Poaching employees who have access to proprietary information has long been a leading tactic among China’s corporate IP thieves. Yet China’s breakthroughs in the tech sector have motivated prosecutors to crack down on theft. According to China’s chief prosecutor’s office, criminal trade secret theft cases in 2024 skyrocketed to 163 with 385 perpetrators, a 12.4% increase year-over-year, a trend expected to continue when 2025’s data is released.[1] Reports indicate that most such prosecutions involve IP theft by employees. This article will explain the criminal liability of departing employees, executives recruiting them and the companies employing them, and how to leverage China’s now sharp-toothed criminal law to protect your IP.
Contents
- Both Individuals and Entities Can be Criminally Liable
- Elements of Criminal Trade Secret Theft
- Was the Trade Secret Theft a Corporate Crime?
- Attaching Criminal Liability for Trade Secret Theft
- Whether, and How, to Do Criminal Referral
Both Individuals and Entities Can be Criminally Liable
In China, both former employees and their new employers can be held liable for trade secret theft. Employee skills and experience typically overlap with their employer’s trade secrets, which makes it difficult to distinguish innovation from theft. Criminal trade secret theft cases often implicate both former employees and their new employers, making it difficult to distinguish employee misconduct from corporate crimes.
Courts hearing criminal trade secret theft cases first determine whether the technical information at issue constitutes the employer’s trade secret or as independent invention. In other words, deciding on whether it was invention or theft. Under the China Criminal Law Act § 219, criminal trade secret theft includes unlawfully obtaining, using, disclosing, or allowing others to use trade secrets, or even doing so “knowingly.”[2]
Trade secret theft can also give rise to both corporate and personal criminal liability when multiple employees leave an employer to start a new business. Penalties depend on whether the theft is a corporate crime or criminal enterprise. As a criminal enterprise, each individual participant faces criminal charges. Corporate crime implies concurrent organizational and personal liability under the China Criminal Law Act § 31, imposing doubled fines, and the directors and other directly responsible persons can also be charged.[2]
A corporate crime is defined under China law as criminal conduct approved through an organization’s decision-making process, done to generate unlawful benefits for the organization or the majority of its members. The directly responsible persons are the individuals who directly commit the offense. Cases on corporate criminal liability are decided by who is the party to the crime, what was the decision-making process, and where proceeds are distributed.
These issues become especially complex in criminal trade secret thefts. Typically, the former employee discloses or uses the trade secrets, and their new employer exploits them to develop competing products. In startups, whether the conduct is attributable to the company or the individuals is unclear because the line between formal decisions and informal choices is blurry there. Moreover, proceeds from trade secret theft are frequently reflected in company revenue, and employees may also receive equity as part of their compensation.
For these reasons, Chinese courts generally rely on case-by-case analysis to determine whether the theft is attributable to the employees alone or constitutes a corporate crime.
Elements of Criminal Trade Secret Theft
When determining criminal trade secret theft, courts in China look at whether the information at issue qualifies as a trade secret and whether any losses suffered by its owner meet the statutory threshold for theft.
Courts apply Criminal Law Act § 219 to trade secret disputes involving former employees.[2] They examine whether employees 1) Obtained or used the information at issue improperly or breached a confidentiality agreement with their former employer, and 2) whether the information meets these criteria:
- Was generally known,
- Had economic value, and
- Protected by confidentiality.
Significant Loss. After establishing that information constitutes as a trade secret, courts apply Criminal Intellectual Property Theft Adjudicative Guidelines #3 § 4 to determine whether the owner of the secret suffered significant losses.[5] They calculate losses by evaluating how much the trade secret contributed to the value of new products and how much was contributed by the new company’s independent innovation. If the losses fall below the statutory threshold, the theft is not criminal.
Was the Trade Secret Theft a Corporate Crime?
Trade secret theft can constitute a corporate crime if an organization with corporate personhood is implicated. (See China Criminal Law Act § 30 and of the Supreme Court Corporate Crime Adjudicative Guidelines § 1)[2][3] For instance, when a former employee merely hangs out a shingle as a sole proprietor, any trade secret theft is treated as an individual crime. There is an issue under the Guidelines whether trade secrets theft is attributable to a company or organization: a former employee who forms a company solely to steal or commercialize stolen trade secrets, commits an individual, not corporate, crime. Individual acts can be imputed to a business entity if meeting two criteria:
- The decision to commit the crime followed the governance procedures in the articles of formation or incorporation.
- The conduct relates to the company’s main business.
For example, in the Tianjin Case 93-cr-0111 (2016), the court held that a crime did not reflect a company’s intent as there was no link between unlawful benefits and its main business.
Chinese courts will look at whether shareholders meetings or the board of directors decided to unlawfully generate income for the company by tolerating theft of trade secrets. The National Financial Crime Judicial Conference Minutes concluded that all unlawful proceeds must be attributed to the company for the theft to constitute corporate crime, and courts determine this by tracing the flow and use of funds.
Attribution tracing is illustrated in the Shanghai Criminal Appeal No. 105 (2020). In this case, a technology company’s responsible persons approved the theft but the proceeds flowed through personal accounts instead of the company’s accounts, and the court ruled that the conduct did not constitute a corporate crime. Applying the same reasoning to trade secrets, theft constitutes a corporate crime only when proceeds are deposited into company accounts and support business operations.
Attaching Criminal Liability for Trade Secret Theft
Former employees, and any companies they form, can be held criminally liable for trade secret theft based on how much they knew about and their role in the theft. Existing companies that hire them are rarely liable unless you can show they knew about the theft or willfully exploited the stolen trade secrets.
Former Employees. Under China Criminal Law Act § 31, a former employee who starts a business on their own is solely liable for criminal trade secret theft.[2] When multiple former employees start a business together and steal trade secrets, the company can be charged as a corporate offender.
Startup employees’ personal liability depends on each employee’s role in the theft. Those who organize or direct the theft are treated as principal offenders and face full criminal penalties. Employees who knowingly assist are subject to lesser penalties, while those unaware of the theft or involved only incidentally are not be charged because they lack of criminal intent.
According to the Minutes [4], directly responsible persons are those who actively participate and play a significant role in the crime. Employees following a supervisor’s orders are thus generally not considered directly responsible or subject to prosecution when they lack criminal intent and were simply following instructions. Generally, employees who knowingly participate and play a substantial role in criminal trade secret theft are held personally liable under China’s criminal laws, while those unaware of the theft or are merely performing their regular duties are not.
New Employers. Courts determine employer and employee liability separately when the former employee joins a new employer, or if they start a company. Courts consider whether their actions constitute trade secret theft under the China Criminal Law Act, whether the information at issue constitutes a trade secret, and whether the owner suffered significant losses.[2]
The new employer is generally not criminally liable if they were unaware of the unauthorized acquisition and use of trade secrets, or if they exercised reasonable care by requiring new employees to affirm in writing that none of their former employer’s trade secrets were taken or disclosed. However, if the new employer knowingly uses improperly obtained information when developing its own products, courts will judge whether the information constitutes a trade secret and whether the losses suffered by the original owner meet the “significant loss” threshold under the Criminal Intellectual Property Theft Adjudicative Guidelines #3 § 4.[5]
Whether, and How, to Do Criminal Referral
Referring trade secret theft to the PRC MOJ can benefit a company in several ways, because the government has expansive evidence collection powers that stretch far beyond what a company can achieve in a jurisdiction that does not permit discovery.
The MOJ can execute search warrants and launch dawn raids, seizing devices that may contain stolen trade secrets. A company cannot obtain such devices legally. Police may also investigate the movement of suspects and employ wiretaps, even monitoring encrypted WeChat discussions through backdoors.
The PRC can serve subpoenas to collect third party evidence not under the victim’s control, especially electronic evidence. They can call witnesses in for interviews and compel statements. They can deter further dissemination of sensitive data, even if the investigation does not result in a prosecution. Going to the PRC before foreign authorities in some cases can avoid getting in geopolitical hot water; consider in the Micron case, a referral to the US DOJ for alleged theft taking place via employee poaching in Fujian, China, led to a variety of sanctions imposed on Micron.
For the potential advantages of a referral, there are real and perceived downsides. The notion of letting the Chinese government “tiger” loose, letting them look through company file systems to sensitive IP or search for unrelated wrongdoing. While the fear is understandable, the MOJ has at least said that they will view victim companies purely as victim, and will not use these actions as subterfuge to investigate your company or steal valuable IP. Local IP counsel in China at least claim this is universally the case, but this point remains controversial in the international community.
Given the varying costs and benefits of a referral, there is no one-size-fits-all answer to the “refer or not to refer” question. But, companies should not automatically reject the idea of referring matter to law enforcement, particularly in the trade secret context where proving theft can be challenging, and acting swiftly is key. Thinking through the pros and cons and considering the types of cases the DOJ has focused on early in the company’s internal investigation will help ensure that the victim company makes the right decision and improve the chance that a referral to law enforcement will be successful.
Given the lack of clarity on the precise costs and benefits of a referral, there is no one size fits all answer to the question. However, given the PRC government’s recently changed enforcement priorities, companies should not automatically reject referring the matter to law enforcement, especially since proving theft in China civil litigation is more difficult. Ideally, you should work with an attorney in the local jurisdiction in question who is familiar with enforcement behavior of local authorities to consider parallel enforcement options. While these attorneys rarely speak competent English, CBL has developed a solution: we leverage a network of qualified, affordable attorneys throughout China, and provide them with the legal operations and language translation support necessary for them to succeed on international client matters.
What are the steps to get started with using parallel civil and criminal enforcement in China? The first step is an internal investigation by an expert attorney—not a generalist who happens to have good English—and preservation of a criminally viable evidentiary record. The corporation will need to be able to show that the violations occurred in a way consistent with the law described earlier in this article, therefore, management needs to be familiar with those requirements in order to bring the relevant facts to counsel’s attention.
Once that bar has been cleared, local police decide whether to docket the case and commence investigation. Engagement with law enforcement is ideally handled by someone who has strong local knowledge and relationships, who has worked on both defense and plaintiff side; these experts rarely have strong English, thus need to be supported by a language services team.
Proactively Protect Trade Secrets and Avoid Risk
In addition to a strong enforcement strategy, you need businesses need prevention; in other words, to maintain strong protections against trade secret risks whether you are the current, former, or even new employer.
Former or current employers in China should take concrete steps to protect trade secrets. Include non-disclosure clauses in employment contracts and, where appropriate, sign a separate NDA with employees. Company policies and employee training should also reinforce confidentiality obligations. Require departing employees to register, return, or destroy all media containing trade secrets, and remind them that these obligations remain effective after they leave. Restrict access to sensitive areas and label, isolate, or encrypt any documents, devices, or storage media containing trade secrets. Require employees to use encrypted internal email accounts and systems for all business communications.
Before hiring, ask whether candidates are bound by non-compete agreements or had access to confidential information at their previous jobs. During onboarding, require employees sign written statements confirming that they have not taken or used trade secrets and will not disclose them. During product development, keep detailed records of all research and development work, including drafts, charts, and raw data. Carry out freedom to operate analyses on any main technologies before starting new projects and ensure that major technical decisions follow established governance procedures.
FURTHER READING
Learn how to leverage enforceable agreements to prevent competitors from hiring employees with trade secret access.
FOOTNOTES
[1] 2025 National Intellectual Property Week Press Release, (履职办案迈进科技创新最前沿——写在2025年全国知识产权宣传周到来之际), (China Chief Prosecutor’s Office, Apr. 20, 2025), https://www.spp.gov.cn/spp/zdgz/202504/t20250420_693522.shtml (in Mandarin)
[2] China Criminal Law (中华人民共和国刑法), (China Chief Prosecutor’s Office, Feb. 6, 2018), https://www.spp.gov.cn/spp/fl/201802/t20180206_364975.shtml (in Mandarin)
[3] China Supreme Court Corporate Crime Adjudicative Guidelines, (最高人民法院关于审理单位犯罪案件具体应用法律有关问题的解释), (China Supreme Court, Jul. 3, 1999), http://gongbao.court.gov.cn/Details/834f87cd2d19138f75c93c17b76a27.html (in Mandarin)
[4] National Financial Crime Judicial Conference Minutes, (全国法院审理金融犯罪案件工作座谈会纪要), (China Supreme Court, Nov. 13, 2003), http://gongbao.court.gov.cn/Details/e91fc800e6711aab13dbee84b7ccc7.html (in Mandarin)
[5] Criminal Intellectual Property Theft Adjudicative Guidelines #3, (关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释（三）), (China Supreme Court, Sep. 13, 2020), https://www.court.gov.cn/zixun/xiangqing/254891.html (in Mandarin)