In brief

On 2 November 2022, the Intellectual Property Tribunal of the Supreme People’s Court (“Court“) published its decision on the trade secret infringement case of Wuwei Bosheng Seed Industry Limited Company (Appellant) v. Hebei Huasui Seed Industry Limited Company (Respondent). This case raised the untested question of whether parent material used in breeding can be protected as a trade secret in China.

Trade secrets are unregistered rights. They provide protection in relation to commercial confidential information. To be classified as a trade secret your business needs to be able to prove that it took appropriate measures to maintain the confidential nature of the information. Unlike other forms of intellectual property rights that are limited in duration, trade secrets can last indefinitely so long as the trade secret remains confidential. They equip you with the option to take action against those who misappropriate your trade secrets. However, once the secret is out of the box, the protection is lost. 

---

Contents

1. Background
2. The arguments and the Court’s reasoning
3. 1. Whether parents of hybrid seeds can be the subject matter of trade secret
4. 2. When material is not known to the public and can be regarded as confidential
5. 3. What are appropriate confidentiality measures
6. The Court’s determination of the facts
7. The clarified application of trade secret protection to parent material used in breeding programs
8. What’s next?

---

Background

“W67” and “W68″ are the parents of inbred maize lines bred by the Respondent possessing superior traits and characteristics, including Wannuo 2000” which is protected by plant variety rights. Through improper means, the Appellant obtained plant material of “W68”. In 2020, the Respondent took action against the Appellant for trade secret infringement claiming the Appellant used its technological information in “W68” and requested that the Appellant return or destroy “W68” and pay to the Respondent all monetary gains made from the infringement. The Lanzhou Intermediate People’s Court ruled in favor of the Respondent in July 2021. The Appellant disagreed with the judgment and filed an appeal. On 4 November 2022, the Court dismissed the appeal.

The judgment clarifies that plant material itself can be a trade secret and provides guidance on the appropriate confidentiality measures to be taken in relation to plant material to be afforded trade secret protection. It sheds light on this further tool breeders can use to protect their breeding innovation and also demonstrates China’s continued building of a more comprehensive system of legal protection for breeders.

The arguments and the Court’s reasoning

The Court bench consisted of Judge Luo Xia, as the Presiding Judge, Judge Liu Xiaomei and Judge Lei Yanzhen.

The key question before the Court was whether “W68”, the parent material of “Wannuo 2000”, should be protected as a trade secret.

The Court noted the definition of trade secret under Article 9 of the Anti-Unfair Competition Law which defines trade secrets as commercial information, such as technical information and operational information, which (i) is not known to the public; (ii) has commercial value, and (iii) for which its holder has adopted measures to ensure its confidentiality.

The Court also referred to the Provisions of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Civil Cases of Trade Secret Infringement (“Provisions“), which provide that the People’s Courts may, among other things, determine propagating material of new plant varieties to be technical information that is subject to trade secret protection.

According to the Provisions, appropriate measures are measures which are reasonable in the circumstances taking into account factors such as the nature of the information and its carrier and its commercial value. The measures must be sufficient to prevent the leakage of trade secrets under normal circumstances, and may include non-disclosure agreements, internal security systems and confidentiality training, restricted access and measures taken in relation to departing employees such as requirement to remove or destroy confidential information. 

The Appellant made the following arguments as to why “W68” should not be regarded as a trade secret:

• Only technological information in relation to parent material can be protected as a trade secret, and not the material itself.
• “W68” was already known to the public because:

1. The Respondent had authorised seed multiplication companies to multiply “W68” and use it to produce the hybrid variety “Wannuo 2000”.
2. “Wannuo 2000” had been sold publicly.
3. It was provided on the variety registration of “Wannuo 2000” that the variety had been obtained by the crossing of “W67” x “W68”. 

• The Respondent had not taken sufficient confidentiality measures to protect the confidentiality of “W68”.

The Court referred to the Provisions noted above, as well as other laws and regulations, and concluded that based on the facts of the case, “W68” is protectable as a trade secret, and that the Appellant’s claims lacked sufficient evidential basis.

In reaching its decision, the Court provided clarity on the application of trade secret protection to parent material and the appropriate measures to be taken by the right holders to be afforded the protection. The Court explored and provided guidance on the following points.

1. Whether parents of hybrid seeds can be the subject matter of trade secret

The question before the Court in this case was whether the parents themselves could be protected by trade secret.

The Court reasoned that the intermediate breeding materials and inbred parents used in the process of plant breeding are the intellectual results of the creative labor of breeders through breeding processes including selection. These are different from plant materials found in nature and carry the specific genetic sequences arising from the breeder’s selection and breeding work. Breeding materials are themselves technical information, and also the physical carrier of the technical information, the two being inseparable.

The Court determined that breeding materials with commercial value obtained through breeding innovation can be legally protected as trade secrets provided that the breeding material is not known to the public and appropriate confidentiality measures have been taken to maintain the confidentiality of the breeding materials.

2. When material is not known to the public and can be regarded as confidential

The Appellant argued that the Respondent had made the parent material known to the public as it had authorized seed multiplication companies to multiply the seeds and use them in the production of hybrid varieties. The Court noted that breeders often entrust seed multiplication companies to multiply parents to produce hybrids and found that this of itself does not constitute making parents known to the public.

Further, disclosure of a code name to the public does not constitute disclosure of the trade secret over the plant material. The Court will consider whether the technological information is generally known and easily obtained by the relevant personnel in the field. Technological information refers to the specific content of the information, not just the name or code name of the technological information. The actual control of the breeding material, not the breeding material’s name, is the key for future breeding purposes. If the right holder exercises actual control over the breeding material and has taken appropriate confidentiality measures to safeguard the breeding material, the breeding material is still considered confidential.

3. What are appropriate confidentiality measures

The Court held that it must consider the specific features and characteristics of the confidential information when determining whether reasonable confidentiality measures have been taken. The confidentiality measures need only be reasonable (and not overly strict) to prevent the leakage of information under normal circumstances. Regard must be had to the particular nature of plant material and that need for a certain scale of planting. The Court provided that security measures in such circumstances are difficult to be fool proof.

The Court provided the following examples of confidentiality measures that should be taken to establish trade secret protection over parent material:

• Internal security systems within the right holder, which include specifying that breeding material, breeding samples, parent material and propagating material are all information protected by trade secrets of the company, and must not be disclosed.
• Confidentiality agreements with the right holder’s employees, requiring them to keep confidential the trade secrets such as breeding methods, breeding parents, technical data and propagation material during their employment and for a certain period after resignation, and to hand over all trade secret materials to designated personnel and complete relevant procedures when resigning.
• When engaging the services of a seed multiplication company, adopt code names when referring to the varieties and breeding material, and require the multiplication company to hand over all plant material used and all seeds multiplied to the right holder after the work has finished, without retaining or selling any plant material. The multiplication company should also be made responsible for the confidentiality of the inbred lines by prohibiting them from making any disclosure to third parties.

The Court’s determination of the facts

Based on the definition of trade secrets and the appropriate confidentiality measures provided in the regulations, the Court determined that “W68” itself is protectable as a trade secret and that the Respondent had taken the appropriate confidentiality measures to establish trade secret protection, and dismissed the appeal. The Court provided the following reasoning:

1. “W68” possesses commercial value. “W64” was bred over many years with a degree of innovation and relatively high expenditure. It is a superior variety with unique traits and characteristics  having a competitive advantage in the formulation of hybrids with excellent agronomic traits, including “Wannuo 2000”. Therefore, “W68” should be protectable as a trade secret under the Anti-Unfair Competition Law, provided that it is not known to the public and the Respondent has taken appropriate confidentiality measures. The Court expressly rejected the argument that only technological information in relation to the breeding of parent material could be protected as a trade secret.
2. “W68” is not known to the public. Although the Respondent had sold “W68” to multiplication companies, the Respondent had only authorized companies to use “W68” in the multiplication of “Wannuo 2000”, and the Court determined that this authorization did not constitute a sale to the public. Further, the Appellant could not provide any evidence that “W68” had been sold publicly and could be easily obtained in the market via legitimate means. Therefore, the Appellant could not provide evidence to prove that “W68” had been separated from the actual control of the Respondent.

The parent variety name “W68” and its origin had been disclosed in the announcement of the plant variety rights examination of “Wannuo 2000”. However, the Court rejected the Appellant’s argument that this amounted to public disclosure on three grounds. First, “W68” is merely a code number that is used for future breeding purposes. Although “W68” refers to the specific parent variety bred by the breeder which contains the genes, the genes are carried in the material itself. A code name without access to the plant material itself does not disclose anything and is meaningless. Second, even though the parents of “W68” had been disclosed in the “Wannuo 2000” examination report, it does not mean that “W68” could be easily obtained in the market. The breeding material of parents is a breeder’s competitive advantage and these are not made publicly available in general. Even if breeders obtain “Wan 2” and “Wan 6” for cross-breeding, the inbred line obtained would not necessarily be W68. Third, even if “Wannuo 2000” had been sold publicly, it does not mean that “W68” could be easily obtained as it is relatively difficult to work backwards and obtain the parent materials from a hybrid.

3. The Court determined that the Respondent had taken appropriate confidentiality measures, including the implementation of security systems within the company, the conclusion of confidentiality agreements with the company executives of “Wannuo 2000” and the adoption of code names when concluding multiplication agreements with third-party multiplication companies.

The clarified application of trade secret protection to parent material used in breeding programs

The Court has clarified that plant material of parents are protectable as trade secrets.

To be protected by trade secret there must be sufficient control around the plant material so that it can be considered confidential.

The Court will look into the specific characteristics of the breeding material when determining whether the confidentiality measures taken are appropriate. In particular, the Court considered internal security systems, confidentiality agreements and the adoption of code names as appropriate confidentiality measures for maintaining the confidentiality of parent material. 

What’s next?

This judgment highlights that plant material itself can be protected as a trade secret in China, being both the technical information and the carrier of technical information. It shows a diversified and comprehensive legal system for protecting breeding achievements in China, and providing breeders with a set of different tools to protect their innovation. In addition to plant variety rights, trademarks, patents and other registered intellectual property rights, breeders should also consider utilising trade secrets to protect their innovation.

* * * * *

Baker & McKenzie FenXun (FTZ) Joint Operation Office is a joint operation between Baker & McKenzie LLP, an Illinois limited liability partnership, and FenXun Partners, a Chinese law firm. The Joint Operation has been approved by the Shanghai Justice Bureau. In accordance with the common terminology used in professional service organisations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm.  This may qualify as “Attorney Advertising” requiring notice in some jurisdictions.  Prior results do not guarantee a similar outcome.

This client alert has been prepared for clients and professional associates of Baker & McKenzie FenXun (FTZ) Joint Operation Office. Whilst every effort has been made to ensure accuracy, this client alert is not an exhaustive treatment of the area of law discussed and no responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this presentation is accepted by Baker & McKenzie FenXun (FTZ) Joint Operation Office.