China Anti-Unfair Competition and Trade Secrets: Protection for Foreign Companies

The following is general information on Chinese unfair-competition and trade-secret law, not legal advice for any specific case. Every matter turns on its own facts; consult a qualified PRC lawyer before acting.

Why trade secrets are the quiet engine of China IP disputes

For many foreign companies in China, the most valuable intellectual property is not the patent they registered but the know-how, formulas, customer lists and processes they never published. Those assets are protected not by registration but by the Anti-Unfair Competition Law (反不正当竞争法). The statute — enacted in 1993, comprehensively revised with effect from January 1, 2018, and amended again with effect from April 23, 2019 — contains China's core trade-secret regime, and the 2019 amendment significantly strengthened the position of rights holders.

What qualifies as a trade secret

Under Article 9, a trade secret is technical or business information that (1) is not known to the public, (2) has commercial value, and (3) has been made subject to corresponding confidentiality measures by the rights holder. The third element is the one companies control — and the one that most often decides a case. A formula or customer database that is genuinely secret but protected by no confidentiality measures is not a trade secret in law. Confidentiality agreements, access controls, and marking are not bureaucracy; they are what create the right in the first place.

The prohibited acts

Article 9 defines infringement broadly. It covers obtaining a trade secret by theft, bribery, fraud, coercion, electronic intrusion or other improper means; disclosing, using or permitting others to use a trade secret obtained by improper means; and inducing another to breach a confidentiality obligation. It also reaches the downstream parties — a competitor who knowingly uses a trade secret it knows or should have known was obtained improperly is likewise liable. Former employees and their new employers are the classic defendants.

The burden-shifting rule that changed the game

The 2019 amendment introduced a form of reverse burden of proof in trade-secret civil cases. Under Article 32, once the rights holder produces prima facie evidence that it holds a protected trade secret, that the trade secret was infringed, and that the information in the defendant's possession is substantially identical to the trade secret and the defendant had access to it, the burden shifts to the defendant to prove that its information came from a lawful source. In practice this means a well-documented rights holder no longer has to prove the defendant's entire chain of wrongdoing — the defendant must explain where its information came from.

Damages: punitive and statutory

Under Article 17, damages are calculated on the rights holder's actual loss or the infringer's unlawful profit. Where the infringement is intentional (恶意) and the circumstances are serious, the court may award punitive damages of one to five times the base amount. Where loss and profit are hard to determine, the court may award statutory damages up to RMB 5 million. Rights holders can also seek a preliminary injunction (行为保全) to stop use of the secret while the case is pending.

The criminal side

Serious trade-secret theft is also a crime. Article 219 of the Criminal Law criminalizes infringing a trade secret and causing "heavy losses" to the rights holder; the 2020 judicial interpretation on IP criminal cases set a monetary threshold of RMB 300,000 in losses or unlawful gain as generally constituting such heavy losses. The criminal route matters because it brings police investigative powers — and, in practice, considerable settlement pressure — to bear. It also sits alongside the civil claim rather than replacing it.

What foreign companies should do now

• Put the confidentiality measures in place before the dispute. The law protects secrets that were actually protected.
• Document access and versions. Logs showing who accessed what, and when, are what the burden-shifting rule runs on.
• Move fast on a suspected leak. Preliminary injunctions and evidence preservation are far more effective in the first weeks than after the information has spread.

Trade-secret enforcement overlaps heavily with broader IP litigation; for the wider landscape, see China Intellectual Property Litigation for Foreign Companies, and for the practical first steps when a dispute is brewing, Facing a Legal Matter in China? What to Do First. For a specific matter, contact our litigation team.