I have designed a system using atmel 89c52, and i successfuly released that into market. After few days i have observed a system similar to mine. All the other components and functionality are same.

So, competitor only had few days to copy it, and design the whole circuit, PCB included?
Seems to me very unprobably.

If you wonder if there is something wrong with lock bits, have a look at erratas and contact factory. Failung of lock bits is a very serious affair and manufacturer will mostly react very intensively.

It's not problem, at all, ignoring lock bits and having access to your code, for certain people. But this is needs very much time and money. So, a competitor doing this must have some profit at the end, and so he will do this only when he can expect some 'benefit'.

The only real remedy against code pirating is to develop and update your code in short time intervals, so that you take the breath of your competitor: He will always be late...

Good luck,
Kai