Protecting Trade Secrets in China: Update on Employee Disclosures and the Limitations of the Law

This essay builds on the article “’The Google Challenge’: Enforcement of Noncompete and Trade Secret Agreements for Employees Working in China,” and discusses new developments in Chinese laws for the protection of trade secrets, which are designed to addresses concerns of corporations doing business in China. Part II details the requirements of the recently passed Labor Contract Law, which contains provisions aimed at restricting employees from working for competitors and divulging trade secrets. This section also discusses the ways in which a 2006 interpretation from by the Supreme People’s Court clarifies practical aspects of trade secret protection, as well as recent developments on the calculation of damages. Despite all of the legal changes “on the books” to protect intellectual property rights, however, China is still lagging in enforcement of this legal regime. Because it may be desirable for U.S. companies to avoid seeking remedy in the court system or administrative systems in China, Part III discusses the use of arbitration under the China International Economic and Trade Arbitration Commission (“CIETAC”) as an alternative. Features of CIETAC arbitrations, such as neutrality, flexibility, finality, confidentiality and enforceability of judgments, make this an attractive alternative to litigation in China. Lastly, Part IV makes practical recommendations for protecting trade secrets and for drafting employment contracts with non-compete clauses and confidentiality provisions to protect companies from disclosures of trade secrets by former employees working in China.