The extent of recognition of Trade secrets
the world-over can be gauged by the fact that a majority of working technology
worldwide are protected as trade secrets rather than by patents.
Trade secret is confidential information
that can be used in the operation of a business or other enterprise and is
valuable to afford an actual or potential economic advantage to others.[1] The
basic principle behind trade secret is to prevent ‘Theft’ of information by
unfair means and commercially unreasonable means. [2] What
makes something confidential and secret is the fact that person has derived a
formula and produced the results using his brains that can only be derived by
following the same process. The one putting the efforts for producing such
results would want it to be protected. Also in this age of Technological era
even an idea is open to attack, if shared with third party, thus it is
essential to protect commercial interests and to hold such information
confidential. The paper highlights the protection of Trade secrets in Indian
arena.
HISTORY OF TRADE SECRET
Trade secret is
a creation of 19th century. According to TRIPS for information to qualify as a trade secret, it should fulfil
the following conditions.[3]
1. It is a 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;
2. Since it is a secret, thus having a
commercial value
3. Person in control of the information in
order to take reasonable steps, keeps this information confidential.
Under Uniform Trade Secrets Act, 1985
(hereinafter UTSA) a trade secret is defined as information, including a
formula, pattern, compilation, program device, method, technique or process,
that:
(i) Derives independent economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and
Both these
definition bring out three points that need to be fulfilled for information to
become a trade secret that is:
(i) A secret.
(ii) Having commercial value.
(iii) Required steps have been taken for
protecting the above mentioned information.
INDIAN
LENS
Many authors
have tried to justify the trade secrets. the primary and foremost question that
comes into the minds is whether or not secret could be a 'property' or not. To
many, if trade secrets are property, then laws protective them are normatively
even. Thus, the question of whether or not or not trade secrets are property
has raged on for several years. whereas some marvel why it matters, others
believe that the shift toward line intangible assets "property" has
produced and can still create a shift toward the protection of holding.
Two
primary theories take into account trade secrets as property:
Exclusivity
theory and integrated theory.
Exclusivity Theory
Even people who
believe exclusive rights are the only real demand for property disagree
regarding whether or not trade secrets ought to be property. This analysis was
followed in Ruckelshaus v. Monsanto Co[4]
the proper to exclude others is usually 'one of the foremost essential sticks
within the bundle of rights that are ordinarily characterised as property.' the
matter with this argument is that trade secrets aren't really exclusive, as
distinguished by the Calif. Court held that, “The owner of the secret is protected solely against the appropriation
of the key by improper means that and also the ensuing use or revelation of the
improperly non heritable secret. There are numerous legitimate means that,
like reverse engineering, by that a secret will be non heritable and used.[5]
Integrated Theory
Rather than
watching exclusion, integration theorists look into however the plus is no
heritable, used, and disposed. They argue that exclusivity is not enough, nor
even necessary, to outline property. it's argued that secrets are property as a
result of they are not transferable by the actions of the trade secret owner as
a result of discoverers will build their own
use of the knowledge as a result of its secret and since the house owners
will decide however the knowledge is disposed of by publication or transfer.[6]
This theory, however, additionally fails to resonate. However is it that 2
individuals will acquire and use a similar secret? Why ought to acquisition and
use of an inspiration that's free for all to find benefit any protection?
Owning to the socialistic philosophy, India never felt
a need of any law regarding Trade secrets, as being socialist India is in
favour of distributing benefits to the society rather than an Individual.[7]
That might be one of the reasons because of which India beheaded towards the
regime of compulsory licensing, in Bayer
v.Natco[8]
case. Presently the common law governs the Trade
secret in India.[9]
The common law remedies with respect to Trade
secrets have been derived from the law of Torts and contract.
Indian courts relies on various judgements of common law, when it comes to
trade secrets like from the Saltman
Engineering case[10]
India follows the principle that in India, parties must rely on contracts to
protect the trade secrets. As maintenance of secrecy, according to the
circumstances in any given case, either rests on the principles of equity, that
is to say the application by the court of the need for conscientiousness in the
course of conduct, or by the common law action for breach of confidence, which
is in effect a breach of contract.[11]
Sec. 27[12]
of the Indian Contract Act, 1872 offers a little protection regarding Trade
secrets. It allows protection of confidential information by allowing a
perpetual monopoly in the form of Non-compete
and Non-disclosure agreements contracts.
This is an exception where restraint of trade is allowed in this manner. High
court in John Richard Brady's case [13]held
that if restraint is for trade secret then it is a valid restraint.
Other protection
has been granted by incorporating some disclosure norms in the law of contract
and also by treating IPR as property right. The Supreme Court in Niranjan Shankar Golikari v. Century Spg.
& Mfg. Co., Ltd[14] A
foreign producer collaborated with a company manufacturing tyre cord yarn on
the condition that the company would maintain secrecy of all technical
information and that it obtain corresponding secrecy arrangements from its
employees. The Defendant was appointed for a period of five years on the
condition that during this period he shall not serve anywhere else even if he
left the service earlier. The agreement was held to be valid. In the present
case, the restrictive covenant was restrictive with regard to time and nature
and location of employment. It was not to prevent competition.
With growth in
Business, the trade protection has become immense. Though there is no enactment
in India that affords protection to trade secret, the following tools are in
popular domain when it comes to trade secret:
i)
Non-disclosure Agreements:
Non-disclosure
agreement and the finest company policy for the employees to protect
confidential information and trade secrets are suggested, which acts as a
contractual remedy. Such agreements should define "confidential
information" and the exceptions to confidentiality. clauses such as negating a grant of an implied license, restrictions on disclosure, use and copy;
restriction on use of confidential information upon termination of the
employment, return of information upon termination and right to withhold salary
and emoluments till such return.[15]
Non-compete
clauses, which depending on their application in the Indian context, to be read
with the confidentiality clauses would accord organizations, add on gear protection
as far as confidentiality is concerned. Clear concept and purpose should be
defined, It is also to be ensured that employees do not compete unfairly to
restrict secretive information while in employment. However, non-compete
provisions has to be reasonable, as a tough non-compete agreement might be held
as unenforceable by courts. For ensuring the protection of the rights of third
party, the non-disclosure/employment agreement should clearly impose a duty on
everyone working to not to interrupt into the organization's data or
intellectual property, any confidential information of a third party. Employees
should be required to indemnify the organization in case of violation of this
clause. If the organization has not executed such agreements at the time of
employment, subsequently executed agreements should expressly cover the
confidential information obtained by the employee from the date of his
employment.
ii) Internal Processes:
a) Secret Policy
- Secret Policy could be a boon for businesses that heavily consider their
trade secrets. A basic step to develop such a policy is to spot and prioritise
the business secrets supported their worth and sensitivity. Staff should learn
concerning the policy associated consequences of its breach before they comply by
the policy and sign an acknowledgement thereto result.
b) Security
Systems – Employees should be educated to spot information that is secretive,
to change them to form associate help call. They must have a transparent
understanding of their responsibilities to guard confidential matter associated
and treat this as an on-going method that's integral to their work. Information
that is confidential ought to be clearly indicated per se altogether
communications. Applicable security procedures should be established and
followed by the corporate and access to specific sensitive areas of work
restricted or restricted to bound senior staff solely. Third-party interaction
and disclosures ought to be channelled solely through such as personnel. Access
to trade secrets and confidential information may also be restricted to only
select personnel who have to undergo proper security checks. In case of an
electronic environment, the businesses should use adequate software programs,
virus scans, firewalls and other security and authentication technologies to
safeguard their trade secrets.
c) Adequate
Documentation – it is necessary for businesses to stay a track of the secrets
that square measure developed and have enough records to point out that the
trade secret was developed by them and belongs to them. These records would be
of evidentiary worth just in case of a dispute. It might even be helpful for
such businesses to conduct a secret audit at regular intervals and to stay up
to now with any changes.
iii) An Exit-Interview:
During
such associate degree interview, associate degree worker ought to be reminded
of his obligations with relevance the company's lead and trade secrets and may
be asked to sign a document reaffirming his obligations. If associate degree
contract was signed, the document to be signed upon termination ought to be
hooked up. a duplicate of the signed exit-interview type, as well as the use
agreement, should incline to the worker. Such associate degree interview not
solely is a meaningful reminder however also can be valuable proof of
employee's data of such obligations. Success of suits for defence of lead and
trade secrets depends upon production of satisfactory proof to prove
confidentiality of the knowledge, act of speech act and also the damages caused
thereby, still because the reasonability of such restriction.
NEED
FOR THE LEGISLATION IN INDIA
Trade secret
protection is fundamental to encourage innovative steps, foreign investment and
for promoting healthy competition. In the Burlington
Home Shopping Pvt. Ltd. v. Rajnish Chibber[16]
it was observed by the Court that Trade secret law protects a wide array of
business data, Customer lists and other compilations of business data may be
copyrightable as fact works. If there will be enough safeguards mechanism than
due to this there will be more transparency in commercial transactions and this
will definitely increase foreign investment and trade. Due to effective regime
or proper mechanism there will be no need to patent an invention, it can be protected
through the laws of Trade Secrets therefore burden of patent litigation will be
less. Further, as a result of effective regime there will be no violation of
Fundamental right to privacy.[17]
A Sui Generis
System as provided under Article 39 of the Trade-related aspects of Intellectual
Property Rights (TRIPS) and Article 10 bis of the Paris Convention is required
to tackle the problem of unfair competition.[18] As
a member of TRIPS, It is the duty of India to prepare proper legislation and
comprehensive rules and regulations to eradicate the animosity with respect to Trade
Secrets protection. Further the provisions provided under Uniform Trade Secret Act and Economic
Espionage Act of 1996 in US must be followed in India also,[19]
therefore legislation is the need of the hour which provides civil as well as
criminal liabilities into practice. Effective and stringent steps should be
taken while keeping in mind the Innovation Bill of 2008 to provide a comprehensive
legislation which would deal with the issues of defining liabilities of
infringers, both in civil and criminal matters.
Although
realizing the need of legislation for the protection of trade secrets, the
Indian legislature came up with a bill named as "The Personal Data Protection
Bill" which was introduced in Rajya Sabha on 8th December, 2006, but
unfortunately the bill has not been passed till now and is pending for approval
of the Indian Parliament before it can become an Act. For the Trade secret
protection again an attempt was made in India by passing the National
Innovation Act, 2008. Chapter VI of the Act talks about Confidentiality and
Confidential Information and provides remedies. But this draft again could not
become a reality. The wheels of India's entrepreneurial activity are just
beginning to turn. A Sui Generis System for protection of trade secrets as
provided under Article 39 of TRIPs Agreement and Article 10 bis of the Paris
Convention is the need of the hour and by encoding substantive provisions in
relation to protection of trade secrets, will prove vital in order to create an
effective trade secrets regime in India.[20]
CONCLUSION
It is very
evident that the Trade secrets are mostly ignored in India, unlike other fields
of Intellectual property rights. But if India’s is to compete in Global arena,
it has to open up for laws relating to it. As businesses are growing and going
global, there arises a need of effective laws relating to trade secret
protection. Presently in absence of laws, business is using the tools mentioned
in the paper for dealing with their requirements of protecting the trade
secrets. A strong statute would protect Indian Industries, as with increase in
competition, confidential information and trade secrets are like perquisites
for the survival of the Business these days.
[1] KV Swaminathan, Trade secrets in AK
KOUL and VK AHUJA (eds), The law of
Intellectual property Rights: In prospect and Retrospect, Delhi, 2001, P.272.
Cited in Rishab Junej, validity of
contract of Fidelity vis-Ã -vis Trade secrets (India & U.S.A) at
Manuatra intellectual property reports (october 2013).
[2] Sristhi
saxena, The common law protection of
trade, secrets and the need for a statute, Manupatra, accessed at
http://www.manupatrafast.in/Articles/PopOpenArticle.aspx?ID=37d6a8c9-4455-4f46-b389-decac96d823.
[3] Art 39
TRIPS, 1711(1) NAFTA.
[4]
Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984).
[5] Cadence
Design Sys., Inc. v. Avant Corp., 57 P. 3d 647, 650 (Cal. 2002).
[6] ADAM
MOSSOFF, "What Is Property? Putting
the Pieces Back Together", ARIZ. L. REV., 2003, at 371, 405-06.
[7]
Cattle Remedies and Anr. v. Licensing Authority/Director of Ayurvedic and Unani
Services 2007(2)AWC1093.
[8]
Bayer Corporation v. Natco Pharma Ltd., Order No. 45/2013 (Intellectual
Property Appellate
Board, Chennai), available
at http://www.ipab.tn.nic.in/045-2013.htm
[9] Supra1.
[10]
Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd., 1948 (65) R.P.C.
203.
[11]
Patrick Hearn, The Business of Industrial
Licensing: A Practical Guide to Patents, Know-How, Trade Marks, and
Industrial Design 112 (1986), quoted in John Richard Brady and Others v.
Chemical Process Equipments P. Ltd. and Another, A.I.R. 1987 Delhi 372, see also
Tariq Ahmed, Legal Research analyst congress, Protection of Trade secrets India, accessed at law library of
congress at http://www.loc.gov/law/help/tradesecrets/india.php.
[12]
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. tc "27. 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 business of
which goodwill is sold.—One who sells the goodwill 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
goodwill 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. tc "Exception 1.—Saving of agreement not to carry on business of
which goodwill is sold.—One who sells the goodwill 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 goodwill
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.
[13] AIR1987
Delhi372, Gujarat Bottling Company Limited' AIR1995 SC 2372.
[14] [1967]
2 SCR 397.
[15] Supra 2.
[16] 1995 IV
AD (Delhi) 732.
[17] Ravindra chhaba and shyam sundar
chhaba, Inadequacy of the Trade secret’s protection Laws in India and Legal
Regime Existing in U.S, Manupatra,
http://www.manupatra.com/roundup/369/Articles/Inadequacy.pdf.
[18] Ibid.
[19] Supra 17.
[20] Supra 2.
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