Introduction
The idea of Intellectual Property Rights (IPR) exists to provide protection to the creation of the human mind, the intellect. In today’s economy, companies are distinguished by their proprietary ideas, manufacturing processes, etc. Businesses get a competitive advantage if their products and services cannot be replicated by their competitors. Trade secrets are thus as old as the existence of trade and commerce itself across the world. However, the codification of the law on trade secrets is not that ancient. Various jurisdictions across the world, in recent years, have enacted legislation either entirely focused on trade secrets or introduced amendments to accommodate trade secrets – The United States has the Federal Defend Trade Secrets Act, 2016; the United Kingdom has The Trade Secrets (Enforcement) Regulations, 2018; Russia has Federal Law on Commercial Secrecy, 2004, etc. Through this article we will explore where India’s regime stands in protection of trade secrets.
What qualifies as a Trade Secret?
A trade secret is a kind of intellectual property that usually comprises practices, processes, techniques, or any other information that can be sold or licensed. Section 39 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement administered by the World Trade Organisation (WTO) provides for the “protection of undisclosed information.” It enlists three conditions that make information a trade secret, these qualifications are that the information has commercial value, reasonable steps are taken to protect the information and lastly,it is obviously a secret, in the sense that it is not generally known to people. The concept of trade secrets is usually associated with businesses and companies. The most commonly known examples of trade secrets are Coca Cola’s recipe, KFC’s herbs and spice mix, and Google’s algorithm among others.
Where does India Stand Currently?
India, being a member state of the WTO and 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.
In the absence of an Act, judicial developments across India keep expanding understanding of ‘trade secrets’ for the Indian context. For instance, the Delhi High Court in American Express Bank Ltd. vs Ms. Priya Puri, stated “A trade secret can be a formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.” In the case of Anil Gupta and Anr. v Kunal Dasgupta, the Hon’ble Court evaluated definitions of trade secrets across different regimes around the world, and devised a few elements which could help in determining the ambit of trade secrets. The elements were: “(1) The extent to which the information is known outside the business. (2) The extent to which it is known to those inside the business, i.e., by the employees. (3) The precautions taken by the holder of the trade secret to guard the secrecy of the information. (4) The savings effected and the value to the holder in having the information as against competitors. (5) The amount of effort or money expended in obtaining and developing the information; and (6) The amount of time and expense it would take for others to acquire and duplicate the information.”
The Draft Protection of Trade Secrets Bill 2024
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. The law aims to supplement, and not eliminate, existing remedies of contract law, breach of confidence principles or other criminal remedies. It is interesting to note that back in 2008 too, a similar attempt was made to codify the law on trade secrets by introducing the National Innovation Bill. However, the bill was never tabled in Parliament and thus, consequently, shelved.
The proposed bill contains adequate definitions for ‘trade secret’ and ‘misappropriation’; expanding the definition of the former from the three conditions of TRIPS to four conditions, adding that disclosure must be likely to cause damage to the holder. The bill also differentiates between skills and knowledge acquired by an employee whilst working in the company, they would not be regarded as trade secrets. Safeguards have also been made to not classify some activities as misappropriation of trade secrets if such acquisition, use, and disclosure is for the purpose of exposing illegal activities, professional misconduct, or done in good faith to protect public interest. The remedies provided by the bill however are only civil in nature and include injunction, damages, rendition of accounts, and costs.
Enforcement Mechanisms
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. 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.
In such disputes, a business trying to prove that information is confidential may have to disclose that information to the court. This creates a risk that the legal proceedings themselves could expose the very information the business is trying to protect. This results in an interesting practice called ‘confidentiality clubs.’ During litigation, to prevent another party in a lawsuit from getting access to private documents which may contain sensitive information and secrets, confidentiality clubs or rings are established. Such clubs are also common in other areas of IP, such as patents, especially Standard Essential Patents (SEPs) and FRAND licensing agreements. Confidentiality clubs can be set up by way of agreement between parties or ordered by court. They exist across various courts in India, with recent incorporation in Rule l9 of the Delhi High Court Intellectual Property Rights Division Rules, 2022. There also exists another classification within confidentiality clubs, which is the ‘external eyes only’ club. This limits access to the private sensitive documents to outside lawyers and expert witnesses only.
Practical Protection Tips for Businesses
Until final legislation comes into force, businesses and companies have to equip themselves with available remedies to protect themselves. Trade secret protection should be treated as an ongoing management process rather than a legal remedy used only after a dispute begins.
The first step is to know what actually needs protection. Businesses frequently have a lot of internal data, but not all of it may be considered a trade secret. A company should identify information that gives it a commercial advantage because it is not publicly known. Common examples of such information could be a manufacturing procedure, customer database, pricing model, source code, product formula, or an unpublished business plan. Additionally, not every employee should have access to confidential information. Measures such as passwords, access controls, encryption and activity logs can help establish that the company took reasonable steps to maintain secrecy.
Another crucial line of defense is contracts. The proper confidentiality duties should apply to workers, consultants, suppliers, and business partners who require access to private information. When sharing information with a third party, non-disclosure agreements (NDA) are the norm, and should be made. Companies should also have a well-defined procedure for terminating employees. Access to private systems should be examined and, if required, removed before an employee departs. Employees should be reminded of their ongoing responsibilities regarding confidentiality. Especially if one might be transferring to a rival company. The company should also maintain extensive records as to what data it deems secret, who has access to it, and what security measures have been put in place. In the event that a lawsuit is subsequently brought, this becomes crucial evidence.
Conclusion
India’s approach to trade secrets is still scattered than a dedicated statute. The proposed Trade Secrets Bill could bring greater clarity and consistency to this area, especially in today’s time, where businesses are rapidly evolving with the assistance of Artificial Intelligence. Until then, businesses must take active steps to identify, restrict access to, and protect their confidential information. A strong legal framework should also balance business interests with employee protection, fair competition and public interest. Ultimately, protecting trade secrets requires both effective law and responsible business practices.
Also Read: Bombay HC Restrains Nectar Life Care in Sun Pharma Trademark Dispute
References
- WIPO Guide to Trade Secrets and Innovation: https://www.wipo.int/web-publications/wipo-guide-to-trade-secrets-and-innovation/assets/69771/2008_WIPO_Guide_on_Trade_Secrets_and_Innovation_det03_WEB.pdf
- WIPO Overview of National and Regional Trade Secret Systems – India: https://www.wipo.int/documents/d/trade-secrets/docs-overview-country-sheets-india-final.pdf
- 289th Report of Law Commission of India: https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2024/03/202403061982318841.pdf
