Trade Secrets are IP rights that apply on confidential information. Any information that has a commercial value because it is a secret, known to limited people, and is subject to reasonable steps taken by the rightful holder of the information to keep it a secret, including the use of confidentiality agreements for business partners and employees, is termed as a trade secret. For example, the secret formula for Coca-Cola, which is locked in a vault, is an example of a trade secret that is a formula or recipe. Since it has not been patented, it has never been revealed.
In general, any confidential information which provides an enterprise a competitive edge and is unknown to others may be protected as a trade secret. Trade Secrets include both technical information, such as information related to the manufacturing process, pharmaceutical test data, designs, and commercial information, such as a list of suppliers, distributors, and clients, and marketing strategies. Other examples of information that may be protected by trade secrets may include financial information, formulas, and source codes.
Although India has no specific trade secrets law, Indian courts have upheld trade secrets protection under various other laws, including contract law, copyright law, the principles of equity and – at times – the common law action of breach of confidence (which in effect amounts to a breach of contractual obligation). The Indian Contract Act, 1872 and the Information Technology Act, 2000 (for digital contracts) are the statutes under which trade secrets may be protected.
The benefits available to the owners of trade secrets are:
an injunction preventing a licensee, employee, vendor, or another party from disclosing a trade secret.
the return of all confidential and proprietary information.
compensation for any losses suffered due to the disclosure of trade secrets.
Trade Secret Laws in India
In lieu of a statute, Trade Secrets are capable of being considered within the framework of the contract, competition, and intellectual property laws simultaneously.
1. Contract law
In India, a person can be bound not to disclose any information that is revealed to him or her in confidence with the use of a contract.
2. Copyright law
In some cases, client information stored in the form of databases has been categorised as copyrightable material.
Every business collects data while operating, which is arranged systematically and can be accessed electronically – for example, to analyse the increase in customer base through various channels or effectiveness of the applied marketing strategies or to maintain an inventory of goods. The wide applications of databases make them an important tool for businesses, allowing them to realise their current efforts, run smoothly and plan their future development. Databases are protectable under copyright law.
Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as “literary works”
The present legal system suggests that every effort, industry or expense of skill is covered under copyrightable work, but only those works are protectable which are somewhat different or involve some intellectual effort or involve a minimum degree of creativity.
3. Principles of Equity
Specifically, Indian courts have relied on the principles laid out in the Saltman Engineering case, which, as summarized by Patrick Hearn, author of The Business of Industrial Licensing, states that maintenance of secrecy, according to the circumstances in any given case, either rests on the principles of equity, that is to say the application by the court of the need for conscientiousness in the course of conduct, or by the common law action for breach of confidence, which is in effect a breach of contract.
4. Indian Contract Act, 1872
The Indian Contract Act, 1872 ("Act") governs the law of contracts in India and is predominantly based on English common law. The Act defines the term "contract" as an agreement enforceable by law. In other words, it is a legally enforceable and binding agreement, which is voluntarily entered into between two or more competent parties, for consideration and with mutual obligations. In today's dynamic business environment, the majority of the commercial transactions are successfully and effectively undertaken through contracts.
5. Information Technology Act, 2000
Section 72 of the Information Technology Act provides for criminal remedies, whereby a person may be punished with imprisonment for a term along with a fine in case he is found to have secured access to any electronic record, book, register, information document, or other material without the consent of the person concerned and such first person discloses such information further.
In 2009, the Information Technology Act, under Section 43A provided for "Compensation for failure to protect sensitive personal data." Sensitive personal data is further defined in the rules promulgated under this act and includes passwords, financial data, biometric data, etc.
Trade Secret Theft Cases in India
In “Navigator Logistics Ltd v Kashif Qureshi & Ors (2018)”, the plaintiff, an employer, filed an application for a permanent injunction against eight of its ex-employees and four of its competitors to restrain them from violating and disclosing copyrighted confidential information and trade secrets contained in electronic devices given by the plaintiff to the former employees during the course of their employment. After examining documents, the high court observed that the confidential information was created from client information, which primarily included names, addresses, contact numbers of the clients, customer database, account information, airway drawings, airway bills templates, etc. The court held that such information was purely a mechanical exercise and easily available in the public domain, and thus could not qualify as being a confidential list. The case was dismissed with the court holding that the plaintiff had no cause of action.
In “Ritika Pvt Ltd v Biba Apparels Pvt Ltd (2016)”, where a suit was filed for infringement of the plaintiff’s clothing designs, the court took the view that if an injunction order were sought with respect to trade secrets, the specific trade secrets would have to be mentioned, as well as how the plaintiff had ownership of them; only then would the court consider granting an injunction order. A general order in respect of an unspecified trade secret could not be passed against the defendant. Further, no relief under the Copyright Act could be granted, since Section 15(2) of the act provides that once a drawing, sketch or design has been used for creation of more than 50 garments, no copyright can subsist in it.
In “Diljeet Titus, Advocate v Alfred A Adebare (2006)” it was held that the courts must step in to restrain a breach of confidence independent of any right under law. The court held that in the context of a law firm, copyright existed in a list which had been specially designed by an advocate and contained details of the firm’s clients, along with the nature of work and contact person for each one. Notably, this obligation need not be expressed, but need only be implied.
How Do I Protect My Trade Secrets?
Copperpod follows and proposes to clients a 4-pronged DM2 model of trade secret management:
DEFINE commercially valuable trade secrets owned by the company, the date of origination, creators as well as employees and vendors that have been given access to individual trade secrets. This may be implemented as an intellectual asset management database maintained by the in-house counsel.
MARK documents that contain trade secret information providing ample notice to a recipient of the confidential nature of the document.
DISSEMINATE to all current and new employees and vendors the nature and importance of trade secrets that will be disclosed to them, and insert trade secret provisions in contracts.
MONITOR continuously the activities and association of current and former employees and vendors with competitors.
In theory, at least, the treatment of databases as trade secrets can be a stronger form of protection, since it helps to protect the inherent data rather than the mere form of expression protected by copyright law. Copyright and trade secrets law protect different elements of compiled business data, with copyright protecting the expression in these compilations and trade secrets law protecting the underlying data.
Currently, no specific or separate legislation regulates the protection of trade secrets and confidential information in India. However, Indian courts rely on equitable and common laws along with the principle of equity to protect trade secrets, with the jurisprudence as a whole revolving around an employee’s obligations and duties towards the employer regarding confidential information gained during employment.
Further, in the absence of a specific trade secrets law, the courts have ruled in favor of the proprietor of information as literary work as defined under copyright law.
The National IP Rights Policy has raised hopes for the enactment of a trade secrets law as well, since this is one of the objectives of the policy. Although no timeframe has been provided for the achievement of this objective, one can be certain that there will be a trade secrets law soon.
To learn more about the Trade Secrets, read our article on “Demystifying Trade Secrets”
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Copperpod helps companies protect their competitive advantage through trade secrets, and trade secrets through technology. Contact us to find out if you have trade secrets that might be at risk.