This article is written by Purvi Khandelwal, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws, from LawSikho.
Table of Contents
Introduction
A normal business person or any person of average intelligence is not unknown to terms like Trademarks or copyrights or patents. Our grandparents used to quote terms like we have patents over this kind of language or clothing or ritual. Even if the exact meanings of these terms were unknown to most people, they knew the basic meaning behind it, which is to have monopoly over something that prevents its usage by other people. However, with time and growing businesses and in the business economy like India where people prefer startups rather than services, and with the entry of younger minds, creating distinctiveness is now a trend and thereby Intellectual Property is not new to many businessmen today.
What can be a trade secret
Where trademarks and copyrights are familiar terms today, Trade Secret is a lesser known Intellectual Property that gives rights on confidential information which may be sold or licensed. A trade secret is information that has potential independent economic value to others who cannot legitimately obtain the information and thereby requires a fair amount of efforts to maintain its secrecy. Trade secrets can be in any form- a formula, practice, process, design, instrument, pattern, commercial method, or even a compilation of information or any other form of information by which a business can obtain an economic advantage over competitors or customers. The scope of trade secrets is unlimited and never ending.
Unknown to relevant business circles or the public, and being “not so easily accessible” is the topmost priority for any information to fall into the circle of trade secrets. However, not confined to above mentioned requirements, the information shall also be able to provide some sort of economic benefit to its owner, without which having a secret is actually of no use. Also, if the information fulfills all the above mentioned criteria but the owner of the information fails to protect it, it becomes useless and no longer continues to be a trade secret. Therefore, it takes a lot of effort for information to become a trade secret.
Why protect trade secrets
When a trade secret is formed and the owner of a trade secret is at a higher position than his competitors, the competitors or the new entrants into the market want to know the secret behind the successful owner of that secret and therefore the concept of selling and trading of trade secrets was introduced.
Depending on the jurisdiction, the protection of these trade secrets forms part of the general concept of protection against unfair competition thereby protecting the Intellectual property that is created with time and not just introduced to compete unfairly with the others in the Market. For avoiding misappropriation of trade secrets by European Companies, the European Commission is working to harmonize the existing trade laws to enable the owners of trade secrets to turn their ideas into growth and generate jobs. The United States, on the other hand, already has a well codified law on trade secrets which is known as Uniform Trade Secrets Act (UTSA) of 1979, amended in 1985. China protects its trade secrets under Anti-Unfair Competition Law 0f 1993 whereas India has no codification of laws related to trade secrets but brings it under Competition Act of 2002 as well as other IP Laws.
After having the basic knowledge related to trade secrets, I would like to discuss the process of selling and licensing of trade secrets. Trade secrets, like other intellectual properties, are one of the most important assets for the company and are highly valuable having utmost importance due to its confidential character and ability to generate higher and better commercials. Lending out the secret of generating profits is not an easy calculation and involves a detailed Intellectual Property Valuation to decide the cost to the company, if it decides to sell off the information. However, if companies are working on the information through research and development, they decide to license the information on a timely basis and may or may not lend out the further changes or developments made, depending upon the research conducted by their teams.
If the company has lesser trade secrets, those are easily manageable. However, as the number of the trade secrets increases, so does the need to manage them efficiently and thus arises the need for audits for the trade secrets which just like any other portfolio audit, can be termed as trade secret audits.
Trade secret audits
Quoting from a good read: “You typically get what you measure”, and thus it is vital that proper and regular audits by the competent person or team is the secret behind efficient management of trade secrets and how to earn from the intellectual property which again is the result of hard work and experience of the institution. Only a thorough audit can determine the actual and beneficial cost of the trade secret in the market and help in decision making of the current value of the same at the time of sale or license or trading of Intellectual Properties or business as a whole. The valuation of the intellectual property is a tedious task to perform and one wrong step can lead to huge losses for the company. The legal documents shall be prepared with the help of experienced legal team and shall necessarily include clauses that secure the interest of the company holding the IP and thereby such clauses which can ensure the highest amount of profit for the company while trading its IP which includes royalty amount, parts of profit as regular income, no re-licensing of the IP and like provisions. Trade Secrets are fragile and therefore require some TLC.
Once the IP Audit is done, and the documents are all set, the Company can invite interested organizations by advertising or by holding up seminars or by promoting or by any other mode and thus get the interested people to walk in to trade on the Company’s IP.
Trade secrets protection in India
Unlike the EU and USA, India has no specific legislation for protection of trade secrets. Nevertheless, Indian courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation. The owner of trade secrets can seek for remedies like permanent injunction preventing the licensee from disclosing the trade secret any further, return of all confidential and proprietary information and compensation for the losses suffered due to disclosure of trade secrets calculated on the amount of profits earned by the accused and also the loss of goodwill of the owner of the trade secrets. The Remedies in India are sought under other IP Laws and Competition Act of 2002.
In India, a person can be contractually bound to maintain the secrecy of the information that is revealed to him/her in confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreement, which imposes negative covenants on licensees not to disclose or use the information received under the agreement for any purpose other than that agreed in the said agreement. Delhi High Court in JOHN RICHARD BRADY AND ORS V. CHEMICAL PROCESS EQUIPMENTS P. LTD. AND ANR [AIR 1987 DELHI 372] awarded injunction even in the absence of a contract. The plaintiff invented a “Fodder production Unit” (FPU) and for indigenous production of the same sought supply of thermal panels from the defendant for which the former shared technical material, detailed know-how, drawings and specifications with the defendant concerning the FPU under an agreement. The plaintiffs, after learning about the defendant’s FPU, preferred a suit alleging misappropriation of know-how information, drawings, designs and specifications disclosed to defendants.
The Government of India has entered into trade secret contracts with many huge multinationals in the food industry like Pepsico, Dominos, Nestle and Cadbury. The recipes of Coca Cola and other soft drinks manufactured by Pepsico, the Pizza recipe of Dominos, the Maggie recipe of Nestle and Chocolate recipes of Nestle and Cadbury both are protected by Government of India, infringement of which shall not stop the owners of Trade Secrets from suing the Government too.
Conclusion
The world of Trade Secret is not new to third world countries; however, it is still unknown to major units who often lose fair market shares because they are unable to protect their trade secrets. A good trade secret practice can be solely responsible for attaining maximum profit from protecting ‘what’s yours’ and trading it to earn some more.
Key takeaways
- Trade secrets are secret practices and processes that give a company an economic advantage over its competitors.
- Trade Secrets may be in any form- a recipe, a process, a formula or any other form of information that helps the company stand unique in the market.
- Trade secrets may differ across jurisdictions but have three common traits: not being public, offering some economic benefit, and being actively protected.
- India has no separate laws for protection of trade secrets; however Indian Courts have, from time to time, recognized trade secrets as an Intellectual Property.
- A good and proper Intellectual Property Audit can only help generate extra revenue for the owner of trade secrets.
- A good audit is when it is done by expert market researchers, chartered accountants, and legal teams as a whole.
- The IP audits help determine the value of trade secrets at the time of selling or licensing the same.
References
- https://www.investopedia.com/terms/t/trade-secret.asp#:~:text=A%20trade%20se crt%20is%20any,of%20internal%20research%20and%20development
- https://www.wipo.int/tradesecrets/en/
- https://www.mondaq.com/india/trade-secrets/204598/trade-secrets-in-indian-courts
- https://www.ipeg.com/trade-secrets/
- https://www.investopedia.com/terms/t/trade-secret.asp#:~:text=A%20trade%20secret %20is%20any,of%20internal%20research%20and%20development
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