Breach of Business Secrets for the Benefit of Foreign Parties

In the draft for the extension of the criminal law, a new paragraph against industrial espionage in particular attracts attention: “Anyone who steals, spies on, buys or illegally makes available trade secrets for the benefit of foreign corporations, organizations or persons shall be punished with a prison sentence of up to 5 years or a short prison sentence and/or fine; in the case of serious offences, a prison sentence of more than 5 years and a fine shall be imposed”.

This makes the theft of trade secrets for the benefit of foreign parties an independent criminal offence. The provision is similar to globally accepted regulations against industrial espionage, and the official explanations to this draft also state that this provision is aimed at industrial espionage. However, it does not apply exclusively to cases in which business secrets have been embezzled in favor of a foreign government, but generally in cases of embezzlement of business secrets in favor of foreign parties.

There are fears, particularly in the USA, that Chinese companies could use the regulation to exert more pressure on foreign companies – for example, to gain commercial advantages if a cooperation is terminated. If a cooperation is terminated due to conflicts and there are no agreements clearly regulating the ownership of trade secrets, it is easy to sue the former partner for misappropriation of trade secrets. A report alone can damage the former partner’s business in China. Many commentators from the USA therefore see the regulation as a counterblow to the increasing number of American court cases for industrial espionage against Chinese parties. 

The exact amount of the fine is not discussed in the draft. For misappropriation of trade secrets, the fine ranges from RMB 10,000 to RMB 200,000. The fine for misappropriation of trade secrets for the benefit of a foreign party will be considerably higher, especially in particularly serious cases. The ownership and use of know-how in the event of separation should therefore be clearly defined in the contract.

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