Open Access Research Article
THE SECRET BEHIND TRADE SECRETS
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Article Details
THE
SECRET BEHIND TRADE SECRETS
AUTHORED BY - MRUNMAI
PRADEEP PIMPARKAR
IV BA LLB ILS COLLEGE, PUNE
“The secret of the
business is to know something that nobody knows.” - Aristotle Onassis
Introduction/ To understand trade secrets from
the IP perspective-
Intellectual property is
all about the creativity of humans. These rights are observed as a reward for
creative and skillful work in executing ideas. The IPR impact has spread to
every aspect of life. In modern times, there is a need to protect these intellectual
properties. Human rights are considered as positive rights, but in the case of
IPRs, it doesn’t allow one to use every right but allows the owner to stop
others from using the Intellectual property. In such a case IP is considered a
negative right.
Concept of
Trade Secrets
Famous English jurist, John Lock
propounded ‘Labor theory’ stating: “Human labour deserves a reward in the form
of proprietary rights”.[1] In
free-market economies, the intangibility of property rights is becoming
increasingly valuable in the retention of market shares.
A trade secret is
considered a unique feature that fits into the broader framework of contract,
competition, innovation as well as intellectual property rights.[2] IP laws are generally
territorial in character while trade secret protection differs according to the
jurisdiction of different countries and their specific laws available. A trade
secret is often ‘any formula, pattern, device or compilation of information
which is used in one's business, and which gives human opportunity to obtain an
advantage over competitors.[3] The extent of
recognition of trade secrets across the world can be gauged by the fact that a
majority of working technologies worldwide are protected as trade secrets
rather than by patents. Trade secrets as intellectual property have the potential
to translate intangible value into economic growth.
1. Public has no
availability of the information
2. By maintaining secrecy
and confidentiality it confers economic benefits.
3. Subjected to
reasonable efforts to maintain its secrecy.
The main policy behind
trade secret protection is to give value to the owner and restrict others from
misappropriating and using his trade secrets. The TRIPS agreement actually categorized
trade secrets under undisclosed information, but nothing is indicated on
mechanism ad modalities. The policy behind trade secret protection is to encourage
research and development by providing protection to the originator of business
information and maintaining proper standards of business ethics.[5]
Recognition
of Trade Secrets
At the international
level, the North American Free Trade Agreement (NAFTA) and the Agreement on
Trade-Related Aspects of Intellectual Property (TRIPS) ratified provisions
related to trade secrets during the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT).[6] India is a signatory to
the Paris convention.[7] Article 1(2) of the
agreement on TRIPS states that IP shall include protection of undisclosed
information.[8] Article 39 of TRIPS
states that member nations should assure that natural and legal persons can
stop the leakage of such information from their control which would be used by
other persons without their consent in a manner contrary to honest commercial
practice.[9] The TRIPS agreement originally
entered into 1995, which established an international standard for WTO member
nations to protect undisclosed information.[10] Although trade secrets are
not directly pointed out here, but this undisclosed or confidential info
includes trade secrets. Section 7 speaks of the protection of undisclosed
information. many countries have specific legislations to protect trade
secrets. In order to boost research and innovation.[11] Article 10(b) of the
Paris Convention & Article 39(2) and 39(3) of the TRIPS Agreement, 1995 give
the global standard for trade secret laws. however, in India, there is no such
unique legislation.[12]
Trade secrets are seen as a property
right under property theory, which includes subjective as well as objective
approaches subjects to protect rights in its uses and disclosures. Under the
common law, liability for trade secrets misappropriation needs acquisition by
another, by improper conduct or unfair means and the use or disclosure by such
person to the detriment of the trade owner.[13]
Growing Significance
of Trade Secrets
A trade secret is an aspect that has
to be kept in confidence with other people. It is impossible to run a business
or trade without sharing the secret with associated people, and such sharing is
done in confidence. A trade secret has monopoly value as well as use-value.[14] It was held that trade secrets
disclosure in the form of breach of confidence is not allowed.[15] It is deemed that there exists an
implied contract in the case of employment. Breach of
confidence in such kind of cases may amount to the disclosure of confidential
information or trade secrets and will be considered a tort of breach of
confidence.[16] The law of breach of confidence is focused mainly on use or disclosure,
not on acquiring information.[17] Lord Green has shown that the
primary test for imposing an obligation for confidence breach.[18] Suppose it proved that defended used
the confidential information directly or indirectly obtained from the plaintiff
without the plaintiff's consent, express or implied. In that case, he will be
considered to have caused an infringement of the plaintiff's rights.
Trade secrets are considered to be a
subset of confidential information.[19] While some of the courts in India
have used both terms i.e., trade secrets and confidential information as
synonyms, other courts have clearly distinguished the two and held that the
knowledge of the employer which is known to others cannot be called as trade
secrets.[20] Indian courts and tribunals have
made it clear that in the absence of legislation, they protect trade secrets
through the common law. the main remedies in the case of infringement can be
injunction or damages. IPR laws in India are territorial in nature and the
protection given may vary from one region to other.[21] The most essential part of the trade
secrets is that their secrecy as opposed to the novelty.[22]
Legal
Position in India
There is no particular
definition of trade secrets under Indian law, it’s hard to define, classify and
ascertain. But the Court defined trade secrets as ‘… formulae, technical
know-how or a peculiar mode or method of business adopted by an employer which
is unknown to others.’[23] the court held that
consumer data is neither trade secrets nor properties or any other information
that has been kept as a secret. There is a demand for a more codified and
comprehensive mechanism of protection for trade secrets. Ideas that have to be protected
under trade law, if not protected, will become detrimental to the traders.
Also, if there is no law, there are less chances of conviction for trade
secrets misappropriation, as for an inventor there is no protection is under
the trade secret, another option is patent protection which may not help in the
appropriate long time run.
The Delhi High Court ruled that the
concept developed and evolved by the plaintiff is the result of the work done
by the plaintiff upon material which may be available for the use of anybody,
but what makes it confidential is the fact that the plaintiff has used his
brain and thus produced a result in the shape of a concept.[24] These principles have been approved
by the Supreme Court again in Niranjan Shanker Golikari v Century Spinning
& Manufacturing Co Ltd.[25] It was recognized by the courts that
trade secret is considered as some protected and confidential information that
the employees have acquired in the course of their employment and couldn't
reach others in the interest of the employer. But day to day affairs of the
employer, which are commonly known to others, cannot be called trade secrets.[26]
The Indian Government took a step
forward by releasing a draft National Innovation (NI) Act, 2008 to boost
research and innovation.[27] The draft Act proposed by the
Department of Science and Technology, Government of India has a three-pronged
approach.[28]
Firstly, it undertakes to encourage
innovation through an innovation support system facilitated by public, private
or public-private partnerships.
Secondly, to evolve a National Integrated
Science and Technology Plan.
Thirdly, codifying and consolidating a law of
confidentiality in aid of protecting confidential information, trade secret and
innovation.[29]
In India a person is bound by the
contract to not disclose the information or secret that is revealed to others
in secret. Section 27 of the Indian contract act points out, all agreements
that restraint in trade is void.[30] The Law Commission of India in 1958
recommended the addition of the following in the main section: ‘… except in
so far as the restraint is reasonable having regard to the interest of the
parties to the agreements and of the public.’ By implication, this
recommendation allows a space for reasonable restraint on the right to carry on
trade and promotion of trade secret law in India. It is pertinent to note that
the Law Commission was beyond time in its recommendation in regard to trade
secret protection.[31]
The courts, in various cases, held
that in order to get the protection of the law, the owner must prove that he
tried to maintain the secrecy, reasonably; it is called a "reasonable
security measure" under common law. In the case of Junkunc v SJ
advanced technology & Mfg. Corp the process involved was considered a
trade secret. [32] The plaintiff, in this case, claimed
that their process of manufacturing the fuel nozzle seal which is used in the
jet engine was known to only 5 people. The plaintiff has spent a huge amount
during the past years on it. [33] The court on this case held that if
there are sufficient measures that have been taken to protect the secrecy thus
it will amount to trade secrets and is protected, injunction was granted in
this case. [34]
Besides, disclosure of trade secrets
is not actionable in all cases i.e., trade secrets owners have recourse only
against misappropriation and there are a number of defences to the disclosure
of trade secrets as follows:[35]
General knowledge: In the case of Mason v Provident Clothing
and Supply Co. Ltd, it was held that the common law as a matter of public
policy allows a person to utilize general skill and knowledge in his next
employment.[36] Suppose the defendant proves that
the information possessed by him is of general knowledge, and such information
is not derived from his previous employer or not derived by unfair means. In
that case, the defendant cannot be restrained from using such information.
Parallel development: If the defendant can prove that he
develops the information, i.e., he has made a parallel development of the
process, then, he can absolve from liability. The court held that the trade
secrets owner does not hold monopoly over the data that comprises the trade
secrets.[37] If other companies want to know they
have the right to discover the element through their own research and hard
work.[38]
Reverse engineering: In reverse engineering, the
"trade secrets" are discovered by analysis of the product.[39] Law does not prohibit the
examination of the product by honest means. But this exception is not absolute;
the defendant has to prove that the process incurred in reverse engineering is
fair. In the case of Barr-Mullin, Inc v. Browning the question was
whether a software program can be considered as a subject of trade secrets. [40] The North Carolina court of appeals
held that the software was a protectable trade secret. [41] In this case, the source code of the
software wasn’t available in the public domain only the object code was
available. [42] The defendant argued that the object
code is already available in the public domain and it has been reverse
engineered by them.[43] The Court held that the proper focus
of enquiry is not whether an alleged trade secret can be deduced by reverse
engineering but rather, whether improper means are required to access it.[44] If the information has already
become a part of public knowledge, no action may lie.[45]
Innocent acquisition of information:
If a person receives information without knowing it to be confidential, then
such acquisition of knowledge is an innocent one and does not amount to
unlawful act. The court has held that no liability for the confidential
information should attach a bonafide purchase for the information value without
noticing the confidentiality.[46]
Suggestions
Trade secret protection effectually
fills the gap between copyright and patent protection, which are two
traditional pillars of intellectual property for the main purpose of
appropriating the results of investments in innovation. It’s also to be noted
that if there is an effective law on trade secrets, it will lower the cost incurred
in secrecy and business protection. It's also essential to protect the
recruiters' interests from the employees so that the business information can
be protected effectively under the trade secrets law. Trade secret protection
in India is currently linked with the intellectual property regime not only for
the existing knowledge protection but also for many other factors like boosting
invention, innovation, developing and improving original ideas, that would
remain incomplete without any effective, adequate or fair protection of the
trade secrets.
TRIPS agreement provides for
provisions for the protection of trade secrets, but India did not have specific
legislation or enactment for IPR protection. This means in India, trade secret
hasn't got any recognition as the other IP protection measures. The current
impacting laws, which are in common-law form as well as the statutory form, are
very limited, non-comprehensive and non-positive in nature as well as scope. The
common law itself lacks the foreseeability of the problems; it cannot solve
unseen future problems. Therefore, trade secret protection under the system of
common law suffers from an inherent limitation of the legal system has been
existing as follows:
1. No standard for maintaining the
degree of confidentiality
2. Although there is springboard
doctrine, there is a limitation to the springboard principle a sits not
permanent.
3. The common law system is
considered ineffective against third-party misappropriation.
4. Adequate remedy is not available
in all breach of confidential information cases.
Moreover, from the overall research,
it is found that the existing positions for the protection of trade secrets, is
mostly negative. To expand the horizon of the national economy, there needs to
be comprehensive protection for trade secrets. Objective 3.8.4 of national IPR
policy shows that the government is thinking about future policy but is
reluctant in the codification of the trade secrets laws in India as the policy
lacks any intention of framing any legislation. Certain loopholes have to be
removed from the draft national innovation act 2008. Under section 11, the
public interest is too broad, which needs to be defined. Trade secrets by
paying loyalty under section 12(4) are also unjust. Section 13(3), which
provides for a precondition for defending the suit, actually opposes the basic
natural justice rules, which give for the right to a fair hearing. The act fails
to give any penalty provisions in the case of confidential information
misappropriation. No standard format is drafted w.r.t non-disclosure agreement
which in turn creates ambiguity. Also, there should be some exclusion clause. In
the 2016 national intellectual property rights policy, there is no specific
recommendation and any guidelines for the enactment of the statute for trade
secrets protection. The TRIPS Agreement has mandated its Member States to amend
their laws or develop new legislations in order to fulfill obligations under
the Agreement. It is high time that the Parliament introduces supplementary
provisions in Competition Act incorporating a separate chapter on use, misappropriation
and regulation of confidential information. The basic corporate enactment of
Companies Act, 1956 should also include provisions on confidential information
and trade secrets.
The Federation of Indian Chambers of Commerce
and industry [FICCI] has suggested that, the provisions must accordingly be made
to statutory protection, to trade secrets so there would be no lacuna relating
to their protection under Indian law.
Scope of the STANDARD MINIMUM
CRITERIA, which has been set up in the TRIPS with regard to the trade secrets,
has been incorporated to the legal frameworks of the WTO-
1. Non-disclosure agreement (making a legislative provision for
the non-disclosure agreement)- An NDA is considered as a contract between two
persons, that one knows the information and another to whom the information is
going to pass on. Confidentiality is protected through the non-disclosure
agreement.[47] If the receiver of the information
has unlawfully disclosed it to another person, the opposite party has certain
available rights which include right to sue for damages and compensation, etc. enforcing
the rights can also involve filing a lawsuit to obtain injunctive relief.
2. Defining trade secrets of each
employer- While
protecting the interest of the trade secret’s owner, it's also pertinent to
know what concludes to the trade secrets. The clause which enumerates the trade
secrets by the employer should not be compulsory but optional.
3. Making the provision for the
registration of the trade secrets- There should also be a provision for the trade secrets'
registration by the businesses under the proposed legislation. The drafted one be
in accordance with the process, that's followed in the trademark. It will put
the traders in a bigger and stronger position as they've got the registered
trade secrets. If any misappropriation has occurred, it will become very easier
for the traders to get protection. The registration should contain the general
description but not the information itself, unlike in the patent registration.
4. Making the provision of the criminal
penalty for the misuse of trade secrets: It also observed that countries which are protecting the
criminal law are more effective. If there are criminal sanctions, there will be
more fear of misappropriation. Although Section
405-409, section 418 under IPC 1860[48] and Section 43 & 66 of the IT act 2000[49] provide some remedy, these provisions aren't exclusively made for trade secrets
protection, and such provisions can't be effectively used in the case of
misappropriation. The Indian law dealing the trade secrets should include penal
provisions in the form of civil injunction, damages for misappropriation, imprisonment,
and administrative provisions.
5. Validating reasonable non-competition
agreement: Requirement
of a non-competition agreement with the non-disclosure agreement may be able to
control those persons’ right who sign it to compete with him. A company may
restrain an employee from carrying out similar work in another establishment
during employment. Although an employer is not entitled to restrain his servant
after the termination of employment from offering competition, he is entitled
to reasonable protection against the exploitation of trade secrets.[50]
6. Insertion of the exclusion clause in
the provision of the trade secrets protection: There should be some insertion of the exclusion
clause in the enacted provision, which then enumerates the things that have to
be exempted from the category of trade secrets even if it's qualified to be
trade secrets. Such a provision is needed for the protection of the interest of
the general public as a whole. Also, there is no compromise on health standards
and national interest only for the sake of the investor's protection. The
following things can be added to the exemption clause-
a. If the disclosure of the information
is needed for the protection of a larger public.
b. If the disclosure
of the information is beneficial for the public interest. Except when the
owner of the information can prove that personal interest outweighs public
interest, then the information is protectable as confidential information.[51]
d. If the employee acquires any new
skill during the course of the employment, then such skills can't be considered
as the employer's trade secrets.
e. If the information
is used or disclosed in accordance with a statutory obligation or power.
Information disclosed pursuant to a court order for the purpose of legal
proceedings. However, the disclosure must be to someone who has a ‘proper
interest’ in receiving the information in question.[52]
g. If the level has any health hazard
(actual or potential)
h. If any of the information has been
developed by way of any unfair or illegal means by the employer, but the
employee concerned has legalized the method of acquiring and then started a
separate business by commercially exploiting that knowledge, then such information
cannot be considered as the employer's trade secrets.
7. Changing draft of Section 12(4) of
the proposed National Innovation Act: This section is also disputed, which says that an
injunction restricting the uses of confidential information may then stipulate
the conditions for the payment upon the future use of a royalty which is
reasonable for not longer than the period of the time which could have been
prohibited.
8. Changing the draft Section 13(3) of
the proposed National Innovation Act: This provision has to be changed because this clause is
unjustified in cases having original jurisdiction. The condition here
contradicts the natural justice rule, which provides the right to a fair
hearing.
Conclusion
Effective IPRs of a country
accelerate its economic growth better, including trade secrets within it. It
also stimulates the FDI. Adequate IPR protection, including trade secrets, is
one ‘sine qua non’ of the open markets in a liberalized economy when compared
to a constricted and conservative economy. It increases competitiveness in the
economy. Effective trade secret protection is an important instrument in the promotion
of international trade in the WTO regime.
[1] Peter S. Menell, 'Intellectual Property:
General Theories', Encyclopedia of Law & Economics: Volume II,
ed. by Boudewijn Bouckaert and Gerrit de Geest (Cheltenham: Edward Elgar,
2000), pp. 129-88.
[2] Robert G Bone, ‘A New Look at
Trade Secret Law: Doctrine in Search of Justification’, Trade Secret Law,
California Law Review, Vol. 86:24
[3] Lin, Thomas C.W. (8 October 2013),
"Executive
Trade Secrets", Notre Dame Law Review, 87(3): 911. SSRN
2047462
[Retrieved 20 February 2020].
[6] Chapter 2: America’s Trade
Agreements, Trade policy in Crisis, https://www.wilsoncenter.org/chapter-2-americas-trade-agreements
[7] “India Accedes to the Paris
Convention and the Patent Cooperation Treaty (PCT).” India Accedes to the Paris
Convention and the Patent Cooperation Treaty (PCT),
www.wipo.int/pressroom/en/prdocs/1998/wipo_upd_1998_32.html#:~:text=On%20Monday%2C%20September%207%2C%201998,Patent%20Cooperation%20Treaty%20(PCT).
[8] “WTO | Intellectual Property
(TRIPS) - Agreement Text - General Provisions.” WTO | Intellectual Property
(TRIPS) - Agreement Text - General Provisions,
www.wto.org/english/docs_e/legal_e/27-trips_03_e.htm.
[9] TRIPS:
Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15,
1994, Marrakesh Agreement Establishing
the World Trade Organization, Art. 39
[10] Overview: the TRIPS Agreement,
World Trade Organization,
https://www.wto.org/english/tratop_e/trips_e/intel2_e.htm#:~:text=The%20TRIPS%20Agreement%2C%20which%20came,multilateral%20agreement%20on%20intellectual%20property.
[11] Approaches to the Protection of
Trade Secrets, Enquiries into Intellectual Property's Economic Impact OECD
2015, pg 131
[12] Paris Convention for the
Protection Of Industrial Property (As Amended On September 28, 1979), Art
10(b), “WIPO Lex.” WIPO Lex, wipolex.wipo.int/en/text/288514.
[14] Oxford v. Moss, (1979) 68 Cri 482. See also Hammond, R.G.:
“Theft of Information”, 100 LQR 252 (1984)
[16] Cornish, W.R.: Intellectual Property (3rd
Edn., 1996) at paras 8.49-8.53. See also Breach of
Confidence, Law Commission of England and Wales, Consultation Paper No.
110 (Her Majesty’s Stationary Office, 1981), para 2.10.
[17] Attorney General v. Guardian Newspapers, (1988) 3 All ER 545; Protection of Confidential
Information without a Contract, Argus Partners, Protection
of Confidential Information under Common Law – Rule of Equity,
https://www.legal500.com/developments/thought-leadership/protection-of-confidential-information-without-a-contract/
[19] Trade Secrets (Enforcement, etc) Regulations, 2018, SI 2018/597; What are trade secrets, know-how and
confidential information?, Queensland Government, https://www.business.qld.gov.au/running-business/risk/ip/ip-kit/browse-ip-topics/trade-secrets/definitions
[20] Legal
Protection of Trade Secrets and Confidential Information, S.K. Verma, Journal
of the Indian Law Institute, Vol. 44, No. 3 (July-September
2002), pp. 336-353
[21] The Role of National and
International Intellectual Property Law and Policy in Reconceptualising the
Definition of Investment, IIC - International Review of Intellectual Property
and Competition Law, https://link.springer.com/article/10.1007/s40319-020-010097-
[22] Dionne v. Southeast Foam
Converting & Packaging, Inc., 240 Va. 297, 397 S.E.2d 110, 1990 Va. LEXIS
121, 17 U.S.P.Q.2D (BNA) 1565 (Va. September 21, 1990)
[27] Trade Secrets law and Innovation
Policy in India, Faizanur Rahman,
http://docs.manupatra.in/newsline/articles/Upload/E8134C85-E745-414C-91AA-3E05D6B95581.1-H__civil.pdf
[28] Draft 5th National Science,
Technology, and Innovation Policy for public consultation, Government of India,
Department of Science & Technology,
https://dst.gov.in/draft-5th-national-science-technology-and-innovation-policy-public-consultation
[29] Srivastava Kamakhya, ‘Indian
Innovation Act: Trade secrets and confidentiality’.
[30] Pollock and Mulla, Indian Contract
and Specific Relief Acts, Vol 1, 12th edn, edited Nilima Bhadbade
(Butterworths, New Delhi), 2004, pp. 818-822.
[31] The Law Commission of India, 13th
Report, Ministry of Law and Justice (1958), para 55.
[32] SJ Advanced Technology & Mfg.
Corp. v. Junkunc, 627 F. Supp. 572, 1986 U.S. Dist. LEXIS 29905, 1986-1 Trade
Cas. (CCH) P66,970 (N.D. Ill. January 29, 1986)
[35] Seetharaman R, Legal protection of
Trade Secret, 1 Supreme Court Cases (2004) 22.
[36] Mason v Provident Clothing and
Supply Co Ltd, [1913] AC 724, [1911-13] All ER Rep 400, 109 LT 449.
[37] K Stanghton, L.J. in Lansing Linde Ltd. v. Kerr [1991] 1 All ER
418 at 425, Art.
39 of the TRIPS Agreement uses "undisclosed information" in this
sense.
[38] Kewanee V. Bicron, 416 U.S. 470,
94 S. Ct. 1879, 40 L. Ed. 2d 315, 1974 U.S. LEXIS 134, 181 U.S.P.Q. (BNA) 673,
69 Ohio Op. 2d 235 (U.S. May 13, 1974).
[39] Trade Secrets, WIPO, Module 4, Pg 7, https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_4_learning_points.pdf
[47] Tractors and Farm Equipment Ltd.
v. Green Field Farm Equipments Pvt. Ltd., 2006 SCC OnLine Mad 1236.
Article Information
THE SECRET BEHIND TRADE SECRETS
Authors: MRUNMAI PRADEEP PIMPARKAR
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/10/06
- Issue 7
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International Journal for Legal Research and Analysis
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