THE SECRET LIVES OF TRADE SECRETS

INTRODUCTION

Trade secrets offer protection to a wide range of subject matter as data or information that do not qualify protection as intellectual property within the legal framework can be protected in the form of trade secrets and further, are not limited to a set term of protection.

A trade secret right starts with the creation of an idea, that is not meant for public domain and has an economic value. Thus, trade secrets should be seen as complementary to intellectual property rights as they form part of the creative process leading to innovation and the creation of intellectual property rights.

The recipe of Coca Cola and KFC's 11 secret herbs and spices; and Google’s search algorithm are the most well-known examples of trade secrets that have been guarded over the years and thus, maintain their competitive advantage.

WHAT ARE TRADE SECRETS?

North American Free Trade Agreement (NAFTA) defines a trade secret as “information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy.”

Further, The Uniform Trades Secrets Act, 1970, implemented in the United States of America, defines trade secrets as follows:

“Information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from no being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy”.

In view of the above, a trade secret comprises data which has been actively safeguarded from public domain, including day to day information concerning the working of a business, that being a product of internal research and development, provides an economic advantage to a business over its competitors.

INDIA AND TRADE SECRET RIGHTS

In India, specific trade secret protection laws do not exist, however, as a signatory of Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement, India protects trade secrets and confidential information under various statutes.

Article 39 of the TRIPS Agreement states that:

1. In the course of ensuring effective protection against unfair competition as provided in Article 10b is of the Paris Convention (1967), Members shall protect undisclosed information;

2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information:

(a) is 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

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

In order to comply with the above, Indian courts have upheld trade secrets under various legal frameworks. Some examples of the same are as follows:

· The Copyright Act, 1957 [Sec. 51, 55 & 63]

· The Designs Act, 2000

· The Information Technology Act, 2000 [Sec. 65 & 72]

· The Indian Penal Code, 1850 [Sec. 408 & 415]

· The Indian Contract Act, 1872 [Sec. 27]

· The Competition Act, 2002 [Sec. 3]

Further, in case of an absence of an appropriate legislation, trade secrets are protected under the principles of equity and the common law action of breach of confidence. The same was observed in John Richard Brady and Ors v. Chemical Process Equipment P Ltd and Anr. (AIR 1987 Delhi 372), wherein the Delhi High Court restrained defendants from abusing the know-how, specifications, technical information regarding the plaintiff’s business entrusted to them under express condition of strict confidentiality.

Databases comprising confidential customer information and/or day to day operations of businesses are maintained in order to analyze business profitability or customer behavior, or simply to maintain an inventory of goods. Such databases may contain essential information in the nature of trade secrets that need to be protected. In view of the same, Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as “literary works”.

Both in Burlington Home Shopping Pvt Ltd v Rajnish Chibber [61(1995)DLT6] and Mr. Diljeet Titus Vs Mr. Alfred A. Adebare and Or [2006(32) PTC 609], it was observed that a database consisting of compilation of customer information – addresses, emails etc., being a part of a company’s trade secrets, can be subject matter of a copyright and if used by the defendant will amount to an infringement.

In Puneet Industrial Controls Pvt. Ltd. Vs. Classic Electronics (1997) Sup ARBLR 195 Delhi (1997), the Delhi High Court held the defendants, who misappropriated trade secrets and confidential secrets of the Plaintiff to manufacture electric goods, guilty of infringement of copyright and restrained the defendants from imitating the products of the plaintiff.

Further, in May 2016, India approved the National Intellectual Property Rights Policy, which had seven objectives, one of which being to ensure an effective legal and legislative framework for the protection of intellectual property rights in India including the protection of trade secrets.

For a successful trade secret suit, apart from pleading that the information is confidential, the plaintiff must also prove that it has made reasonable efforts to keep it confidential. Furthermore, if the owner of the information cannot prove as much, the information risks losing the quality of confidentiality as well as its status as a trade secret.

CONCLUSION

In the digital era, one of the biggest challenges that businesses face is safeguarding their confidential data as advancements in technology have made it immensely easy to access confidential data with the help of various online and physical tools that facilitate transfer of data.

What comprises as ‘confidential data’ can range from business strategies, proposals, client databases and information, compilations, to designs, programmes, drawings, devices, formulae, compositions etc. As not each of them cannot be protected under patent and/or copyright law, their protection can be safeguarded in the capacity of trade secrets.

In order to safeguard trade secrets at the grassroot level, organizations must have a comprehensive trade secret policy in place, sensitizing those exposed to the trade secret the nature of such confidential information along with the potential consequences of breaching such trust. Further, it is essential for organizations to ensure that their confidential information/trade secrets are carefully labelled in a manner that makes the person dealing with the same aware that the said information is to be treated with utmost importance. In several cases, organizations have also resorted to keeping confidential information restricted and/or password protected.

It is pertinent to remember that trade secrets do not confer any proprietary rights, i.e. the holder of a trade secret has no exclusive rights over the information. The right over a trade secret subsists only as long as secrecy is maintained.

For any queries, please drop an email to the author, Ms. Avanee Tewari- Associate, at avanee.tewari@iprattorneys.com.

The article was originally published on www.lexology.com on November 30, 2020, and can be accessed here.