Topic: Need for Trade Secret Law in India

Intellectual Property Rights Law-II

ACKNOWLEGDEMENT

A research project of such great scope and precision could never have been possible without
great co-operation from all sides. Contributions of various people have resulted in this effort.
Firstly, I would like to thank God for the knowledge he has bestowed upon me.

I would also like to take this opportunity to thank Dr. Vikas Bhati sir without whose valuable
support and guidance, this project would have been impossible. I would like to thank the library
staff for having put up with my persistent queries and having helped me out with the voluminous
materials needed for this project. I would also like to thank my seniors for having guided me and
culminate this acknowledgement by thanking my friends for having kept the flame of
competition burning, which spurred me on through the days.

Anubhav Verma
Introduction

The law of trade secrets in Indian at present is a judiciary made law based on the principle of
equity and on common law action for breach of confidence, with whole jurisprudence revolving
around obligation and duties of the employee towards the employer for confidential information
gained during the course of employment.

Indian jurisprudence regarding Trade Secrets is not clear on a number of important aspects such
as the scope of damages in case of breach of confidential information, theft of trade secrets by
business competitors and procedural safeguards during litigations in courts. These issues have
lead to foreign investor’s reluctance in sharing technical know-how with their Indian
counterparts. It causes problems with respect to IPR protection, enforcement, or market access
for persons relying on IPR1.Though we have made commitments with other nations of having
strong protection of trade secrets in our territory, we are yet to take legislative steps in this
direction2.

In 2008, the Government of India introduced the National Innovation Bill, 20083, which dealt
with a number of aspects related to trade secrets. The Bill was a step in the direction of getting a
law dealing with aspects of trade secret protection such as damages for violation of trade secrets,
remedies to protect confidentiality and obligation of confidentiality. However, the bill lapsed and
did not become a law.

This peace is an attempt to take a detailed view of India’s current approach to trade secret
protection and the road ahead.

Trade secret and legal provisions under TRIPS (Trade Related Aspects of Intellectual
Property Rights)

Trade secret has been defined as is a formula, process, device or other business information that
is kept confidential to maintain an advantage over the competitors. It is the information which
includes formula, pattern, compilation, programme, device, method, technique, or process, that
derives independent economic value from not being generally known or readily ascertainable4.

Similar definition has been given by the Delhi High Court in American Express Bank Ltd. v.
PriyaPuri5, defined trade secret as formulae, technical know-how or a method of business
adopted by an employer which is unknown to others and such information has reasonable impact
on organizational expansion and economic interests. Indian courts have approached trade secrets
protection on the basis of principles of equity, action of breach of confidence and contractual

1
https://www.lexology.com/library/detail.aspx?g=cfbc8084-1399-41e4-b91d-e4517e59a5a9
2
http://pib.nic.in/newsite/PrintRelease.aspx?relid=151830
3
http://www.prsindia.org/uploads/media/vikas_doc/docs/1241500117~~Draftinnovationlaw.pdf
4
Black’s Law Dictionary, Ed. 8, cited in Bombay Dyeing & Manufacturing Co. Ltd. v. Mehar Karan Singh, 2010
(112) BOM LR 3759.
5
2006) HI LLJ 540 (Del).
obligations. Therefore, the ingredients of trade secrets are- (a) it is such information not
generally known to the public which in turn confers economic or commercial benefit through the
maintenance of confidentiality and exclusivity, and (b) it is subjected to reasonable efforts of
secrecy since disclosure would result in undue enrichment of others. For example, Coca-Cola’s
formula for its aerated drinks and KFC’s recipe for its delicious fried chicken are considered to
be trade secrets which have been preserved for many decades.

Article 1(2) of the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS
Agreement”), states that intellectual property shall include protection of undisclosed
information6. Article 39 of the TRIPS Agreement states that in the course of ensuring effective
protection against unfair competition as provided in Article 10bis of the Paris Convention, with
respect to information which is (a) a secret not generally known or readily accessible, (b) has
commercial value by virtue of secrecy, and (c) has been subjected to reasonable steps for
ensuring its secrecy, Member nations are to ensure that natural and legal persons have
the possibility of preventing such information, within their control, from being disclosed to,
acquired by, or used by others without their consent, in a manner contrary to honest commercial
practice. It is submitted that the possibility referred to hereinbefore implies that trade secrets
should be accorded protection within the legal system and not necessarily in the IP legislative
framework of the said Member nation.

Why India must have strong trade secret law

 Currently, trade secrets, although a recognized form of IP, are not specifically protected
under any dedicated legislation in India and these continue to be enforced contractually
or under common law;
 There is no restriction as to the type of information that can constitute a trade secret; this
uncertainty leads to innumerable number of litigation;
 Since the source of protection is equity, equitable remedies are available, which include
injunctions preventing the use or disclosure of trade secrets. In matters related to equity a
claimant must come to the court “with clean hands” or risk the claim being rejected.
Undue delay can also be a bar to obtaining equitable relief. Even in genuine cases
presumption may go against the rightful claimant;
 Trade secret protection is very essential because it encourages innovation and promotes
commercial ethics and it is crucial for a company’s growth as it promotes fair
competition in the market;
 If there is enough safeguard mechanism then there will be more transparency in
commercial transactions and this will increase foreign investment and trade, otherwise
what happens is that in the absence of such laws certain companies refuse to do its

6
All categories of IP that are the subject of Part II, Sections 1 to 7 of the Agreement; Section 7 is titled as
“Protection of undisclosed information”.
 business in that particular country so there is urge for a separate Trade Secret Act in
India;
 Burden on patent litigation will be less, because in the presence of proper mechanism
there will be no need patent an invention;
 Sction 27 of the Indian Contract Act, 1872 provides we get civil remedy upto certain
limit, there is no provision of criminal liability in India7;
 Being member of TRIPS, India is obliged to make comprehensive rules comprehensive
rules and regulations to remove the uncertainty with regard to trade secret protection.
 We need to define the liabilities of the infringers both in civil and criminal matters;
 The aggrieved owner of trade secrets has to prove that there is a breach of confidentiality,
which makes the task more onerous for the aggrieved party than the offender8;

 The remedies are more easier to obtain under civil law since criminal law requires the
owner to first establish that trade secrets is a property of which theft has been
committed9;
 The ultimate beneficiary of the theft, the third party, is rarely prosecuted because the
burden to adduce evidence is on the complainant and this becomes very difficult in
almost all the cases10.

PRESENT FRAMEWORK

For Trade Secret Protection in India, an attempt was made in 2008 by passing National
Innovation Act, 2008. The draft of Indian Innovation Act, 2008 is generally based on the
American Competes Act. It‟s one of the objective was to codify and consolidate the law of
confidentiality in aid to protect the confidential information, Trade Secrets and Innovation. The
chapter VI of National Innovation Act, 2008 talks about “Confidentiality and Confidential
Information‟s and Remedies and Offences”. This provision allows the parties to set out their
rights and obligation contractually related to confidential Information and protects the
information from being misappropriated. But this statute may very well protect and maintain the
India‟s Innovation through other schemes. The connection of innovation, trade secret and
confidential information can be best addressed by a specific legislation which particularly deals
with protection of Trade Secrets. In a case of V.N Deshpande v. Arvind Mills11, where there was
a clause in the agreement which prevents the appellant from revealing any secret Information of
nature mentioned in that clause after termination of his service. The defendant was not prevented
from acquiring information which makes him better employee for the public for future
employment. It only prevents from revealing any secret information but he received as

7
Uniform Trade Secret Act and Economic Espionage Act of 1996 in US are Legislation which provide Civil as well
as Criminal liabilities.
8
https://www.linkedin.com/pulse/trade-secrets-protection-india-law-whose-time-has-finally-kamat
9
Id
10
Id
11
AIR 1946 BOM 423.
Respondents employee to another party. Therefore it was held that the words use in agreement
was proper and injunction granted was reasonable. Another case of American Express Bank Ltd.
V. Priya Puri12, the Delhi High Court defined Trade Secret as formulae, technical know-how or a
method of business adopted by an employer which is unknown to others and such information
has reasonable impact on organizational expansion and economic interests. In another case of
Bhrahmaputra Tea Co v. E Scarth, where an attempt was made to restrain a servant from
competing for five years after the period of service, the Calcutta High Court said that:

“Contracts by which persons are restrained from competing, after the term of their agreement is
over, with their former employers within reasonable limits, are well known in English Law, and
the omission to make any such contract an exception to the general prohibition contained in
Section 27 indicates that it was not intended to give them legal effect in this country.”

Moreover In a case of Niranjan Shankar Golikari v. Century Spg & Mfg Co. Ltd 13., in which
question was raised regarding the validity of agreements in terms of Section 27 of Indian
Contract Act. The facts of this case were that a foreign producer collaborated with accompany
manufacturing tyre cord yarn by an agreement which stated that the company would maintain
secrecy of all technical information. The respondents company signed a non-disclosure
agreement with the appellant, at the time of its employment. Clause 9 of the agreement states that
during the continuance of his employment as well as thereafter the employee shall keep
confidential and prevent revealing of any information. The Court held that there is an implied
term in a contract of employment that a former employee may not make use of his former
employer’s trade secrets. Therefore, in order to protect the storehouse of undisclosed information
(Trade Secret) as defined under TRIPS in India, there should be a legislation to protect it.

12
MANU/DE/2016/2006: (2006) (110) FLR 1061.
13
1967 AIR 1098.
Infringement of Trade Secrets and Remedies

A trade secret owner has the right to keep others from misappropriating and using his trade
secret. Although misappropriation is sometimes a result of industrial espionage, often trade
secret cases involve appropriation by former employees, use in new businesses or for new
employers. Trade secret protection endures as long as the requirements for protection - generally,
value to the owner and secrecy - continue to be met. The protection is lost if the owner fails to
take reasonable steps to keep the information secret. Besides, disclosure of trade secrets is not
actionable in all cases i.e., trade secrets owners have recourse only against misappropriation and
there a number of defenses to disclosure of trade secrets as follows:

(i) General Knowledge: In common law, it is a well-established principle of public

policy that a former employee is free to utilize the general skill and knowledge
acquired during his or her employment.
(ii) Parallel Development: The owner of a trade secret does not possess a monopoly on
the data that comprises the trade secret. Other companies and individuals have the
right to discover the elements of trade secret through their own research and hard
work.
(iii) Reverse Engineering: Discovery by reverse engineering, namely, starting with the
known product and working backward to find the method by which it was developed,
is considered proper means. Therefore, to avoid a successful claim by the defendant
that he discovered the trade secret by reverse engineering, prosecutors should
establish the means by which the defendant misappropriated the trade secret. If the
prosecution could show that the defendant unlawfully obtained access to the trade
secret, it would refute his claim that he learnt the trade secret through reverse
engineering. However, a defendant cannot defeat a prosecution by claiming that the
trade secret could have been discovered by reverse engineering.
(iv) Innocent Acquisition of Information: Where the defendant acquired the information
innocently, that is, without knowing that it was a trade secret belonging to a person
who did not consent to the defendant’s acquisition of it, he is not liable to
infringement of a trade secret under English law.
(v) Public Interest: It is well established that no liability is attached to the use of
information, which was in public interest to use or disclose. Thus, a defendant in
proceedings for breach of confidence shall not be liable to the plaintiff in respect of
any disclosure or use of information by the defendant in breach of an obligation of
confidence if (a) the defendant raises the issue of public interest in relation to that
disclosure or use; and (b) the plaintiff is unable to satisfy the court that the public
interest relied on by the defendant under that subsection is outweighed by the public
interest involved in upholding the confidentiality of the information.
(vi) Statutory Obligation: If the information is used or disclosed in accordance with a
statutory obligation or power, the defendant is not liable. For instance, if the
 information is disclosed pursuant to a court order, or otherwise for the purpose of
legal proceedings, it comes within the exemption. Similarly, the use or disclosure in
the interests of national security or for the prevention, investigation or prosecution of
crime is permissible. However, the disclosure must be to someone who has a „proper
interest‟ in receiving the information in question.

CONCLUSION

The policy of trade secret law is to protect, maintain and promote standards of commercial
ethics and fair dealing and it encourages innovations as well. The law for protecting the trade
secret is developed from the common law of unfair competition developed in nineteenth
century by English Courts. Ever since the advantages in the information economy are rapidly
growing it is giving rise to the trade secrets to becoming Intellectual Property of Choice. The
unauthorized use of such information by persons other than the holder is regarded as an
unfair practice and violation of trade secrets. Disclosure of trade secret would cause harm to
the real owner of the Secret. The Trade Secrets generally refers to data or information
relating to the business that is not generally known to the public which the owner reasonably
attempts to keep secret and confidential. Once trade secrets have been exposed to the public,
they cannot be evoked even in the case if the use of product itself causes disclosure. There
will be no protection of trade secret if in the process of using, it gets disclosed. So in order to
attain the efficient transparency in the commercial transactions there is an urgent need for
drafting the legislation so to proper safeguard the trade secret in India as for the good
functioning and fair competition of a company in market. Getting protection will help the
country’s economy to grow. Being a signatory to Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS), India has already framed law for the protection of all
Intellectual Property Rights like Copyright Act, Trademark Act, and Patent Act but still the
legislation for protection of Trade Secrets are left out. India is obliged to frame
comprehensive rules and regulations to remove uncertainty with regard to Trade Secrets
Protection. Hence there is a need for the safeguard of trade secret.

Sources

http://www.manupatra.com/roundup/369/Articles/Inadequacy.pdf

https://www.loc.gov/law/help/tradesecrets/india.php

http://www.supremecourtcases.com/index2.php?option=com_content&itemid=1&do_pdf=1
&id=24329

http://www.khuranaandkhurana.com/2017/08/26/indias-protection-to-secrets-of-trade

http://wtocentre.iift.ac.in/workingpaper/Trade%20Secret%20Protection%20in%20India-
%20The%20policy%20debate.pdf