PROTECTION OF TRADE SECRETS 

This article is written by Sanya Solanki from ILS Pune.

Introduction

One of the toughest challenges businesses tend to face is protection of information that are crucial to the firm. With the rise in technology, ease of sharing data and internal threats such as employers and contractors who have access to databases, it has become more important to protect confidential information.

Although there are intellectual property rights such as patents that provide exclusive monopoly of innovative works, designs, inventions etc, it does not seek protection to confidential information which is advantageous and gives a competitive edge to the owner. Moreover they have a period of expiration. Thus laws regarding protection of trade secrets hold great significance in this era and have become more prevalent.

What are trade secrets?

Trade secrets in a broad sense entails information that holds significance to the business and whose publication could put the owner of a business at a disadvantage. A classic example of a trade secret is Coca Cola’s recipe.

According to article 39.2 of the Trade-related Aspects of Intellectual Property Rights (TRIPS) states that there are three criterias which have to be taken into consideration;

(a)The information is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons that normally deal with the kind of information in question;

(b)The information has actual or potential commercial value because it is a secret;

(c)The person lawfully in control of the information has taken reasonable steps under the circumstances to keep it a secret.

The Uniform Trade Secret Act, 1979 adopted in the United States of America, defines trade secrets as information which includes formulae, patterns, compilations, programs, devices, methods that:

(a)Derive independent economic value from not being generally available or known to or not being easily ascertainable by proper means by others who can obtain economic value from its disclosure.

(b)It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

LAWS REGARDING PROTECTION OF TRADE SECRETS IN INDIA

In India there is no formal legislation that governs protection of trade secrets and the secrecy of business. They have been upheld through various judicial rulings. .

Although there are no formal laws, the Indian Courts have 3 sets of circumstances out of which proceedings may arise:

(a)When any employee comes into possession of a secret or any confidential information in normal course of his work, and either carelessly or deliberately transfers that information to any unauthorized person;

(b)When any unauthorized person (may be a new employer) incites such an employee to provide him with such information as has been mentioned above; and

(c)When, under a license for the use of know-how, a licensee is in breach of a condition, either expressed in any agreement or implied from conduct, to maintain secrecy in respect of such know-how and fails to do so.

Indian courts have been protecting trade secrecy through common law action for breach of confidence, through contract laws and through principle of equity

Common law

The Indian courts and tribunals have ensured that in the absence of a statue, confidentiality of trade secrets will be governed through common law. The decision of the Delhi High Court in the case of John Richard Brady v. Chemical Process Equipments Private Limited is perhaps one of the first cases that discuss the principles of confidentiality obligations in the absence of a contract. The court upheld that the defendants cannot abuse the information of technicalities, specifications and know- how of the plaintiff’s drawing of the machine even though there is no confidentiality clause in the contract. It was upheld that since the defendant was entrusted with valuable information there was implied confidentiality and was liable for breach of confidence.

In Mr. Anil Gupta and Anr V Mr. Kunal Dasgupta and Ors, the plaintiff shared his concept for a reality TV show concerning matchmaking with the defendants. Later the plaintiff found out that the defendants were coming out with a big budget matchmaking reality TV show. The court upheld that although ideas and concepts cannot qualify for copyright laws, they are a result of his work and hence there is an obligation to maintain its confidentiality and the defendants were liable for breach of confidence. The court granted an injunction.

Contract laws

Internal threats such as misappropriation of confidential information by employees are also a serious impediment to the business. For preventing such problems contractual obligations and non disclosure agreement remains a primary source for protection of secrets under the law. The courts have taken cognizance of rights of employers to prevent publication of information through negative covenants in agreements. Although, section 27 of the Indian Contracts Act states that agreements in restriction in trade as void, the courts have allowed reasonable restriction for protection of trade secrets in some rulings.

For example, in the case of V.N Deshpande V Arvind mills CO LTD the court held that the agreement here in restraint of trade was reasonable and enforceable and was a fit case for granting injunction.

Protection of trade secrets globally

Unlike India, globally there are statutes and legislations for protection of trade secrets. For example, In The United States of America, trade secrets are protected through DTSA (Defend trade secrets act)which ensures federal protection of trade secrets in various states

Trade secrets are regulated by the EU Directive 2016/943 of the European Parliament and of the Council of the 8th of June 2016, which protects undisclosed business information—trade secrets—against their unlawful acquisition, use, and disclosure.

Moreover, neighboring countries like China have provisions under the Anti Unfair Protection Law [AUCL] that protects all aspects of trade secrets.

Conclusion

It is very evident that trade secrets are imperative to any business and so is its confidentiality. Due to weak patent laws and its limitations, a proper legislation protecting trade secrets is the need of the hour. Although, the Indian courts have tried to tackle the issues of confidentiality through other laws, a robust and coherent law regarding trade secrets would be needed for betterment of businesses in India.

Curated by Athira Albert of Kristu Jayanti College of Law, Bangalore.