Abstract
Trade Secrets and Business Laws are in conflict because they have varying goals. Trade secrets live in confidentiality and exclusivity while business laws ensure fair competition, consumer protection and to protect integrity of the market. This conflict takes different forms when companies have to abide by laws but at the same time protect their confidential information from the rivals
Following paper discusses the topic of trade secrets and its conflict with the business laws. It provides analysis of the concept of trade secrets, its interpretation in business laws and its misuse in the business world. It also offers an insight into the relation of trade secrets with intellectual property laws and contract laws. The paper also dives into the legal remedies required for protection of trade secrets and avoid its conflict with the business laws.
Keywords
Trade secrets, Intellectual Property Laws, Business Laws, Indian Contract Act.
Introduction
Business law is also known as commercial law. Business law regulations protects the rights and relationships between businesses and individuals. The provisions also provide for protection of liberties, upholds orders and regulatory framework, resolves disputes and establishes standards for businesses and their dealings with government and individuals.
Trade Secrets is confidential information of companies. It might be any practice or any information of the company which is not known to general public so it gives the company a competitive advantage over their rivals. Strict policies and rules are implemented to keep this practice or information private and confidential.
Trade Secrets include research and development data of the product, manufacturing processes, distribution methods, advertising strategies etc. It is a type intellectual property (IP) and therefore Intellectual Property Laws have a significant impact on trade secrets.
Unauthorized possession or use of trade secrets is unfair practice and is considered as a breach of trade secrets rights.
Research methodology
The secondary sources used in this paper are websites, journals, research paper, blogs and articles. Also, various case laws and precedents of courts have been analysed and used for research.
Review of Literature
In this research paper, author has used websites of World Intellectual Property Organization (WIPO), Legal Service India, Ipleaders blog, Investopedia, International Journal of Law Management and Humanities. Also, various case laws and judgements have been referred to write a thorough research paper.
Definition of Trade Secret
Article 39 of Trade-Related Aspects of Intellectual Property (TRIPS) states that trade secrets are also known undisclosed information. TRIPS does not define trade secret specifically.
According to North American Free Trade Agreement: “information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy.”
What qualifies as a trade secret[1]
In order for information or data to qualify as a trade secret it needs to fulfil certain conditions:
- The information or data must have a commercial value.
- It should be known only to limited people working in the organization.
- The data must be subject to reasonable steps for keeping it a secret by way of non-disclosure agreements or any confidentiality clauses in employment contracts.
Example of Trade Secret: The recipe of Coca-Cola is a best example of trade secret. If it is known to general public Coca-Cola will lose its uniqueness and taste. The company will be in huge losses since the recipe does not qualify as a patent and they will also lose the tremendous market they have captured.
Bombay High Court laid down the criteria for trade secrets in the case of Bombay Dyeing v. Mehar Karan Singh 2010 (112) BomLR 375[2]. It is as follows:
- the information is secret – in that it is known only to a certain body of persons and is not known to the public as such;
- it has commercial value; and
- it has been subjected to reasonable steps under the circumstances by the person lawfully in control of the information to keep it secret.
Regulatory framework for protection of Trade Secrets in India
Currently, there is no specified legislation or statute for protection of trade secrets in India. Trade secrets have been regulated with the help of business law branches of Indian Contract Act 1872 and Intellectual Property Laws.
- Trade Secrets and Indian Contract Act 1872:[3]
Section 27 of Indian Contract Act prohibits the parties to contract to disclose information contrary to the clauses in the contract. Trade secrets are a part of that information. Trade Secrets are protected under Contract Law on principles of equity or by way of common law action for breach of contract.
In the case of John Richard Brady v, Chemical Process Equipment Pvt Ltd. AIR 1987 Delhi 372, the Delhi High Court held that in the interest of protection of trade secrets defendants were prevented from abusing the know-how specifications, technical information of plaintiff’s organization, given by the plaintiff to defendant in accordance with the contract with the non-disclosure clause in their contract.
By binding a person contractually, the confidentiality of the information must be maintained. Non-disclosure agreement is one of the necessary steps taken by companies to ensure their secrets are not disclosed to general public. Upon breach of the agreement, hefty penalties can be imposed if the secrets are disclosed. Also, Alternate Dispute Resolution (ADR) methods clauses can be invoked to resolve disputes arising after breach of non-disclosure clause or agreement.
- Trade Secrets and Intellectual Property Laws[4]
Trade Secrets have gained importance in the field of Intellectual Property Laws because other forms of Intellectual Property like patents, trademarks and copyrights have a certain amount of uncertainty as compared to trade secrets.
To get their exclusive rights established on other forms of intellectual property takes years to be granted while trade secrets on the other hand can be protected by the conduct and agreement between the interested parties. Information or data which does not qualify for protection as intellectual property can be granted protection as trade secrets.
The legislations which have a connection with trade secrets in intellectual property laws are:
- The Copyright Act 1957 and
- The Designs Act 2000.
The Copyright Act 1957
During the course of business, companies collect information and data which is essential for business as this information is competitive advantage. Disclosing this information in public will make companies lose their competitive advantage and also make them lose their position in the market.
Courts in various cases have observed that confidential databases stored in computers are copyright material and is eligible for copyright protection under the Act.
- Burlington Home Shopping Pvt Ltd v. Rajnish Chibber[5]
Issue: Whether a database consisting email addresses of customer are a subject matter of copyright?
Held: Database consisting email addresses of customers are a subject matter of copyright and any abuse of such database will amount to infringement.
- Puneet Industrial Controls Pvt Ltd v. Classic Electronics[6]
Issue: Whether defendants are guilty of infringing plaintiff’s copyright under section 51 of the Act?
Plaintiff was in the business of manufacturing electric goods and defendant had started abusing his confidential information and imitating his goods and started his own business.
Held: Defendant had misused the confidential information of the plaintiff since manufacturing information is considered a trade secret.
- Mr. Diljeet Titus v. Mr. Alfred A. Adebare and ors.[7]
Issue: Whether confidential list of client names and addresses is ‘literary work’ under the Copyright Act 1957?
Held: List of client names and addresses is confidential database as comes within the purview of the Copyright Act 1957.
The Designs Act 2000:
Tractors and Farm Equipment Ltd v. Green Field Farm Equipments Pvt Ltd and Ors[8]
The court held that injunction can be granted only if the information is protected through copyright or designs along with a non- disclosure agreement.
The above case law highlights that information or database can be protected under IP laws and it would be of advantage if the non-disclosure agreement is signed to prove abuse of trade secrets.
- Proving confidentiality of information
For a trade secret suit to be filed, the information should be substantially confidential and the plaintiff must prove that reasonable steps were taken to protect the information.
Emergent Genetics India v. Shailendra Sharma and Ors 2011 (47) PTC 494
Held: Nature of pleadings and quality of information which is confidential is crucial and in case of absence of both above the question of confidentiality does not arise.
Analysis of issues in business laws and its conflict with trade secrets
Since there are numerous employees working in an organization, the trade secret information is generally sensitive. Employees migrate from one company to another and sometimes they possess certain information which if leaked might be harmful for company’s growth.
Companies ensure that this information is possessed only by certain number of people but sometimes it becomes unavoidable and thus maintaining confidentiality can become quite challenging. Since there is no specified enactment for protection of trade secrets, the parties are bound contractually. Courts also find it hard to provide for relief to the aggrieved party.
Inherent challenges exist like inability to track location or storage of copies of trade information, unintentional disclosure because of this information being accessed or stored on employee’s public network, no control over employee’s communication with third parties etc.
Example: Coca-Cola company goes to extreme lengths to keep their formula recipe a trade secret. Only two people know about the proportions of contents of the drink.
Though remedies and mechanisms can be implemented, employee loyalty still cannot be assured with these mechanisms. Therefore, businesses are generally advised to keep evolving their trade secrets so as to they are not discovered independently by others and they retain their competitive advantage.
There exists a “psychological contract between employer and employee that the employees will keep the experience and information in their custody safe and not divulge it outside not only during their employment but also during post-employment.
Section 27 of Indian Contract Act 1857 states that agreements in restraint of trade are void. Every individual is at a liberty to work and a profession for himself and no contract shall deprive him from doing so.
In the case of Wipro Limited v. Beckman International SA[9], Delhi High Court cited that authorities had the right to terminate the contract on basis of wrongdoings but it cannot be claimed that the person has absolutely no right to look for jobs on account of better prospects or personal reasons.
This highlights that no law in India grants exclusive protection to trade secrets.
Remedies for breach of trade secrets
There is no such penalty or punishment prescribed for breach of trade secrets but injunction or monetary compensation maybe sought by the plaintiff but it is crucial to prove that there has been abuse of information by the defendant and that the plaintiff sought all the measures for the concealment of the information.
Conclusion
In the ever-evolving business world, to maintain the achieved market share and maintain the reputation of the brand it is important for companies to retain their uniqueness and stand out in the market. As long as the crucial information of the business remains confidential companies have their competitive advantage. But the major challenge companies face in protecting their trade secrets is absence of specified laws and regulations. India is in dire need of substantive laws for safeguarding trade secrets.
Name: Isha Rajendra Porje.
College: ILS Law College Pune
Year: 3rd year LLB
[1] World Intellectual Property Organization, https://www.wipo.int/tradesecrets/en/, (last visited on 25th September 2023).
[2] Ipleaders, https://blog.ipleaders.in/practical-insight-trade-secret-protection-india/#What_is_a_trade_secret (last visited on 26th September 2023)
[3] Ipleaders, https://blog.ipleaders.in/protection-of-trade-secrets-and-confidential-information-in-india-and-global-trends/#India_%E2%80%93_protection_of_trade_secrets_and_confidential_information, (last visited on 26th September 2023)
[4] Legal Service India, https://www.legalserviceindia.com/article/l123-Trade-Secrets.html, (last visited on 26th September 2023)
[5] Burlington Home Shopping Pvt. Ltd v. Rajnish Chibber, 61 (1995) DLT6.
[6] Puneet Industrial Controls Pvt Ltd v. Classic Electronics, (1997) Sup ARBLR 195 Delhi (1997).
[7] Mr. Diljeet Titus v. Mr. Alfred A. Adebare and ors, 2006 (32) PTC609
[8] Tractors and Farm Equipment Ltd v. Green Field Farm Equipments Pvt Ltd and Ors, 2006 (32) PTC 343 (Mad)
[9] Wipro Limited v. Beckman International SA ,2006 (3) ARBLR 118 Delhi
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Business Law