On August 20, 2026, China's State Administration for Market Regulation released a typical case involving the infringement of trade secrets. The Hangzhou Municipal Administration for Market Regulation in Zhejiang Province investigated and penalized an individual identified as Sun for violating trade secret protections tied to an artificial intelligence large model.
As the AI large model sector advances at a rapid pace, enterprises are increasingly choosing to safeguard new categories of technical information—such as prompt engineering and Agent skill packages—through trade secret protections. In July 2011, Sun joined an artificial intelligence company in Hangzhou, referred to as the rights holder, serving as a senior algorithm expert until his departure in July 2025. During his tenure, he led the end-to-end development of a specialized AI-powered intelligent review model for a specific vertical, giving him access to the model's core confidential materials.
In December 2023, while still employed, Sun leveraged his spouse's identity to register and effectively control a company named Fayuan (Hangzhou) Technology Co., Ltd., hereafter referred to as Fayuan. By June 2024, Sun had transmitted proprietary materials from the rights holder's AI model—including exclusive prompt templates, review rules, and annotation standards—to Fayuan's R&D personnel. These materials were used to develop a competing AI model of a similar nature. Following a specialized assessment by industry experts, the combination of these materials, forming an integrated scenario-based intelligent review solution, was determined to meet the criteria of non-public knowledge, commercial value, and the rights holder's confidentiality controls. It was classified as a new form of integrated technical trade secret within the AI vertical domain.
Regarding the legal framework and penalties, Sun, as a core confidential employee in algorithms, had signed a dedicated confidentiality agreement upon joining in July 2011, binding him to confidentiality obligations both during and after his employment. His unauthorized disclosure of the rights holder's core confidential materials violated Article 9, Paragraph 1, Item (3) and Paragraph 2 of the Anti-Unfair Competition Law of the People's Republic of China (as amended in 2019). On May 28, 2026, after comprehensive consideration, the Hangzhou Municipal Administration for Market Regulation, pursuant to Article 21 of the same law, ordered Sun to cease the disclosure and unauthorized use of the information and imposed a fine of 350,000 RMB. Fayuan's infringement of trade secrets is being handled in a separate case.
This case marks the first nationwide enforcement action involving trade secrets in an AI vertical large model, breaking through traditional limitations in AI industry law enforcement. Previous intellectual property protections in the AI sector have largely centered on source code rights confirmation. This case moves beyond the industry's so-called "code fixation," aligning enforcement perspectives more closely with the characteristics of the AI sector. It explicitly establishes that natural-language integrated solutions and non-standard operational rules can independently constitute trade secrets. The investigation explores a pathway for recognizing trade secrets in non-standard integrated AI technologies, filling a gap in commercial secret enforcement within China's domestic AI industry. It sets clear compliance boundaries for algorithm talent mobility, peer AI development, and confidential data management in tech enterprises, contributing to the standardized and innovative growth of the AI sector.
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