In this article, Rishabh Saxena of NUALS answers the question on What are Trade Secrets? How one can claim protection?

Introduction

The concept of trade secret is not new in Indian subcontinent but which has not been dealt properly in the past. The domain of trade secret is pretty much wide as it fits into extensive framework of contract, competition, and Intellectual Property Rights. If the trade secret is leaked the present law is inconsistent in providing remedies properly. Over the years, Companies lost billions of dollars. Generally, trade secrets are considered as part of Intellectual Property Rights but varies according to jurisdiction.  

What are Trade Secrets?

Any information confidential in nature and involve economic interest of the owner in obtaining an economic advantage over competitors considered a trade secret. Trade secret in common terms protects technological and commercial confidential information not generally known in the trade and prevents unauthorized access by others. North American Trade Agreement (NAFTA) defines a  trade secret as “information having commercial value, which is not in public domain and for which reasonable steps have been taken to maintain its secrecy.”  Generally speaking, a trade secret is usually defined in broad terms and includes or refers to a practice, manufacturing process, sales method, distribution method, consumer profiles, advertising strategies instrument, design, lists of suppliers and clients or a compilation of data or information related to business not commonly known to the public and which the owner reasonably attempts to keep secret and confidential.

However, there are three main factors, which can be component in all such definitions. They are:-

• It should not be generally known or easily accessible by people who normally deal with such type of information.
• It must have commercial value as a secret; and
•  The lawful owner must take reasonable efforts to maintain its secrecy.

Trade Secrets are being part of Intellectual Property Rights can be significantly valuable to a company’s growth and sometimes even for its survival. A trade secret protects from exploitation by those who obtain the information unauthorized either obtain access through improper means or through those who know improper means or by doing illegal practices in respect of confidential information include industrial or commercial espionage, breach of contract and breach of confidence.

Generally, Every business has at least some trade secrets, they are quite delicate because they protect information and resources that are secret, which means the protection is lost if and when other forms of intellectual property protection are available, like patent or copyright protection, one should carefully taken into consideration the character of relying only on trade secret protection.

Well known examples of trade secrets include the formula of Coca-Cola since one of the ingredient may have been cocaine, instead of patenting its formula company choose to brand the recipe as trade secret and the decided to keep the recipe as confidential information and the secret ingredients for KFC’s original recipe were kept in Colonel Sander’s head. He eventually wrote the recipe down, and the original handwritten copy is in a Kentucky Few selected employees know the recipe, and are bound by a confidentiality agreement.

Infringement of Trade Secrets

A company has a right to protect its confidential information or trade secret and keep others away from misappropriating and using his trade secrets. However, most often infringement is done by former employees by misappropriating confidential information sometimes result in corporate espionage, using such information for new businesses or for new employers. Trade secret protection continues as long as requirement of protection serve some value to the company or the owner. Owner of the trade secret need to take few reasonable steps to protect it from infringement or breach, the protection is lost if failed to do keep the information secret.

There are quite a few points which can be useful in protecting the confidentiality of information  or trade secrets:

1. If you are disclosing information to a third party like consultants and vendors about a trade secret, you should get confidentiality agreement signed by that party prior to disclosure of such important information.
2. People who can access to such confidential information should be limited in number.
3. Ensure that all the employees should sign a non-disclosure agreement, which would provide that they have to maintain confidential specific information that is known to them.
4. Maintain a clear record of all business activities and deals that may contain any confidential information.

Present Scenario of protection of trade Secret in India

Protection of trade secret in India has not been a subject of much discussion in the past but currently, trade secrets a recognized form of Intellectual Property Rights, although there is no specific dedicated legislation in India to protect trade secrets and confidential information. Indian courts continue to enforce these under contractually or under common law action of breach of confidence, which in effect amounts a breach of contractual obligation also protects trade secrets on the basis of principles of equity. Giving emphasizes on this, the Calcutta High Court in the fairfest Media Ltd V. ITE group Plc and Ors, stated that “the essence of this branch of law whatever the origin it may be,, a person who has obtained information in confidence is not allowed to use it as springboard for activities detrimental to the person who made the confidential communications. In Niranjan Shankar Golikari v. The Century Spinning & Mfg. Co. Ltd. Supreme court upheld that an injunction to enforce negative contract, which is restricted as to time,  can be issued in order to  protect the employer’s interest.

In India, a person can be contractually bound not to disclose any information that is revealed to him in confidence otherwise it would be breach of confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreement, which imposes negative contract on licensee not to disclose or use the confidential information received under the agreement for any other purpose than the agreed in the said agreement. John Richard Brady and Ors. V. Chemical Process equipments P. Ltd. and Anr. Process equipments P. Ltd. and Anr. In which the defendants had got the drawings if the fodder production unit from the plaintiff for a limited purpose of providing a certain part required in the plant. In this Delhi High Court invoked a wider equitable jurisdiction and awarded injunction even in the absence of the contract. That means the situation of protection of trade secret is still unclear in India. In the matter of Gopal Paper Mills Ltd v. Surendra K Ganeshdas Malhotra, the Calcutta High Court upheld the restrictive clause in an employment contract, imposing constraints on the employee preventing him from misusing or revealing the confidential information and trade secrets acquired during the tenure of his employment. The Legislation thus provided a remedy to organizations from third party disclosure of confidential information and trade secrets in the form of injunction against the employee.

Basically, a remedy available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the confidential information and return all confidential or proprietary information compensation for any losses suffered due to disclosure of trade secrets. The Indian case laws have tried to address various features of trade secret protection whether it is defining trade secret/confidential information or the basis under which trade secrets can be protected or the scope of remedies can be provided. Indian courts have drawn extensively from English case laws, they are now increasingly relying upon the growing body of domestic jurisprudence on trade secret protection.

Why proper mechanism on Trade Secret Protection is need of the hour in India

Protection of trade secret is really important and proper policy is need of the hour as it is the fundamental to innovative ideas or steps. Foreign companies who are eager to invest and ready to set up Research & Development facilities in India are having only apprehension of insufficient statute that specifically governs the protection of trade secret and this inadequate legal framework creates uncertainty over the circumstances under which trade secret can be protected and judicial relief would be available  in Indian courts. Foreign investors want to be assured of the protection of their trade secrets, so that they can do business in India. A proper effective law further enhance the security in our own industry.

Proposed Legislation in India for the Protection of Trade Secret

In the year of 2008, second term of UPA regime, the Department of Science and Technology, as the part of  the Ministry of Science and Technology, published draft legislation titled “The National Innovation Act of 2008” to facilitate public, private or public- private partnership initiatives for building an innovation support to encourage innovation and to codify and consolidate the law of confidentiality in aid of protecting Confidential information, trade secrets and Innovation. Trade secrets would have been regulated under Chapter VI, titled “Confidentiality and Confidential Information and Remedies and Offences.” the current status of this Act is still unclear.

What India needs is to enact a law similar type of law as in U.S. where The Uniform Trade Secret Act, 1979, and The Economic Espionage Act, 1996 enacted in an effort to provide proper legal framework to protect trade secrets.

How trade secret can be protected?

Contrary to patent and trademark, no registration procedures are involved for the protection of a trade secret, that means trade secrets are protected without any procedural formalities and there is no specified time limit within which the secret may be protected. Subsequently, a trade secret can be protected for an unlimited period of time. When a trade secret is leaked out, this can be taken to the court as an action of breach of confidence because this leak of the secret is unfair to the business and may have harmful consequences to the enterprise.

Not all information can be considered a trade secret. There are certain conditions for the information to be considered a trade secret which varies from country to country. The Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) recognizes trade secret as confidential information but doesn’t provide any mechanism for its enforcement. However, Article 39 of the TRIPS agreement tries to ensure protection against unfair competition. TRIPS makes it obligatory on member states to ensure protection of undisclosed information under article 39 of the agreement (India is a member state of TRIPS  agreement).

Article 39: Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information

• is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
• has commercial value because it is secret; and
• has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

The TRIPS agreement also requires member states to provide effective remedies for trade secret misappropriation including:

Injunctions

Article 44 of TRIPS agreement says, The judicial authorities shall have the authority to order a party to desist from an infringement, inter alias to prevent the entry into the channels of commerce in their jurisdiction of imported goods that involve the infringement of an intellectual property right, immediately after customs clearance of such goods. Members are not obliged to accord such authority in respect of protected subject matter acquired or ordered by a person prior to knowing or having reasonable grounds to know that dealing in such subject matter would entail the infringement of an intellectual property right.

Damages

Article 45 provides,

1. The judicial authorities shall have the authority to order the infringer to pay the right holder damages adequate to compensate for the injury the right holder has suffered for an infringement of that person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity.
2. The judicial authorities shall also have the authority to order the infringer to pay the right holder expenses, which may include appropriate attorney’s fees. In appropriate cases, Members may authorize the judicial authorities to order recovery of profits and/or payment of pre-established damages even where the infringer did not knowingly, or with reasonable grounds to know, engage in infringing activity.

Other Remedies like prevent further infringement and preserve evidence

Article 46 provides, In order to create an effective deterrent to infringement, the judicial authorities shall have the authority to order that goods that they have found to be infringing be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed. The judicial authorities shall also have the authority to order that materials and implements the predominant use of which has been in the creation of the infringing goods be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to minimize the risks of further infringements. In considering such requests, the need for proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties shall be taken into account. In regard to counterfeit trademark goods, the simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the channels of commerce.