China’s 2024 Judicial Interpretation on Trade Secrets Review: What It Means for Foreign Companies
Published: CG360 Knowledge Center | Topic: Trade Secrets in China | Content Type: Review
Introduction: A New Era for Trade Secret Litigation
On February 28, 2024, the Supreme People’s Court of China issued its long-awaited Judicial Interpretation on Several Issues Concerning the Application of Law in Trade Secret Civil Cases (the “2024 Interpretation”). The document, which took effect on March 15, 2024, is the most comprehensive judicial guidance on trade secrets since the 2019 amendments to the Anti-Unfair Competition Law. With 42 articles spanning eight sections, the Interpretation addresses evidentiary standards, damages calculation, interim measures, criminal-civil interface, and procedural issues.
The 2024 Interpretation represents the culmination of years of experimentation by China’s specialized IP courts in Beijing, Shanghai, Guangzhou, and Shenzhen. Many of its provisions codify practices that had already emerged in the courts’ jurisprudence, but the Interpretation provides binding guidance that will apply nationwide — eliminating the patchwork of inconsistent approaches that had characterized trade secret litigation in different jurisdictions.
For foreign companies operating in China, the 2024 Interpretation has significant implications across the entire IP lifecycle — from the design of confidentiality programs to the strategy for enforcing rights and defending against allegations. This review examines the Interpretation’s most important provisions and provides practical guidance for foreign businesses.
Section 1: Clarifying the Definition of Trade Secrets
The 2024 Interpretation provides detailed guidance on the three statutory elements of a trade secret: secrecy, commercial value, and reasonable protection measures.
Secrecy Standard Refined
Article 4 of the Interpretation clarifies that information is “not known to the public” — the secrecy requirement — if it is not generally known in the relevant technical or business field. Crucially, the Interpretation states that information does not lose its secrecy merely because its component parts are individually known, as long as the specific combination or compilation is not publicly available. This provision is particularly important for foreign companies whose trade secrets often consist of unique combinations of known technical elements, such as specific process parameters or formulation ratios.
The Interpretation also addresses the reverse engineering defense, which is now more clearly circumscribed. Article 13 provides that reverse engineering is a valid defense only if the product was obtained through “lawful means” — defined as purchase from the open market or receipt through a legitimate business transaction. Information obtained through breach of contract, theft, or other unlawful means cannot be reverse-engineered, as the product itself was not lawfully obtained. This clarification closes a loophole that had been exploited by defendants who argued that they could reverse-engineer products even if they had obtained them through improper channels.
Reasonable Protection Measures: A Higher Bar
Perhaps the most significant change for foreign companies is Article 6’s elaboration of “reasonable protection measures.” The Interpretation provides a non-exhaustive list of measures that courts will consider sufficient, including: (1) written confidentiality policies; (2) non-disclosure agreements with employees and business partners; (3) password protection and access controls on digital information; (4) physical security measures such as locked filing cabinets and restricted access areas; (5) marking documents as confidential; and (6) exit procedures that require return or destruction of confidential materials.
Section 2: Evidentiary Standards — Shifting the Burden
The 2024 Interpretation introduces several evidentiary rules that shift the burden of proof in trade secret litigation, making it easier for rights holders to establish misappropriation while providing defendants with clearer avenues for rebuttal.
Prima Facie Showing and the Burden Shift
Article 15 provides that once the plaintiff establishes — through reasonable evidence — that (a) the defendant had access to the plaintiff’s trade secrets, and (b) the information used by the defendant is “substantially similar” to the plaintiff’s trade secrets, the burden shifts to the defendant to prove that its information was obtained through lawful means, such as independent development, reverse engineering, or public sources.
This burden-shifting mechanism, which had been applied inconsistently by different courts, is now binding nationwide. For foreign trade secret holders, this is a significant improvement: it means that direct evidence of the act of misappropriation is not required at the initial stage. A showing of access plus substantial similarity is sufficient to shift the evidentiary burden, and the defendant must then come forward with evidence of lawful acquisition.
Circumstantial Evidence and the totality of Circumstances Test
Article 16 codifies the “totality of circumstances” test, which allows courts to infer misappropriation from circumstantial evidence when direct evidence is unavailable. The Interpretation lists factors that courts may consider, including: (1) the value and secrecy of the information; (2) the defendant’s efforts to develop the information independently; (3) whether the defendant had an opportunity to acquire the information through improper means; (4) the temporal proximity between the defendant’s access to the information and the defendant’s use of similar information; and (5) whether the defendant has engaged in other improper conduct.
This provision is particularly valuable for foreign companies because trade secret misappropriation often occurs in contexts — such as former employees joining competitors — where direct evidence of document transfer is rare. The totality of circumstances test allows courts to draw reasonable inferences from patterns of behavior, even without a “smoking gun.”
Section 3: Damages — Substantially Increased Awards
The 2024 Interpretation provides the most comprehensive guidance to date on damages calculation in trade secret cases, and the direction is clear: damages should be higher, and rights holders have more tools to calculate and prove their losses.
| Method | Description | Key Provision |
|---|---|---|
| Actual loss | Plaintiff’s lost profits, including lost sales, price erosion, and lost licensing revenue | Article 22: Courts may consider industry profit margins and market share data |
| Defendant’s profits | Disgorgement of the defendant’s profits from use of the trade secret | Article 23: Burden shifts to defendant to prove costs and deductions once plaintiff establishes gross revenue |
| Reasonable royalty | Hypothetical licensing fee, calculated as a multiple of comparable market license rates | Article 24: Courts may apply a multiplier of 1-3x the comparable license rate |
| Statutory damages | Fixed amount where other methods are impractical | Article 25: Increased cap of RMB 5 million (from RMB 500,000 under pre-2019 law) |
The Interpretation’s most important contribution on damages is Article 26, which authorizes courts to award punitive damages of up to five times the calculated damages when the misappropriation is “malicious” or the defendant’s conduct is “egregious.” Factors indicating malice include: knowing misappropriation after being warned by the rights holder; repeated violations; destruction of evidence; and misappropriation of trade secrets related to national security or public health.
Section 4: Interim Measures — Stronger and Faster Relief
The 2024 Interpretation devotes an entire section to preliminary injunctions and preservation of evidence — signaling the Supreme People’s Court’s intent to make interim relief more accessible and effective.
Preliminary Injunctions
Article 28 provides that courts may grant preliminary injunctions without a full hearing when the rights holder demonstrates “urgent circumstances” and a “high likelihood of success on the merits.” The Interpretation specifies that “urgent circumstances” include situations where the trade secret is about to be disclosed or where the defendant is about to launch an infringing product. The court must rule on the application within 48 hours in urgent cases and within 5 days in non-urgent cases.
This provision represents a significant tightening of the timeline for preliminary injunctions. Under prior practice, courts routinely took 2-4 weeks to rule on injunction applications. The 48-hour timeline for urgent cases aligns China’s procedure with international best practices and makes China’s interim relief regime one of the fastest in the world.
Evidence Preservation Orders
Article 31 clarifies that courts may issue evidence preservation orders before the lawsuit is filed, and that the preserved evidence can include digital data, physical samples, and documentary records. The court may appoint independent technical experts to assist in the preservation process, particularly when the evidence involves complex technical information that the court’s own personnel cannot evaluate.
The Interpretation also provides that if a defendant destroys evidence after being notified of a preservation application, the court may draw adverse inferences against the defendant — including treating the destroyed evidence as supporting the plaintiff’s claims. This “spoliation inference” provision is a powerful tool for rights holders, as it eliminates the incentive for defendants to destroy incriminating evidence after learning of pending litigation.
Section 5: Criminal-Civil Interface and Cross-Border Issues
For foreign companies, the Interpretation’s treatment of the relationship between civil and criminal trade secret proceedings, and its provisions on cross-border trade secret disputes, are particularly relevant.
Article 35 provides that a criminal conviction for trade secret infringement creates a rebuttable presumption of liability in a parallel civil case. This means that foreign companies that first pursue a criminal complaint — through China’s public security authorities — can then use the criminal judgment as strong evidence in a subsequent civil damages action, without having to relitigate the issue of liability.
Article 38 addresses the increasingly important issue of extraterritorial application. It provides that Chinese courts have jurisdiction over trade secret disputes involving conduct that occurs outside China if the conduct leads to infringement within China. This provision is particularly relevant for cases where a foreign defendant misappropriates trade secrets outside China but then uses them to manufacture or sell products in the Chinese market.
Practical Recommendations for Foreign Companies
The 2024 Interpretation creates both opportunities and new requirements for foreign companies. Here are the most important action items:
Upgrade confidentiality measures: The Interpretation’s “commensurate” standard means that foreign companies with valuable trade secrets must implement measures proportional to the value of those secrets. Consider deploying enterprise-wide digital rights management (DRM) systems, mandatory data classification policies, and automated access control systems that log and audit all access to sensitive technical information.
Document independent development: The burden-shifting provisions make it more important than ever to maintain meticulous records of independent R&D activities. Foreign companies should ensure that their R&D documentation practices — including lab notebooks, design review minutes, and testing records — meet the evidentiary standards that Chinese courts will apply.
Prepare rapid response protocols: The shortened timeline for preliminary injunctions (48 hours for urgent cases) means that foreign companies must have pre-approved legal counsel and evidence preservation protocols in place before a dispute arises. A company that needs two weeks to gather evidence and engage counsel will miss the window for emergency relief.
Conclusion
The Supreme People’s Court’s 2024 Judicial Interpretation on Trade Secrets represents a significant step forward in China’s trade secret protection regime. By clarifying evidentiary standards, strengthening interim relief, increasing potential damages, and addressing cross-border issues, the Interpretation creates a more predictable and effective legal environment for trade secret enforcement. For foreign companies, the new framework offers both opportunities — faster and more powerful remedies — and challenges — higher standards for confidentiality measures and greater scrutiny of technology acquisition practices. Companies that invest in upgrading their protection measures and enforcement readiness will be best positioned to benefit from China’s evolving trade secret landscape.
This review is for informational purposes only and does not constitute legal advice. Companies should consult with qualified legal counsel regarding the application of the 2024 Judicial Interpretation to their specific circumstances.
