What to Do When Your Secret is Out

Moreover, the CSL prescribes that CII operators must store
both personal information and important data collected
during operations in China within the territory of China.
CII operators can be requested to undergo much stricter
cybersecurity review before cross-border data transfers. If
cross-border transfer of such information is truly necessary
for business reasons, the CII operators must conduct a
security assessment (details of which are not available at the
moment and subject to further implementation legislation)
before cross-border transfer. The Chinese authorities could
block any cross-border transfer of data, if they believe the
risks of data leaks or loss of data to be considerable.
For CII operators, unauthorized cross-border provision of
personal or important data can be subject to conscation of
illegal gains and a ne of up to RMB 1,000,000 (EUR 130
000), suspension of business or revocation of business
license and nes of up to RMB 100,000 (EUR 13 000) for
responsible management personnel.
What happens if you don’t comply with the CSL regulations?
In the event that you do not comply with the CSL, you may
suer from a triple punishment, namely;
A. Chinese authorities’ potential punishment for non-
compliance (including nes, suspension or revocation of
business license);
B. The obligation to be certied by a cybersecurity expert,
which is an expensive process, and
C. Your non-compliance might be detected following the
hack of your networks and the leak of your valuable and
strategic data (i.e. your IP), for example commercial and
nancial information, customers personal data etc. This
could cause you to lose competitive advantage in your
eld of activity but also damage your reputation.
As an SME, such non-compliance might even mean the end of
your business development in China. As a result, compliance
with the CSL requirements should be taken seriously.
Trade secrets
Trade secret is any condential business information or
know-how which provides an enterprise with a competitive
advantage, and for which measures are taken to keep it
secret. Examples of trade secrets include drug trial data,
design drawings, descriptions of manufacturing processes,
client lists, patent information or recipes. Three conditions
should be met for you to enjoy trade secret protection
in China: (1) the concerned information must be either a
technical, operational or business information; (2) such
information must have a business value; and (3) it must be
protected by condentiality measures. The level of protection
should be reasonable considering the importance and value
of the trade secret. As non-registrable IP, trade secrets are
protected as long as they are kept secret.
Complying with the CSL is not optional, SMEs wishing to start
a business in China must comply with its obligations. Thus,
you should design your IP protection strategy, especially
regarding the protection of trade secrets, which cannot be
protected by registration, taking into consideration the CSL
rules. Certain requirements, such as the use of Chinese
service providers, can be considered as an obstacle for many
SMEs fearing security risks to trade secret protection, as not
all service providers accept liability in case of data leakage
or cyber-intrusion. As these requirements are mandatory,
your trade secret protection strategy needs to take this into
account. For example, you could opt for not providing the
Chinese oce with all your sensitive information, but only
the necessary data to operate in China. The rule of “need to
know” can be applied for the oce, reducing the amount of
information outside the company´s server. Should you need
to store your trade secrets in China or access them remotely
from your EU headquarters, you should keep condential
information encrypted.
5. Implications for IP protection

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