intellectual property protection. These significant awards reflect China’s commitment to creating a business environment that respects and protects intellectual property rights.

Analysis of the Geely v WM Motor Case

The Geely v WM Motor case represents a watershed moment in Chinese trade secret law, with the court awarding 640 million CNY in damages for trade secret misappropriation. This case involved allegations of systematic talent poaching and the theft of proprietary automotive technologies.

Significantly, the court applied punitive damages multipliers, doubling the actual losses to send a strong message about the consequences of trade secret theft. This demonstrates that Chinese courts are now willing to impose severe financial penalties on companies that engage in misappropriation.

The case also highlighted the importance of having robust internal policies and documentation. Geely’s comprehensive approach to trade secret protection, including detailed employee agreements and access controls, played a crucial role in their successful litigation.

Industry Trends and Implications

These high-value awards reflect broader trends in Chinese intellectual property enforcement. Courts are increasingly sophisticated in their approach to trade secret cases, and judges are more willing to award substantial damages that reflect the true commercial value of misappropriated information.

For foreign firms, these cases demonstrate that China’s legal system can provide effective protection for trade secrets when companies take appropriate precautions. However, they also underscore the importance of implementing comprehensive protection strategies before problems arise.

The technology and automotive sectors have seen particularly significant awards, reflecting the high value of trade secrets in these industries. Companies in these sectors should pay particular attention to employee mobility and ensure that departing employees do not take sensitive information to competitors.

7 Essential Steps to Protect Your Trade Secrets in China

Step 1: Implement Comprehensive Confidentiality Agreements

The foundation of trade secret protection in China begins with robust confidentiality agreements. These agreements must be carefully drafted to comply with Chinese law while providing maximum protection for your sensitive information. Additionally, all employees, contractors, and business partners who may access trade secrets should sign appropriate non-disclosure agreements (NDAs).

Furthermore, confidentiality agreements should clearly define what constitutes confidential information and specify the duration of confidentiality obligations. According to the 2020 Trade Secret Judicial Interpretation, courts will examine whether companies have taken “reasonable confidentiality measures,” and well-drafted agreements are essential evidence of such measures.

For foreign firms, it’s crucial to ensure that confidentiality agreements are enforceable under Chinese law. This includes proper translation, compliance with local employment laws, and consideration of Chinese contract principles. Many companies benefit from working with experienced IP litigation specialists to ensure their agreements provide adequate protection.

Step 2: Establish Access Controls and Information Security

Physical and digital access controls are critical components of trade secret protection. Companies must implement systems that limit access to confidential information based on business necessity and employee roles. This includes both physical security measures for documents and facilities, as well as digital security for electronic information.

Digital security measures should include password protection, encryption, secure servers, and regular security audits. Moreover, companies should maintain detailed logs of who accesses confidential information and when, as this documentation can be crucial evidence in potential litigation cases.

“Reasonable confidentiality measures include signing confidentiality agreements, implementing access controls, providing employee training, and maintaining physical and digital security measures.”
— Articles 5 and 6, 2020 Trade Secret Judicial Interpretation

Physical security measures should include restricted access to sensitive areas, secure storage of confidential documents, and clear policies about removing materials from the premises. Companies should also consider implementing clean desk policies and secure disposal procedures for confidential materials.

Step 3: Conduct Regular Employee Training and Awareness Programs

Employee education is often overlooked but represents a critical vulnerability in trade secret protection. Regular training programs should educate employees about what constitutes trade secrets, their obligations to protect confidential information, and the consequences of misappropriation.

Training should be ongoing rather than one-time events, particularly given employee turnover and evolving business needs. Additionally, companies should provide specialized training for employees in sensitive roles, such as research and development, manufacturing, and sales teams who regularly handle confidential information.

Documentation of training programs can serve as evidence of reasonable confidentiality measures in potential litigation. Therefore, companies should maintain records of who attended training sessions and what topics were covered.

Step 4: Monitor Employee Departures and Transitions

Employee mobility represents one of the greatest risks to trade secret protection, particularly in China’s dynamic business environment. Companies must implement systematic procedures for handling employee departures, including exit interviews, return of confidential materials, and reminders of ongoing confidentiality obligations.

Before employees leave, companies should conduct thorough reviews of what confidential information they had access to and ensure all materials are returned or properly destroyed. Additionally, companies should consider implementing non-compete agreements where legally permissible and appropriate.

Monitoring should also include awareness of where former employees go to work, particularly if they join competitors. Early detection of potential problems can enable companies to take preventive action before trade secrets are misappropriated.

Step 5: Maintain Detailed Documentation and Records

Proper documentation is essential for proving trade secret status and demonstrating that reasonable confidentiality measures were implemented. Companies should maintain comprehensive records of their confidential information, including when it was created, who had access to it, and what protection measures were implemented.

Documentation should include policies and procedures, training records, confidentiality agreements, access logs, and any other evidence of protection efforts. This documentation becomes crucial evidence if litigation becomes necessary.

Furthermore, companies should regularly review and update their documentation to reflect changes in business operations, personnel, and protection measures. Outdated or incomplete documentation can undermine trade secret protection efforts.

Step 6: Implement Technology Solutions for Protection

Modern technology offers powerful tools for protecting trade secrets, including digital rights management systems, encrypted communications, and secure cloud storage solutions. Companies should leverage these technologies to enhance their protection efforts.

Document management systems can track who accesses confidential information and when, providing valuable audit trails. Additionally, watermarking and other tracking technologies can help identify the source of any unauthorized disclosure.

However, technology solutions must be implemented thoughtfully and in compliance with Chinese data protection laws. Companies should work with local experts to ensure their technology solutions are appropriate for the Chinese market.

Step 7: Develop Incident Response and Enforcement Procedures

Despite best efforts at protection, trade secret misappropriation can still occur. Companies must have clear procedures for responding to suspected incidents, including immediate steps to limit damage and preserve evidence.

Incident response procedures should include immediate notification of legal counsel, preservation of evidence, assessment of the scope of misappropriation, and consideration of available remedies. Quick action can often limit the damage from trade secret theft.

Companies should also maintain relationships with qualified legal counsel who specialize in intellectual property enforcement. Having experienced litigation support readily available can make the difference between successful and unsuccessful enforcement efforts.

Common Challenges Foreign Firms Face (And How to Overcome Them)

Evidence Collection and Preservation Difficulties

One of the most significant challenges foreign firms face in China is collecting and preserving evidence of trade secret misappropriation. Chinese courts require substantial evidence to prove that information qualifies as a trade secret and that misappropriation has occurred.

Evidence collection can be particularly challenging when dealing with digital information, employee communications, and internal corporate documents. Moreover, evidence must be collected in compliance with Chinese procedural rules and evidence standards, which may differ from international practices.

To overcome these challenges, foreign firms should implement comprehensive documentation systems from the outset. This includes maintaining detailed records of confidential information, access controls, and protection measures. Additionally, companies should work with local legal experts who understand Chinese evidence rules and can guide proper collection procedures.

Cultural and Language Barriers

Cultural differences can create significant challenges in trade secret protection, particularly in areas such as employee relations, business practices, and legal procedures. What may be considered appropriate confidentiality measures in one culture may be insufficient or inappropriate in another.

Language barriers can also complicate trade secret protection efforts, particularly when translating confidentiality agreements, policies, and legal documents. Nuances in language can affect the enforceability and effectiveness of protection measures.

Foreign firms can overcome these challenges by working with local legal counsel who understand both Chinese law and international business practices. Additionally, companies should invest in proper translation services and cultural training for their management teams.

Burden of Proof and Legal Complexity

While recent legal reforms have made trade secret protection more favorable for rights holders, the burden of proof remains substantial. Companies must prove that their information qualifies as a trade secret, that the defendant had access to it, and that misappropriation occurred.

The legal complexity of trade secret cases can be daunting, particularly for foreign firms unfamiliar with Chinese legal procedures. Cases often involve complex technical evidence, detailed financial analysis, and sophisticated legal arguments.

Enforcement Across Multiple Jurisdictions

Many trade secret cases involve activities across multiple jurisdictions, creating additional complexity in enforcement efforts. Companies may need to coordinate legal actions in different courts and comply with varying procedural requirements.

Cross-border enforcement can be particularly challenging when dealing with companies or individuals in different countries. International cooperation and coordination become essential for effective enforcement.

Foreign firms should develop comprehensive enforcement strategies that consider potential multi-jurisdictional issues from the outset. This includes working with legal counsel who have experience in international intellectual property enforcement.

When Trade Secrets Are Stolen: Your Legal Options

Civil Litigation Remedies

When trade secret misappropriation occurs, Chinese law provides several civil remedies for rights holders. The most common remedy is monetary damages, which can include actual losses, defendant’s profits, or reasonable royalties for the unauthorized use of the trade secret.

Under the 2019 AUCL amendment, courts can award punitive damages of up to five times the actual losses in cases of willful infringement. This represents a significant deterrent and can result in substantial awards, as demonstrated by recent high-profile cases.

Additionally, courts can issue injunctive relief to prevent further misappropriation and order the return or destruction of misappropriated materials. These remedies can be particularly valuable in preventing ongoing harm to the rights holder.

Criminal Prosecution Options

In serious cases of trade secret theft, criminal prosecution may be available under Chinese law. The Criminal Law provides for imprisonment and fines for individuals who steal trade secrets, particularly when the theft involves substantial commercial value.

The 2025 Criminal IP Infringement Interpretation has clarified the standards for criminal prosecution, including specific thresholds for commercial value and detailed guidance on calculating losses. This has made criminal prosecution more predictable and accessible for trade secret theft cases.

Criminal prosecution can be particularly effective because it involves government resources and can result in both imprisonment and financial penalties. However, the standards for criminal prosecution are typically higher than for civil litigation.

Timeline and Procedural Considerations

Trade secret litigation in China typically follows established civil procedure rules, with cases generally taking 12-18 months for first-instance trials. However, complex cases involving substantial technical evidence or multiple defendants may take longer.

The statute of limitations for trade secret claims is generally three years from when the rights holder knew or should have known about the infringement. This relatively short period emphasizes the importance of prompt action when misappropriation is suspected.

Preliminary injunctions may be available in urgent cases, but courts typically require substantial security deposits and clear evidence of infringement. Companies should be prepared to act quickly and provide comprehensive evidence to support injunction requests.

Frequently Asked Questions

What is the difference between trade secrets and patents in China?

Trade secrets and patents provide different types of protection for intellectual property. Patents require disclosure of the invention in exchange for limited-term exclusive rights, while trade secrets protect information that remains confidential indefinitely.

In China, patent protection requires filing applications with CNIPA and meeting specific criteria for novelty and inventiveness. Trade secrets, on the other hand, require no registration but depend on maintaining secrecy and implementing reasonable confidentiality measures.

The choice between patent and trade secret protection depends on factors such as the nature of the information, the likelihood of reverse engineering, and the business strategy of the company.

How long does trade secret protection last in China?

Trade secret protection in China can last indefinitely, as long as the information remains secret and continues to have commercial value. Unlike patents, which have fixed terms, trade secrets do not expire after a specific period.

However, protection ends if the information becomes generally known through legitimate means, such as independent development, reverse engineering, or public disclosure. Therefore, maintaining secrecy is crucial for ongoing protection.

Can foreign companies enforce trade secrets against Chinese companies?

Yes, foreign companies can enforce trade secrets against Chinese companies under the same legal framework that applies to domestic companies. Chinese law does not distinguish between foreign and domestic rights holders in trade secret cases.

However, foreign companies may face practical challenges such as language barriers, cultural differences, and unfamiliarity with Chinese legal procedures. Working with qualified local counsel can help overcome these challenges.

What constitutes reasonable confidentiality measures under Chinese law?

According to the 2020 Trade Secret Judicial Interpretation, reasonable confidentiality measures include signing confidentiality agreements, implementing access controls, providing employee training, and maintaining physical and digital security measures.

The specific measures required depend on the nature of the information, the size of the company, and the industry involved. Courts will evaluate whether the measures taken are appropriate and effective under the specific circumstances.

How are damages calculated in Chinese trade secret cases?

Damages in Chinese trade secret cases can be calculated based on the rights holder’s actual losses, the infringer’s profits, or a reasonable royalty for the unauthorized use. Courts may also award punitive damages of up to five times the actual losses in cases of willful infringement.

The 2025 Criminal IP Infringement Interpretation provides detailed guidance on calculating losses, including methods for determining commercial value and reasonable royalties. This has made damage calculations more predictable and consistent.

What should companies do if they suspect trade secret theft?

Companies that suspect trade secret theft should immediately contact qualified legal counsel to assess the situation and preserve evidence. Quick action is crucial because evidence can be destroyed or altered, and the statute of limitations begins running when the theft is discovered.

Initial steps should include documenting the suspected theft, preserving all relevant evidence, and assessing the scope of potential misappropriation. Companies should avoid taking actions that could alert the suspected infringer before proper legal strategy is developed.

Conclusion: Protecting Your Business in China’s Evolving Legal Landscape

Trade secret protection in China has evolved significantly, offering foreign firms stronger legal tools and more favorable enforcement opportunities than ever before. The recent legal reforms, record-breaking damage awards, and increasingly sophisticated judicial approach demonstrate China’s commitment to protecting intellectual property rights.

However, success in trade secret protection requires proactive planning, comprehensive implementation of protection measures, and skilled legal counsel. Companies that take trade secret protection seriously and implement robust safeguards are well-positioned to benefit from China’s strengthened legal framework.

The key to success lies in understanding the legal requirements, implementing comprehensive protection strategies, and working with experienced professionals who understand both Chinese law and international business practices.

Take Action to Protect Your Trade Secrets Today

Don’t wait until it’s too late to protect your valuable trade secrets in China. The legal landscape is more favorable than ever, but protection requires careful planning and professional guidance.

Contact Yucheng IP Law (YCIP) today for a comprehensive consultation on your trade secret protection needs. Our experienced team of IP specialists understands the complexities of Chinese law and can help you develop a robust protection strategy tailored to your business.

Whether you need help with confidentiality agreements, enforcement actions, or comprehensive IP strategy, YCIP has the expertise and experience to protect your most valuable assets in China.

Get Your Free Consultation Today

External Resources and References

• Chambers and Partners: Trade Secrets 2025 – China
• IAM: China Trade Secrets Policy and Latest Developments
• Bird & Bird: Protecting Trade Secrets in China
• IAM: Building a Robust Trade Secret Strategy in China
• DLA Piper: Trade Secrets Protection in China Case Insights
• Lexology: Building a Robust Trade Secret Strategy