This article on the need for an innovative law for innovation laws is written by Madhurika Durge from Symbiosis Law School, Pune.
Introduction and History
A trade secret is any norm of a business that includes any formula, practice, process, design, instrument, pattern or compilation of information used by a person or company to obtain an advantage over competitors within the same industry or profession.[1] It includes within its ambit “know-how” which are unique skills unknown to others and thus provide an economic edge over others. For example, if A wants to start manufacturing a soft-drink and consults B, the manufacturer of a soft-drink company X, even the basic process common for all soft-drinks and not particular to company X becomes know-how and hence a trade secret. Trade secret has three aspects to it, first, that the information should be a secret which means it should not be readily or accessibly known to people in a similar business, second, there should be commercial value due to its secrecy and third that there should be reasonable steps taken to maintain its secrecy.[2] It can be anything from a customer list, pricing strategy, marketing and business strategies and other similar information can be protected which is unknown to the public.
Trade secrets in India are a neglected aspect of intellectual property and are mostly covered only by common law principles.[3] The reason for this may be that even though trade secrets are the most common intellectual properties, its development into the law has been slow around the world. The earliest American cases discussing trade secrets occurred in the late 1800s and the Restatement of Torts, 1939 included an aspect of trade secrets while as patents, copyright and trademark originated in 1400s, 1700s and 1600s respectively.[4] Another reason could be no one can seem to agree where trade secret law comes from or how to fit it into the broader framework of legal doctrine. Hence, it was not adopted as fast as other intellectual properties. At the onset of the Uruguay Round, trade secrets were mentioned in the U.S. Proposal of October 28, 1987, then in ensuing European and Swiss proposals[5]. Brazil and India, among others, opposed the inclusion of trade secrets on the agenda. In 1989, the Indian Government said that trade secrets are not a form of intellectual property right[6] and the protection against unfair competition under the Paris Convention[7] would suffice; finally, protection by contract and under the civil law was to be preferred to intellectual property law. Despite all of this, now the time has come for India to enact a separate legislation which, in the long run, will be a better investment than the current scenario of trade secret law.
Importance of Trade Secrets
Trade secrets are salient features in the advancement of any business. Every company, firm or employer has their own generated information that is primary to running their business. It comes as a part wherein they have established goodwill or reputation. The importance of trade secret is especially increasing in the current era as people keep changing jobs. It is important that employees sign non-disclosure or non-compete agreements which prevent them from revealing any information in the nature of trade secret even after they have left that employment. This is key to preserving the value of the business. There is also a problem that since everything has become digitized, at times it becomes easier to hack in and obtain information and it also becomes difficult to trace back as to who has done it. It also encourages international firms to venture into the market when they are assured that their trade secrets will remain intact. Many firms are wary of entering the Indian market as there is no protection offered to them for their trade secrets.[8] Another edge that trade secrets will have over the other intellectual properties is that the criteria for having other intellectual properties are very strict and need too much of compliance. If for example, someone is not able to obtain a patent due to lack of novelty, the pertaining information remains unprotected even though there is labour and skill involved. In a Himachal Pradesh High Court case[9] the petitioner was a civil engineer who had invented the machine used for excavating which was much lighter in weight. He used the concept of another machine to build various models with different designs and dimensions till he created the perfect machine. He could however not obtain a patent for the same. In this case, if there were sufficient trade secret laws, he could have protected his machine and its design. Without this, his labours and intellect remain unrecognized and unprotected. Moreover, patents are available only for a limited period of time and only for inventions in the field of technology. Trade secret has the power to protect information that no patent can. Also, it is also protected during court proceedings, unlike patents. Even when compared with copyright, copyright protects only original works. Thus, the scope of other intellectual properties is rather limited and a lot of other intellectual efforts remain unrecognized which will all be acknowledged under trade secrets.
Current Trade Secret Law Scenario
In India, we do not have any specific legislation for trade secrets but rely on certain provisions in certain acts. These provisions in some way do provide for the protection required but do not clearly elucidate out as to what are trade secrets and what are not, how is its monetary value assessed and how conflicts are resolved. The author will attempt to explain what these provisions are and the problems they do and do not resolve.
Firstly, Section 8(1)(d) of the Right to Information Act, 2005 says that there is no obligation to provide any information to any citizen regarding commercial confidence, trade secrets or intellectual property unless there is a larger public interest involved. In this context, there is always a problem while balancing the citizen’s right to have access to any information and preserving a company’s interests. For instance, if a person has shares in a particular company, the only data available will be the one in public domain. However, the Company’s policies or the business tactics as to how does the Company generate profits is never revealed. Thus, any citizen may claim this information under his right to information but it cannot be revealed as certain things will fall under the category of trade secrets. The question remains how much a citizen is entitled to know before it falls under forbidden information. This can be resolved by pleading Section 8(1)(d) and providing citizens with information which is required for their benefit but nothing more than what would jeopardize the benefits accrued to the firm or employer. There can be taken a view of balance of convenience as to weigh the losses suffered between the parties and give the verdict (or injunction) in favour of the party who would probably suffer a bigger loss. Of course, the facts and law will be taken into consideration as well.
Secondly, Section 27 of the Indian Contract Act, 1872 says that every agreement by which any person is restrained from carrying on any lawful occupation is void. Article 19(1)(g) of the Constitution also reaffirms the same. Section 27 has two aspects to it, namely non-compete and non-disclosure agreements in relation with trade secrets. A non-compete agreement is an agreement that denies access to the seller from conducting a similar business in the specified area for a certain period of time.[10] This common law principle was also taken up in this particular section. In Niranjan Shanker Golikari v. Century spinning & Manufacturing Co Ltd[11]
a foreign producer offered collaboration to a company on the condition that the company shall maintain the secrecy of all the technical information and obtain secrecy contracts from its employees as well. The defendant was appointed for a period of 5 years, the condition being that during this period he shall not serve anywhere else even if he left the service earlier. This was held to be a valid agreement. Non-disclosure agreements are agreements where there is non-compliance to reveal any information.[12] In a Delhi High Court case[13], there were certain designs of the plaintiff that the defendants had used for the manufacture of Pick-N-Carry Mobile Cranes. The Court ordered strict prohibition to transfer any sort of information particulars or details of manufacturing processes, technical know-how, administration and/or organisational matters pertaining to the Company which may be one’s personal privilege to know by virtue of being in the employment of the Company. It was also held that confidential information of the employer can be protected post-employment period. However, non-disclosure agreements are not a specified part of the legislation but are built into the laws via case laws. Confidentiality clauses usually come with the concept of goodwill. Goodwill is an intangible asset that comprises of reputation, contact networks and intellectual property.[14] If the goodwill gets transferred from the first person to the second person, the first person cannot use any of the goodwill that he had and this assumes the nature of a confidentiality clause. Of course, these clauses are by way of contracts and also by the way of a fiduciary relationship between employer and employee. Despite all this, there is no legislation to enforce all of this and is thus not as binding. If contracts are not made, a trade secret become completely unprotected while as a legislation ensures complete protection as a back-up.
There was a bill proposed called the National Innovation Bill, 2008 in which chapter VI talked about the confidentiality of information. It broadly talks about three things. The first being confidentiality, the second being misappropriation and the third being damages and injunction. According to the bill, confidentiality can arise by contractual[15] and non-contractual obligations.[16] However, even under contractual obligations, information can be revealed if there are other obligations by way of equity. Under non-contractual obligations, information cannot be revealed by the third party unless consent of the same is acquired. In order to prevent misappropriation of information, trial can be taken in-camera, issuing orders to prevent people witnessing the trial to not reveal any information.[17] Further, there are three exceptions laid down for misappropriation.[18] There will be no misappropriation if the information is already in the public domain, if the third party has independently arrived at that particular result by his own efforts or if it is in public interest. Injunctions shall be granted if there is any misappropriation unless it falls under the exceptions.[19] Also, if there is a misjudgement in granting of injunction, the complainant will have to compensate the defendant to that extent. Damages will be awarded if the confidential information has been misused and unless there is a contract that states the amount, the Government is at the liberty to decide the requisite amount according to provision 15(c) of the Act.[20] Also, if the intent is established of the person misappropriating, the damages will be thrice the amount prescribed in the Act. Lastly, there is immunity for any act done in good faith.[21]
This Act remained a bill only and was not enforced into a law. However, this was the closest the Government came to laying down certain statutory provisions for protection of trade secrets. An analysis of this reveals that the definition of confidential information is directly copied from the TRIPS Agreement. Thus, on one hand, it is advantageous as it is on par with the international standard while on the other hand; its scope becomes restrictive and lacks originality. The definition of innovation also reveals that it talks about only ‘processes’ that can be protected and is thus restrictive. Trade secrets only form a part of the Act and talks about allied subjects like research, innovation and marketing and hence does not treat trade secret as appropriately as a separate statute would. Rights and obligations of people related to confidential information are to be subjected to the Government. This will attract the provisions that it might be discriminatory, unjust and will place discretion which will go against Article 14. It does not even lay down the provisions as to on what basis and how this power is to be utilized by the Government. The only remedies provided are civil in nature, whereas there might be trade secrets whose damages will be huge in magnitude and no amount of damages could compensate it. A criminal remedy should also have been included within the ambit of the Act. This Act, however, remained the only effort to actually legislate the law of trade secrets and did pave the way for further legislations that might come along.
Section 405 of the Indian Penal Code talks about criminal breach of trust wherein, if any person is trusted with any property and the person misappropriates it contrary to the given directions, he will be liable under this section. Property might also talk about intellectual property protection as it does not talk about “movable” property under the Section and thus scope of “property” cannot be restricted.[22] During any employment contract, there is always information revealed according to which the firm or employer operates. The employer trusts the employee that he will not reveal the trusted information either by contractual or non-contractual obligations. In a case,[23] an employee accepted the role of the Chief Executive Officer of a rival company while still being employed at his former company. During his appointment there was a clause which prevented him from divulging any trade or official secrets of the company. However, he divulged the official trade secrets, equipment, plans and drawings, terms and conditions pricing policy, names of the customers, etc. to his supposed former company for his personal gain as well as for the gain of his former company and to the loss of the rival company in violation of the terms and conditions of the appointment letter issued to him and took away all the valuable documents, paper, receipts, etc. of the rival company causing loss to the rival company. The employee was held liable under Section 405 as all the ingredients were satisfied. In this perspective, there can also be a mention of Section 408 and Section 420 of the Indian Penal Code which specifically talks about criminal breach of trust by a clerk or servant and cheating and dishonestly inducing delivery of property respectively. In a Bombay High Court case[24], although whether technical know-how falls under “property” was not defined, it was clearly mentioned that if any person had given this know-how despite a contract preventing him to, liability would be attracted. Although there have been provisions under criminal liability to a certain extent, the definition of property has hardly been expanded enough to include trade secrets, let alone punish thereunder. Under (English) common law principles, the protection of confidential information is looked at as an equitable right rather than a property right. In a Delhi High Court case[25], the Court was of the view that details of customers are not trade secrets and neither are they property. Hence it remains quite inconclusive as to the treatment of “property”. The reason for inclusion of criminal liability will act as a deterrent factor and sometimes, the misappropriation is such that monetary compensation will not be sufficient.
The Paris Convention talks about how there should not be unfair competition[26] and how any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.[27] The application of this in Indian legislation is governed by anti-competitive agreements in the Competitive Act, 2000. It defines anti-competitive agreement as any agreement which can cause adverse effect on the competition in India and includes things like determining prices, controlling the supply, controlling the geographical area, number of customers etc.[28] All of these anti-competitive techniques will include revealing or obtaining of trade secrets in one way or the other. For instance, if there is determination of prices, various firms or employers will get into agreements for which they will have to reveal strategies or techniques. Only then will they reach a consensus of a price. Thus, trade secrets can also be abused in this way when there is no legislation to protect them. Also, a trade secret loses its value when revealed and this is contrary to free and fair competition. There is also another aspect with respect to trade secrets and competition and can be interpreted in two ways. The first way is where they conflict each other as trade secret is basically an intellectual property and the nature of it is to establish a monopoly in the market. They restrict competition while as competition law provokes it. The second way is that they complement each other as trade secrets and other intellectual properties provide incentives for innovation, to promote efficiency and competition. However, to ensure this, there has to be a systematic way to protect the trade secrets which are sought to be enforced. This can be possible again by enforcing a legislation to protect it. Otherwise, there will be abuse and exploitation of intellectual properties. In the famous Magill[29] case the company wanted to produce for TV viewers a comprehensive guide to the programs of the existing three TV stations. However, the TV stations refused to allow Magill to publish their programs citing copyright infringement. The court held this to be the abuse of dominance arising from the copyright. If there was a legislature to protect trade secrets, wherein, after trade secrets are registered and are then intentionally revealed to adopt methods of unfair competition, there could be penalty provisions for the same.
Besides these laws, there is a need to inspect the laws laid down in the Information Technology Act, 2000 as most information is now preserved in computers and programs. Section 65 of the Act elucidates the punishment for tampering with documents including stealing, destroying or altering any information. Section 72 also lays down that if there is any sort of access that people get which they are not supposed to have, it will attract liability. However, trade secrets are much more than what is stored or written. Trade secrets are the expertise that someone has gained by their hard work and intellect. It is usually something they know and hence might not write it down or store it in a computer. These provisions do not take into consideration intention, contractual obligations, public interest etc.
Shortcomings of the Current Laws
None of these laws define what a trade secret is, how should it be protected, what are its provisions, how are the remedies decided and how are damages ascertained. There is neither consensus nor any uniformity among these laws and there are so many concepts which are not introduced in the current laws. For instance, the doctrine of inevitable evidence wherein if an employee goes to work for a competitor, will he be bound to not disclose the knowledge or skill that he acquired in his previous firm or will that be an exception. In order to operate a law to its maximum capacity, every issue should be looked upon and there needs to be an amendment to the existing laws on the trade secret.
Another reason for enacting a separate legislation for trade secret laws is that the Indian law is confusing and obscure for businessmen and especially foreign investors in the Indian market. The effect of enacting a legislature will clarify the law as there would be no need to refer to several other legislations. It will lay down the provisions as to what trade secret is and hence cover what is protected and what is not. It will also update the working of the current laws which protect trade secrets and bring them in a similar context as the legislature. It will place responsibilities, obligations and accountability in the business world. It will seek to protect the labour and intellect of information worth protecting. It will serve as a direct forum for redressal of any complaint and remedies will be easily available. It will also answer certain questions like is intention a relevant factor while revealing information or if in spite of reasonable measures being taken to maintain secrecy, yet if information is revealed, who will pay the damages or is reverse engineering a good defence etc. Liabilities of third party and the question of public interest will also be solved.
However, the problem with the legislation that might still remain will be as to how trade secrets will actually function. As it was established before, trade secrets lose their value when publically known. Hence, when a legislature to that effect will be enacted and there will be registration for the protection of any trade secret, it will become public at that instant. The solution to the same could be that while registration, only the three conditions of a trade secret[30] should be met with and the trade secret per se need not be revealed. Likewise, the Courts have outright refused disclosure of information on the grounds that the information would then become public and not remain confidential.[31] The OECD report also echoes this, in the case of India, recognizing that secrecy of confidential information can be sought by the plaintiffs during litigation.[32]
Conclusion
Thus, although there are certain sections that seek to protect trade secret in some ways, there is nothing concrete and definite. Any law to fulfil its role as a law has to be definite and cannot be confusing or obscure. Moreover, India as a signatory of the TRIPS Agreement is actually under an obligation to provide a clear law or amend its laws to ensure maximum protection to trade secrets. Legislation will lead to treatment of undisclosed information as proprietary assets of the company or employer. The value of trade secret is increasing and anything with value needs to be protected well. It needs to be realized that trade secret has no longer remained a national issue but gone to the international frontier. Almost all the countries in the world have a law for the protection of trade secrets and India should do the needful to provide a sense of security to all the businessmen in order to boost the Indian economy.
References-
[1] Tom Lin, ‘Executive Trade Secrets’ (2012) 87 Notre Dame Law Review <ssrn.com/abstract=2047462> accessed 24 November 2016
[2] TRIPS Agreement, 1995, Art 39
[3] Dr Francois Dessemontet, ‘Protection of Trade Secrets and Confidential Information’ (1998) Kluwer Law International, La Haye, <www.unil.ch/files/live/sites/cedidac/files/Articles/Protection%20Trade%20Secrets.pdf> accessed 25 November 2016
[4] David Almeling, ‘Seven Reasons Why Trade Secrets Are Increasingly Important’ (2012) Vol 27, Issue 2 Berkley Technology Law Journal <scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1958&context=btlj> accessed 25 November 2016
[5] E.C. Draft Text, Art. 28; Switzerland Draft Text, Art. 241 (1)
[6] Supra note 3
[7] Paris Convention for the Protection of Intellectual Property, 1883, Art 10bis
[8] Md Zafar Nomani & Faizanur Rahman, ‘Intellection of Trade Secrets and Innovation Laws in India’( 2011) Vol 16 Journal of Intellectual Property Rights <nopr.niscair.res.in/bitstream/123456789/12449/1/IJPR%2016(4)%20341-350.pdf> accessed 27 November 2016
[9] SC Katoch v Union of India ILR [1979] 8 HP 445
[10] Black’s Law Dictionary 2nd Ed (1910)
[11] AIR [1967] SC 1098
[12] Supra note 3
[13] AIR [1999] Delhi 73
[14] Black’s Law Dictionary, 2nd Ed (1910)
[15] National Innovation Bill, 2008, s 8
[16] National Innovation Bill, 2008, s 9
[17] National Innovation Bill, 2008, s 10
[18] National Innovation Bill, 2008, s 11
[19] National Innovation Bill, 2008, s 12
[20] National Innovation Bill, 2008, s 13
[21] National Innovation Bill, 2008, s 14
[22] RK Dalmia v Delhi Administration AIR [1962] SC 1821
[23] Narayan Chandra Mukherjee v State of Bihar [2001] 1 BLJR 680
[24] Pramod Laxmikant Sisamkar and Uday Narayanrao Kirpekar v Garware Plastics and Polyester Limited [1986] 3 Bom CR 411
[25] American Express Bank Limited v Priya Puri [2006] IIILLJ 540 Del
[26] Paris Convention for the Protection of Industrial Poperty, 1883, Art 10bis (1)
[27] Paris Convention for the Protection of Industrial Poperty, 1883, Art 10bis (2)
[28] The Competition Act, 2002, s 3
[29] Radio Telefio Eirann (RTE) v Commission [1995] ECR 743
[30] Supra note 2
[31] 0 Fairfest Media Ltd vs lte Group Plc & Ors [2015] 2 CHN CAL 704
[32] Schultz, M.F and D. Lippoldt ‘Approaches to Protection of Undisclosed Information(Trade Secrets): Background Paper’, (2014) OECD Trade Policy Papers, No 162 <www.oecd-ilibrary.org/trade/approaches-to-protection-of-undisclosed-information-trade-secrets_5jz9z43w0jnw-en> accessed 28 November 2016
