Had a telephone conversation with a client today (yes I am working today) regarding the steps it should be taking to protect its trade secrets in China.  Client is an American company that has been doing business in China for nearly a decade but is “for the first time being forced by its competition to bring over its good stuff to China.”

Strangely enough, this was the first time a client has asked me this question, at least in this form.  I am often asked to draft a contract that contains a trade secret provision and we are constantly drafting Non Disclosure Agreements designed to protect trade secrets.  But this question went beyond that.  The question was directed at all of the methods, both legal and non-legal, this client should employ to protect its trade secrets.

I thought for a while (and checked the notes from a speech I recently gave on protecting IP from China) and eventually spewed forth with the following five keys to China trade secret protection (or something fairly close):

1.  First thing you must do is figure out what you want to protect.

2.  Second thing you must do is figure out how your trade secrets can be taken and what you can do to protect them.  This involves answering a number of questions.  Does it make sense to have your suppliers/vendors sign a code of conduct or a contract making clear that they recognize and will protect your trade secrets?  What operational structures can you put in place (anywhere along the chain) to protect your trade secrets?

3.  Make sure your contracts provide trade secret protection.  In particular, look at your employment and sub-contracting agreements.  Make sure that these contracts safeguard your trade secrets both during the business relationship and after the relationship terminates — you would be surprised at how many contracts seem to end with the termination of the business relationship.

4.  Make sure that all of your people understand the importance of protecting your trade secrets. I don’t have any hard numbers on this, but if I had to guess, I would say that well over half of all trade secret thefts come from your own people and well over half of those come from sloppiness.  It is your job to make sure that you are employing the right personnel, and using the right physical and technical security measures to prevent leakage of trade secrets.  Do the same thing with your suppliers and anyone else that has access to your trade secrets.  Make sure to do whatever you can to ensure that your trade secrets remain a secret even after your business relationships end.  Go ahead and remind your former business partners and employees of the requirement to maintain your trade secrets.

5.  Don’t be afraid to sue to protect your trade secrets.

Did I miss anything?

What do you think?


  • Here are a few non-legal ideas:
    – If technically possible, leave Chinese suppliers in the dark regarding the final use of what they manufacture for you. Buy some parts here, some parts there (better if it is in a different city), and find a Western-owned factory to assemble it all together.
    – If it includes a piece of software, make it impossible to operate the product without a patch that you provide directly from your country.
    – If molds are involved, force each supplier to make a mark (e.g. a unique number) on each product they make. It will make it easy for you to trace any illegal copy back to the manufacturer… Except if they make new molds, of course.
    A bit of creativity can go a long way. Similar ideas are probably applicable to your product.

  • 5th one that dont be afraid to sue to protect your trade secrets.. that is very vital

  • From my own experience ( and this year marks 25 years doing business with China ) keeping your suppliers “in the dark ” regarding your retail pricing and IP is sound policy when you enter into relationships with new vendors. But at some point you just have to live on faith and accept that there is risk in doing business in countries like China. The alternative is to become hopelessly paranoid about your vendor relationships in China and this is not good for your business or for your vendor.
    I would add that this kind of advice is generally good for large companies that have the resources to protect their IP and deal mostly with large vendors in China who have experience with trade agreements and NDAs. But small companies in certain labor intensive industries that deal with 2nd and 3rd tier vendors just should not worry too much about all of this. Do you think a small textile vendor in Anhui is going to put in place an NDA when he subcontracts a part of your order out to a small CMT factory ? Probably not.
    It is better to be practical than paranoid.