Ms Pagnattaro Does Not Keep It A Secret How To Protect Your Trade Secret In China

Posted on June 22, 2010 by Dr. Danny Friedmann

Marisa Anne Pagnattaro wrote a very good paper: ‘‘‘The Google Challenge’’: Enforcement of Noncompete and Trade Secret Agreements for Employees Working in China’, American Business Law Journal Volume 44, Issue 4, 603–637, Winter 2007.

If you don’t need to share a product, idea or ingredient with the world, then don’t. Keep it a business secret, just like Coca-Cola who never patented its drink’s ingredients. Easier said than done, though. At Coca-Cola only two people in the board of directors have each half the number combination to a safe. And there are a lot of things you should pay attention to protecting your trade secret. Trade secret is considered often as the ugly stepdaughter of the IP system. But it can be very effective.

In China the Provisional Regulations of the State Council on Technology Transfer, promulgated
January 10, 1985, and the Regulations on the Administration of Technology Acquisition Contracts, May 24, 1985, hereinafter Technology Acquisition Regulations Detailed Rules and Regulations for the Implementation of the Regulations on the Administration of Technology Import Contracts, December 30, 1987, are relevant. However, all of these rules and regulations are contract based and, accordingly, are not binding on third parties. Additionally, no legal penalties are specified; the only remedy is for
breach of agreement.

Ms Pagnattaro illustrates the relevance of protecting trade secrets by showing the case of Dr. Kai-fu Lee who first worked for Microsoft and then for Google. Even more interesting is the conclusions she is drawing from this case.

The duration of the noncompete agreement should be limited to the amount that is just enough to protect the employer. “The longer the period, the more evidence you need to prove that the period is reasonable and necessary to protect against unfair competition and not an undue restrain on the employee’s right to work.”

Limit the Scope of the Information covered by the noncompete agreement. “It is advisable that the noncompete clause expressly states that it is designed to preserve business secrets, thereby tying the agreement to a legitimate business reason and undermining any defense that the agreement is an unfair restriction on labor or creates undue hardship on the employee.”

Tailor the geographic scope of the noncompete agreement to protect legitimate business interests.

Provide compensation in exchange for the noncompete agreement.

Limit access to the trade secret information. Files and other places containing trade secrets should be labeled.

Ensure that the information claimed to be a trade secret has economic value and practical applicability realizable utility.

Take active steps to protect the business secret.

The policy should also include penalties for improper use or disclosure of the information and enforcement of the penalties.
Incorporate a provision addressing trade secrets developed by the employee.

Take Action When an Employee Resigns. “Notify new employers of the secrecy obligations after a key employee leaves, the employer may want to follow upon where the employee goes, to protect against breaches of the noncompete agreement as well as the development of any competitive practices that infringe on business secrets to which the former employee was privy.”
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