Introduction
Patents and Trade Secrets operate on two opposite spectrums of the Indian Intellectual Property (IP) regime. Both share commonality of aspects in disclosure and exclusivity, however patent law is based on the idea that you disclose your invention and you get exclusive rights over your invention. On the other hand, trade secrets support the idea of perpetual exclusivity on the grounds that you are able to keep your own secret confidential. The most established businesses however, over the years have chosen trade secrets as their preferred form of IP protection. For example, Coca Cola’s recipe is famously hidden in a vault, no one knows the herbs and spice mix which KFC uses, Google’s proprietary search engine algorithm. All these companies made a conscious choice of choosing indefinite secrecy over a limited exclusive monopoly. This article will explore the differences between the two IP regimes, assess why companies choose one over another and lastly, does this decision of strategic choices change in the Indian context.
Patents vs Trade Secrets: Key Differences
A Patent is a statutory right for an invention granted for a limited period of time to the patentee by the Government, in exchange of full disclosure of his invention for excluding others, from making, using, selling, importing the patented product or process for producing that product for those purposes without his consent. The Patents Act, 1970 (the Act) regulates patent law in India. On the other hand, India does not have a standalone statute which regulates trade secrets. Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed.
Let us now look at what is the difference in what qualifies as a patent and trade secret respectively. For any invention to be patentable, requisites as per Indian law are: they are novel, should involve an inventive step and capable of industrial application. Additionally, Chapter II of the Act lists non-patentable inventions; all of these combined comprise what can legally be encompassed under inventions which are patentable. On the other hand, we turn to Article 39 of Trade Related Aspects of Intellectual Property Rights (TRIPS) to see what are the qualifications for trade secrets. Firstly, the information should be a secret, it should have a commercial value attached to it and lastly, reasonable steps should be taken to maintain secrecy. Hence, trade secrets offer a wider subject matter scope.
Moving forth, specifics in which both the IP differ are:
- Duration: As per Section 53 of the Act, the term of a patent is twenty years from the date of filing of the patent application. On the other hand, trade secrets can exist in perpetuity, it all depends upon the holder’s ability to keep it a secret.
- Formalities and cost: The process of acquiring a patent is extensive and expensive. The detailed procedure may vary according to the country but the uniform process includes application, examination, addressing any objections, acceptance or rejection of the patent. Trade secrets rather do not have a distinct process to acquire them. They exist and no costs are involved in acquiring them, only formalities are required to maintain the secrecy through mechanisms companies may seem adequate.
- Legal enforcement: The Act provides to sue for patent infringement, prerequisites for the same is that any right of the patentee is infringed upon by any third party. Patent infringement does not accept any defense of unawareness of patent or independent invention. To prove trade secrets misappropriation, the requirements are – proving the existence of trade secrets, reasonable protective measures have been taken to maintain secrecy and wrongful acquisition or breach of duty of confidentiality.
Factors Driving the Strategic Choice
There is no single reason which can tilt favourability for one kind of IP. Numerous factors presented here are taken into consideration to opt among trade secrets or patents by businesses, companies etc:
- Capability of reverse engineering: A lot of end products are vulnerable to reverse engineering. If the invention is embodied in the product itself, it is usually preferred to get a patent because secrecy cannot be maintained here. If the end product does not reflect the process or its hidden, secrecy is a better option here. Example for the former could be a mechanical device, which can be broken down into its constituent parts, example for the latter is the Coca Cola formula.
- Duration of existence of IP: As mentioned above, a patent only lasts for 20 years, with the possibility of compulsory licensing being asked, compared to the indefinite period attached to trade secrets. Whoever holds the trade secret, if they can maintain secrecy through internal controls, choosing protection of trade secrets is a better choice.
- Subject matter scope: Again as mentioned above, patent protection has a narrower scope, if one’s product is in conflict with Section 3 of the Act, they only have the option of choosing trade secrets as preferred IP protection.
- Technological developments: In today’s era of artificial intelligence and scientific developments, inventions come into the market very rapidly. In such fast moving fields, an algorithm, model or technical approach might only be commercially valuable for a few initial years until a competitor or other inventor brings out a better and updated version. In such cases, time is of the essence. Patent prosecution in India is slow, and can be even slower depending upon the backlogs at the patent office. The protection from the product only starts after the grant of patent but the 20 year period starts right after the filing of application. This mismatch means you need to wait until the patent is granted to enforce your rights, especially if you want to sue for infringement or protection from competitors.
- Sector of companies, businesses: Taking into account reversibility of the product and whether disclosure is mandated, companies make their choices between the two IPs. For example, pharmaceutical products once they are out in the product, anyone can synthesize and analyse constituents – hence, secrecy is not sustainable here. Additionally such products need disclosure of composition, clinical trial data, formulation before a drug can be sold. Thus, getting a patent is the only way to retain some protection here. On the other hand, the end products in the food and beverage industries do not reveal exact ingredients. Disclosure of ingredient categories is required sometimes but not formulation or process, which is precisely the gap that trade secrets sit at.
Risks of Relying on Secrecy in India
India being a member state of the WTO is bound to adopt Article 39 of TRIPS, which requires protection of undisclosed information. However, India still does not have a standalone statute exclusively governing protection of trade secrets. Protection has instead developed through Section 27 of the Indian Contract Act 1872, common law principles of breach of confidence, equity, and other existing laws. However, in the absence of a specific framework, a lot of ambiguity and inconsistency exists, particularly in the context of employment disputes and third-party misappropriation.
Disputes arising out of trade secrets have remedies such as relying on contractual obligations, the equitable principle of breach of confidence, ordinary civil remedies or some exclusive criminal remedies (accessed through Bharatiya Nyaya Sanhita, 2023 or the Information Technology Act, 2000). Contractual enforcement is the road most taken, as mostly contracts or agreements already exist. Section 27 voids agreements in restraint of trade, thus these contracts do not hold any value post termination and businesses are left to rely on confidentiality and non-disclosure agreements, which has a narrower scope of protection. In case of a breach of contract, the aggrieved party can approach the civil court. The most commonly sought after remedy here is an injunction, so as to stop the secret from unravelling.
Courts decide on a case-to-case basis as there is lack of unified legislation, this can lead to producing inconsistent outcomes and low predictability for businesses. The Courts have also had to devise new practices to keep the systems functioning. One such interesting practice is the existence of confidentiality clubs. Confidentiality clubs or rings are established during litigation, to prevent another party in a lawsuit from getting access to private documents which may contain sensitive information and secrets. They exist across various courts in India, with recent incorporation in Rule 19 of the Delhi High Court Intellectual Property Rights Division Rules, 2022.
The most recent development around this domain has come through the 22nd Law Commission of India. On 17th March, 2024 the 289th report titled, “Trade Secrets and Economic Espionage” was released in 3 parts. This very report also put forth that, it is time India develops a sui generis framework, and hence came the Draft Trade Secrets Bill, 2024. Unfortunately, we are yet to see a formal introduction of the bill in the Parliament, so it cannot be anticipated when we see it turning into an Act. Until the Draft Bill becomes law rather than a recommendation, the trade off this article examines remains a harder bet for companies in India than for those operating under dedicated trade secret regimes elsewhere.
Also Read: Bombay HC Restrains Nectar Life Care in Sun Pharma Trademark Dispute
Conclusion
Patents and trade secrets are not two versions of the same protection; they suit different kinds of advantage. The companies need to evaluate their products and make conscious decisions to choose among the two IPs. What complicates this in India is that the two options aren’t equally reliable. A patent, once granted, is a settled right. A trade secret is designed around a legal framework stitched together in the absence of a dedicated statute, that hasn’t yet caught up to how much companies now depend on it. The Draft Protection of Trade Secrets Bill, 2024 could close that gap. Until that changes, secrecy in India works more as a necessity than a genuine choice.
