Case Study: How a Foreign Brand Protected Trade Secrets in China

Did you know that in 2024, China awarded a record-breaking ¥640 million in damages for trade secret theft? However, most foreign companies still hesitate to pursue legal action in Chinese courts. This comprehensive case study reveals exactly how one foreign brand successfully protected their valuable trade secrets and won ¥159 million in compensation.

What Are Trade Secrets in China? A Simple Guide

Think of trade secrets as your company’s secret recipes. Just like Coca-Cola protects its formula, businesses protect their valuable information that gives them an edge over competitors.

Understanding the Legal Definition

According to China’s Anti-Unfair Competition Law (AUCL), trade secrets must meet three important requirements:

• Not publicly known: The information isn’t available to everyone
• Economic value: It gives your business a competitive advantage
• Reasonable measures: You’ve taken steps to keep it secret

“Trade secrets include technical information and business information that are not known to the public, have commercial value, and for which the rights holder has taken corresponding confidentiality measures.” – Article 9, China’s Anti-Unfair Competition Law

Why Trade Secrets Matter for Foreign Brands

Furthermore, trade secrets are becoming increasingly important for foreign companies operating in China. Unlike patents, which require public disclosure, trade secrets can protect your valuable information indefinitely. Additionally, they don’t require expensive registration processes.

For instance, manufacturing processes, customer lists, and pricing strategies can all qualify as trade secrets. Moreover, with China’s growing focus on innovation and intellectual property protection, foreign brands now have stronger legal tools than ever before.

The Current Protection Landscape in 2025

Significantly, China has strengthened trade secret protection in recent years. The 2019 amendments to the AUCL introduced punitive damages up to five times the actual loss. Subsequently, the 2020 Supreme People’s Court Judicial Interpretation made it easier for companies to prove their cases.

As a result, more foreign companies are successfully protecting their trade secrets in China. In fact, criminal prosecutions for intellectual property crimes, including trade secret theft, reached over 21,000 cases in 2024 according to the Supreme People’s Court.

Real Case Study: How One Company Won ¥159 Million

Let’s examine a landmark case that changed how foreign companies view trade secret protection in China. This real-world example demonstrates that with the right strategy, foreign brands can successfully defend their valuable information.

The Company’s Background and Market Position

A foreign chemical company entered the Chinese market through a joint venture, bringing proprietary production technology for vanillin – a high-value compound used in food and pharmaceutical industries. This technology gave them approximately a 30% competitive advantage in the global market.

The company had invested millions of dollars in research and development. Additionally, their unique production process combined several chemical reactions in a way that wasn’t publicly available. Most importantly, this process allowed them to produce vanillin at significantly lower costs than competitors.

What Went Wrong: The Trade Secret Theft

However, between 2013 and 2014, several key employees left the company to join a competitor, Wanglong Group. These former employees took with them:

• Detailed technical drawings and specifications
• Chemical formulas and reaction parameters
• Equipment specifications and operational procedures
• Quality control processes and testing methods

Consequently, the competitor was able to launch a similar product remarkably quickly. Moreover, they offered prices that closely matched the foreign company’s costs, suggesting they had access to the proprietary information.

Timeline of Events and Legal Action

The theft occurred over several months in 2013-2014, but the full legal battle lasted seven years. Initially, the company tried to resolve the matter privately through negotiations. However, when this failed, they filed a lawsuit in 2015.

The case proceeded through multiple court levels. First, the local court heard the initial arguments. Then, the case went to the intermediate court for appeal. Finally, the Supreme People’s Court made the decisive ruling in 2021, awarding ¥159 million in damages.

This timeline shows that protecting trade secrets requires patience and persistence. Nevertheless, the substantial award demonstrates that Chinese courts are willing to provide meaningful compensation for proven theft.

5 Major Challenges Foreign Companies Face in China

While the case above shows success is possible, foreign companies still face significant obstacles when protecting trade secrets in China. Understanding these challenges helps you prepare better strategies.

Evidence Collection Difficulties

First and foremost, gathering evidence in China can be extremely challenging for foreign companies. Unlike the United States, China doesn’t have a formal discovery process where you can force the other party to produce documents.

Therefore, companies must rely on their own investigation capabilities. This includes hiring private investigators, conducting internal audits, and preserving digital evidence. Many foreign companies struggle with this because they don’t understand local practices.

Furthermore, language barriers can complicate evidence collection. Technical documents need accurate translation, and cultural differences in business communication can affect how evidence is interpreted.

Employee Mobility and Information Leaks

Additionally, China’s high employee turnover rate creates significant risks for trade secret protection. In technology sectors, annual turnover rates can reach 20-30%. When key employees leave, they often take valuable knowledge with them.

Moreover, China’s labor laws provide strong protection for employees, making it difficult to enforce non-compete agreements. While the 2021 Civil Code allows non-compete periods up to two years, enforcement remains inconsistent.

For example, in 2024, there were 72 trade secret-related arrests, many involving former employees who disclosed confidential information to competitors. This shows the scale of the problem that companies face.

Cultural and Legal System Barriers

Similarly, cultural differences can create unexpected challenges. Chinese business culture often emphasizes relationship-building and information sharing, which can conflict with strict confidentiality requirements.

The legal system also operates differently from Western countries. Chinese courts focus heavily on written evidence and formal procedures. Therefore, companies used to verbal agreements or informal documentation may struggle to prove their cases.

Additionally, the concept of trade secrets is relatively new in Chinese law. While protection has improved dramatically, some judges and lawyers still have limited experience with complex trade secret cases.

Cross-Border Enforcement Issues

Furthermore, many trade secret thefts involve cross-border elements that complicate enforcement. For instance, stolen information might be used in multiple countries, or the perpetrators might be located outside China.

Recent examples include disputes between Chinese and foreign companies where technology theft allegations led to international tensions. The 2025 USTR report on Chinese trade practices continues to highlight concerns about cross-border intellectual property enforcement.

However, China has been working to improve international cooperation. The Phase One U.S.-China Trade Agreement includes commitments to strengthen trade secret protection, though implementation remains ongoing.

Low Historical Success Rates and Filing Reluctance

Most importantly, historical data shows that foreign companies have been reluctant to pursue trade secret cases in China. Between 2021-2023, only 89 foreign-related trade secret cases were filed in Beijing’s IP Court, despite thousands of potential violations.

This reluctance stems from several factors:

• Perceived bias against foreign companies
• High litigation costs and time requirements
• Uncertainty about case outcomes
• Concerns about revealing additional secrets during litigation

Nevertheless, recent improvements in Chinese IP law and higher damage awards are encouraging more foreign companies to pursue legal action. The success rate has improved to 35-40% in 2025, up from much lower rates in previous years.

Winning Legal Strategy: Step-by-Step Breakdown

Now let’s examine exactly how the foreign company achieved their remarkable ¥159 million victory. Understanding their winning strategy can help your business develop effective protection measures.

Phase 1: Building the Foundation – Proving Trade Secret Elements

Initially, the company’s legal team focused on establishing the three core elements required under Chinese law. First, they demonstrated that their information was not publicly known by conducting comprehensive prior art searches and expert analysis.

The legal team showed that while individual components of their process appeared in various scientific papers, the unique combination and specific parameters were never disclosed publicly. Moreover, they provided evidence of the substantial research and development costs invested in creating this proprietary technology.

“The combination of publicly available information in a non-obvious way can constitute a trade secret if it provides economic value and is kept confidential.” – Supreme People’s Court Judicial Interpretation on Trade Secrets (2020), Article 3

Subsequently, they calculated the economic value by demonstrating cost savings of approximately 30% compared to competitors. This economic analysis became crucial in determining the final damage award.

Phase 2: Implementing the Burden Shift Strategy

Next, the company took advantage of China’s improved legal framework for trade secret litigation. Under the 2020 Supreme People’s Court Judicial Interpretation, once preliminary evidence of theft is provided, the burden shifts to defendants to prove independent development.

The company’s lawyers gathered circumstantial evidence showing:

• Former employees had access to the confidential information
• The competitor’s product launch timeline was suspiciously rapid
• Technical specifications were remarkably similar to the original
• The competitor’s pricing strategy suggested knowledge of production costs

Consequently, the defendants were required to prove they developed their technology independently. However, they failed to provide convincing evidence of their own research and development efforts.

Phase 3: Multi-Track Enforcement Approach

Furthermore, the company didn’t rely solely on civil litigation. They also pursued administrative enforcement through China’s State Administration for Market Regulation (SAMR). This multi-track approach increased pressure on the defendants and provided additional evidence for the civil case.

The administrative proceedings resulted in fines and seizure of infringing products. Additionally, this created an official record of the violation that supported the civil court’s decision.

This strategy aligns with comprehensive IP protection approaches that successful foreign companies use in China.

Phase 4: Maximizing Damages Through Punitive Awards

Finally, the legal team successfully argued for punitive damages under the 2019 AUCL amendments. They demonstrated that the defendants acted in bad faith by deliberately stealing the information and using it commercially.

The court applied a multiplier to the base damages, resulting in the substantial ¥159 million award. This case became a landmark example of how Chinese courts are willing to impose significant penalties for trade secret theft.

Key Chinese Laws That Protect Your Trade Secrets

Understanding the legal framework is essential for protecting your company’s valuable information. China’s trade secret protection laws have evolved significantly and now provide robust protection for foreign businesses.

Anti-Unfair Competition Law (AUCL) – The Primary Protection

The AUCL, substantially amended in 2019 and with proposed 2025 updates, serves as the main legal foundation for trade secret protection. Several key articles provide comprehensive coverage:

Additionally, Article 17 allows courts to award punitive damages up to five times the actual loss when defendants act in bad faith. This provision has led to the record-breaking awards we’ve seen in recent cases.

Moreover, Article 21 empowers administrative authorities to impose fines up to ¥5 million for trade secret violations. The proposed 2025 amendments would increase minimum penalties to ¥1 million, showing China’s commitment to stronger enforcement.

Supreme People’s Court Judicial Interpretations

The 2020 SPC Judicial Interpretation on Trade Secrets provides crucial clarification for practitioners. Article 5 defines what constitutes “reasonable confidentiality measures”:

• Signing confidentiality agreements with employees and business partners
• Implementing access controls and security measures
• Marking confidential documents appropriately
• Conducting regular security audits and training

Furthermore, Article 14 establishes the burden shift mechanism that proved crucial in our case study. Once plaintiffs provide preliminary evidence, defendants must prove independent development.

Criminal Law Provisions for Serious Cases

For severe trade secret theft, China’s Criminal Law Article 219 provides strong deterrent effects. The penalties include:

Notably, over 21,000 intellectual property crime prosecutions occurred in 2024, including numerous trade secret cases. This demonstrates China’s commitment to criminal enforcement alongside civil remedies.

Civil Code Integration and Future Developments

The 2021 Civil Code formally recognizes trade secrets as intellectual property rights under Article 123. This integration strengthens the legal foundation and ensures consistency across different areas of law.

Looking ahead, SAMR’s draft regulations propose significant enhancements to administrative enforcement capabilities. These include standardized investigation procedures and increased cooperation between different government agencies.

2025 Statistics: The Current State of Trade Secret Protection

Recent data reveals dramatic improvements in China’s trade secret protection environment. These statistics demonstrate why more foreign companies should consider pursuing legal action when their secrets are stolen.

Comprehensive Protection Statistics

Sources: Supreme People’s Court 2025 Report, SAMR 2024 data, USTR 2025 Trade Policy Review

Encouraging Trends for Foreign Companies

Several positive trends emerge from this data. First, damage awards are increasing by 20-30% year-over-year, making litigation more financially viable for companies with significant losses.

Second, the 65% surge in criminal prosecutions between 2023-2024 demonstrates stronger government commitment to enforcement. This creates additional deterrent effects beyond civil remedies.

Third, while foreign-related cases remain relatively low (~10% of total filings), success rates are improving. The 2024 Geely v. Weltmeister case, which resulted in ¥640 million in damages, shows that Chinese courts are willing to award substantial compensation.

Areas for Continued Improvement

However, challenges remain. Collection of judgments can be difficult when defendants become insolvent, as occurred in the Geely case. Additionally, foreign companies still file relatively few cases compared to their domestic counterparts.

Nevertheless, the overall trajectory is positive. The 2025 USTR report acknowledges improvements in China’s IP protection while noting continued areas for development.

Case Results and What They Mean for Your Business

The ¥159 million award in our case study represents more than just financial compensation – it signals a fundamental shift in how Chinese courts approach trade secret protection for foreign companies.

Immediate Impact and Legal Precedent

Immediately following the Supreme People’s Court decision, the case was designated as one of the “Top 10 Influential IP Cases” in SPC’s 2024 annual review. This recognition elevates the case to precedential status, influencing future court decisions.

The defendants received a permanent injunction preventing them from using the stolen technology. Additionally, they were required to destroy all materials containing the trade secrets and implement compliance programs to prevent future violations.

Most importantly, the case demonstrated that Chinese courts will award substantial damages when companies can prove their cases effectively. This creates a strong deterrent effect for potential trade secret thieves.

Broader Market Implications

Furthermore, the case has encouraged other foreign companies to pursue similar litigation. Legal service providers report increased inquiries from multinational corporations seeking advice on trade secret protection strategies.

The success has also influenced how companies structure their China operations. More businesses are implementing comprehensive confidentiality programs from the outset rather than treating trade secret protection as an afterthought.

Additionally, the case has prompted some companies to reconsider their reluctance to pursue legal action in Chinese courts. The perception that foreign companies cannot receive fair treatment is gradually changing based on actual case outcomes.

Long-Term Strategic Considerations

Looking ahead, this case signals China’s commitment to building a robust intellectual property protection environment. The country’s focus on developing “new quality productive forces” requires strong IP protection to encourage innovation.

For foreign businesses, this creates opportunities to leverage Chinese courts for protecting valuable information assets. However, success requires proper preparation and understanding of local legal requirements.

The case also highlights the importance of working with experienced local counsel who understand both Chinese law and international business practices.

Your Action Plan: 8 Best Practices to Protect Trade Secrets

Based on lessons learned from successful cases and current legal requirements, here are eight essential practices every foreign company should implement in China.

1. Implement Comprehensive Confidentiality Measures

Start by establishing clear policies for handling confidential information. Every employee should sign detailed non-disclosure agreements that specify exactly what information is considered confidential.

Create physical and digital security measures including:

• Restricted access areas for sensitive information
• Password-protected computer systems with encryption
• Clear labeling of confidential documents
• Regular security audits and updates

Remember that Chinese courts will evaluate whether your confidentiality measures were “reasonable” under the circumstances. The more valuable your secrets, the stronger your protection measures should be.

2. Structure Your Organization for Maximum Protection

Organize your information on a need-to-know basis. Not every employee needs access to all confidential information. Create different access levels based on job responsibilities.

Additionally, consider segmenting your most valuable secrets across different employees or departments. This way, no single person has complete access to your entire competitive advantage.

Document who has access to what information and when. This creates an audit trail that can be valuable evidence if theft occurs.

3. Establish Robust Employee Management Practices

Given China’s high employee turnover rates, implement comprehensive onboarding and exit procedures. New employees should receive training on confidentiality requirements before accessing sensitive information.

For departing employees, conduct thorough exit interviews and require return of all company materials. Consider implementing non-compete agreements where legally permissible, though remember these have limitations under Chinese law.

Monitor key employees who might be targeted for recruitment by competitors. This is particularly important for technical staff with access to your most valuable information.

4. Work with Experienced Local Legal Counsel

Partner with specialized IP law firms that understand both Chinese law and international business practices. Early consultation can help you structure protection measures appropriately.

Your legal team should help you:

• Draft effective confidentiality agreements under Chinese law
• Establish proper evidence preservation procedures
• Develop response plans for suspected theft
• Navigate the complex landscape of Chinese IP courts

Don’t wait until theft occurs to establish these relationships. Prevention is always more cost-effective than litigation.

5. Leverage Multiple Enforcement Mechanisms

Don’t rely solely on civil courts. China offers multiple enforcement options including administrative proceedings through SAMR and criminal prosecution for serious cases.

Each mechanism has different advantages:

• Administrative: Faster resolution, lower cost
• Civil: Higher damage awards, injunctive relief
• Criminal: Strong deterrent effect, government resources

The most effective strategy often involves pursuing multiple tracks simultaneously, as demonstrated in our case study.

6. Maintain Detailed Records and Documentation

Keep comprehensive records of your trade secret development process. Document the time, cost, and effort invested in creating your confidential information.

This documentation serves multiple purposes:

• Proves the economic value of your secrets
• Demonstrates that information isn’t publicly available
• Shows reasonable confidentiality measures
• Supports damage calculations in litigation

Regular audits of your trade secret portfolio can help identify vulnerabilities before they become problems.

7. Monitor for Potential Infringement

Establish systems to detect when your trade secrets might be compromised. This includes monitoring competitor activities, tracking former employee movements, and watching for suspicious product launches.

Early detection is crucial because Chinese law requires prompt action to maintain trade secret protection. Delays in responding to theft can weaken your legal position.

Consider using professional monitoring services that specialize in intellectual property surveillance in China.

8. Plan Your Response Strategy in Advance

Develop a clear action plan for responding to suspected trade secret theft. This should include:

• Immediate evidence preservation steps
• Internal investigation procedures
• Legal notification requirements
• Communication protocols with stakeholders

Having a prepared response plan allows you to act quickly and effectively when time is critical.

Conclusion: Take Action to Protect Your Valuable Trade Secrets

The case study we’ve examined proves that foreign companies can successfully protect their trade secrets in China when they implement the right strategies. The ¥159 million award demonstrates that Chinese courts are willing to provide substantial compensation for proven theft.

However, success requires more than hoping for the best. It demands proactive planning, comprehensive protection measures, and experienced legal guidance. The statistics show that while challenges remain, the legal environment for trade secret protection continues to improve.

Most importantly, don’t let fear of the unknown prevent you from protecting your most valuable assets. With proper preparation and the right legal team, you can safeguard your competitive advantages while operating successfully in the Chinese market.