Intellectual property (IP) laws are generally territorial in nature, but trade secret protection varies according to territorial jurisdiction. Trade secret law protects technical and commercial information not generally known in the trade and prevents unauthorised commercial use by others. The policy behind trade secret protection encourages research and development by protecting the originator of business information and maintaining proper business ethics standards. “A trade secret can be defined as any formula, pattern, device or compilation of information used in one’s business, and which gives human opportunity to obtain an advantage over the competitors.”
Trade Secrets and Their Factors
It is understood that information is not generally known to the public through trade secrets. It provides economic value by keeping secrets and confidentiality for the person who takes reasonable steps to keep its confidentiality.
The uniqueness of trade secrets is that it fits into one or more parameters of intellectual property, competition, contract and innovation. Trade secrets play a pivotal role in protecting innovations and establishing rights to use new technology. Trade secret protection extends to formulas, patterns, plans, designs, physical devices, processes, software and know-how. As there is no separate statute codifying the legislation of trade secret law, trade secret protection in India is still in its growing stage. This is contrary to the global trend toward the codification of common law principles for trade secret protection. The court’s application and interpretation of the common law approach to protect trade secrets had been found to be inconsistent in practice. As a result, statutory legislation on trade secrets and confidentiality within the context of IPR is not just a good concept but an absolute need.
Despite the absence of a formal trade secrets legislation in India, Indian courts have supported trade secret protection using a variety of statutes, including “contract law, copyright law, equity principles, and, in some cases, the common law action of breach of confidence (which in effect amounts to a violation of contractual obligation). Section 72 of the Information Technology Act, 2000 also gives some protection, but only for electronic records.”
Under the Contract Act, a person might be contractually bound not to disclose information provided to him or her in confidence. In Richard Brady v Chemical Process Equipments P Ltd, the court went even farther, asserting a broader equitable jurisdiction and issuing an injunction in the absence of a contract.
In the Copyright Act, the courts have recognised client information stored in the form of databases as copyrightable material in some cases. Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as “literary works”.
In Govindan v Gopalakrishna, which concerned a compilation, it was held that although the amount of originality in a compilation is small, it is still protected by law. Hence, no party may steal or appropriate the result of another’s intelligence, skills or labour, even in such works.
The present legal position mandates that every effort, industry or expense of skill results in copyrightable work, but only those works are protectable, which:
- are somewhat different in character;
- involve some intellectual effort; and
- involve a minimum degree of creativity.
Importance of Trade Secrets Protection
Trademarks and patents are well-known forms of intellectual property rights and are highly effective in protecting the creation of the intellect of the human mind. But the corporate houses are trying to convince their respective governments to provide protection of trade secrets. The corporate house thinks trade secrets to be the backbone of their operations. The trade secret protection seems to be essential for small-sized industries, as they cannot afford the patent protection, which is a very expensive process. The trade secret also had an added advantage; they would be the sole possession of the holder as long as he could keep it secret. Even if the competitor acquired through lawful means, the original holder can file a patent application to protect their innovation.
Generally, trade secrets have to be protected from exploitation by those who either obtained access to someone’s trade secret by improper means or those who obtain the information from one who knows or should have known the information by improper means; or those who breach the confidence/promise to keep the information confidential. After the theft of the trade secret, if the owner can prove that reasonable efforts have been made to keep the information confidential, the information remains a trade secret and generally remains legally protected. Such reasonable steps taken by the owner will prove highly beneficial during the suit in infringement against the trade secret. Conversely, if they cannot provide evidence of reasonable efforts to protect confidential information, trade secret owners risk losing the trade secret, even if the competitors illegally obtained the information.
The policy objectives behind the protection of trade secrets are maintaining ethical commercial standards and encouraging research and innovation. In the technology industry, trade secrets are particularly useful to protect a patentable invention during the application process, information not covered by the patent, and information not patentable. The other rationale behind the protection of trade secrets is that creative efforts made by the owner are valuable because they are products of creative work. To encourage those efforts, society needs to ascribe the benefits of such creative labor to the owner. That is why trade secrets deserve protection in order to make them valuable assets.
This concept is a new entrant in India but is nevertheless a very important field of intellectual property. There is a need for dedicated legislation which would concretise trade secret protection in India. Trade secrets are fast becoming the intellectual property of choice for many corporate bodies, and therefore an effective legislative intervention for it is felt even more expedient. A common way of protecting trade secrets is through confidentiality or non-disclosure and non-compete clauses in an employment contract. Companies should have rules and regulations for the protection of confidential information from contractors, consultants, vendors, customers, staff, visitors, non-employees working on-site, etc. There is no government registration process in any country in the world that forces enterprises to reveal their confidential business information to the authorities in order to obtain trade secret rights. It is illegal to acquire another’s trade secret if one knows or has reason to know that the trade secret was acquired by improper means. Improper means include theft, bribery, misrepresentation, breach or induce breach of a duty to maintain secrecy or espionage by electronic or other means.
Reverse engineering or independent derivations alone are not considered improper means. Thus, a trade secret suit will not succeed if an aspect of a product’s design or construction has been obtained by examination of an item purchased in the marketplace. Article 39(2) of TRIPs lays down the essentials of undisclosed information but avoids using the nomenclature trade secrets. Article 39(3) also talks about the prevention of confidential information from unfair use but is limited only to pharmaceutical products. The most comprehensive legislation in India considering the confidentiality of information is the draft Indian Innovation Act, 2008, which provides a higher level of protection for secret information. Even if the said draft is alleged to be in conformity with the international standards of TRIPs and other legislations, the confidentiality in the said Act is dependent on an industrial relationship between the parties and is not independent in operation.
Indian Scenario on Trade Secret
There is no specific legislation in India to protect trade secrets and confidential information. However, the Indian Judiciary has upheld some other legal frameworks which are used to protect trade secrets:
The Copyright Act, 1957 [Sec. 51, 55 & 63]
- Section 51: “When copyright infringed—Copyright in work shall be deemed to be infringed.”
- Section 55 “Civil remedies for infringement of copyright. — Injunction, damages, accounts and otherwise as are or may be conferred by law for the infringement of a right.”
- Section 63 “Offence of infringement of copyright or other rights conferred by this Act—Any person who knowingly infringes or abets the infringement of- shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years and with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees.”
- The Information Technology Act, 2000 [Sec. 65 & 72]
- Section 65: Tampering with computer source documents.
- Section 72: Penalty for breach of confidentiality and privacy.
- The Indian Penal Code, 1850 [Sec. 408 & 415]
- Section 408. Criminal breach of trust by clerk or servant.
- Section 415. Cheating.
- The Indian Contract Act, 1872 [Sec. 27]
- Section 27. “Agreement in restraint of trade, void (non-compete clause) a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer).”
- The Competition Act, 2002 [Sec. 3]
- Section 3. Anti-competitive agreements.
Other Available Protection
In addition to this, Indian courts have also upheld trade secret protection on the 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 remedies available to the owner of trade secrets are to obtain an injunction preventing the licensee from disclosing the trade secret, return all confidential and proprietary information, and compensation for any losses suffered due to the disclosure of trade secrets.
Another major tool that has been used to protect trade secrets has been through the creation of the agreement. The significant agreement under it is the Employee Confidentiality and Non-Competing Agreement. These agreements define what confidential/ secret information means, when it can be disclosed and what remedies can be availed in case of infringement of such protection. Such agreements provide both protection and relief.
Restrictions and Exceptions: The Employee agrees to maintain the confidentiality of the Confidential Information and prevent its unauthorised dissemination or use for two (2) years from the date of last disclosure by the Company.
Konrad Wiedemann GmbH v. Standard Castings Pvt. Ltd (1985), (10), IPLR, 243
In this case, the court relied heavily on Lord Green’s observations in the Saltman case. Lord Green stated:
“The information to be a confidential must, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.”
In Suhner v. Transradio Ltd., Plowman  RPC 329
The court recognised that the confidentiality of a document is decided not by whether the information it includes is publicly accessible but rather by whether it contains valuable information gathered by the complainant for a specific reason and submitted to the defendant for that purpose. If these requirements are satisfied, the record will be kept private, and the defendant will be barred from using it for any other purpose.
There is no specific legislation in India that protects trade secrets and confidential information. Trade secrets, proprietary information, and market know-how, on the other hand, are protected by Indian courts and tribunals. A misappropriation claim will give wide protection for trade secrets under common law. Trade secrets can be plundered if there is a breach of trust or a third party has improper access to sensitive information. This misappropriation can occur through the theft of sensitive information, as well as by cheating or stealing.
Conclusion: Although India does not have a dedicated law that addresses trade secret protection, yet the analysis of case laws brings out the rich and growing jurisprudence on this subject covering the vital themes of the definition of trade secrets, substantive protection remedies and the associated issue of inevitable disclosure in courts. The legal regime has been dynamic to keep pace with the technological changes evident from the promulgation of the Information Technology Act, 2000 and its subsequent amendments that covers theft of confidential information through the electronic route and mandates stiff penalties, damages and imprisonment. The criminal remedies are also provided for severe offences through Sections 405-409 and 418 of the Criminal Procedure Code.
Disclaimer: The present article intends to provide general guidance on the subject, and you can also consult us in your specific case.