IP Protection on the Business Model —- From the perspective of trade secrets

From March to September 2015, within 6 months, the State Council has mentioned that the relevant departments shall analyze on how to apply the IP protection on the new forms of the creative innovations including the business model, in 3 files, the ‘Some Opinions concerning Deepening Structural and Mechanism Reform and Accelerating the Implementation of the Innovation Driving Development Strategy’, the ‘Opinions of the State Council on Several Policies and Measures for Vigorously Advancing the Popular Entrepreneurship and Innovation’ and the ‘Plan for the Implementation of Deepening the Science and Technology System Reform’.

The business model (hereinafter referred to ‘BM’)is also known as the business method, which has not been defined in the current laws and regulations. Refer to the ‘Patent Examination Procedure- substantial examination volume’, in which the business method has been defined as the method to implement a variety of business activities and transactions. It is a broad interpretation of the rules and methods on the individuals’ social and economic activities, including securities, insurance, lease, auction, advertising, services, management, administration, service arrangements and other business activities or transactions. The business method could be divided into 2 categories: (1) the pure business method, which is entirely implemented by the individual’s action, for example, the canteen gives a fruit to the customer as a reward for taking the tableware to the recovery table; and (2) the business method combined with techniques, which normally refers to the implementation of the software or network techniques.

In China, the pure ‘BM’ could not be used to apply for the patent, and for those ‘BM’ combined with techniques, there are many barriers on the patentability procedure. (We will introduce the patentability procedure in the next issue) In view of the above introduction, to protect a ‘BM’ as the trade secrets become an important topic on the IP protection of the ‘BM’.

The current laws and regulations related to the trade secrets have not listed the ‘BM’ as the trade secrets. But Article 10 of the ‘Notice of the State-owned Assets Supervision and Administration Commission of the State Council on Issuing the Interim Provisions on the Protection of Trade Secrets of Central Enterprises’ (No.41 [2010] of the State-owned Assets Supervision and Administration Commission), has prescribed that the scope of protection of the trade secrets includes the ‘BM’.

There are 2 questions which are very critical. The first question is what information of a ‘BM’ could be identified as the trade secrets. The second question is how to protect those trade secrets.

To solve the first question, we shall take the 3 elements in identifying the trade secrets into consideration. The 3 elements include, ① the trade secrets is not known to the public; ② the trade secrets can bring economic benefits, practical (i.e. a competitive advantage); and ③ the owner has taken reasonable security measures to protect the trade secrets. Generally speaking, the founder of a ‘BM’ intends to protect the ‘BM’, because it has actual or potential commercial value, then the element ② is not a big problem. In view of this, the owner shall analyze whether the ‘BM’ has the other 2 elements.

For element ①, the relevant circumstances as prescribed in Article 9 of the ‘Interpretation of the Supreme People’s Court on Some Issues Concerning the Application of Law in the Trial of Civil Cases Involving Unfair Competition’, which includes whether such information is the normal knowledge or industry practice to the people in the specific industry, or whether such information could be obtained from other public sources (e.g. the information has been released in a financial product booklet) and etc.. For element ③, the implementation of a ‘BM’ shall have the connection with the unspecific public group, which means that the whole or part of the ‘BM’ would be known to the public, or it is difficult to be protected with reasonable security measures.

Therefore, for other 2 elements, we recommend the owner to divide a ‘BM’ into parts, identify which part would not be known to the public. If the ‘BM’ do have any part which is unknown to the public, then the information that involved in such part could be stored in the specific format as the internal secrets, and only shared with the specific internal personnel. In order to protect a ‘BM’ as the trade secrets, the skills on choosing the information that have the other 2 elements is important and difficult.

In fact, to use the trade secrets to protect the ‘BM’ is not aimed to win a lawsuit, but to extend the competition advantage.