What businesses should do to protect their trade secrets in the US-China trade war

It has been a busy time for technology lawyers in Taiwan since the US government began taking aggressive action against Chinese enterprises and individuals in 2018 for stealing trade secrets from US-based enterprises. These actions encompass a wide range of issues – including serious claims of espionage. China-based enterprises are one of the major targets for this operation. While national security is a major concern of the Trump administration, action that has been taken or planned against China-based companies is likely to affect businesses in the Pacific Rim.

Due to the complicated relationship between Taiwan and China, technology lawyers in Taiwan have received many phone calls and emails with regard to IP protection and the legal procedures that may be triggered if there is an intentional misappropriation of a trade secret or unintentional use of confidential information. This is especially pertinent following the US indictment in November 2018 of Chinese DRAM chip firm Fujian Jinhua for stealing intellectual property from Micron.  Taiwanese semiconductor foundry UMC has also been hit with an US indictment. Chinese companies and other enterprises that have business in Taiwan have become extremely cautious about being the next victim or suspect in a trade theft case.

In Taiwan, stealing trade secrets is subject to both criminal and civil liabilities. The Trade Secret Protection Act established criminal sanctions in 2013. In addition, there is the Criminal Law, which also imposes sanctions on the leaking of confidential business information.

A criminal procedure against trade secret theft usually begins with a complaint from the victim. The complaint must identify and specify the trade secret that has been infringed and is almost always requested to submit an explanatory checklist of its trade secrets to the prosecutor. In the list, the complaint must identify the nature and scope of the trade secrets involved and how it had protected them. The criminal investigation is conducted by the prosecutor; during the investigation it may (at its discretion) ask for the complainant’s assistance. No information or evidence is disclosed by the prosecutor during the procedure. Further, there is no US-style discovery in any criminal or civil procedure. Having inside knowledge of the procedures available is key.

Another aspect of taking action against trade secret leaks is the need to minimise the risk of indictment. It is recommended that potential defendants conduct an internal investigation as soon as possible to ascertain whether there is any suspicious information held by the company. It is not uncommon to discover that a reckless employee unintentionally kept information belonging to their former employer on their laptop without realising that this could cause a great amount of trouble for themselves and their employer. If a company finds such information as a result of internal investigation, it should immediately contact its lawyers and seek advice on how to dispose of such information and what steps to take next. There is no clear answer as to how to deal with these kinds of cases in Taiwan. Careful legal analysis by experienced practising lawyers is more than necessary.

On 22 February 2019 it was reported that the United States and China are looking to end the chipmaker spat as part of a trade deal, and that negotiators are seeking the resolution of Micron-Fujian Jinhua as a confidence-building measure. While everybody is closely watching to see what will happen next, enterprises should keep in mind that trade secret issues are crucial and should be revisited periodically to maintain competition and a promising future.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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