Protection of Trade Secrets And Confidential Information In India And Global Trends

Trade secrets include confidential business information, that provides an enterprise/entity a competitive edge over its competitors and such information is unknown to other enterprises/entities. Trade secrets are a key component of intellectual property and protecting them, helps businesses protect their secret formulas, technical know-how, key information such as details of suppliers and customers, manufacturing policies, time schedule for product launch or methods of business for any entity. Trade secrets may comprehensively include technical information such as manufacturing processes in a business, or commercial information such as advertisement strategies of a business or financial information such as source codes and formulas. 

Across the globe, there have been many instances of famous trade secrets such as secret ingredients of the popular Kentucky Fried Chicken (KFC) in the fast-food industry, which are pressurefried chicken pieces, seasoned with the Founder Colonel Sander’s recipe of 11 herbs and spices. The constituents of the recipe are a trade secret, similarly as the secret sauce recipe for the burger giant, McDonalds. There are so many rumors spawned for enterprises that brand their recipes, algorithms, formulas, etc. as trade secrets and confidential information. One such is Coca-Cola, which is alleged to not disclose its ingredients for including cocaine. 

Trade secrets may vary for their nature and purpose across industries. Various companies even resort to license their secret formulas, such as Listerine (antiseptic mouthwash), where the inventor licensed the original formula to a pharmaceutical company. 

Trade secrets and confidential information are not protected under any specific legislation under India. However, India felt the refreshing wave and a possibility of a trade secret legislation in 2016, when the then Minister of Commerce and Industry, Ms. Nirmala Sitharaman met with the US Trade Representative (USTR) Ambassador, Michael Froman for the 10th ministerial level meeting of India-US Trade Policy Forum (TPF). After this meeting, a press release was issued by USTR quoting both the Governments i.e., US and India, enlisting commitment of both the nations for strong protection of trade secrets, the press release noted as under:  “to strong protection of trade secrets in their respective countries and to continue engagement on effective trade secret protection mechanisms. A toolkit would be prepared for industry, especially SMEs, to highlight applicable laws and policies that may enable them to protect their trade secrets in India. A training module for judicial academies on trade secrets may also be considered.”  

 The press release also mentioned about the National Intellectual Property Policy 2016, issued by India and the liberalisation of Foreign Direct Investment (FDI) done by India in various sectors. However the National Intellectual Property Policy, 2016 only made a brief mention of the phrase ‘Protection of Trade Secrets’ in the section dealing with the future legislative agenda without any elaboration. 

Going back to the history books, the first stance regarding trade secrets is found in India’s GATT (General Agreement on Tariffs and Trade) discussion paper published in 1989. Based on the paper, India declined to include trade secrets within the definition of Intellectual Property Rights (“IPR”). The reason for this was that on one hand, the concept of intellectual property is based upon its eventual disclosure, publication and registration; in contrast, trade secrets are premised upon secrecy and confidentiality. Since that period, trade secrets have only got protection through judgments and contracts but not through any comprehensive law or legislation.  

Definition of “Trade secrets and confidential information”

In the year 2008, India came closer to a legislation on trade secrets when Ministry of Science and Technology, published a draft legislation titled the National Innovation Act, 2008 (‘Innovation Bill’). Based on the preamble of the Innovation Bill, the bill sought to codify and consolidate the law of confidentiality in aid of protecting confidential information, trade secrets and innovation. However, the Parliament, till date, has not considered the Innovation Bill to be passed and it is not enforced as an act yet. 

Till the consequent enactment of the draft Innovation Bill, trade secrets and confidential information will remain unregulated in India. 

The Innovation Bill defines[1] confidential information as an “information, including a formula, pattern, compilation, program device, method, technique, or process, that: 

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

  • has commercial value because it is secret; and
  • has been subject to reasonable steps under the circumstances by the person lawfully in control of the information, to keep it secret”.

 According to the World Intellectual Property Organisation (WIPO), Trade secrets are IPR on confidential information which may be sold or licensed3.

 In general, to qualify as a trade secret, the information must be: commercially valuable because it is secret,

  1. be known only to a limited group of persons, and
  2. 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.  

 

 

Trade secrets and Patents

Globally, there exist only two primary laws to protect intellectual property in information i.e. Patents and Trade Secrets. Patents in India are governed by the Patent Act 1970 (Patent Law or Patent). As opposed to trade secrets, Patent Law applies only to those information/ inventions which fulfils the patentability criteria. Whereas, trade secrets cover all information including a patentable information which can provide economic value to the holder. Patents are usually publicly disclosed but trade secrets are always kept confidential. 

Patent Law and trade secrets have different purposes and operations, the main aim of Patent Law is sharing of information in a protected manner while providing monopoly to the patent holder. The purpose of trade secret is to protect an individual or a company from theft and promotes secrecy. 

The question now arises is whether both trade secrets and patent can coexist. This question was answered recently by the High Court of Delhi in negative. The Delhi High Court in the case of Prof. Dr. Claudio de Simone v. Acital Farmaceuatica Srl: 2020 SCC OnLine Del 476, very categorically noted that, wherever an invention is patented and the patent over such invention has expired, all the information related to the innovation goes into public domain and hence no information related to such invention can be protected as trade secrets. 

As opposed to the Delhi High Court judgment, it is an acceptable practice globally that both trade secrets and patents can co-exist. According to the layered approach for protection of inventions, both trade secrets and Patent Law can be utilized to protect different aspects of an invention. It is upon the commercial wisdom of an inventor to identify the set of information to be protected under Patent Law and which information can be protected under the trade secrets regime. It becomes important to bifurcate for maximizing the protection of an invention.  Additionally, we opine that in a jurisdiction like India, it is necessary to have a proper legal regime in place for trade secrets, for such an approach of bifurcation to be adopted and implemented smoothly. 

Trade Secrets: not covered under the Intellectual Property Law Regime in India

Trade secrets are one of the most important of all intellectual property, generated by an enterprise. Despite of that, in India, trade secrets are not covered within the purview of intellectual property law in India. There is no statutory recognition to the trade secrets of any enterprise in India, hence exposing them to extreme vulnerability. 

Trade secrets as a part of intellectual property have the potential to convert intangible value into economic growth. However, they are misplaced from the IPR law regime and one of the reasons can be attributed to the fact that, IPR laws contribute towards transparency and probity in knowledge management whereas trade secrets are covered in secrecy and confidentiality. 

Hence, for protection of their trade secrets, enterprises have to rely on contractual and common law mechanism, to protect their proprietary information from falling into the hands of third parties, especially, competitors. of trade secrets, courts in India, have generally upheld trade secret protection.

How can Trade Secrets be protected in India

Trade secrets are accorded confidentiality under legal protection, hence allowing claims for injunctive relief for unauthorized use and dissemination in the form of recovery of damages.  Additionally, breach of confidentiality attracts criminal charges. 

 A. Contractual Protection 

The following modalities and mechanisms can be used by enterprises to protect trade secrets and confidential information:  –  

  1. Non-Disclosure Agreements (NDAs):

Various businesses enter into NDAs with third parties while discussing any business related information, prospects and ventures. This is one of the most common practice used by enterprises to preclude third parties from divulging any trade secrets and protection of proprietary information in India. NDAs may last for a definite period of time, or in the cases of information such as personal details, the NDA may be valid indefinitely. When it comes to trade secrets, if the NDA contains a time limit on its non-disclosure obligation, then the expiration of that time limit may jeopardize the trade secrets covered by such NDA. Hence, it becomes imperative to discuss and understand the time limits in NDA basis the value of information proposed to be disclosed.

  1. Employment Agreements :

Depending upon respective needs, enterprises or businesses, include clauses for suitable confidentiality, NDAs and non-compete clauses in agreement with their employees. These clauses include the nature of information that is likely to be disclosed, differentiating between information that can disclosed and that cannot, the manner in which information must be used and restrictions with respect to time and manner for disclosure post-termination. 

  1. Third party Agreements:

Addition of restrictive clauses in agreements with third parties help in protection of trade secrets of any business. Such clauses impose negative covenants on parties, to not disclose the proprietary information received under the agreement, of any business, for any purpose or in the manner, other than that agreed to. 

  1. Trade Secret policy:

Trade secret policies are made on the basis of business secrets depending upon their value and sensitivity for disclosure. Employees of an enterprise are forewarned on the nature of such proprietary information for the purpose of avoiding breach. 

B. Maintenance of regular documentation 

Another method to protect proprietary information of any business in India, is by maintaining sufficient records of evidentiary value for all information amounting to trade secrets. They must be internally and externally audited and updated at regular intervals. 

C. Adequate security system 
  1. Tangible/physical records: – Especially where enterprises hold trade secrets or proprietary information in physical form, that is excessively sensitive in nature, access to such confidential information must be restricted to special personnel under a strong system of security. This may be more expensive than usual business practices, however, will provide full proof protection for such sensitive information.
  2. Electronic records: – Given the age of technology in the digital era, for protections of electronic records that may include any kind of confidential information, businesses have options to use software programs, virus scans, firewalls and other authentication technologies to safeguard their trade secrets.
D. Equitable protection

It is not always that Indian courts have restricted the scope of trade secrets to only cover contractual protection. The Hon’ble Delhi High Court, took a step forward to invoke a wider equitable jurisdiction and awarded injunction even without a contract being in place. 

The Hon’ble Delhi High Court in John Richard Brady v. Chemical Process Equipments P. Ltd.[1], weighed the implied obligation to maintain confidentiality on part of the employee in absence of a contract while granting the injunction. Similarly, in another case the Karnataka High Court[2], observed that as long as the petitioner could establish the wrongful disclosure of its proprietary information by the accused, the non-existence of a written contract will not be of any consequence while granting an injunction.  

E. Protection under Criminal Laws 

In India,  a criminal complaint can be lodged by the owner with the police alleging theft under Section 378 of the Indian Penal Code 1860 (IPC). Further the criminal action can be brought only where the trade secret has a physical form for instance, client lists, formulae or blueprints,  and there is a proof regarding theft of such data. Further, a complaint regarding criminal breach of trust under Section 408 of the IPC, read with Section 420 can also be invoked . However, the same would apply only in situations where an agreement (express or implied) of trust exists and has been contravened.

Protection of Trade Secrets under the international regime
  1. International treaties and laws on Trade secrets: The bible for international law on trade secrets is codified in the Convention for the Protection of Industrial Property (Paris Convention) and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Article 10 bis of the Paris Convention puts an obligation on the member nations to provide effective protection against unfair competition. However, even the Paris Convention does not provide any defined cornerstones for trade secrets beyond any general protection against any act contrary to honest commercial practice. The conditions and law related to trade secrets is subjective from country to country, however, general standards are available in Article 39 of the TRIPS Agreement. According to the TRIPS Agreement, following conditions are required to be fulfilled to claim a trade secrets protection:
    • “The information must be secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
    • It must have commercial value because it is secret; and

 

  • It must have been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.[3]
  1. Domestic Legislations: Different jurisdictions has specified their own legislations for the purpose of protecting trade secrets some of which are discussed below:
    • Canada: Canada does not have a codified law for protection of trade secrets, the protection is instead based on the common law principles which are enforced through common law torts. The trade secret protection can be claimed by way of torts such as, breach of confidence, or breach of fiduciary duties. Additionally, trade secrets may be enforced based on a breach of contract claim.
    • United States of America (USA): In the USA, there are primarily two important laws around trade secrets: a) the Uniform Trade Secrets Acts (UTSA) and b) the Defend Trade Secrets Act (DTSA). The UTSA was released in 1979 and subsequently amended in 1985, UTSA was a codification of the common-law tort of misappropriation of trade secrets. The UTSA is adopted by 48 states, as well as, District of Columbia and US Virgin Islands. The UTSA was adopted due to unsatisfactory development of state trade secret law. The UTSA intended to harmonize the subject matter and remedies of trade secret laws. In consonance to UTSA, DTSA, enacted on 2016, is a federal law that govern the cross-state trade secret laws. Most importantly, the DTSA allows a trade secret case to be brought in federal court where “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
    • European Union (EU): Until 2016 there were no harmonised laws related to the protection of trade secrets across the EU. For amending the uneven trade secret protection within the EU, the EU adopted a “directive”[4]. The directive was passed with an aim to stitch the gaps in different national laws which were mostly outdated. The directive introduced a common set of legal principles, procedures, and protection measures for creating a pan-European regime for trade secrets. Pursuant to the directive, member nations have amended their domestic law in consonance with the directive as follows:

Country 

Changes 

Austria 

Austria made amendments to the Unfair Competition Act to implement the directive. The new provisions required companies to identify their know-how and take active steps to protect it, such as imposition of post-employment confidentiality obligations, implementing IT-guidelines for effective protection of confidential data, providing access on a need-to-know basis, holding regular staff trainings, and regular checks in the system for security gaps. 

Belgium 

Belgium (through the Trade Secrets Act) introduced new provisions in already existing laws (the Code of Economic Law, the Judicial Code and the Act on Employment Contracts). Belgium

 

 

has defined terms such as trade secrets, lawful and unlawful acts with regard to trade secrets and infringing products. Belgium also introduced civil enforcement measures and safeguards to protect the trade secrets in framework of judicial proceedings. 

Bulgaria 

Bulgaria adopted the directive by introducing the Bulgarian Protection of Trade Secrets Act, which increased the protection of trade secrets beyond the context of unfair competition.  For ensuring protection, the law requires, companies to take reasonable steps under the circumstances to keep the confidential information secret.  

Czech

Republic

Even before the directive was adopted, trade secrets were protected in the Czech Republic under unfair competition rules. However, Czech law did not provide for certain specific remedial measures for protection of trade secrets as foreseen by the directive. The directive was implemented by amendment of one provision into the existing Act on enforcement of industrial property rights which was renamed to the Act on enforcement of industrial property rights and on protection of trade secrets.

France

France passed a law[1] to implement the directive. The implementation is generally in line with the directive and the new French regime is more protective. 

Germany 

Germany passed a new comprehensive law on protection of trade secrets. Further, the requirements for the protection of trade secrets have been increased as the holders of trade secrets now have to take and document appropriate measures to maintain secrecy. 

Hungary 

Hungary passed a new comprehensive law on protection of trade secrets, taking into account the provisions proposed by the directive. The new law was drafted on the similar model as of intellectual property laws, as a result of which trade secrets and know-how now enjoy a special protection similar to intellectual property rights.  

Italy 

Italian Code of Industrial Property already provided the protection of “secret information” similar to the rules indicated by the Directive for “trade secrets”. However, due to the directive, the particular attention now shall concern the unlawful acquisition, use and disclosure of trade secrets. 

Luxembourg

Luxembourg passed a new comprehensive law on the protection of trade secrets. The recent Luxembourg Law was a literal transposition of the EU Directive and gave a definition of “trade secrets”. The new law also laid emphasis for companies too take and document measures related to protection of trade secrets. 

Netherlands 

The Netherlands passed a separate Trade Secret Act which has entered into force on 23 October 2018. The implementation is generally in line with the directive. 

Poland

Poland implemented the directive into the polish law by amending several Polish legal acts. The implementation of directive did not

 

 

 

amend the scope of the definition of trade secrets but specified it in a more precise manner. 

Portugal 

Portugal passed an Industrial Property Code on 10 December 2018. The code has been passed to protect the holders of trade secrets. However, it would be imperative for the companies to take steps related to protection of its trade secrets. 

Romania

Romania passed a Government Emergency Ordinance no. 25/2019, which entered into force on 19 April 2019. THE Ordinance closely implements the provisions of the directive without any significant deviations.

Slovakia

Slovakia amended the Commercial Code. The term “entrepreneur” was changed to “proprietor of trade secrets“ in all provisions concerning trade secrets. Further, the scope of possible violations of trade secrets was broadened in order to include as many unlawful instances as possible.

Spain

Spain passed a new being Law 1/2019 of 20 February 2019 on Trade Secrets. Until then, there was no specific law in Spain to regulate trade secrets. Earlier, trade secrets were protected through different rules in the Criminal Code, in the Unfair Competition Act and through confidentiality clauses.

United

Kingdom

(UK)

Trade secrets have historically been protected in the UK by the “common law” of confidentiality, with no formal statutory provision. The UK recently passed the Trade Secrets (Enforcement, etc.) Regulations 2018 which became the first codified legislation on trade secrets in the UK. The Regulations exist alongside the common law action for breach of confidence. 

Conclusion: - Need for Legislation In India

A Business or an enterprise may be dependent on protection of its trade secrets and confidential information to determine its success in a highly competitive market environment like India. In all developing and developed nations, fair competition between enterprises helps in determining the forces of demand and supply in the economy and serving the interests of the consumers, benefitting the society as a whole. Competition is also a key driving force for progressing towards continuous innovation. There is a requirement for codified and concrete legislation for trade secrets to achieve the dual goal of (1) for benefit of businesses- by fair functioning of the market and promotion of innovation (2) for benefit of consumers. Further, with changing scenario and trend, it becomes imperative to draft a law on trade secret and confidentiality. 

Another argument for a comprehensive law is the changing business models in the digital environment. Trade secret protection in India, needs a statutory law in the framework of IPR for protection of all confidential information of any enterprise. Additionally, in new age of technology and rapid industrial development,  it is the imperative to also have additional provisions related to protection and regulation of trade secrets and confidential information in The Indian Penal Code, 1860 and the Companies Act, 1956 for strict liability in cases of breach. 

It is opined that India needs implementation of existing draft Innovation Bill to boost research and innovation, but it is the need of the hour to have a central legislation to consolidate and codify confidential information and trade secrets in the current market scenario with a global economy.

The new legislation should be in line with the global laws and policies around the subject which should ideally assist the budding Atmanirbhar ecosystem of Bharat to get a level playing field with their foreign counterparts. 

 

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