In this blogpost, Komal Rastogi, Student, Nirma University, Ahmedabad, writes about the trade secrets and their protection, infringement of trade secrets along with the remedies provided to companies whose trade secrets has been disclosed.
The growth of markets is emerging along with the growth of information technology and business processes. The protection of company’s trade secrets has become a matter of paramount importance. There are many forms of intellectual property rights which help in protecting the company secrets such as patents, trademarks, etc., but the most emerging form is Trade Secret. Trade Secret refers to any data or information which is kept confidential and reasonable attempts have been made to keep it secret from the public. Trade Secret is defined by North America Free Trade Agreement (NAFTA) as “information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy.”[1]
Trade secrets are precious for the company’s growth and help in retaining the information of company from competitors. There are three essential factors given by Trade-Related Aspects of Intellectual Property Rights (TRIPS) which are to be fulfilled in the case of a trade secret.
- The information must not be readily accessible or known by the people who deal with these kinds of information.
- The information must have commercial value as a secret.
- The information must be subject to reasonable efforts made by the owner to maintain its secrecy.
These three principles have been applied by the Indian Courts under the purview of various other legislations to protect the information in three different circumstances:
- In the case of Michael Heath Nathan Johnson v. Subhash Chandra and Ors[2] and “John Richard Brady and Ors v. Chemical Process Equipments P. Ltd. and Anr”, [3] Court took note of the contention of the counsel who defined trade secret referred from the English law.
- In the case of “American Express Bank Ltd. v. Ms. Priya Puri” [4]the Court defined the trade secret as “Formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.”[5]
- In another case of “ Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors”[6], the Delhi High Court held that the plaintiff has created a concept by using his mind, and everyone can use it, hence produced a result in the shape of concept.
Trade Secrets, although, recognized as a class of Intellectual Property (IP) but at present there is no specific legislation governing trade secrets in India. Regardless of this fact, trade secret protections are upheld by Indian Courts by principles of equity, even upon the common law action for breach of confidence known as the contractual breach of obligation. Trade secret protections are the most challenging task for the Government of India as it will enhance the foreign investment and will give further protection and security to our industries also. India, as a member of TRIPS, is under an obligation to make new laws or amend the previous laws for protecting trade secrets.
Infringement of the trade secrets
Misappropriate use of trade secrets can be called as an unfair practice. Misappropriation is defined as:
- Acquiring trade secret of other companies by a person who have the high intention or belief to have the secret of the company wrongfully.
- Disclosing of trade secrets to others without the implied consent of the owner.
Remedies
In India, only contractual remedy is provided. It means that only civil or equitable remedies are available for the breach of faith. The remedy includes permanent or interlocutory (temporary) injunctions to the other party. Injunctions such as (i) preventing the third party from disclosing trade secrets, (ii) or the return of all the confidential reports and information, (iii) or the compensation or damages if any loss has been suffered due to the disclosure of trade secret. According to Advocate P. Narayan, trade secret would remain confidential only for a particular or limited period. If the injunction has been given, then it must be for a particular time i.e. interlocutory. The rules which decide whether to award permanent or temporary injunction is set out in the case of Gujarat Bottling Company Limited.
To grant a temporary injunction during the proceedings is at the discretion of the judges. For deciding the injunction, a particular test was applied. “1) Whether the plaintiff has a prima facie case, 2) whether the balance of convenience is for the plaintiff, and 3) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed.”[7] The Court held that there must be a balance of convenience.
The other legislations of India which are connected with the trade secrets are:
- Section 51, 55 and 63 of Copyright Act, 1957
- Section 65 and 72 of the Information Technology Act, 2000
- Section 408 and 416 of the Indian Penal Code, 1860
- Section 27 of the Indian Contract Act
- The Designs Act, 2000.
In India, many cases of trade secrets, they are protected by the principle of equity and fraud, which are solved by section 27 of the Indian Contract Act. The relief claim in these cases are the enforcements of Non-Disclosure Agreement between the employer and the employee. Although there is no uniform rule, the court has given different judgments in different cases. To make sure with the rulings, there should be a uniform standard for the trade secret protection.
Protection of the confidential information
As there are no laws to protect trade secrets, businesses can use different tools to protect their trade secrets.
- Non-disclosure agreements: To protect the company’s trade secret and confidential information, the employees are required to sign the non-disclosure agreements. “Agreements should have those clauses which invalidate a grant of an implied license, confinements on disclosure, use and copy; restrictions on the use of confidential information upon termination of the employment, the return of information upon termination and right to withhold salary and emoluments till such return.”[8]
- Internal processes: the employees should be educated so that if they find some confidential information, they can keep it with themselves. Strong internal controls are required to protect the confidential information.
- Exit- Interview: During the interview, an employee must be reminded of the obligation towards the company’s secret or the sensitive Along with this, employees are asked to sign an agreement reaffirming his commitment.
- Always keep the company’s confidential and sensitive information in a restricted and private zone.
- Owner to allow the accessibility of trade secrets only to those individuals who have an official reason to know the data. The reason ought to be material and assists you in business.
The protection of trade secret in India is still in its budding stage as there are no special laws, particularly for the trade secret. The practice of the court with respect to trade secret protection is very inconsistent. There is pressure from TRIPS to have laws on trade secret protection. Therefore, there is an urgent need for the framework of laws related to trade secret protection in India. The bill was introduced in the year 2008 known as the National Innovation Bill, which was the practical step to protect the trade secret. The passing of the bill was delayed and argued upon certain issues. The status of the enactment of the bill is still unclear.
[1] Retrieved on http://www.legalserviceindia.com/article/l123-Trade-Secrets.html
[2] 60(1995) DLT 757
[3] AIR 1987 Delhi 372
[4] (2006)III LLJ 540(Del)
[5] Supra note 1
[6] 97 (2002) DLT 257
[7] Supra Note 4
[8] Retrieved on http://www.legalindia.com/protection-of-trade-secret-and-confidential-information-india-perspective/
