China: Protecting Trade Secrets During Technology Partnerships – Lessons from a Recent Supreme People’s Court Decision

Trade secrets are among the most valuable assets of technology-driven businesses. Whether a company is entering into a joint venture, attracting investment, licensing technology or negotiating a business acquisition, sharing confidential technical information is often essential to moving a transaction forward.

However, as businesses seek to demonstrate the value of their technology, they also face a significant commercial risk: how can they share enough information to progress negotiations without exposing themselves to the loss of valuable trade secrets?

A recent decision of the Supreme People’s Court of China provides useful guidance on this issue, highlighting the importance of carefully structuring technology transactions and implementing robust trade secret protection measures throughout the negotiation process.

Trade Secrets and Commercial Cooperation

Technology companies frequently disclose confidential technical information during:

• Technology cooperation projects
• Joint ventures
• Equity investments
• Technology licensing
• Business acquisitions
• Technology transfer negotiations

While these discussions may ultimately lead to successful commercial relationships, they also increase the risk that valuable confidential information may be disclosed without adequate legal protection.

Background to the Case

The case involved a Chinese environmental technology company that owned a series of technical drawings relating to waste treatment technology.

As part of an investment cooperation arrangement, the company agreed to contribute its technology and know-how in exchange for an equity interest in a newly established company, together with additional financial consideration.

Following execution of the cooperation documents, the technology owner delivered 166 electronic technical drawings and provided technical training to the new company.

The commercial relationship subsequently broke down before the wider transaction was completed.

The technology owner alleged that the recipient had fraudulently obtained its trade secrets and brought proceedings seeking substantial damages for trade secret infringement.

The Court’s Decision

Although the Supreme People’s Court accepted that the technical drawings constituted protectable trade secrets, it concluded that the technology had originally been disclosed pursuant to a legitimate commercial cooperation agreement.

The Court found there was insufficient evidence to establish that the recipient had obtained the information through fraud or other improper means.

Importantly, the recipient had:

• obtained the information under written cooperation documents;
• participated in an agreed technology handover process;
• not disclosed the information to third parties; and
• sealed rather than used the technical materials after negotiations failed.

As a result, the Court held that the circumstances did not amount to trade secret infringement through improper acquisition.

However, the Court required the recipient to return the trade secret materials and sign a formal undertaking confirming that the confidential information would not be disclosed, used or made available to others without authorisation.

Why This Decision Matters

The judgment demonstrates that unsuccessful commercial negotiations do not automatically amount to trade secret misappropriation.

Where confidential information has been provided pursuant to a genuine commercial arrangement, courts will closely examine:

• the legal basis for disclosure;
• the parties’ intentions when the information was shared;
• the recipient’s conduct after receiving the information; and
• whether there is evidence of fraudulent or dishonest behaviour at the time of disclosure.

The decision also reinforces the importance of distinguishing contractual disputes from trade secret infringement claims.

Practical Risk Management for Technology Businesses

The case highlights several practical measures that businesses should consider when sharing valuable technical information.

Separate Confidentiality from Commercial Agreements

Businesses should consider entering into dedicated confidentiality, technology licence or technology transfer agreements rather than relying solely on broader investment or cooperation documents.

Clearly identifying the confidential information and defining the conditions under which it may be used can significantly reduce future disputes.

Deliver Technology in Stages

Rather than providing all confidential information at the outset, businesses may wish to link disclosure to agreed commercial milestones, such as staged payments or completion of due diligence.

A phased approach helps reduce commercial risk if negotiations fail.

Maintain Comprehensive Records

Detailed records of:

• documents disclosed;
• delivery dates;
• recipients;
• confidentiality acknowledgements; and
• technical training

can provide valuable evidence if disputes later arise.

Define the Consequences of Failed Negotiations

Commercial agreements should specify what happens to confidential information if negotiations terminate, including:

• return or destruction of confidential materials;
• deletion of electronic copies;
• ongoing confidentiality obligations; and
• restrictions on future use.

Key Takeaways

This decision illustrates that effective trade secret protection begins long before litigation.

Technology businesses should ensure that confidentiality protections are incorporated into every stage of commercial negotiations, from the initial sharing of technical information through to any final transaction.

Well-drafted agreements, staged disclosure of confidential information and comprehensive record keeping remain among the most effective ways of protecting valuable intellectual property while supporting successful commercial collaboration.

Anjie Broad, China, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact china@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.