China: Code Access No Defence in Trade Secret Case
The Intellectual Property Court of China's Supreme People's Court published a case summary on 5 November in case (2023) Zui Gao Fa Zhi Min Zhong No. 539. Its core point: a defendant who was entitled to access a technical secret is not thereby entitled to the way it obtained the secret or to what it did with it afterwards. The test is whether its intent, its means of obtaining the secret and its later conduct caused, or could cause, the owner to lose effective control of the secret.
A Beijing game company owns the code of the strategy game World of Dragons and claimed its source code as a technical secret. An employee in charge of operating a technical platform downloaded the source code in stages, without permission, over more than a month before he handed in his resignation, and stored it on a computer the company had not issued. The money for that computer came by WeChat transfer from the company's former business head, who had left and set up a competing firm; the invoice named that firm as buyer. Both men had signed confidentiality, non-compete and IP agreements.
On 28 December 2022 the first-instance court dismissed all claims: the employee was entitled to access the code, and the evidence showed only that he had obtained it, not that he had disclosed or used it.
Why the appeal court reversed
On 11 September 2024 the Supreme People's Court set that judgment aside. Nothing showed that the company allowed staff to copy source code to personal devices or take computers holding it home. The employee had also deleted operation logs and altered jump-server login records, which did not fit his claim of work needs. The code had been out of the company for over a week, ample time to pass it on. His conduct amounted to obtaining the secret by theft and breaching his duty of confidentiality.
The former business head knew of the employee's confidentiality duties, asked whether he had the game code and paid for the storage device: that was incitement, inducement and assistance. The new firm both directed and benefited from the conduct. The court found a joint infringement by all three, and held that the former head's acts were both personal and on behalf of the firm, so the firm could not absorb his personal liability.
The orders
- All three must stop disclosing, using or allowing others to use the source code until it becomes public.
- Within 30 days they must sign an undertaking to keep the secret and not infringe, filed with the Beijing Intellectual Property Court.
- They are jointly liable for CNY 500,000 in damages and CNY 398,760 in reasonable costs, against claims of CNY 4,283,000 and CNY 516,760.
- Failure to stop disclosure or use costs CNY 50,000 a day; failure to sign the undertaking, a one-off CNY 500,000.
J&C recommends that companies protecting source code go beyond confidentiality agreements and keep proof of what was not allowed: a written ban on copying code to personal devices or taking it off the premises, and complete access, download and login logs. The appeal turned on exactly those facts.
Source: ipc.court.gov.cn
