This article is written by  Farheen Ansari pursuing a Diploma in US Intellectual Property Law and Paralegal Studies.  This article has been edited by Ruchika Mohapatra (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

There are various intellectual property rights available to protect your intangible assets. They give the creator exclusive rights over the use of his/her creation for a certain time limit. These are trademarks, copyrights, patents, industrial designs, trade secrets, and geographic indications. Let us know about them in brief.

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  1. As per the Trade Marks Act, 1999, “a trademark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include the shape of goods, their packaging, and combination of colors.”
  2. Copyright is a type of intellectual property that protects original works of authorship as soon as an author produces the work in a tangible form of expression. 
  3. Patents: A patent is a type of intellectual property right that is granted for an invention. Certain conditions are needed to be satisfied for registering a patent, namely patentable subject matter, novelty, inventive step, and industrial applicability.
  4. Industrial Designs: An industrial design is defined as features of shape, configuration, pattern, ornament or composition of lines, color, or a combination thereof applied to any article, whether two-dimensional or three-dimensional, or in both forms. Design protects the look, i.e., appeals to the eye (aesthetic or artistic appeal) and not the functionality.
  5. Trade Secrets: A trade secret is any process or practice of a company to protect its confidential information from the public domain through the execution of non-confidentiality agreements with its employees or third parties.
  6. According to the TRIPS Agreement, an indication that identifies a good as originating in the territory of a member or a regional locality in that territory, where a given quality, reputation, or another characteristic of the good is essentially attributable to its geographical origin.

In this article, you will find details on how you can protect your intellectual property as a trade secret and what its essentials are, as well as the most common threats to trade secrets and their misappropriation.

What is a trade secret

A trade secret is an item of commercial or technical information that is not readily available to the general public and is subject to protection to preserve the owner’s interest. A secret product or service is not generally known to the public. Trade secrets differ from confidential information. Confidential information is not a secret, but it may be treated as a secret if it is kept secret.

The trade secret regime is an important law in ensuring that the information and knowledge generated by companies are protected. While trade secrets are not protected by the copyright clause of the United States Constitution, the Supreme Court has recognized a limited “common law” right to trade secret protection, which, however, is only available if the plaintiff establishes that he has:

  • a safeguarded secret;
  • improper application of that secret; and
  • resulting in injury to the claimant.

Importance of a trade secret

The importance of trade secrets continues to grow. The Uniform Trade Secrets Act has been adopted by many countries, which provides comprehensive protection for trade secrets and also helps in their development.

There are many perks to protecting a piece of information as a trade secret. It helps the company keep its information confidential and also prevents its competitors from taking unfair advantage of it. If the information is protected as a trade secret, then the company can also sue for its misappropriation and gain damages.

Protection under trade secrets can be enjoyed for an indefinite time, provided the subject matter of the trade secret is commercially valuable and is kept confidential. The information loses its trade secret status if it is accidentally or intentionally disclosed by anyone.

The essentials of trade secrets

As per Article 39(2)of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), its members are given the flexibility to frame laws that prevent the unauthorised disclosure and use of certain information. The information must meet the following criteria:

  1. It is secret in the sense that it is not readily accessible by those people who deal with such information on a regular basis.
  2. It has commercial value.
  3. Reasonable steps have been taken by the person lawfully in control of the information.

What information can qualify as a trade secret

  • Scientific or Technical Information: Information related to the development of upcoming products or services with their functional or technical attributes, such as inventions, patents, computer software, passwords, methods for increasing production efficiency, security standards, etc.
  • Drawings, blueprints, production recipes, production and marketing plans, strategies, investment offers, and descriptions of business processes are examples of technological and production information.
  • Business information: sensitive information including business ideas, such as ideas for a new product or a new marketing approach, marketing plans, cost and price information, customer lists, market analysis, data on suppliers and contractors, customer information.
  • Financial Information: Information related to management and accounting data, cash flow calculations, reports, pricing mechanisms, etc.
  • Any other valuable information that has some value and is not widely known by the company’s competitors.

Examples of trade secrets

Some of the most famous examples of trade secrets include:

  • The secret formula of Coca-Cola;
  • The Maharaja Mac’s special sauce is made by McDonald’s;
  • The chemical composition of Listerine mouthwash;
  • The Google search algorithm.;
  • KFC’s secret recipe includes 11 herbs and spices.

Right to secrecy

The right of secrecy is to be strictly observed. Secrecy is to be maintained in such a manner as to prevent access to trade secret information by those who are not entitled to it. Information is secret if it is not generally known to the public and the secrecy is not waived by the owner of the information. The trade secret must be kept secret and should not be used without the owner’s permission. If a company uses trade secret information, then it must sign a non-disclosure agreement or other confidentiality agreement with its employees.

What are the threats to trade secrets

Threats to trade secrets can be of two types:

  1. External threats
  2. Internal threats

Let us understand them in brief:

  1. External threats are those that come from parties who are interested in obtaining your trade secret. They can be:
  • Companies that have the same niche area as yours or companies that want to pursue the same business and enter the same market as you.
  • Companies that want to earn the same market position as yours.
  • Parties that extract trade secret information and distribute it to other enterprises, minority shareholders, and other people who may be interested in such information and use it for their benefit.
  1. Internal threats are those threats that are primarily linked to the company’s personnel. Employees having access to corporate trade secret information collect such data with the mala fide intention of selling it or using it in their own projects or distributing it to a large number of people to harm the company. 

Protective measures

There are several measures that a company can adopt to protect its valuable information as a trade secret. These are listed below.

  • The companies should identify which information constitutes a trade secret and should review it periodically.
  • A trade secret regime should be established in a company. The document should include the main parameters of the protection system and a list of people responsible for regulating protective measures.
  • Any valuable business information can be protected by way of encryption.
  • There should be controlled and limited access to trade secret information by using measures like physical, managerial, technical, and contractual.
  • Accessing trade secret information by employees should not be allowed from remote locations.
  • There should be confidentiality agreements between the employees and the third parties to grant them access to the trade secret information, and such confidentiality should be maintained even after the expiration of such agreements.
  • While preparing employment contracts and standard contracts with contractors, a clause that talks about the liability for revealing confidential information should also be incorporated.
  • A vigorous trade secret policy should be implemented for the company if such a trade secret forms a critical part of the business value.
  • Technological means, such as mechanisms that can expose a trade secret, should be adopted to manage risks associated with reverse engineering if the company offers a technological product. 
  • There should be strict control over the use of computer network accounts, with a disclaimer that if anyone transfers a password, that may constitute dismissal due to “disclosure of trade secrets.”

Misappropriation of trade secrets

Misappropriation of trade secrets refers to the infringement of the rights of the trade secret holder to exclude others from using the trade secret. It can be defined as the unauthorized disclosure or use of a trade secret by a person who has a duty not to disclose or use the trade secret, or by a person who owes a duty to the secret holder to maintain its secrecy.

Most jurisdictions define misappropriation as the unlawful acquisition of a trade secret, the disclosure or use of a trade secret by one who knows or should know that the trade secret is secret, or the interference with the contractual rights of the trade secret holder. In the past, the courts have recognised the importance of trade secrets and have adopted several laws to protect them. Currently, the most common types of trade secrets include know-how (including inventions), technical data, customer lists, and business strategies. If there is no contractual agreement between the company and the person, the court may be able to order the person to return the trade secret to the company.

Types of misappropriation

Misappropriation of trade secrets can be of several types. The most common are:

  • Disclosure of a trade secret to a competitor or other individuals who have a duty to keep the information confidential;
  • Commercial use of a trade secret
  • Breach of contract, and
  • Breach of confidence

Who can be made liable for the misunderstanding of a trade secret

According to Section 1(2) of the Uniform Trade Secret Act, the following groups of people are prohibited from copying, using, or benefiting from one’s trade secrets or disclosing them to others without their permission:

  • People who are contractually obligated to not disclose or use any such trade secret information. This includes any employee who is regularly in contact with such information as part of his or her employment with the employer.
  • People who deliberately gain access to trade secret information by means of improper means, such as theft, industrial espionage, or bribery.
  • People who involuntarily get access to trade secrets by accident or mistake, despite being aware of the fact that such information is protected as a trade secret.
  • People who are obligated under non-disclosure agreements have a duty not to disclose trade secret information without getting permission from the owner.

Exceptions

If a group of people discovers a trade secret without making use of any unfair means or violating any agreements such as NDAs, then that shall not constitute misappropriation of such information that was protected as a trade secret.

In Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), the US Supreme Court gave judgment that reverse engineering, which involves “starting with the known product and working backward to divine the process which aided in its development or manufacture, “cannot be considered as a misappropriation of a trade secret.

Furthermore, if an employee acquires skills during the course of his or her employment and is able to retain such information in his or her mind, then that information may not be protectable as a trade secret and that employee cannot be sued for misappropriation.

Reliefs are available to the trade secret holder.

Reliefs available to the plaintiff or trade secret holder are as follows:

  • The court can grant relief in the form of an injunction to restrain the defendant from using or disclosing the trade secrets to the outside world.
  • Damages may be awarded by the courts in cases related to trade secret misappropriation. Damages may be liquidated, actual, or punitive. 
  • Other civil remedies include orders to return the trade secrets or delivery of such materials that contain trade secrets, and the court may also pass search and seizure orders.
  • There are no express criminal remedies available for misappropriation of a trade secret. However, offences such as criminal breach of trust, theft, or cheating may be applicable. The Indian Penal Code 1860 (IPC) and specific subject-matter legislation, such as the Copyright Act 1957 (governing copyrights) and the Information Technology Act 2000 (governing electronic records), contain provisions setting out specific offences that may be punishable by imprisonment or a fine.

Conclusion

A trade secret is any process or practice of a company to protect its confidential information from outside the world through the execution of non-confidentiality agreements with its employees or third parties. To qualify for trade secret protection for your intellectual property, the trade secret holder must use the necessary means to conceal such information from any outsiders in order to avoid misappropriation.

As the world is getting more competitive and everyone wants to build brand value, companies should take the necessary steps to protect their information that has commercial value as a trade secret. There are many advantages that come with protecting information as a trade secret. The biggest one is that, under trade secrets, protection is granted for an indefinite amount of time unless someone breaches a contract or spills it to the outside world. In addition to that, the trade secret holder gets relief in the form of an injunction or damages if someone is liable for the misappropriation of a trade secret. 

Reference

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