Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
A few weeks ago, I was discussing the need for one of our tech clients to have an NNN Agreement with its China counter-party before even sitting down to talk. The in-house legal counsel then asked me why an NNN Agreement was even necessary because she had read that China’s trade secret laws are very well written and very sophisticated. Like any experienced lawyer asked a really good question for the first time, my mind went blank and I responded with a time filler: “Great question,” I responded. I then mouthed something about how it is always better to have something in writing than to just rely on a law.
And then I got on a roll, explaining the below to her.
- Our NNN Agreements protect a lot more than just trade secrets. They protect whatever it is you want to protect. Trade secrets include only very specific things and it is not entirely clear even what those things are. If you want to be sure what you want protected will be protected, you need an NNN Agreement.
- Our NNN Agreements are contracts. Trade secret protections are not. China’s courts are very experienced in handling breach of contract cases. They are far less experienced in handling trade secret cases. If our NNN Agreement says Chinese Company cannot do this with X and it does this with X, they have clearly breached the contract. With a trade secret case we would need to prove that what you had was a trade secret (and that is not likely going to be easy) and that it violated China’s trade secret laws by doing so.
- Chinese companies know and fear NNN Agreements written in Chinese under Chinese law and with clear-cut and enforceable damages provisions. They don’t particularly fear China’s abstract trade secret laws.
- China’s trade secret laws are not that great anyway. Yes, what is there is good, but they are not as comprehensive as they should be and the lack of case law does not help either.
- I cannot underrate the difficulty in coming up with admissible evidence for China trade secret cases. Our international litigation team has many times been tasked with coming up with evidence for China trade secret cases and unless you have done this before, you probably cannot even grasp how difficult this is and whatever you use for evidence will be challenged by the other side, that much is pretty certain. I am going to make up a number here (there is no other way to do this short of analyzing thousands of cases) but I would estimate that Chinese courts accept as evidence less than half of what American courts accept. Because trade secret cases depend so much on evidence, this will likely be a problem.
Bottom Line: China trade secret protection is something to look to only if you do not have a good NNN Agreement to protect you. Note also though that it does make sense (and can be very important) to have trade secrecy agreements with your employees.