In this blogpost, Vernita Jain, Student, National Law Institute University, Bhopal, writes about what is a trade secret, relation between trade secrets and TRIPS, Laws which protect trade secrets and what are the remedies available in India.

What is a trade secret?

Information or the fact can be considered a trade secret when such information cannot be used in common in the industry to obtain an advantage over its competitors. The information that is said to be a trade secret should not be readily ascertainable. Over the years, the importance of trade secret in the sphere of intellectual property has increased to a level beyond protection through patents. Treaties like North Atlantic Free Trade Agreement (NAFTA) and Agreement on Trade-Related Aspects of Intellectual Property (TRIPs; Art. 39) governs the law relating to the protection of trade secret.

It is universally important that the information that is to be guarded as a trade secret must be kept ‘secret’. The extent to which such fact or the information is known to the outside world, how much of such information is known to the employees and the risk of having such information in the hands of the competitors are the most important factors to determine the trade secret.

However, it is only the effects of breach of confidence in the legal contracts or breach of trust that are protected. There is no particular law with which  trade secrets can’t be protected, as they are secrets but they can surely be protected by various others laws such as criminal law, the laws governing employee/employer relations and fiduciary obligations, unfair competition law and contract law. If a producer or a company reveals information to a third party that is a trade secret, it is very important that the party should have made an agreement that includes of what constitutes a trade secret and who owns that proprietary material.

Trade Secrets and TRIPS

At the GATT negotiations, it was declared that if anyone uses information that is ‘confidential’ for another party, such a person would be held liable for Unfair Practice. With the view of fulfilling the above objective, S. 39 of the TRIPS says that information that is to be treated as a trade secret can be protected under Article 10bis of the Paris Convention.

It is the duty of all the members of the company to protect undisclosed information from commercial exploitation[1], and if a company provides information or data to the Government for further approvals or regulatory, such data needs to be protected from leakage or theft by third parties.[2]

Trade Secrets Protection in India

Trade secrets are protected in India either through contract law or through the equitable doctrine of breach of confidentiality. It is common to insert clauses that protect the confidentiality of the secrets of the company in the agreement with the employees not only during their employment period but also after they are terminated.

Protection of Trade Secrets

Due to the absence of law for the protection of trade secrets, the Indian court relies on the common law remedies for the protection. Reliance is placed by Indian courts on the Saltman Engineering case,[3]

In other words, “In India, the law of contract has to be relied upon for the protection of the secrets.”[4] However, “in India, the law that is used is the law of tort of ‘breach of confidence’.”

New Delhi Court provides a list of what can be said to be a trade secret. It says that a trade secret “can be a formula, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.”[5]  However, routine affairs of the employer which are commonly in the knowledge of his employees and his competitors cannot be called trade secrets.  The acts that constitutes as a breach of confidence that is used by the Indian courts are:

(1)  The fact or the information must have quality of confidence in it;

(2)  There must be an obligation of confidence relating to such fact or information;

(3)  There must be an unauthorized use of that information to the detriment of the party communicating it.

Moreover, the Indian Courts have applied these principles in three sets of circumstances out of which proceedings may arise:

(a) Where such fact of information that is secret has come in the possession of an employee in the normal course of his work, who passes that deliberately or carelessly, passes that fact or the information to an unauthorized person;

(b) Where such an employee who is claimed to be in possession of such trade secrets has been invited to provide such information by such an unauthorized person.

(c) Where, in the case of a license, the licensee has committed a breach of any condition that was expressly or impliedly given in the.

Law of contract

In many cases, the Indian courts have held that “although an employer cannot restrain his employee from offering competition after he is terminated from the company, but, the employer has the right to reasonably protect his trade secrets against exploitation.”[6] Moreover, in cases where the contract for such trade secret is absent, injunctions have been issued by the courts based on the rules of equity.

Remedies available

In India, the only remedies available for the protection of trade secrets are civil or equitable remedies for a breach of confidence cause of action.  They include:

• an award of injunction “preventing the third party from disclosing the trade secrets,” and “confidential and proprietary information,” and,
• In the case of “for any losses suffered due to disclosure of trade secrets.” The court may order any damages or compensation to be given to the plaintiff. The court may also order the party at fault to “deliver up” such materials.

If an injunction is granted, the fact or the information is considered confidential only for a limited period till which the injunction is given.  If the fact or the information is claimed to be confidential, but only for a specific time, then interim injunction will be granted only for a period which will depend on the circumstances and nature of the confidential information.

In Gujarat Bottling Co. Ltd.[7] case:

Such interlocutory injunction is granted when the ligation is pending. The court in order to grant interlocutory injunction has to apply the following tests:

• Whether there is a prima facie case,
• Whether the balance of convenience is in favor of the plaintiff, and
• Whether the rejection of the injunction would result in an irreparable injury to the plaintiff.

The object of such relief is for the protection of plaintiff against his injury for which he could not be adequately compensated if the uncertainty were resolved in his favor at the trial. Damage in such cases can be determined based on the “market value of the confidential information based on a notional sale between a willing seller and a willing purchaser.”

Conclusion

Sui Generis’ system of protection

In order to ensure the protection of trade secrets, India should also follow the `Sui Generis’ system that ensures the protection that has been provided under Art.10bis of the Paris Convention and Article 39(2) and 39(3) of TRIPS. The result of this would be that this would go a long way in developing a way of respecting trade secrets and undisclosed information as proprietary assets.

National Innovation Act of 2008 was drafted by the Department of Science and Technology, as part of the Ministry of Science and Technology, [8] that would “consolidate and codify the law for the protection of trade secrets, innovation and Confidential Information”.

[1] S. 39(2) TRIPS.

[2] S.39(3) TRIPS.

[3] Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd., 1948 (65) R.P.C. 203.

[4] Sonia Baldia, Offshoring to India: Are Your Trade Secrets and Confidential Information Adequately Protected?, Mayer Brown Bus. & Tech. Sourcing Rev., Mar. 1, 2008, at 10,.

[5] Ambiance India Pvt. Ltd. v. Shri Naveen Jain, 122 (2005) D.L.T. 421, para. 6.; see also American Express Bank, Ltd. v. Priya Puri, (2006) 3 L.L.N. 217.

[6] Zafar Mahfood Rahmani & Faizanur Rahman, Intellection of Trade Secret and Innovation Laws in India, 16(4) J. Intell. Prop. Rts. 341, 347 (July 2011),

[7] Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 S.C.C. 545, para. 43.

[8] National Innovation Act of 2008 (Bill).