The determination of competitive relationships in non-compete restriction cases

Abstract

Non-compete restrictions, as an important means of protecting trade secrets, are facing challenges in practice. This article attempts to take the guiding case No. 190 of the Supreme People's Court as the starting point, systematically analyze the transformation of the standards for determining competitive relations from formal review to substantive review, and draw on the relevant market definition theories of China's Anti-Monopoly Law and the methods for determining competitive relations under the Anti-Unfair Competition Law, proposing a three-level review framework. Through case studies, this paper reveals the laws of competitive relationship determination in emerging industries such as the Internet and medicine, and attempts to construct a systematic determination methodology.

Key words

Non-compete restrictions, determination of competitive relationships, definition of relevant markets, protection of trade secrets, and safeguarding of workers' rights and interests

PART.01 Question Raising: The Practical Challenges of Non-compete Restrictions

In practice, the most significant point of contention regarding non-compete restrictions lies in the criteria for determining competitive relationships. Traditionally, the existence of a competitive relationship was mainly determined by comparing the business scope registered by enterprises in the industrial and commercial registration. This formal review method has encountered severe challenges in the Internet era. As Professor Guo Zongjie pointed out, the current phenomenon of abusing non-compete agreements has deviated from the original intention of establishing this system, showing a generalization tendency of "using non-compete prohibition as a name but actually prohibiting all competition" [1].

An empirical study conducted by Southwest University of Political Science and Law on 556 judgments from 2015 to 2019 shows that among the personnel subject to non-compete restrictions, senior management personnel account for only 15%, senior technical personnel 6%, and "other personnel with confidentiality obligations" 79%, among which employees in grassroots positions account for 77% of "other personnel" [2]. This data reveals the serious distortion of the non-compete system in practice: a system that was originally supposed to only apply to a few senior personnel who hold core trade secrets has been improperly expanded to almost all employees, even including grassroots service staff who have no access to any trade secrets at all.

In response to these issues, the Supreme People's Court, by issuing Guiding Case No. 190, established substantive examination standards, requiring courts to comprehensively examine multiple dimensions of factors such as the actual business content of enterprises, service targets, product audiences, and corresponding markets.

PART.02 Current Legal Framework and the Essence of Trade Secret Protection

Article 24 of the Labor Contract Law stipulates that the personnel subject to non-compete restrictions are limited to "senior management personnel, senior technical personnel and other personnel with confidentiality obligations", and the restricted content is that it is not allowed to compete with other employers that produce or operate "the same products or engage in the same business" of this unit.

This clause contains dual elements: "similar products/services" and "competitive relationship". The definition of "similar" and "competitive relationship" is relatively inclusive, leaving some room for interpretation in the case.

On August 1, 2025, the Supreme People's Court issued the "Interpretation (II) on the Application of Law in the Trial of Labor Dispute Cases", clearly stipulating that "if an employee fails to know or come into contact with the employer's trade secrets or confidential matters related to intellectual property rights, the people's court shall not support the employer's claim for the employee to fulfill the non-compete obligation." [3]

This regulation firmly restricts the premise of non-compete restrictions to the objective fact of "access to trade secrets", providing a clear legal basis for curbing the generalization of non-compete restriction subjects.

The legitimacy of non-compete restrictions lies in the protection of trade secrets. Article 10 of the Anti-Unfair Competition Law (2025) defines trade secrets as "technical information, business information and other commercial information that is not known to the public, has commercial value and has been subject to corresponding confidentiality measures taken by the right holder", which includes three core elements: secrecy, value and confidentiality [4]. The core of determining whether a "competitive relationship" is formed should be whether there is a realistic possibility that trade secrets may be exploited or transferred between the new and old units.

The Supreme People's Court has clarified the substantive restrictions on the application of non-compete restrictions through typical cases. In the case of Li released in 2024, Li served as a masseur and trainer. The court held that the customer information Li possessed did not have commercial value characteristics, and the content of the training courses was mostly industry common sense. The knowledge and skills acquired during the work period were also common professional knowledge in the industry. Ultimately, it was determined that employees who only have access to the general business information of the employer do not fall under the category of "other personnel with confidentiality obligations", and the company's lawsuit request for payment of non-compete penalty was dismissed [5].

PART.03 The substantive examination standards established by the Supreme People's Court for Guiding Cases

The Supreme People's Court's Guiding Case No. 190 (Wind Information Technology Co., LTD. V. Wang for Non-compete Dispute, hereinafter referred to as the "Wind Information Case") has had a considerable influence in the judicial practice of non-compete restrictions in China [6]. Wang Mou was originally an employee in the intelligent data analysis position at Wind Information. After leaving the company, he joined Shanghai Bilibili Technology Co., LTD. Wind Company claims that the business scopes registered by the two companies overlap, constituting a competitive relationship.

The second-instance court conducted a multi-dimensional substantive review. From the perspective of its actual business operations, Wind mainly provides financial information services, and its core products are targeted at financial institutions or financial academic research institutions. Bilibili's main business is video platforms and cultural communities. From the perspective of service targets, Wind Company's audience is financial institutions, which is a typical B2B model. Bilibili's audience consists of a large number of video users and it is a typical B2C model. The customer groups of the two are completely different, and there is no possibility of customer competition. From the perspective of the corresponding markets, the two belong to the financial data service market and the video entertainment market respectively, with clear market boundaries.

Although the business scopes registered by the two companies overlap, there are significant differences in their actual business contents, service targets, and corresponding markets, and they do not constitute a competitive relationship. The court has established a universally applicable rule for judgment: "The determination of competitive relations should be based on the legislative intent of the non-compete restriction system. It should not be determined merely based on whether the legally registered business scopes overlap. Instead, a comprehensive judgment should be made by taking into account whether the actual business content, service targets or product audiences, and corresponding markets overlap." [7]

In the non-compete dispute case between a certain pharmaceutical company A and Zheng (hereinafter referred to as the "case of A certain Pharmaceutical Company A") released by the Supreme People's Court in August 2025, the court further refined the standards for determining competitive relationships in industry sub-sectors [8]. During his tenure as the Chief Technology Officer at a certain pharmaceutical company, Zheng had access to confidential information such as the production and control details of two drug ingredients. After leaving the company, he joined a certain biological company as a senior vice president and was subsequently subject to arbitration by the company. In this case, the judicial body established two important principles: First, the scope of non-compete restrictions should be commensurate with the trade secrets one has access to. Zheng has only come into contact with the confidential information of two specific drugs, so his obligation of non-competition should be limited to these two drugs and not extended to the entire pharmaceutical industry. Second, special standards for determining competitive relationships in the pharmaceutical industry: The substitutability of drugs should be judged based on indications, mechanisms of action, clinical medication regimens, etc. It cannot be determined that there is a competitive relationship merely because they all belong to "pharmaceutical companies".

After comparison, although both companies offer cancer treatment products, in terms of indications, one mainly treats lung cancer and the other mainly treats gastric cancer. From the perspective of mechanism of action, one is a targeted drug and the other is an immunotherapy drug. From the perspective of medication regimens, the two will not be considered as alternative options in the same treatment plan. Therefore, the court ruled to dismiss all the litigation requests of Company A, a certain pharmaceutical company. The "substitutability standard" established by this case provides a clear analytical framework for the determination of competitive relationships in this industry.

PART.04 Draw on the relevant market definition theories of the Anti-Monopoly Law

The relevant market definition theories of the anti-monopoly Law can provide a more mature analytical framework for the determination of competitive relationships in non-compete cases. According to the Anti-Monopoly Law and the Guidelines of The State Council Anti-Monopoly Committee on the Definition of Relevant Markets, the definition of relevant markets includes two dimensions: relevant commodity markets and relevant regional markets. The core methods include demand substitution analysis, supply substitution analysis, etc. [9]

The principle of demand substitution analysis starts from the perspective of the demander and attempts to determine the degree of substitution based on factors such as the function and use, quality, and price of the commodity. This method can also be directly applied to the analysis of non-compete cases. The analysis of customer group overlap is the primary step. The Wind Information case is a typical application: Wind's clients are financial institutions that require professional financial data. Bilibili's clients are video users who need entertainment content. The customer groups of the two are completely different. Even if Wind significantly raises its service prices, financial institutions are unlikely to switch to Bilibili to obtain financial data. This complete isolation of the customer base can clearly indicate that the two enterprises have no competitive relationship.

The analysis of the functional uses of products or services is the core link in judging competitive relationships. In the case of a certain pharmaceutical company, the court emphasized that the indications of the drug, its mechanism of action, and the clinical medication plan should be considered. Although they are all cancer treatment drugs, if the indications are different, patients and doctors will not switch between the two due to price changes. Lung cancer patients cannot switch to gastric cancer drugs just because the prices of lung cancer drugs have risen.

The definition of relevant regional markets in the Anti-Monopoly Law has guiding significance for the determination of the geographical scope of non-compete cases. The "Guidelines for Enterprises' Compliance with Non-compete Restrictions" issued by the Ministry of Human Resources and Social Security clearly stipulates that the geographical scope of non-compete restrictions should be consistent with the scope of the enterprise's business operations. Generally, it is not allowed to stipulate national or global non-compete restrictions without sufficient reasons [10]. The geographical identification of Internet enterprises is a special challenge. Although Internet business is inherently cross-regional, it cannot be automatically regarded as a national market or a global market. A comprehensive judgment should be made in combination with the specific market, user distribution and service provision methods. For instance, although regional life service platforms offer services via the Internet, their actual service coverage is limited to specific cities. Users can only choose local service providers, and there is no possibility of cross-regional substitution.

Although the methodology of anti-monopoly law provides important references, it is necessary to recognize the differences between the two. The main purpose of the Anti-Monopoly Law is to maintain the order of market competition and pay attention to the overall market competition situation. The main purpose of non-compete restrictions is to protect the trade secrets of specific enterprises, while also taking into account the survival rights and career freedom of workers.

PART.05 Implications of the Theory of Competition Relations in the Anti-Unfair Competition Law

Article 2 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Anti-Unfair Competition Law of the People's Republic of China, which came into effect in March 2022, stipulates that "Market entities that may have relationships such as competing for transaction opportunities or damaging competitive advantages with business operators in their production and business activities may be recognized by the people's court as' other business operators' as prescribed in Article 2 of the Anti-Unfair Competition Law." " [11]

This is also known as the generalized competitive relationship theory, which expands the competitive relationship from the traditional "intra-industry competition" to broader forms of competition such as "competing for transaction opportunities" and "damaging competitive advantages".

In the case of unfair competition between Beijing Baidu Netcom Science and Technology Co., Ltd. and Shanghai Hantao Information Consulting Co., Ltd. and Shanghai Jietu Software Technology Co., LTD., the court held that the competitive relationship regulated by the Anti-Unfair Competition Law should not be limited to the same industry, but should be considered from the perspective of business operations. Dianping mainly provides information on life services such as dining and user reviews, while Baidu Maps mainly offers map navigation services. It seems that the two do not belong to the same industry. However, since Baidu Maps has been using a large amount of user review information from Dianping without permission, it is essentially taking advantage of Dianping's labor achievements to compete for users. Therefore, there is a competitive relationship between the two. The court pointed out that the essence of competition is the contention for customers. As long as two market entities are competing for the same customer resources or transaction opportunities, even if the products or services they provide are not exactly the same, they may still constitute a competitive relationship [12].

The enlightenment of the broad theory of competitive relations for non-compete cases lies in that competitive relations should not be mechanically confined to the literal interpretation of "similar products and similar businesses", but should pay more attention to whether there is the essence of customer competition and competition for transaction opportunities. For instance, an employee was engaged in the sales of enterprise management software at Company A and had access to a large amount of enterprise customer information. After leaving the company, he went to Company B to sell cloud computing services. Although the product types are different, if the target customers of the two are highly overlapping and employees may use the customer information they have at Company A to compete for customers for Company B, it may constitute a substantive competitive relationship.

However, in practice, attention should also be paid to the risk of excessive generalization of the generalized competitive relationship theory in the field of non-compete restrictions. There are significant differences between the Anti-Unfair Competition Law and the Labor Law in terms of value orientation and institutional goals. The field of non-compete restrictions involves the basic survival rights and labor freedom of workers, and a more cautious and restrictive attitude must be adopted. Therefore, the broad theory of competitive relations in the Anti-Unfair Competition Law can provide analytical ideas for non-compete restrictions, but at the same time, strict restrictions on the "necessity of protecting trade secrets" should also be taken into consideration. Even if there is some kind of "customer competition" relationship between the new and old employers, it can only be determined that the employee has violated the non-compete restriction if they have indeed come into contact with the business secrets that meet the legal requirements, such secrets may be exploited by the new employer, and the exploitation would cause substantial damage.

PART.06 Methodology for Systematically Identifying Competitive Relationships: A Three-level Review Framework

Based on the principles established by the guiding cases of the Supreme People's Court, drawing on the methodology of the Anti-Monopoly Law and the theoretical inspiration of the Anti-Unfair Competition Law, this paper attempts to construct a systematic methodology for determining competitive relationships in non-compete disputes, adopting a three-level framework structure.

The first level: Preliminary review of form - initial comparison of business scope

The main purpose is to conduct a preliminary screening to eliminate cases that are clearly not in the same industry or business field. The specific operations include: comparing whether the business scopes registered by the enterprise with the industry and Commerce Department overlap. Check if the industry classifications are the same; Understand the main business categories of the enterprise. For instance, the business scopes of catering enterprises and software enterprises do not overlap at all, which can initially rule out a competitive relationship. However, it must be emphasized that the overlap of business scopes cannot directly lead to the conclusion that there is a competitive relationship. It must also enter the second level of substantive examination. The business scope of Internet enterprises often includes software and hardware development, technical consultation and other contents. If a competitive relationship is determined merely based on the overlap of business scopes, it will lead to almost all Internet enterprises having a competitive relationship, which is obviously unreasonable.

The second level: Substantive examination - multi-dimensional comprehensive analysis

This is the core link in the determination of competitive relations, which requires a comprehensive examination of multiple dimensions. Analysis of actual business content: It is not only necessary to look at the major categories of business registration, but also at the specific business categories and core businesses. Analysis of service targets and product audiences: Do the target customer groups overlap? Is the market positioning the same? What is the possibility of customer transfer? Compared with veterinary drugs, human drugs have a lower possibility of customer migration. Corresponding market analysis: Do regional markets overlap? Are the market segments the same? Whether the market boundaries are clear and the analysis of the substitutability of products or services: This is the core criterion of substantive examination. From the perspective of demand, if the original enterprise raises prices or the quality declines, will customers switch to the new enterprise? The case of a certain pharmaceutical company A clearly states that it depends on the drug's indications, mechanism of action, and clinical medication regimens. If there is no substitutability, it does not constitute competition. Business model analysis: B2B and B2C are different models. The differences in business models can indicate the variations in market positioning and competitive approaches.

The third level: Review of the relevance of trade secrets - the substantive requirements of non-compete restrictions

This is a special requirement that distinguishes non-compete restrictions from the general determination of competitive relationships. It is necessary to examine the types of trade secrets that the employee possesses, the availability of such secrets in the new entity, and the potential competitive damage that may result from their exploitation. Identification and evaluation of types of trade secrets: Trade secrets include technical secrets (formulas, processes, algorithms, source codes, etc.) and business secrets (customer lists, marketing strategies, pricing strategies, etc.). The importance and availability of different types of secrets vary in different industries. Usability judgment: It is necessary to look at the job responsibilities of the employee in the new unit. If the job responsibilities are completely different, even if there is a competitive relationship, it is difficult to utilize the trade secrets of the original unit. The case of a certain pharmaceutical company A emphasizes that the scope of non-compete restrictions should be commensurate with the trade secrets that the employee has access to. The actual possibility of competitive damage: If there is a possibility of customer transfer, competition for market share, or potential economic losses, a competitive relationship shall be determined to exist. Conversely, if the trade secret has no application scenarios in the new entity, even if there is a certain degree of business overlap between the new and old entities, it should not be regarded as a violation of non-compete restrictions. Under the three-level review framework, the burden of proof should be reasonably allocated. The original employer shall provide evidence that there is market overlap, the employee has access to business secrets and may be exploited, and there is a substantive competitive relationship. Workers can provide evidence that there is no overlap in actual business operations, the customer groups are completely different, the trade secrets cannot be utilized in the new unit, and the job responsibilities are significantly different.

PART.07 Conclusion

The core points of the three-level review framework and systematic methodology proposed in this article include: The determination of competitive relations should be based on the necessity of protecting trade secrets; Adopt the substitutability of the product or service as the core judgment criterion; Conduct a substantive review by comprehensively examining multiple dimensions; Make individual case judgments in combination with the characteristics of the industry.

Only under the guidance of scientific methodology and by accurately identifying the competitive relationship can the dual goals of the non-compete system in protecting trade secrets and safeguarding employment freedom be truly achieved, promoting the organic unity of innovative development and fair competition.

Footnote

[1]Guo Zongjie, "Non-compete Agreements have Been Distorted into Instrumental Measures to restrict employee Mobility," Southern People Weekly, April 2024.

[2] Xiong Hui, Wang Ruizong, "Research on the Generalized Application of Non-compete Restrictions to Workers", Journal of Chongqing University of Technology (Social Sciences), Vol. 35, No. 9, 2021.

[3] The Interpretation of the Supreme People's Court on the Application of Law in the Trial of Labor Dispute Cases (II) (Judicial Interpretation No. 12 [2025]) came into effect on August 1, 2025.

Article 10 of the Anti-Unfair Competition Law of the People's Republic of China (2025).

[5] On April 30, 2024, the Supreme People's Court released Case Three of typical labor dispute cases, titled "Non-Compete Agreements Cannot Restrict the Right of Non-Confidential Employees to Choose Employment Independently - A Non-compete Dispute Case between a Certain Company and Li".

[6] Guiding Case No. 190 of the Supreme People's Court, "Wang Shan v. Wind Information Technology Co., LTD. Dispute over Non-compete Restrictions"

[7] Key Points of the Judgment of Guiding Case No. 190 of the Supreme People's Court.

[8] On August 1, 2025, the Supreme People's Court released the fourth typical case of labor disputes, titled "The Non-compete Obligations of Employees Should be Commensurate with the Scope of trade secrets and confidentiality matters related to intellectual property rights they are aware of - The Non-compete Dispute Case between A Certain Pharmaceutical Company A and Zheng".

[9] Guidelines of the Anti-Monopoly Committee of The State Council on the Definition of Relevant Markets, 2009.

[10] Office of the Ministry of Human Resources and Social Security, "Guidelines for Enterprises' Implementation of Non-compete Restrictions Compliance", September 2024.

Article 2 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Anti-Unfair Competition Law of the People's Republic of China (Judicial Interpretation No. 9 [2022]) came into effect on March 20, 2022.

[12] Civil Judgment of the Second Instance on Unfair Competition Dispute between Beijing Baidu Netcom Science and Technology Co., Ltd. and Shanghai Hantao Information Consulting Co., Ltd. and Shanghai Jietu Software Technology Co., LTD., Shanghai Intellectual Property Court (2016) Hu 73 Min Zhong 242.