China’s first judicial case to protect data products as trade secrets was recently heard when Hangzhou Intermediate People’s Court in Zhejiang province publicly ruled on the administrative penalty and review of Miao v market supervision and administration bureau of Yuhang district, Yuhang district people’s government and a third-party software company in September 2024.
Earlier, the 2020 Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases Involving Infringement upon Trade Secrets first included data and other information within the scope of trade secret protection.
But debate has continued over whether data products meet the three essential requirements of trade secrets. This article analyses the recent Hangzhou case to assess whether data products can be protected as trade secrets.
Trade secret recognition
Partner
Blossom & Credit Law Firm
The distinctive feature of data assets is their collectiveness, with their economic value realised through data circulation and sharing. Protecting data assets through the trade secret system presents challenges in identifying secrecy and data circulation goals.
What data products can be protected as trade secrets? And how does one determine if data products meet the criteria for business information as a trade secret?
Secrecy. One of the essential elements of a trade secret is its secrecy, specifically that it is “not known to the public”. Here, “the public” does not refer to the general populace but specifically to “relevant persons in the field”.
In this case, it would refer to e-commerce operators and related personnel. The software company developed a data product called Business Adviser, which provides data services exclusively to merchants on its platform, limited to their respective business areas.
The agreement, signed by merchants before accessing the service, clearly specifies confidentiality obligations, prohibiting disclosure to third parties. Other e-commerce platforms, merchants within the platform and consumers in the e-commerce sector cannot access this information through public channels.
Therefore, considering the limited audience, specific and dynamic content, difficulty of access and behavioural constraints, the Business Adviser data should be deemed not widely known or easily accessible by the public, meeting the requirement of being “not known to the public”.
Value. According to article 2.7 of the Guidelines for the Trial of Civil Disputes over Trade Secrets by Jiangsu High People’s Court: “Information requested for protection by the plaintiff, due to not being known to the public, has actual or potential commercial value, can bring competitive advantage, and can be recognised as having commercial value under article 9 (4) of the Anti-Unfair Competition Law.”
The commercial value of trade secrets therefore lies not only in direct economic benefits but also in providing a competitive advantage over rivals.
In this case, the commercial data information offered services like business forecasting, index statistics and data analysis, providing decision-making references for platform merchants, gaining consumer recognition and bringing the software company and platform merchants a unique competitive advantage.
Confidentiality. To prevent commercial data information leakage, the involved software company signed confidentiality clauses with platform operators highlighted in bold.
Additionally, technical measures such as real-name authentication, password verification, network environment and device security checks, abnormal behaviour monitoring and anti-scraping measures were implemented to prevent unauthorised access and disclosure of trade secrets.
Penalties for potential trade secret violations were also established. It can be concluded that the rights holder took reasonable confidentiality measures.
Protection suggestions
With rapid development of the digital economy, data has become an indispensable new production factor. Effective protection of data products is a solid foundation for accelerating digital development and building a digital China. In new economic forms and business models, further improving the trade secret protection system for enterprise data products is crucial.
Identify trade secrets. Enterprises should organise professionals to evaluate commercial data information to determine if it has the characteristics of trade secrets such as secrecy, value and confidentiality. They should also classify and manage commercial data information based on its importance and sensitivity.
Manage confidential employees. Given the unique nature of data product information, all employees who may access commercial data information should sign documents such as confidentiality agreements and non-compete agreements during recruitment, employment and departure stages. Additionally, it is important to conduct confidentiality training, exit interviews, and have employees sign declaration letters.
Manage confidential carriers, areas and equipment. Set strict access controls based on employees’ job responsibilities and needs, ensuring only authorised personnel can access sensitive data. Manage confidential information effectively throughout the entire lifecycle of data products – including generation, transmission, use, duplication, storage and destruction – by handling related carriers and traceability aspects carefully.
Technical protection measures. Encrypt commercial data information to ensure security during storage and transmission. Use technical means such as identity authentication, password protection and multi-factor authentication to control access to data products.
Regularly back up commercial data information to prevent data loss or damage. Install data monitoring software to detect and prevent data leakage risks.
In addition, managing trade secrets in external co-operation – such as with upstream and downstream partners, external publicity, customer engagement, media promotion, industry exchanges and expert discussions – should not be overlooked.
In summary, when clarifying trade secret protection strategies, it is essential to enhance overall awareness, establish a clear and explicit protection system, and take specific and executable measures. Timely protection of rights in case of infringement is crucial.
Li Weiming is a partner at Blossom & Credit Law Firm
Blossom & Credit Law Firm
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E-mail: liweiming@baclaw.cn
