Comments to the MOJ on the Guidance on Strengthening the Protection of Trade Secrets and Confidential Business Information in the Process of Administrative Licensing

2020-09-30 | Beijing, Shanghai

The protection of trade secrets and confidential business information has long been a concern for businesses. When companies protect a relevant technology only as a trade secret or as confidential business information, they tend to be very sensitive to the requirements for providing technical details. Guidance on Strengthening the Protection of Trade Secrets and Confidential Business Information in the Process of Administrative Licensing (Draft for Comments) drafted by the Ministry of Justice is an important part of the improving intellectual property protection in China, and it also reflects the government’s emphasis on the protection of trade secrets. We very much appreciate the efforts to protect trade secrets and confidential business information. The Guidance includes confidentiality management system, confidentiality agreement system and information disclosure objection system, so as to reduce the possibility of trade secret disclosure in the process of administrative licensing. Also, the Guidance has laid down a basic framework regarding trade secrets and confidential business information in four areas of administrative licensing, namely, (i) object of protection, (ii) protective measures, (iii) confidentiality obligations and responsibilities and (iv) organizational leadership. This is an excellent first step towards improving the legal regime in this area, and we hope the Guidance will be executed fully in the future.

At the same time, we noticed that the Draft has some issues that need further clarifications. First of all, we suggest increasing the transparency and openness of proceedings, for instance, disclosing information regarding personnel who handle trade secrets and confidential business information in order to further enable an applicant to raise an objection to them or ask them to recuse themselves so as to reduce the likelihood of a conflict of interest.

Secondly, in terms of the management of confidential documents, we suggest setting up a detailed authority management system, granting specific persons in charge the right to access documents and requiring them to be liable for breach of any confidentiality obligation.  We are aware that Article 5 of the Guidance provides that the administrative licensing authority should enter into a confidentiality agreement when a third party is involved.  We further suggest that the applicant be allowed to be a party to the confidentiality agreement thereby increasing the deterrence and effectiveness of this mechanism.

Thirdly, on properly disposing of used trade secrets and confidential business information, we suggest that the applicant be given the right to recover or destroy the relevant documents.  “Document archiving” will increase administrative costs and the risk of leakage and is practically unnecessary.  Where due to work needs it is genuinely necessary to re-access the trade secrets or confidential business information, the applicant may be required to re-submit their documents.

Fourth, the liability provisions of the current Guidance do not address the issue of compensation by the administrative authority to the applicant.  Trade secrets are important assets of a company and any leakage will inflict heavy losses on the company.  In the event of any leakage attributable to the administrative authority, proper compensation might to some extent make up for the losses of the company.  The measure will also incentivize the administrative licensing authority to better manage trade secrets and confidential business information in the first instance.  For the reasons stated above, we suggest clarifying in the Guideline the liability of compensation to businesses who suffer from information leakage due to misconduct on the part of the administrative authority.

At last, it is unclear whether the Guidance would be legally binding on administrative authorities in the process of administrative licenses, or it would serve as best practice recommendation and guideline for administrative licensing.  Therefore, we respectfully request relevant departments clarify the legal effect of the Guidance.