Introduction

On 13 September 2020 the Supreme People's Court (SPC) and the Supreme People's Procuratorate (SPP) jointly promulgated Interpretation III on Several Issues Concerning the Specific Application of the Law in Handling Intellectual Property Criminal Cases. The judicial interpretation entered into force on 14 September 2020.

The judicial interpretation is the latest attempt of the SPC and the SPP to reduce IP rights crimes and create a business-friendly environment by establishing unified standards in the application of the law in this regard.

Contents

The judicial interpretation comprises 12 articles which primarily:

  • clarify the criminal thresholds for the misappropriation of trade secrets and the methodology for calculating losses and illegal gains;
  • enumerate the circumstances in which trademark counterfeiting, copyright piracy and misappropriation of trade secrets can be ascertained; and
  • expatiate what constitutes an aggravated offence (subject to higher penalties) and a mitigated offence (subject to lower penalties).

Criminal threshold for misappropriation of trade secrets

Article 4.1.1 of the judicial interpretation lowers the criminal threshold for misappropriation of trade secrets to cover instances where:

  • the owner of the misappropriated trade secret suffers damages equal to Rmb300,000 or above; or
  • the illegal gains equal Rmb300,000 or above, resulting in "significant damage... to the owner of the trade secret".

Methodology for calculating losses and illegal gains

Article 5 sets out the methodology for calculating losses and illegal gains:

  • Reasonable licensing fee of trade secret – this method applies where the litigious trade secret was acquired by unfair means and has yet to be disclosed, exploited or licensed to be used by others.
  • Loss of sales revenue of trade secret owner or reasonable licensing fee of trade secret (whichever is higher) – this method applies where the litigious trade secret was acquired by unfair means and has been disclosed, exploited or licensed to be used by others.
  • Loss of sales revenue of trade secret owner – this method applies where the litigious trade secret has been disclosed, exploited or licensed to be used by others via the breach of an agreement or the owner's confidentiality requirement.
  • Loss of sales revenue of trade secret owner – this method applies where the accused obtains, exploits or discloses the trade secret despite knowing that it:
    • was acquired by unfair means; or
    • has been disclosed, exploited or licensed to be used by others via the breach of an agreement or the owner's confidentiality requirement.

Article 5 sets out the circumstance in which loss may be calculated based on a trade secret's commercial value, provided that the litigious trade secret has become known to the public or has lost its confidentiality due to misappropriation. A trade secret's commercial value may be determined by factors such as the cost of research and development and the gains yielded by implementing the trade secret.