Another common way trade secrets are disclosed is during
business dealings or negotiations with third parties, whether
it be potential partners, suppliers, contractors, licensees, or
customers. Your trade secrets protection policy should address
the protocol to be followed when dealing with third parties.
Generally, you should insist that both parties sign a mutual
non-disclosure agreement before any discussions begin
or documents are transferred. Aer the negotiations have
reached a certain stage, both parties should enter into
a Memorandum of Understanding (MOU) outlining the
structure of the deal, what information will be shared, and
the respective non-disclosure obligations of both parties.
Finally, once an agreement has been reached, the nal
agreement should identify who owns what information,
what information was exchanged, and the respective non-
disclosure obligations of both parties. Explaining that it is
your policy to have a non-disclosure agreement in place
before negotiations begin is a good way to demonstrate
your professionalism and respect for your counterparts’
intellectual property rights. Having a non-disclosure
agreement already draed also helps to minimise the issue
so that you can move forward with your negotiations.
While some of your service providers, for example, your
lawyers or IT server providers might be forced by their
profession to keep information they come in contact
with condential, however, it is advisable to sign an NDA
agreement detailing what protective measures should
be taken and what damages apply in case of any leaks.
Further, if these service providers have access to your
trade secrets, it should be clear to them that the content
information is a trade secret and thus the protection
measures should apply. For example, information is clearly
marked as condential.
The need to know rule mentioned in the previous step can
be also applied in dealings with third parties. The trade
secret should be shared to those service providers that
need the information to perform their job, for example, your
IP agent has to be familiar with your patent specications
in order to manage your IP registration in China.
Many foreign-invested small and medium-sized
enterprises operating in China nd it dicult to insist on
a pre-negotiation non-disclosure agreement when dealing
with Chinese parties. Chinese parties oen claim that such
requests are “hostile” or “unnecessary”, and a handshake
between friends should be enough. This together with
the unpalatable prospect of losing a potential business
opportunity because of what appears to be a rather minor
issue, particularly for a small start-up business, oen
leads many SMEs to move forward with negotiations
without a non-disclosure agreement in place. However,
this may prove costly when the other party starts using
the information to compete against you. When confronted
with such a scenario, it is important to know before
you enter negotiations how far you are willing to skirt
protections of your trade secrets and when to walk away.
Try to develop the relationship and get to know who you
are dealing with to see if they respect your IP rights. The
party that refuses a reasonable request for a mutual non-
disclosure agreement is also the party that is most likely
to misappropriate your trade secrets and use them to
compete against you.
Non-disclosur e agreements are becomi ng more
commonplace in C hina as IP awareness is rising
amongst the general business community. A
party th at refuses to sign an NDA should be
approached w ith suspicion, as they co uld be
likely to infringe your IP r ights in the future.
Finally, being business savvy can go a long way to protecting
your trade secrets in such a situation. For example, if the
Chinese party in such negotiations requests to see your
designs, you can request that they view them at your
business premises or send them only rough sketches which
just give a general idea but which are not detailed enough
to be reduced to practice.
Even aer an agreement is signed, it is important to make
sure you continue to monitor your partners, suppliers or
licensees to make sure they are complying with your trade
secrets protection policy. You may wish to negotiate the right
to make unannounced visits and to conduct periodic audits
in your agreement.
4. Step 4: Dealing with Third Parties
Protecting your Trade Secrets in China