This article is written by  Neha Chaudhary pursuing a Diploma in intellectual property rights, media, and entertainment law and Certificate Course in US IP and Paralegal Studies. This article has been edited by Ojuswi (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

You can’t protect your trade secrets if you don’t mark them a secret- Legalism 

Introduction  

Oftentimes one comes across food recipes, which seemingly use common ingredients. Yet, the Chef would term the recipe to be a secret recipe. What is the reason behind keeping it secret when the ingredients are very common? The proportions of ingredients used and the process of making that particular dish make it unique and different from others and when it is used for business, it becomes a Trade Secret that gives the business an edge over the competitors in the market. The owner enjoys the benefits of exclusive rights over the trade secret as long as it can be kept secret. 

The article throws some light on the essentials of Confidential Information and Trade Secret for a successful business and how it falls under the protection of the IP regime. It focuses on the scope of Trade Secrets and Confidential Information in India and other countries. It discusses the need to enact a specific law in India for protecting this intellectual property right. 

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Trade secret and confidential information 

What is confidential information

Confidential Information is the information disclosed by one party to the other party in the course of business and it shall not be disclosed to the public. The concept of Confidential Information is based upon the doctrine of law of confidence and equitable principle i.e, the person who has received the information must not use it for unfair advantage to the detriment of the person who provided the information without their consent. 

What is a trade secret 

Trade Secret, the name itself defines the secret of any trade or business that is known to a limited group of persons and has a commercial value. According to WIPO (World Intellectual Property Organisation), Trade Secrets are intellectual property right(s) on confidential information which may be sold or licensed. Trade Secrets do not require registration, unlike other Intellectual Property Rights. 

Essentials of a trade secret

  • It should have commercial value as it is a secret 
  • It should not be widely known except to a limited group of persons related to the business
  • To keep the information secret, the owner has taken reasonable steps.

It includes formulas, recipes, processes, software codes, customer lists, supply channels, financial information, etc. Some famous examples of trade secrets are Nestle Maggi Masala, KFC’s chicken, Listerine MouthWash, Hershey’s Milk Chocolate, Google Algorithm, Coca-Cola, and many more on the list. 

A trade secret is a kind of Confidential Information. All trade secrets are Confidential Information, but not all confidential information is trade secrets. Confidential Information is the information that has valuable and sensitive secrets attached to it and the person who receives it, owes the duty neither to disclose it nor to use it for a purpose other than that for which the disclosure has been made. For example, Company Profits and Revenues, Clients, customer lists, employee records, etc.

Trade Secret is confidential information that has a commercial value attached to it and reasonable steps have been taken to keep it a secret for as long as possible. For example, any technical information, software, data, formulas, recipes, etc. 

India – protection of trade secrets and confidential information

How the concept of trade secret evolved in India

After the liberalisation in 1991, India became a member of the World Trade Organisation (WTO) and subsequently, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was also signed by India in 1994. As per TRIPS Agreement, it was mandatory for all the member states to protect the Trade Secrets/undisclosed information in accordance with Article 39 of the TRIPS Agreement. 

No specific law was enacted for the protection of Trade Secrets and Confidential Information in India and it is still not there. It is based on equity and common law.  

With the advancement, the Indian Government initiated specific laws to protect Trade Secrets and introduced the Draft of National Innovation Act 2008. The Bill outlined all the regimes in the protection of Trade Secrets, but the Bill was never ratified to become an Act and the step in the protection remained unfollowed. 

How Trade Secret law is governed

The protection of Trade Secret and Confidential Information is governed by : 

Common law

  • Section 27 of the Contract Act is the specific law that bound the parties not to disclose information contrary to the terms of the contract between the parties i.e. Non-Disclosure Agreements.
  • Copyright Law also protects the trade secrets involved in business data. Further, the Personal Data Protection Bill, 2019 introduced a specialised regulatory approach for the Protection and Privacy of Data of Personal and Non-personal Data in any form (digital or non-digital).
  • Section 72 of Information Technology, 2000 imposes a penalty for breach of confidentiality and privacy. 
  • Section 405-409 of the Indian Penal Code,1860 deals with the cases when there is a Criminal Breach of trust. 

Law of confidence and fiduciary relationship

When one party discloses information to another party in a trustee-beneficiary relationship, the recipient abides by the duty of confidence and trust, when a non-disclosure agreement is not signed between the parties.

Judicial Precedents 

In India, Judicial opinions and precedents are the sources for the protection of Trade secrets and Confidential Information as there is no specific legislation for it. Following are the cases related which reflect the application of the judicial mind:

In  Dr. Sudipta Banerjee Vs. L.S. Davar & Company & Ors. FMAT 735 of 2021, an injunction order against the former employees of a law firm was passed by the Calcutta High Court for disclosing trade secrets and confidential information gathered in the course of their employment. 

Court further opined that freedom of contract and trade must be balanced if we re-look at Section 27 of the Indian Contract Act. If the employee shares such information and communication, it would be unethical and would be a breach of the confidentiality clause in the service contract causing prejudice to the law firm. 

M/s Lifecell International Private Limited  v. Vinay Katrela O.A. Nos. 599 and 600 of 2018. In the present case, the Madras High Court opined that in Franchisee Agreement or any other agreement, there cannot be an absolute restraint post termination of the employment. The Court further held that the restriction can only be in relation to Trade Secrets which are developed and suitable to the prospects of the company and hence, cannot be divulged. 

In Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber 61 (1995) DLT 6, the defendant was a former employee of the company(the plaintiff) who utilised the plaintiff’s contacts database in a similar business started by him after leaving the company. The Court held that the contacts database was developed through skill and labour by the plaintiff, hence protected under the law relating to Trade Secrets and Confidential Information.

In Saltman Engineering Company Limited v. Campbell Engineering Company Limited  (1948) 65 RPC 203 or “Saltman Engineering Case”,  Saltman challenged the Act of Campbell when he started using the drawings for its own purpose. Campbell argued that in the absence of a contract, he is not bound to treat drawings as Confidential. Lord Greene observed that “it would not matter the least bit whether there was a contract or whether there was not a contract”. What mattered was that Campbell was aware that the drawings belonged to Saltman and it was confidential as the defendants had got them for a limited period. Hence, a Breach of Confidence on the part of the defendant was held in this case. 

In John Richard Brady & Ors v Chemical Process Equipment P Ltd & Anr (AIR 1987 Delhi 372), principles of confidentiality were discussed for the first time in this case. The Court held that “the law on this subject does not depend on any implied contract. It depends on the broad principles of equity that who has received information in confidence shall not take unfair advantage of it”.  

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Confidential information and trade secret law in global trends 

US

In the US, Trade Secrets are protected by specific law- The Uniform Trade Secrets Act (USTA) which is a state law enacted by the Uniform Law Commission in 1979. It is also protected by federal law i.e. The Defend Trade Secrets Act(DTSA) of 2016. The US has the strongest law for the protection of Trade Secrets in case of any misappropriation of Trade Secrets. As per Roger M Milgrim, Milgrim on Trade Secrets, the following factors are to be considered to determine whether the information is a Trade Secret:

  • the extent to which the information is known outside of his organisation;
  •  the extent to which it is known by employees and others involved in his organisation;  
  •  the extent of measures taken by him to shield the secrecy of the information; 
  •  the value of the information to his organisation and his competitors; 
  •  the amount of money or efforts expended by the organisation in developing the information; 
  •  the ease or difficulty in acquiring or copying the information, from others;

In the case where the act of theft or misappropriation of a Trade Secret has been done with the intent that it will benefit any foreign government, foreign instrumentality, or foreign agent, will be a Criminal Offence as per Economic Espionage Act, 1996

UK 

Trade Secrets are protected by Trade Secrets (Enforcement, etc) Regulations, 2018 and these regulations considerably overlap the common law regime for Confidential Information as Trade Secret is a subset of Confidential Information. 

Any Confidential Information can be protected under the UK Common Law if it passes the 3 stages test:

  1. “Quality of Confidence” must be there in the information.
  2. Circumstances must be such that the information gives rise to the Quality of Confidence.
  3. There must be the use of information in an unauthorised manner or detrimental to the owner of the information. 

Remedies for the unlawful use of Confidential Information and Trade Secret can be provided through Damages, Injunction, Account of Profits or Compensation, and publicity orders. 

China 

China has a framework of different laws for the protection of Confidential Information and Trade Secrets. These laws include:

  • the Anti-Unfair Competition Law which was revised in 2019 
  • Civil Code (effective from 2021); Civil Procedure Law (revised in 2017)
  • Labour Law which was revised in 2018 
  • Criminal Law which was revised in 2015
  • Provisions of Supreme People’s Court 

As per Anti-Unfair Competition Law: trade secrets mean any technical information, operational information, or commercial information, which is not known to the public and has commercial value, and for which its infringer adopted measures to ensure its confidentiality.

In case of any transfer or licensing of trade secrets by a party who is not the trade secrets, the owner will be punishable with confiscation of illegal gains, an injunction, and a fine of up to 5 million RMB.

Australia 

Australia does not have a specific law for the protection of Confidential Information and Trade secrets. It is governed by various statutes which protect against the disclosure of Confidential Information which are as follows: 

  • The Freedom of Information Act, 1982 
  • The Privacy Act, 1988
  • The Corporations Act, 2001 

There is no specific definition of Trade Secrets under Australian Law, it is considered merely a form of Confidential Information. It is guided by Article 39(2) of the TRIPS Agreement which states “undisclosed information”.

Protection can be attained through contractual obligation and equitable action for breach of Confidence. 

Japan 

In Japan, trade secrets are protected by The Unfair Competition Prevention Act (UCPA) through civil and criminal measures. After 1995, when Japan joined TRIPS, the provisions of USPA were ratified accordingly. 

Trade secrets are defined as technical or business information that is: 

  • kept secret through Secrecy Management
  • having usefulness useful for business activities 
  •  in non-public domain i.e. not publicly known

It is not required that the trade secret owner should take reasonable measures to protect its trade secret. 

UAE 

The UAE is also the signatory of the TRIPS Agreement. Though there is no statutory definition of “trade secrets”, it is protected by various federal laws through Civil & Criminal liabilities. 

  • Patent Law – Article 39 to 42 
  • Penal Code – Article 379
  • UAE Companies Law- Article 369
  • Civil Code. 

Dubai International Finance Centre (DIFC) in the UAE passed the IP Law in 2019 to protect Intellectual Rights and Trade Secrets. It is a Free Zone and has its own Courts and it can issue judgments on Intellectual Property Rights outside the free zones also. 

It can be concluded through the above discussion that India needs a specific law for the protection of Confidential Information and Trade Secrets as it is a rising economy in the World. Innovation, Research & Development in any business requires a strict regime to attain success and contribute to the economy. Specific Statutory law in India will provide security to the trade secret owner by penalising civil and criminal liabilities which arise due to misappropriation and unauthorised use of Confidential Information and Trade Secrets. 

Conclusion

Every organisation, business, and Company should follow Secrecy Management, Employee Employer Contracts, Non-Disclosure Agreements, and every reasonable step to guard the secret of any trade. 

Globally, Countries like the US, and Japan have taken a step forward in the protection of Trade secrets and Confidential Information which keeps them ahead of other countries in successful businesses. 

References

https://www.mondaq.com/trade-secrets/1106532/protection-of-trade-secrets-in-the-uae

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