Rebalancing the Burden of Proof for Trade Secrets Cases in China: A Detailed Scrutiny and Comparative Analysis of Article 32

One of the most significant legal changes to the trade secrets system in China during the past three years has been Article 32 of the 2019 Anti-Unfair Competition Law (AUCL).  Article 32, which seeks to reduce the plaintiffs’ burden of proof, was promulgated against the backdrop of the US-China trade war and its language largely follows that of the US-China Phase One Agreement.  It shifts to defendants the burden of proof for the trade secrets status elements (secrecy and commercial value) and the existence of misappropriation. The extension of greater protection for trade secrets holders in China is welcome.  However, Article 32 is full of problems that greatly undermine its benefits.

Article 32 suffers from serious uncertainty. For example, on what type of ‘burden of proof’ does it focus? Article 32’s language is ambiguous as to whether it creates presumptions to facilitate shifting the burden of production during litigation or whether it functions as a statutory exception to reallocate the burden of persuasion at the outset. This ambiguity has given rise to intense debate among scholars and practitioners, with many criticizing the defective wording and offering conflicting interpretations to resolve the uncertainties.

Moreover, it is questionable whether reducing the burden of proof for plaintiffs is justified. Defendants incur significant costs in defending themselves against trade secrets liability such that the justifications for adding Article 32 seem very weak. It can be argued that Article 32 may have become an overly favorable mechanism for plaintiffs at the expense of defendants. Accordingly, doubts arise about whether Article 32 maintains an acceptable balance between plaintiffs and defendants and whether it can sustain well-grounded scrutiny.

In light of these questions, my recent article reexamines Article 32 of the AUCL, aiming to clarify its ambiguity and to introduce a suitable interpretation. My analysis begins with a brief introduction to burdens of proof by examining the concepts of burden of persuasion, burden of production, and presumptions. The burden of persuasion identifies which party bears the burden of convincing the court that the evidence presented  satisfied the standard of proof (some predetermined degree of probability). The party who is allocated the burden of persuasion bears the risk of non-persuasion. In other words, when a material issue of fact is in dispute and ‘the trier’s mind is in equipoise,’ the party bearing the burden will lose. Further, no matter what evidence is provided by the parties, the burden of persuasion normally remains on one side rather than shifting from its original allocation during litigation. In contrast, the burden of production, also known as the ‘burden of going forward with the evidence,’ requires one party to produce evidence for the contested issues. If the party with the burden of production fails to produce sufficient evidence on the issue, that party risks losing on that issue. Although initially the burden of production lies with the party bearing the burden of persuasion, the burden of production shifts between parties ‘during the course of trial as more and more evidence is progressively introduced,’ while the burden of persuasion remains static. A corollary to the burden of production and burden of persuasion is the presumption, under which certain facts are held to call for uniform treatment with respect to their effect as proof of other facts. Most presumptions trigger the shifting of the burden of production to the other side to present rebuttable evidence.

Then I examine the reading of the two sections of Article 32 and propose an appropriate interpretation in the Chinese context. I present arguments against the justifications of the two sections of Article 32, and critically assess the balance between the burdens falling on plaintiffs and on defendants, partly based on comparisons with US laws.

Section One creates unreasonable and unsupported presumptions on the secrecy of trade secrets. None of the typical justifications for imposing presumptions, including the high probability justification, imbalance resulting from one party’s superior access to proof, and an independent designated social policy, can satisfactorily support the Section One presumption. Meanwhile, the burdens imposed on defendants to disprove the reasonable secrecy measure, the secrecy, and the commercial value of the alleged information to defeat the presumption are not light; therefore, this presumption unjustly favors plaintiffs. Also, it has incited contradicting interpretations from different courts, harming legal predictability.

Section Two adopts a one-size-fits-all presumption on the existence of misappropriation of trade secrets. But at least certain types of cases do not merit such a presumption. For example, the substantial similarity plus access rule is not suitable in cases where independent development of trade secrets is likely. Another relatively uncommon but still not hypothetical type of case is represented by On-Line Tech. v. Bodenseewerk Perkin-Elmer 386 F.3d 1133 (2004), where the ‘secret’ had been disclosed in a patent application and there was a possibility that defendants used the information disclosed in the patent application rather than the plaintiff’s trade secrets. In those cases, defendants are unfairly disfavored, which may harm cumulative innovation and employee mobility.

Building on these foundations, my article then presents normative suggestions for amending both sections of Article 32 to restore the balance of burden of proof imposed on both parties. Section One of Article 32 should be deleted to eliminate the unjustified presumption. The removal of Section One implies that plaintiffs would bear the initial burden of production on all trade secrets status elements. Shifting the burden of production would reinstate the general rule that the burden shifts to defendants only after plaintiffs satisfy their initial burden of production by providing prima facie evidence of the use of reasonable secrecy measures, as well as the secrecy and commercial value of claimed trade secrets.

Section Two of Article 32 should be revised to be more lenient regarding the presumptive effect of the evidence on substantial similarity and previous access. Specifically, this proposal aims to recognize the great weight put on evidence of substantial similarity and previous access in assessing the existence of misappropriation of trade secrets. However, it will not allow courts to presume from the mere proof of ‘substantial similarity and previous access’ that misappropriation occurred. Instead, it will treat the substantial similarity and access elements as two prominent pieces of circumstantial evidence that courts should take into serious consideration when judging whether plaintiffs satisfy their initial burden of production. This approach would allow courts to require plaintiffs to provide other relevant evidence on misappropriation in addition to those two elements, depending on the specific circumstances of each case.

Chen Yang is Assistant Professor at the School of Law, City University of Hong Kong.

The author’s article can be read here.