Trade Secret is the survival tool for any business, regardless of size or money, as its name implies.
The term ‘trade secrets’ has been defined in Black’s Law Dictionary as ” A formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors; information including a formula, pattern, compilation, program, device, method, technique, or process-that
(1) derives independent economic value, actual or potential, from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and
(2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy”.
Trade secrets are a subset of the broader categorisation of “Confidential Information”.
As per World Intellectual Property Organisation (“WIPO”), In general, to qualify as a trade secret, the information must be:
- commercially valuable because it is secret,
- be known only to a limited group of persons, and
- be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.
The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.
In simple language, any confidential business information which provides an enterprise a competitive edge and is unknown to others may be protected as a trade secret.
As per WIPO, Trade secrets encompass both technical information, such as information concerning manufacturing processes, pharmaceutical test data, designs and drawings of computer programs, and commercial information, such as distribution methods, list of suppliers and clients, and advertising strategies. A trade secret may be also made up of a combination of elements, each of which by itself is in the public domain, but where the combination, which is kept secret, provides a competitive advantage. Other examples of information that may be protected by trade secrets include financial information, formulas and recipes and source codes.
Trade secrets thus serve as the spine of a company, supporting trade of a company and protecting its commercial gains, and are the basis for all inventions, research, and development.
Thus, it is imperative to safeguard and defend a trade secret because the rivals frequently seek out the loophole in the system of an organisation to obtain the necessary information and profit from employing it.
Trade secrets are a type of intellectual property (“IP”) that can be bought, traded or licenced.
TRADE SECRETS IN INDIA
As a signatory and member of Paris Convention and Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which allows member states to have sui generis mechanisms, Indian courts have taken advantage of common law principles to protect such undisclosed information. India has the freedom to create laws that safeguard trade secrets. Unfortunately, except from enacting National IPR Policy, 2006, India lacks a codified statute or suitable system or consistent legal framework to safeguard this crucial IP and the rights in respect of trade secrets are generally enforced in India through Indian Contract Act, 1872, Information Technology Act, 2000, the established principles of equity as well as by way of a common law remedy for breach of confidence.
The protection of trade secrets under various branches of IP laws, including the Copyright Law, Breach of Confidentiality, Information Technology Law of 2000 for the protection of confidential information in the form of electronic records, etc., has been upheld by Indian courts and tribunals in order to address the gap.
The elements which could be identified as a trade secret, although the exact definition may not be possible, has been laid down by the Courts[1] as the following factors:-
(1) The extent to which the information is known outside the business.
(2) The extent to which it is known to those inside the business e.g. by the employees.
(3) The precautions taken by the holder of the trade secret to guard the secrecy of the information.
(4) The savings effected and the value to the holder in having the information as against competitors.
(5) The amount of effort or money expended in obtaining and developing the information; and
(6) The amount of time and expense it would take for others to acquire and duplicate the information.
The remedies available under civil and criminal reforms as available due to violation of these laws are followed. Depending on the legal system, the legal protection of business secrets forms part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information. While a final determination of whether trade secret protection is violated or not depends on the circumstances of each individual case, in general, unfair practices in respect of secret information include industrial or commercial espionage, breach of contract and breach of confidence.
Thus, the necessity of legal remedies depends on the ability to demonstrate that despite taking all reasonable precautions to protect the trade secret, misappropriation occurred as a result of improperly discovered trade secrets by third party, which will be tried under civil actions for specific performance, breach of contract and wrongdoing resulting from misappropriation, damages as well as criminal actions for theft and criminal breach of trust, etc.
Since trade secrets are not made available public, unlike patents, they do not provide “defensive” protection, as being prior art for being open for third party to obtain a patent or a utility model on the same invention, if the inventor arrived at that invention independently by themselves through their own R&D, reverse engineering or marketing analysis, etc.
PROTECTING TRADE SECRETS IN INDIA
Even though a uniform legislation to protect a Trade Secret is lacking, there are various methods through which Trade Secrets are protected including:
- Execution of Non-disclosure agreement (NDA) with employees and business partners in order to prevent disclosure of a company’s confidential information;
- Execution of Non-compete agreement (NCA) between employers and employees, contractors and consultants in order to prevent them from entering in competition when their employment/service agreement ends;
- Establishing a Robust IT security infrastructure; and
- Controlling the accessibility of important documents.
In order to maintain the secrecy to protect a trade secret, a business must assess the level of protection that it needs to have to prevent any leak or pass-on of the trade secret to any third party. The efforts put forth to maintain the secrecy can serve as aiding tools to obtain necessary alternative remedies that are legally available.
–Ajita Sharma, Resident Managing Attorney, Ahmedabad alongwith Ranjan Jha, Partner
Disclaimer: The contents of the above publication are based on understanding of applicable laws and updates in law, within the knowledge of authors. Readers should take steps to ascertain the current developments given the everyday changes that may be occurring in India on internationally on the subject covered hereinabove. These are personal views of authors and do not constitute a legal opinion, analysis or interpretation either by them or the Firm. This is an initiative to share developments in the world of law or as may be relevant for a reader. No reader should act on the basis of any statement made above without seeking professional and up-to-date legal advice. Given the order, notifications, etc., issued by several State or Central governments, from time to time, due to change in the COVID-19 cases, it is advisable to check the current status and not solely rely on the contents of a publication as a current status in a matter, unless mentioned otherwise.
[1] Bombay Dyeing and Manufacturing Co Ltd v Mehar Karan Singh (2010 (112) BomLR 375)
