The impact and suggestions of the latest judicial interpretations on trade secrets on the protection of trade secrets in the "software" related industry
Author: Zhao Gang
On September 10, 2020, the Supreme People's Court released the latest judicial interpretation document, the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Cases of Infringement of Trade Secrets (hereinafter referred to as the "New Judicial Interpretation"), which came into effect on September 12, 2020. The promulgation of the new judicial interpretation is not only a further combing and summarizing of China's judicial experience in the judicial practice of trade secrets, but also an important measure to serve innovation and development, strengthen the judicial protection of intellectual property rights, especially trade secrets, and encourage fair competition, and is also an important embodiment of China's further implementation of the China-US economic and trade agreement in the judicial field, which is of great significance. From the perspective of the "software" industry, the author briefly discusses the important impact of the new judicial interpretation on the protection of trade secrets in the "software" related industry, and makes some interpretations of some provisions and puts forward some protection suggestions for the benefit of readers.
1. The necessity of software protection through trade secrets
When it comes to software protection, the first thing that most legal practitioners think of is to protect their rights from the perspective of infringing on the copyright of computer software. According to incomplete judicial statistics, more than ninety percent of civil disputes involving infringement of computer software copyrights or contract disputes related to computer software development and consulting are also the case. Of course, the protection of computer software through the copyright path is relatively mature in judicial practice, both in terms of the standard of evidence determination and the principle of infringement judgment, but according to the author's experience, it is also necessary for the software to be protected through the trade secret route.
First of all, software sales is no longer the era of "CD-ROM sales", more and more computer software services are using the remote "cloud" service model, the software "client" is only a very small part of the subject computer software, and the supporting background management, control software, and database parts are often the core of the target software, and do not belong to the "content of the target program that can be easily obtained by the user", and belong to the core confidential assets of the enterprise. This kind of core asset has the secret attribute of trade secrets.
Secondly, artificial intelligence algorithms, big data information, computer programs, etc. need to be machine-readable to meet the needs of carrying, control, and application, so their "core technical solutions" are mostly embodied in a form of "source code" that can be stored on hardware carriers and can be copied. This means that the so-called "software industry" is no longer limited to the traditional computer program software industry, and the "core research and development" content of any high-tech enterprise may be involved. However, if the data itself comes from the public domain, such as artificial intelligence algorithms and big data information, such as traditional computer program software, it may not be able to meet the originality requirements of the work in the Copyright Law and obtain protection through copyright protection.
Third, the path of copyright protection only protects expression, not ideas, and the technical solutions of core software or computer programs such as artificial intelligence algorithms and big data, that is, the ideological level, are the core of the value of software. In other words, the scope of technical solutions protected through the trade secret path is often larger than the "source code expression" level itself (as shown in the figure below). Therefore, it will be more comprehensive to protect it through the trade secret route.
Click image for full size
Fourth, software-related industries are highly technical, but the practitioners are relatively young and do not understand the legal requirements for trade secret protection in the industry. Therefore, the vast majority of software-related infringement disputes originate from the deliberate actions of the core R&D personnel of the enterprise, such as intentional disclosure, resignation/job hopping, and copyright registration of the source code of the computer software developed by the company in their own name, etc., and the manifestations of the relevant acts are very consistent with the manifestations of infringement in trade secret infringement disputes.
II. The specific impact and understanding of the new judicial interpretation on the protection of trade secrets in "software" related industries
1. The new judicial interpretation clarifies that software-related content can be used as the object of trade secret protection.
Article 1 of the New Judicial Interpretation stipulates that the people's court may determine that information related to technology, such as structures, raw materials, components, formulas, materials, samples, styles, propagation materials of new plant varieties, processes, methods or their steps, algorithms, data, computer programs and related documents, constitutes technical information as referred to in paragraph 4 of Article 9 of the Anti-Unfair Competition Law. Among them, information such as algorithms, data, computer programs and their related documents are closely related to "software"-related industries, and the new judicial interpretation clarifies it by enumerating "technical information", pointing out the general direction for the protection of "software" through the path of trade secrets.
2. The new judicial interpretation is conducive to providing comprehensive protection to database and financial transaction model software through the trade secret path.
Paragraph 2 of Article 4 of the New Judicial Interpretation provides that new information formed after collating, improving, and processing information known to the public meets the requirements of Article 3 of these Provisions[1], and shall be deemed not to be known to the public. This provision is very conducive to the comprehensive protection of database and financial transaction model software through the trade secret path.
Taking the protection of the trading platform software and related underlying data trading strategy models of private equity funds engaged in quantitative investment as an example, for private equity fund companies engaged in quantitative investment in the futures market, the key to distinguishing the performance of each such private equity fund company lies in its quantitative trading strategy model, and the establishment of the trading strategy model needs to be formed through the collation, processing and analysis of massive public channel transaction data. After the completion of the trading strategy model, the personalized trading platform software of this type of private equity company can be built. Such software can of course be protected by copyright law if it is original at the source code level, but the data basis of the software, that is, the trading strategy model formed through the collation, processing and analysis of massive public channel transaction data, may not be protected by copyright law because it reflects "originality". However, in general, the trading strategy model is more in line with the characteristics of new information formed after sorting, improving and processing information known to the public, and can be protected through the trade secret route if it satisfies the condition of "not being known to the public".
3. It is a little regrettable that the new judicial interpretation does not include or establish some beneficial practices involving the protection of software-related trade secrets in judicial practice.
As we all know, in terms of the core content of protection, whether it is the copyright path or the trade secret path, the computer software needs to be embodied at the source code level, but the legal requirements for the composition of rights are different between the two paths. To protect rights through the idea of copyright, the first thing that needs to be determined is whether the relevant computer software constitutes a work, that is, it needs to meet at least the statutory requirement of "originality". For software that can constitute technical information trade secrets, it needs to meet the three requirements of "confidentiality", "confidentiality" and "value". Among them, the requirement of "secrecy", i.e., "not known to the public", is the most difficult point for rights holders to prove in judicial practice, and most rights holders in trade secret cases who lose the case are stuck in adducing evidence on this point. In the judicial practice of such cases, some courts have interpreted "secrecy" from the perspective of originality in the Copyright Law in their judgments, so as to reduce the burden of proof on the right holder for this part of the content. For example, in the case (2019) Jing Min Zhong No. 231, the court held that the plaintiff was the developer of the five software involved in the case and had put in creative labor in the process of writing the software. Although the source code of the software involved in the case contained some open source code or third-party code, the plaintiff still paid creative labor in the selection of open source code and third-party code, as well as the combination relationship between open source code and third-party code and custom code. The technical information formed by the labor has certain particularities, which is different from publicly known information, and can be determined to be information that is not known to the public. That is, the court directly recognized the positive probative force of "originality" over "secrecy". In judicial practice, this type of determination is undoubtedly a positive positive for the rights holders of similar trade secret cases in the software industry, and will greatly reduce the burden of proof on the rights holders for "trade secrets".
Of course, it needs to be admitted that there is indeed a certain difference between the "originality" in the Copyright Law and the "confidentiality" required in trade secret cases. In other words, originality in the Copyright Law emphasizes the choice of expression based on personal will, while "secrecy" or "not known to the public" emphasizes the fact that the information itself is not known, understood, obtained, or mastered by the public. Therefore, there is indeed a possibility that, for example, the owner of a computer software rights discloses its original source code, in which case it is clear that "originality" exists, but "secrecy" is lost. Considering that this kind of situation is rare in reality. Therefore, the author understands that the purpose of recognizing the positive probative power of "originality" over "secrecy" in judicial practice is to shift the burden of proof of "secrecy" after the right holder proves the "originality" of the computer software, so as to reduce the burden of proof on the "trade secret" constituted by the right holder. Of course, the author believes that it is a pity that the new judicial interpretation does not incorporate such judicial practice experience, and it may only be reflected in the judicial practice of similar cases in the future.
4. The requirement of confidentiality measures emphasizes "reasonableness", which lowers the threshold of proof for the protection of trade secrets of rights holders.
Article 6 of the New Judicial Interpretation enumerates in detail the specific circumstances in which the people's court shall determine that the right holder has taken corresponding confidentiality measures, and the author believes that the rights holder in the software industry should pay special attention to the contents of (5) and (6). Subparagraph (5) deals with measures such as prohibiting or restricting the use, access, storage, and reproduction of computer equipment, electronic equipment, network equipment, storage equipment, software, etc., that can access or obtain trade secrets. The provisions remind relevant enterprises in the software industry that they should try their best to adopt technical arrangements such as fixing special development equipment, authorized password login, remote calling, and leaving traces of copying and downloading, so as to ensure that the technical measures of the enterprise meet the requirements of "reasonable" confidentiality measures during the work of R&D personnel. Item (6) deals with the situation where the departing employee is required to register, return, clear or destroy the trade secrets and their carriers that he or she has accessed or obtained, and continue to bear the obligation of confidentiality. The regulations remind relevant enterprises in the software industry that the software source code has strong reproducibility and flexible carriers, so it is advisable to further make written requirements and commitments to the departing R&D employees in accordance with the regulations.
At the same time, the author believes that it is necessary to pay attention to the subtle changes in the wording of the first paragraph of the confidentiality measures clause in the draft of the new judicial interpretation and the official release draft. In other words, Article 7 of the Draft for Comments provides that the corresponding confidentiality measures taken by the right holder may include the following circumstances...... However, Article 6 of the New Judicial Interpretation is amended to provide that under any of the following circumstances, it is sufficient to prevent the disclosure of trade secrets under normal circumstances, the people's court shall determine that the rights holder has taken corresponding confidentiality measures....... The Consultation Paper does not clarify the circumstances under which "the following circumstances" are required if the standard of reasonable confidentiality measures is to be met, and to what extent, is more vague than the standard. However, the new judicial interpretation further clarifies this, that is, one of the following circumstances is sufficient, and the condition only needs to be "sufficient to ...... under normal circumstances", which is more instructive in judicial practice.
5. The "passive disclosure" clause in the Consultation Paper has not been included in the new judicial interpretation, and needs to be further clarified in judicial practice
As we all know, in software-related industries, it is very common for software to be commissioned for development. After the delivery of the subject software for commissioned development, the intellectual property rights have been transferred, but the trustee still needs to legally hold the software source code in some cases for subsequent software maintenance, upgrades, and improvements, which may lead to the risk of improper disclosure (unintentional) software source code by the trustee. Then, in the aforesaid case, if an improper disclosure occurs, can the right holder pursue the legal liability of the trustee for infringing the rights of software trade secrets? According to Article 9 of the Anti-Unfair Competition Law of the People's Republic of China, the specific acts of trade secret infringement are mainly the act of obtaining trade secrets by improper means, the act of disclosing, using or allowing others to use the act of obtaining trade secrets by improper means, and the act of disclosing, using or allowing others to use the trade secrets in their possession in violation of confidentiality obligations or the requirements of the right holder for the preservation of trade secrets. In the case of the above-mentioned entrusted development, the improper disclosure caused by lawful possession seems to be the closest to the performance of "disclosing the trade secrets in its possession in violation of confidentiality obligations or in violation of the rights holder's requirements for keeping trade secrets" in Article 9 of the Anti-Unfair Competition Law, except that "involuntary disclosure" is "passive disclosure". In fact, Article 12 of the Draft Judicial Interpretation attempts to stipulate that, after the right holder has lawfully authorized the acquisition of a trade secret, the people's court shall determine that the disclosure of the trade secret in its possession is the disclosure of the trade secret in its possession as referred to in Article 9 of the Anti-Unfair Competition Law. The original intention of this provision was to include "passive disclosure" in trade secret infringement, but the new judicial interpretation eventually promulgated deleted this provision. The author speculates that it may be based on one of the following two considerations: first, the provisions on the protection of trade secrets in Article 9 of the Anti-Unfair Competition Law of the People's Republic of China only consider "active acts" in the performance of acts at the beginning of the legislation, and the inclusion of passive acts in trade secret infringement is not in line with the original intent of the legislation, and the scope of judicial interpretation can only be carried out in accordance with the spirit of the legislation, and cannot exceed the scope of legislation, so "passive disclosure" should not be included in the new judicial interpretation of trade secrets. Second, Article 9 of the Anti-Unfair Competition Law of the People's Republic of China does not exclude "passive acts" in terms of the protection of trade secrets at the beginning of the legislation, but the relevant contradictions are not prominent in practice, and it is not mature to be included in the new judicial interpretation of trade secrets, and can be resolved on a case-by-case basis in judicial practice in the future. In short, it is worth paying attention to whether this practice will appear in judicial practice in the future.
6. The illegal use of software source code for further development is restricted, and the new judicial interpretation clearly belongs to the "use" of trade secrets.
Article 9 of the New Judicial Interpretation stipulates that if the accused infringer directly uses trade secrets in production and business activities, or uses trade secrets after modification or improvement, or adjusts, optimizes or improves relevant production and business activities based on trade secrets, the people's court shall determine that the use of trade secrets is the use of trade secrets as referred to in Article 9 of the Anti-Unfair Competition Law. This provision further restricts the illegal use of software source code for further development from the perspective of trade secret protection, which is further beneficial to relevant right holders. Under the circumstance that the trade secret right of the software technical solution can be constituted, the software right holder does not need to be entangled in whether the alleged infringer's act is "copying" or "adaptation" at the level of copyright infringement, and there is no need to worry about whether a new "original" content has been formed, and the degree of modification and improvement does not affect the characterization of the infringing use of "trade secrets".
7. The New Judicial Interpretation further clarifies the circumstances to be considered for the determination of "substantially identical", considering it from multiple angles, and reducing the difficulty of adducing evidence for trade secret rights holders to protect their rights.
Paragraph 2 of Article 32 added to the newly amended Anti-Unfair Competition Law of the People's Republic of China stipulates that if the trade secret rights holder provides prima facie evidence reasonably indicating that the trade secret has been infringed, and provides one of the following evidence, the alleged infringer shall prove that it has not infringed the trade secret: (1) there is evidence that the suspected infringer has the channels or opportunities to obtain the trade secret, and the information used by the alleged infringer is substantially the same as that of the trade secret; (2) There is evidence that the trade secret has been disclosed or used by the alleged infringer, or there is a risk of disclosure or use; (3) There is other evidence showing that the trade secret was infringed by the alleged infringer.
The legislative intent of the aforesaid provisions is to clarify the standard for shifting the burden of proof in trade secret cases, so as to reduce the difficulty for rights holders to protect their rights. However, according to the content of Article 32, it can be seen that the shift of the burden of proof stops at the fact that the right holder has proved that the infringing technical solution and the trade secret technical solution are "substantially identical", but Article 32 does not further solve the problem of substantially the same considerations, resulting in the court placing more emphasis on the results of direct comparison in judicial practice. However, in software infringement cases, the content of the infringing technical solution itself is not easy to obtain, and even the defendant will not submit it on its own initiative, so the court needs to apply a presumption, and the presumption or otherwise depends entirely on the experience and determination of the collegial panel (in most cases, the right holder loses the case). For example, in the case (2019) Jing Min Zhong No. 231, the court ruled that from the perspective of increasing the burden of proof of trade secret rights holders, it is not appropriate to be too strict with their burden of proof, but trade secret rights holders should have prima facie evidence to prove the occurrence of infringement. Specifically, if the trade secret rights holder provides preliminary evidence reasonably showing that the trade secret has been infringed, the alleged infringer shall prove that it has not infringed the trade secret. For example, if there is evidence that the alleged infringer has channels or opportunities to obtain trade secrets, and the information used by the alleged infringer is substantially the same as the trade secret, the alleged infringer shall prove that it has not infringed the trade secrets. However, the court's argument stopped there, and it was not clear in individual cases how to prove that they were substantially the same, and what factors needed to be specifically considered.
In fact, Article 8 of the Draft Judicial Interpretation attempts to provide further provisions in this regard, as the first paragraph of this article provides that if the right holder submits prima facie evidence to prove that it has taken corresponding confidentiality measures for the claimed trade secret, and the accused infringer has channels or opportunities to obtain the trade secret, and the infringement of the trade secret is more likely, the accused infringer bears the burden of proof that the trade secret has been known to the public or that it has not infringed the trade secret. The fundamental purpose of this provision is to try to reduce the difficulty of shifting the burden of proof on trade secret rights holders, but the criterion of "higher likelihood of infringement of trade secrets" is too vague, which may lead to confusion in the judicial scale, and then go to the other extreme, so the aforementioned provisions are deleted in the official release document.
Article 13 of the New Judicial Interpretation, on the other hand, summarizes the experience of judicial practice and further clarifies the circumstances to be considered for the determination of "substantially identical", which can further reduce the difficulty of adducing evidence for trade secret rights holders to protect their rights. This article provides that if there is no substantial difference between the allegedly infringing information and the trade secret, the people's court may determine that the allegedly infringing information and the trade secret constitute substantially the same as referred to in paragraph 2 of Article 32 of the Anti-Unfair Competition Law. People's courts may consider the following factors in determining whether there is substantial sameness as provided for in the preceding paragraph:
(1) The degree of similarities and differences between the allegedly infringing information and commercial secrets;
(2) Whether the relevant persons in the field are prone to think of the difference between the allegedly infringing information and the trade secret at the time of the alleged infringement;
(3) Whether there are substantial differences between the use, method of use, purpose, and effect of the allegedly infringing information and the trade secret;
(4) Circumstances in the public domain related to commercial secrets;
(5) Other factors that need to be considered.
Item (3) stipulates that the author thinks that it is more based on the experience of infringement comparison in software copyright infringement cases. In the judicial practice of software copyright infringement cases, the comparison of real source code does not exist in the vast majority of cases, and more alternative methods are to further combine the decompilation results of the target program (the decompiled code is "pseudocode", not the original development "source code") on the basis of the preliminary comparison of the interface similarity, function and effect of the target program, to reverse presume and judge the consistency of the source code. The provision in item (3) means that in the future, it is entirely possible to draw on the application of the software copyright infringement comparison method to promote the transfer of the burden of proof, so as to further reduce the difficulty of proof for the rights holders of software trade secrets.
3. Some suggestions on the protection of trade secrets of enterprises in "software" related industries
The New Judicial Interpretation is a summary of China's long-term judicial practice experience in the protection of trade secrets, and is also a guide for enterprises to take precautions for compliance work. In the author's opinion, "software"-related enterprises can consider the following aspects to strengthen the protection of trade secrets related to core software assets in terms of the protection of the rights of core software assets:
1. Establish the basic principles of comprehensive protection. For core assets such as big data and artificial intelligence algorithms, as well as assets that may not be protected from the perspective of copyright, attention should be paid to the protection of the technical solution itself, and compliance measures should be formulated through the path of trade secret protection. For auxiliary and functional software assets that assist in the development of the core asset functions of the enterprise, compliance measures can be formulated from the perspective of copyright protection, and copyright registration can be actively carried out.
2. Do a good job of confidentiality measures in the three key stages of entry, work and resignation of R&D personnel.
At the entry stage, it is necessary to sign a separate position-specific confidentiality agreement or stipulate confidentiality obligations in the contract.
During the work period, measures should be taken for hierarchical management of staff (for core R&D personnel, ordinary R&D personnel, and non-R&D personnel); For the use of the company's software, technical measures such as fixed development hardware equipment, password login, remote call and replication traces should be taken as far as possible; Do a good job in the retention of development documents, especially the detailed records of the corresponding software research and development personnel and the content of participation; When it comes to internal technical training, the confidentiality obligation is emphasized in the form of signing the meeting minutes.
In the resignation stage, it is necessary to request the departing R&D personnel to register, return, clear and destroy the trade secrets and their carriers that they have contacted or obtained, continue to bear the confidentiality obligation, and confirm in writing.
3. Do a good job of keeping records and preserving the source code of different versions of R&D software. On the one hand, the content of documents such as different versions of software development and upgrade files can be used to prove the actual developer of the software, that is, to determine the ownership of rights, and at the same time, the retention of the source code of different versions of the software is conducive to the use of the closest version[2] to improve the chances of winning the rights protection in the future.
[Note]
[1] Author's note: That is, the information requested by the right holder is not generally known and easily accessible to the relevant persons in the field at the time of the alleged infringement
[2] The initial right holder is generally not sure of the version of the source code of the software used in infringement.