TRADE SECRETS: NEED FOR PROTECTION IN INDIA


ABSTRACT:

A trade secret refers to confidential information which is known to only a limited number of people. Such a type of information is commercially valuable and can be sold or licensed. A trade secret is that information which is not made available in the public domain and one is not allowed to use it without having a license to use it.

Trade secrets are a form of intellectual property and are recognized as the same in the TRIPS Agreement. For secret information of a business to be called a trade secret, reasonable steps need to be taken by the rightful owner or information holder to keep it a secret which may include the use of agreements with business partners and owners to maintain confidentiality.

In India, there is no legislation or statute that is aimed at protecting trade secrets. This research paper analyses the scenario of the protection of trade secrets in India. The scholar attempts to elucidate the concept of trade secrets, the recognition of trade secrets at the global level, and the need for separate legislation for the protection of trade secrets in India.

KEYWORDS: Trade Secrets, Intellectual Property, TRIPS Agreement.

INTRODUCTION:

According to the TRIPS (Trade Related Aspects of Intellectual Property Rights) Agreement which is one of the most comprehensive and multilateral agreements on intellectual property, it is necessary that trade secrets or know-how get the benefit of protection.

According to Article 39(2)[1] 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.

India is also one of the signatories of the TRIPS Agreement. Trade Secrets are those types of information that give an economic benefit to the organization and therefore its protection is necessary to maintain a safe position for the business in the market. If trade secrets are backed by strong legislation in India, then the disclosure of confidential information of the business such as practice, formula, process, design, pattern, etc to the public by unfair means will have serious consequences and will thus aid businesses to keep their trade secrets secured.

According to the TRIPS Agreement trade secrets are usually a part of the undisclosed information but such information according to is not always to be treated as the property of the organization or business. It basically emphasizes the fact that the person who has lawful control of this information must have the possibility of preventing the same from being disclosed in the public domain. The agreement also states that such information’s disclosure shall not only be considered as illegal but acquiring and using it is also not desirable without the consent of the authorized information holder.

The question now arises as to if India is a signatory of this agreement, then why doesn’t it have a separate legislation to protect trade secrets? This research paper aims to analyze the reasons for the necessity of separate legislation for the protection of trade secrets in India along with an analysis of the trade secret protection laws in other nations that are the signatories of the TRIPS Agreement.

RESEARCH METHODOLOGY

This paper is of a descriptive nature and the research is based on secondary sources for the in-depth analysis of the need for protection of trade secrets especially in the Indian context. Secondary sources of information like articles and websites are used for the research.

REVIEW OF LITERATURE

Trade secrets are basically a form of confidential information which can be a process, formula, device, pattern, program, etc. Protection of such forms of information is essential to maintain free and fair competition among the market players. Trade secrets are a form of intellectual property that remains protected as long as it remains a secret. Trade secret protection provides several advantages and the best example of trade secret protection that has helped a company retain a higher position in the market is the protection of Coca–Cola’s secret formula as a trade secret. This secret formula is locked in a vault has not yet been disclosed in the public domain and has not been patented. As the formula has never been patented, it has never been revealed.

If the secret formula of Coca-Cola had been disclosed long back, the company’s product would have had several competitors in the market. Does that mean that because the formula has not been patented, it has not been disclosed and therefore it’s a trade secret? Indeed, this is an essential difference between patent protection and trade secret protection. A company gets a patent by disclosing the invention to the public. However, trade secret protection is granted to those who take rational steps to keep their invention a secret.

If Coca- Cola would have chosen the option of patent protection, the right of protection of its invention would have been granted only for a limited years but Coca-Cola chose the option to protect its invention as a trade mark which has helped it retain its position in the market. There is, however, one disadvantage of a trade secret which is, reverse engineering. It means that when someone discovers the process of making a thing by purchasing it and then disassembling it to determine its structure and composition, it is not considered illegal. As the secret formula of Coca-Cola has not yet been found out by the process of reverse engineering and therefore it has retained its position in the global market.

From the above example, it is clear that trade secret protection has been providing several advantages to various companies to retain their unique position in the market. Isn’t it essential to have legislation in the country to protect trade secrets to retain the positions of several leading companies on its own as well as in the global market? India does not have a separate legislation or a statute exclusively meant to protect trade secrets.

At present, India does lack separate legislation for trade secret protection but the judiciary is still handling trade secret-related issues by referring to the Copyright Act 1956, Trademarks Act 1999, Patents Act 1970, Designs Act 2000, Information Technology Act 2000, Competition Act 2000 and Contract Act 1872 and the decisions of the courts are solely based on the principles of equity and common law. However, the question is whether these sources which do not exclusively deal with trade secrets are sufficient to provide justice to the justice seekers.

  1. RELEVANCE OF SECTION 27 OF THE INDIAN CONTRACT ACT, 1872

According to the Indian Contract Act,1872 – Section 27[2]

  • “Agreement in restraint of trade, void. — Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. [ Exception 1.—Saving of agreement not to carry on the business of which good-will is sold.—One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.] ”

This section of the Indian Contract Act 1872, has been used to deliver justice in various cases related to trade secrets protection. In the case of Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd[3]. Niranjan Golikari was a shift supervisor in a company manufacturing tyre cord yarn.

The duration mentioned in the contract of employment was five years, and it specified that during this period the employee must not work in a similar capacity in any other company and must maintain secrecy with regard to the technical work during the course of employment. After his period of training, the employee joined a rival firm as it offered higher pay.

Consequently, he was sued by his previous employer company, which attempted to restrain the employee from working for the rival company and specifically from revealing its trade secrets. The Trial Court granted interim relief and restrained the employee. As a result, an appeal was filed in the honorable Supreme Court of India and it held that negative covenants that subsisted during the contract period do not attract Section 27 of the Contract Act, and therefore the contract did not amount to restraint of trade.

However, still, the employee was restrained from divulging trade secrets to the rival company. This decision of the Supreme Court was used as a precedent in the case Krishan Murgai v. Superintendence Co. of India (P) Ltd[4].In this case, the Supreme Court held that an employee after cessation of the employer-employee relationship is free to pursue his own business or seek employment with someone else. However, during the sustenance of his new employment, the employee must not get engaged in any other work or disclose the business/trade secrets of his employer to others and, especially, the competitors of the previous employer.

Thus, in such a case, a restraint order may be passed against an employee because section 27 of the Contract Act does not get attracted to such a situation. In the present case, the court was of the view that the agreement between the parties prohibiting the defendant for a period of two years from seeking employment from any present, past, or prospective customer of the previous employer was void and hit by section 27 of the Contract Act.

In both the above cases, the court dealt with the cases in relation to the Indian Contract Act, of 1872. The decisions have been taken and justice has been delivered.  However, the question still remains as to whether the decision would have been taken in a more reasonable manner if there had been separate legislation in place that dealt with trade secrets exclusively.

  1. ELEMENT OF MISAPPROPRIATION
  2. The definition of “improper means” has been provided in the American Restatement of Laws. It means to include the unauthorized interception of communications and may involve computer hacking in the definition of improper means. The improper means those are either wrongful in themselves or wrongful under the circumstances of the case come within the tort of misappropriation.
  3. Here, it is stressed that if the information is seen as confidential in the ordinary sense and even if there is no contract between the parties, liability arises on the part of that party who has misappropriated the information. However, in India, the tort of misappropriation has not yet achieved a particular level of judicial recognition. As a result, Indian courts often take into consideration the common law approach and grant relief in those cases which include the misappropriation of trade secrets.
  4. Therefore, as the tort of misappropriation is still not well recognized in the Indian judicial system as it is in American Law, the system of justice delivery cannot rely simply on the law of torts for dealing with trade secrets protection cases and hence a law on trade secret protection is mandatory to maintain the secrecy of company’s confidential data even if there exist no contractual relationships between the parties.
  1. TRADE SECRETS- DYNAMIC VIEW
  2. Trade Secrets can be interpreted in a broad sense. In the case American Express Bank Ltd. v. Ms. Priya Puri[5]. In the case, the defendant was restrained from using information regarding the wealth of customers of the plaintiff. The legal issue was whether the post-employment contract attracted section 27 of the Contract Act and whether the restraint exercised was irrational.
  3. It was held that prima facie, the defendant did not obtain any data as alleged by the plaintiff bank. The court held that the rights of an employee to seek for better employment opportunities are not to be curbed by an injunction even on the ground that she had confidential data. In order to arrive at a decision, the court differentiated between service trade secrets and what were routine day-to-day affairs of employers which could not be called trade secrets. 
  4. The court came down to the conclusion that a trade secret can be a formula, technical know-how, or a peculiar mode or method of business adopted by an employer, which was unknown to others. It is clear here that a separate statute is vital which clarifies the definition of trade secret taking into consideration all the possible views and this ideally would aid the judges to make decisions.
  1. ELEMENT OF MALAFIDE INTENTION
  2. It has sometimes happened that the court took the aid of the Indian Penal Code to deal with cases related to trade secrets. In one of the cases, the defendant claimed that the plaintiff was in possession of certain documents that ideally were to be handed over to the company at the time of leaving the company. However, no clarification was given as to which documents were in the possession of the plaintiff.
  3. The issue was pertaining to the misuse of the documents to spread trade secrets of the company and therefore whether they were liable under Section 408(Criminal Breach of Trust) and Section 420 (Cheating) of the Indian Penal Code.
  4. The judiciary gave a decision that unless the malafide intention of the plaintiffs can be proved and cannot be held liable only because they were in possession of the documents that contained the technical know-how.
  5. Legislation on trade secrets must include the element of intention to use the secret information in possession and simply relying on the IPC for determining the intention to use information regarding trade secrets of the company is not desirable as this separate legislation would help identify the criteria for exactly identifying the element of guilty intention to use the information in possession.

SUGGESTIONS:

  • There is a need for separate legislation for trade secrets protection in India. As India is a signatory of the TRIPS Agreement, many countries have argued that the Indian laws are not in tune with the provisions of the TRIPS Agreement. India is a developing country and several industries are flourishing in this country which is rich in natural as well as human resources. The lack of strong protection for trade secrets in India has curbed the development of several industries in India.
  • Many foreign companies are reluctant to make trade agreements with Indian companies due to the lack of a regulation for trade secret protection. Although India has stringent rules and regulations under the Indian Contract Act 1872, Copyright Act 1956, Trademarks Act 1999, Patents Act 1970, etc which aid in taking decisions with respect to trade secret protection, still separate legislation is essential for better governance.
  • The decisions given by the honourable courts with respect to trade secret protection have provided justice to the aggrieved but clarification is required pertaining specifically to trade secrets for better justice delivery and providing a fair chance for businesses in India to flourish by making them reliable partners for trade with a country having strong trade secret legislation.

CONCLUSION

Trade secrets can be identified as having a dual nature. Trade secrets are both confidential and commercial. For a person to get commercial benefits from the confidential information that he has, he needs to disclose it to a limited number of people. This confidential information is a productive asset of the person and he has no option but to disclose it to a confined circle to gain monetary benefits.

If Coca-Cola had not disclosed the secret formula to a limited number of people to increase its production, it would not be getting the commercial, and monetary benefits it is getting now. What is expected from the law is to protect the business’s confidential information and that this secret information is not spread to the public by those people within the confined circle.

A strong legal framework is vital to protect the keepers of this secret information and at the same time prevent outsiders from misusing it. Such information is not registered like a patent or a trademark, once it’s discovered, it becomes public.  Hence, to prevent its disclosure is the most important thing and in order to prevent it legal mechanism is essential.

At the international level, the TRIPS Agreement has laid out a fundamental framework. Several countries who were the signatories of this agreement have formulated laws in their countries for the protection of trade secrets. India has not yet developed a systematic legal framework for the protection of trade secrets. It is necessary that India should develop a strong, dynamic, inclusive framework for the protection of trade secrets.

India is a developing country and has a respectable position on the international front. Several nations look forward to signing agreements with India as India has a large workforce, talented minds, a variety of natural resources, and favorable investment opportunities. What the companies wish for is the protection of their trade secrets to maintain and sustain their business. If the Indian legal framework gives them the confidence to maintain their business secrecy, foreign companies would engage in agreements with Indian companies which would lead to greater foreign investment and help the Indian economy to flourish.

A framework should be such that is inclusive of all the possible views of trade secrets. The framework should include a comprehensive definition of the trade secret. The Indian legal framework is very strong and already has various statutes that one may rely on for seeking justice with respect to trade secrets but a separate legislation for protecting trade secrets that provide monetary benefits to the business needs a comprehensive and inclusive framework that may transform several businesses in India and help Indian industries to flourish.


Riya Risbud

ILS Law College, Pune


[1] Agreement on Trade related aspects of Intellectual Property, Section 7, World Trade Organization, 1994.

[2] Indian Contract Act, 1872, Section 27,No.10,1872.

[3] Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd., 1967 SCC OnLine SC 72.

[4] Krishan Murgai v. Superintendence Co. of India (P) Ltd., 1979 SCC OnLine Del 134.

[5] American Express Bank, Ltd. v. Priya Puri, 2006 SCC OnLine Del 638.