CHINA Law and Practice Contributed by: Chuanhong Long, Huiqing Wang, Yingying Shen and Fan Li, CCPIT Patent and Trademark Law Office
commercial value, and the rights-holder must have taken corresponding confidentiality measures. Mere usefulness without secrecy will not qualify as a trade secret, although it may still have contractual value between parties. So the best way to distinguish the layers is this: know- how as such can be commercially exploitable techni- cal knowledge; trade secret know-how is know-how that is non-public, valuable, and protected by reason- able confidentiality measures; and ordinary confiden- tial information may fall short of full trade secret status but can still be protected by contract. 6.3 Ownership, Creation and Employee Know-How Chinese law does not provide a single universal ownership rule for all employee-created know-how equivalent to the patent “service invention” rule. In practice, ownership of non-patented know-how cre- ated by employees is usually determined by contract, internal rules, the nature of the employment duties, and whether the information was generated using the employer’s resources and within the scope of the employee’s work. Chinese law clearly imposes con- fidentiality obligations on employees, and courts are prepared to treat employee misuse of trade secrets or technical secrets as infringement. Where the creation concerns patentable output, the Patent Law’s service invention rules are clearer: inventions made in the course of performing duties or mainly using the employer’s material and technical conditions belong to the employer for patent applica- tion purposes. That patent rule does not automati- cally answer every know-how ownership dispute, but it strongly influences how Chinese practice views employee-generated technical achievements con- nected with employment. For contractors, consultants, and joint development partners, ownership should be allocated expressly by contract. The Civil Code distinguishes commissioned development and co-operative development con- tracts, and written agreements are central in determin- ing who owns resulting technology and who may use or commercialise it. Without clear drafting, disputes can become fact-intensive and difficult, particularly
where one side later patents technology allegedly derived from another party’s technical secret. Chinese courts have recognised claims in which the holder of a technical secret challenges another party’s patent application or patent ownership on the ground that the patent used that technical secret without permission. Employees do have at least implied duties to preserve confidential technical information, and those duties become much stronger when reinforced by labour contracts, confidentiality agreements, handbooks, access-control policies, and exit procedures. The Labour Contract Law expressly permits confidential- ity obligations and, for appropriate personnel, com- petition restrictions coupled with compensation. It also provides liability where an employee breaches confidentiality obligations and causes losses to the employer. 6.4 Protection Through Contract and Confidentiality The most common contractual tools are standalone NDAs, confidentiality clauses in employment con- tracts, confidentiality clauses in service, supply, development, manufacturing, and joint venture agreements, non-use and non-disclosure provisions, access restrictions, return-or-destruction obligations on termination, audit rights, and liquidated damages or damages clauses where enforceable. In China, these contractual protections are particularly impor- tant because they help establish both the parties’ obli- gations and the “reasonable confidentiality measures” needed for trade secret protection. For employees, confidentiality clauses are often paired with post-employment non-compete clauses for sen- ior managers, senior technical personnel, and others with confidentiality obligations, subject to the Labour Contract Law’s requirements, including compensation during the restricted period and a maximum term of two years. These mechanisms are not substitutes for good internal controls, but they materially strengthen the employer’s position in later litigation. In commercial technology arrangements, parties also commonly define the know-how, restrict the permit- ted field of use, allocate improvement rights, regulate sublicensing, impose confidentiality obligations on
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