By Amisha
“If a man is keeping an idea to himself, and that idea is taken by stealth or trickery, it is stealing. But once a man’s idea is revealed to others, it is no longer his alone. It belongs to the world.”
-Linda Sue Park
Abstract:
Trade secrets of an organization must be kept confidential. Producing an innovative product for business continuity is not an easy task. Research and experiments are repeatedly conducted to achieve the desired results. The problem arises when the product is successful and is used by the masses, and many people try to steal and duplicate the product to achieve personal gain, without following a legal procedure applicable to use the trademark of the concerned trade secret holder. Courts have consistently dealt with such issues in absence of legislation for the protection of trade secrets so the businesses can run hassle-free.
Introduction
In this era of globalization, companies are constantly fighting an uphill battle to give commerce a spirited edge over each of its rivals. In the present environment, with the rapid technological advancements, businesses use top-notch, creative, and innovative ideas, unknown to their industrial competitors to maintain the uniqueness of their products and services. Therefore, it is not wrong to say that the success or failure of any industry/company is dependent on its policies, manufacturing processes, designs, strategies, trade, and business secrets, or confidential information of their clientele, etc. Be it KFC’s secret blend of 11 herbs and spices, Coca-Cola’s recipe for their signature drink, Google’s search algorithm or Dior’s Perfume formula, etc., the secrecy of the making of all the above-mentioned products and more is important as each of them provides a vital source of information necessary for the continuance of the profitability of their respective trades.
However, many businesses are facing challenges in safeguarding this crucial information as it may not always qualify for protection under the more conventional intellectual rights, such as designs, copyright, patents, or trademarks. As a result, in certain sectors where some product lines are a fruit of many years of hard work, the opponent industries try to copy their ideas and manufacture such products or provide such services having similar specifications, features, and characteristics, thus giving rise to unhealthy market practice. This is where the need for unambiguous legislation for the protection of trade secrets arises.
Concept and definition of trade secret
According to World Intellectual Property Organization, “a trade secret is any information that qualifies to be commercially valuable, is known only to a limited group of persons and is subject to reasonable caution taken by the rightful holder to keep it a secret.”The rationale behind protection of trade secrets is to acknowledge the effort, encourage the research and development, and safeguard the interest of the originator of such information and maintain the standards of business ethics.
North American Free Trade Agreement (NAFTA) defines trade secret as “is any information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy”.
Article 39.2 of the Trade-related Aspects of Intellectual Property Rights (TRIPS) defines trade secret as the information as a body or in the precise configuration and assembly of its components not known or readily accessible to people including the one’s dealing with the similar kind of information in question.
Trade secrets protection under Indian law
As quoted by Dr. Benjamin Mitra-Kahn, “When it comes to intellectual property rights, not everything that glitters is gold”. Trade secrets are the most important Intellectual Property generated by a company. However, in India, they are most neglected and vulnerable as India does not offers any statutory recognition to the trade secrets of an economic establishment.
Unlike other jurisdictions, like in the USA where the Uniform Trade Secret Act, 1979 was adopted, under which trade secrets are defined as information that includes formulae, patterns, compilations, programs, devices, methods that derive independent economic value and not being easily ascertainable, subject to efforts to maintain its secrecy. In Japan, where the Unfair Competition Prevention Act, 2016 was adopted to introduce trade secret protection. In China, where trade secret protection law was included in Anti Unfair Competition Law, 2018 and where the EU Directive Law on the protection of Trade Secrets was passed in 2016, India still fails to incorporate trade secrets within the purview of its intellectual property law.
Thus, in the absence if adequate laws for the protection of trade secrets in India, the only safeguard that trade secrets have received is through judicial rulings, different provisions and certain tenets of equitable law, contracts law and torts. The judicial pronouncements have tried to develop, protect, and provide remedies to breach of confidentiality to a certain extent to provide relief to the trade secret owner to promote fair business practices.
Court rulings- Trade secrets in consonance with IP Laws
The protection awarded to trade secrets is territorial in nature. Therefore, an exhaustive list of what can be classified as confidential information or a trade secret is not possible. However, through judicial pronouncements, courts have streamlined different circumstances in which proceedings may arise
The Bombay High Court, in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh, laid down the following factors of information to be considered as a Trade Secret:
- The extent of information is known outside the business
- The extent to information known to the employees inside the business
- The precautions taken by the trade secret holder to protect the secrecy;
- The time, effort or money spent in researching, obtaining and developing the information;
- The amount of expenses it would cost to others to acquire and duplicate the information.
The important part about trade secrets is their secrecy irrespective of their novelty. In the case of Indian Farmers Fertilizer v. Commissioner of Central Excise, the Customs, Excise and Gold Tribunal, Delhi defined Trade Secrets as “A trade secret is such sort of information, which is not generally known to the relevant portion of the public, that confers some sort of economic benefit on its holder and which is the subject of reasonable efforts to maintain its secrecy.”
Further, regarding trade secrets of banking businesses, the Delhi High Court observed that banks owe a duty of confidentiality to their customers emerging through their monetary relations. Thereby, if someone steals such information which is guided by secrecy between such a bank and the customer, shall be guilty of hampering such secrecy.
Remedies in absence of legislation for trade secrets
In the absence of a recognized unified legislation for “Trade Secrets,” the following statutory provisions are available for protection of confidential information in India:
- Indian Contract Act: Section 27 of Contract Act bars any person from disclosing any information which he acquires as a result of a contract.
- Information Technology Act: Section 72 of the IT Act provides for criminal remedies, providing punishment with imprisonment for a term along with a fine in case a person is found to have secured access to any electronic record, book, register, information document, or other material without the consent of the trade secrets holder. Further, Section 43A of the Act provides for compensation for failure to protect sensitive personal data defined in the rules promulgated including passwords, financial data, biometric data etc.
- SEBI Regulation: The Securities Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, renders the use and disclosure of confidential information by an insider subject to prosecution under the Securities Exchange Board of India Act.
- The Copyright (Amendment) Act, 2012: Section 65A of the Act provides for criminal remedies for circumvention of technological measures implemented for the protection of works in which copyright subsists, particularly if such act is done with the intention of infringing the copyright in such works. Furthermore, under Section 65B of the same Act provides criminal penalty for unauthorized access and alteration of rights management information, usually maintained through online contracts regulating digital rights.
Potential threats and safeguards offered by businesses to protect their secrets
The threat of leaking confidential information does not only come from external sources, but also from internal sources like the employees and contractors of the organisation having access to important business information. Employees while switching jobs may take such confidential information and even set up competing businesses based on the stolen data. Contractors may also infringe on drawings, designs, recipes and compositions that have been shared with them by a client by offering similar products at a less rate, under a different label.
To minimise the threats, different businesses use varied safeguards to protect their business secrets such as monitoring the activities of employees in the office space, drafting employment, confidentiality or non-disclosure agreements for their employees, conducting regular trade secret audits by identifying the trade secrets that are significant, verifying the company’s status to such trade secrets, making sure that confidentiality procedures are followed diligently, etc.
Conclusion
Trade secrets can be a valuable form of Intellectual Property Rights. They can successfully act as an alternate to patents and other IP rights. A patent can be expensive to obtain, enforce, and the exclusive rights are limited to a relatively short period of 20 years. Also, if a patent is created with lucrative uses, then, after its expiration, others may use the design. Trade secrets on the other hand can protect many of the similar concepts as patents. This can be anything of value to a company which is unique and unknown to persons outside the business, potentially including inventions, processes, and formulas, etc. Moreover, trade secrets have no expiration date. So long as it remains a secret, it shall be protected. However, not every concept that is protectable under patent law will qualify as a trade secret, it shall depend on the information or formulation involved especially if the invention can be reverse engineered, then patent protection may be the superior type of protection.