A TRADE SECRETS PROTECTION: A CRITICAL
ANALYSIS
A Dissertation Report
Submitted by
NAINA AGRAWAL
In partial fulfilment for the award of degree
Of
B.A.LL.B (Hons)
IN
LAW
AT
AMITY LAW SCHOOL
AMITY UNIVERSITY RAJASTHAN
JAIPUR
Submitted By
Supervised By
Naina Agrawal
X SEM
2012-2017
A21511112032
Mr. N.N. Pandey
Faculty of Law
Amity Law School
March 2017
1
CERTIFICATE
This is to certify that the project entitled, “A TRADE SECRETS PROTECTION: A
CRITICAL ANALYSIS.” submitted by "Naina Agrawal" in partial fulfillment of the
requirements for the award of "BA LLB (H.)" at the "Amity Law School, Amity University
Rajasthan" is an authentic work carried out by her under my supervision and guidance.
To the best of my knowledge, the matter embodied in the project has not been submitted to
any other University / Institute for the award of any Degree or Diploma.
Date: __/03/2017
Mr. N.N. Pandey
Faculty
Amity Law School
2
ACKNOWLEDGEMENT
I thank the esteemed Head of Department of this institution Rear. Admiral H. Gupta for
inculcating the concept of preparing a „Dissertation Report‟ and allowing me to present my
view point in a liberal manner.
In addition to this may heartfelt gratitude to Mr. N.N. Pandey who also undertook the role of
supervisor, mentor, and guide for the successful preparation of this report. He not only
generated great confidence but, also encouraged me to champion my views at all stages. I
express my utmost affection to him for availability and patience in giving shape to this work.
The blessing, help and guidance given by him time to time shall carry me a long way in the
journey of life on which I am about to embark.
I am obliged to friends and fellow colleagues for the valuable information provided by them
in their respective fields. I am grateful for their cooperation during the period of my
assignment.
Lastly, but in no way the least I would not have been able to complete this study without the
untiring support from my family and friends.
3
TABLE OF CONTENTS
List of Cases
Literature Review
Objective of Study
Statement of Problem
Hypothesis
Research Methodology
Ch.1 Introduction
Ch.2 Subject Matter and Misappropriation of Trade Secrets
2.1 Subject Matter of Trade Secrets
2.2 Theories Associated with Trade Secrets
(i) Theory of Contractual Obligation
(ii) Doctrine of Unjust Enrichment/ Misappropriation
(iii) Doctrine of Fiduciary Relationship
2.3 Meaning Of Misappropriation
2.4 Theft of Trade Secret: Misappropriation
2.5 Liability for Misappropriation of Trade Secrets
(i) Absence of Written Agreement
(ii) Misappropriation by Third Parties
2.6 Defences to Trade Secret Misappropriation
(i) Lack of Secrecy
(ii) Independent Creation
(iii) Privilege
(iv) Unclean hands or laches
2.7 Remedies for Misappropriation
(i) Injunctive Relief
4
(ii) Money Damages
2.8 Remedies available in India
Ch.3 Trade Secrets and International Scenario
3.1 International Treaties for the Protection of Trade Secret
3.2 Paris Convention (1967)
3.3 GATT
3.4 TRIPS Agreement
(i) Protection Under Unfair Competition
(ii) Conditions for Protection
(iii) Test Data of Pharmaceutical and Agrochemical Products
3.5 NAFTA
3.6 UTSA
Ch. 4 Case Laws on Trade Secrets
4.1 Litigation in Trade Secrets
4.2 Court Proceedings Pertaining to Trade Secrets in:
4.2.1 United States
4.2.2 United Kingdom
4.2.3 India
(i) Protection Under Copyright Law
(ii) Employment Agreement and Trade Secret
(iii) Protection under Contract Act, 1872
4.3 Ambiguity in Foreign Case Laws- Can we rely on it?
Ch. 5 Protection of Trade Secrets in India
5.1 Trade Secrets Law in Present Scenario
5
(i) India‟s Obligation Under TRIPS
(ii) No Specific Law for Trade Secrets in India
5.2 Other Legislations Indirectly Dealing with Trade Secrets
(i) Trade Secret Protection preferred over Patents
(ii) Indian Copyright Act, 1957
(iii)Right to Information Act, 2005
(iv) Criminal Remedies
(v) Electronic Evidence
(vi) Indian Contract Act, 1872
(vii) Competition Act, 2002
5.3 Reasons Why Trade Secrets are Increasingly Important?
(i) Digital Technology
(ii) A Changing Work Environment
(iii) The Rising value of IP of which Trade Secrets are a part
(iv) Boom for the Developing World
5.4 Need for a Sui Generis System as a tool to Protect Trade Secrets in India
5.5 Trade Secrets and Innovation Laws
Ch. 6 Conclusion and Suggestions
6.1 Conclusion
6.2 Suggestions
Bibliography
6
LIST OF CASES
1) Peabody v. Norfolk 98 Mass 542 (1868)
2) American Express Bank Ltd v Ms. Priya Puri (2006) 111 ILJ 540 (Del).
3) Burlington Home Shopping Pvt. Ltd v. Rajnish Chibber 1995 PTC (15) 278.
4) Smith v. Snap on Tools Corporation 833 F2d 578 (5th Cir.)
5) Trandes Corporation v. Guy F. Atkinson 996 F2d 655 (4th circuit 1993)
6) Saltman v. Camphell [1963] 3 All ER 413
7) Fraser v. Thames Television Ltd. [1983] 2 All ER 101
8) Industrial Furances v. Reaues [1970] RPC 605
9) Just Med Inc. v. Byce 6-- & 3d 1118 (9th circuit 2010)
10) Pepsico Inc. v. William Redmond 54 F3d
11) Saltman Engerring Co. Ltd & Ors v. Compbell engineering co. ltd. 1963 (3) ALL England.
12) Coco v. AN Clark engineers ltd. 1969 FSR 415
13) John Richard Brady v. Chemical process equipment Pvt. ltd. AIR 1987 Del 372.
14) Daljeet Titus v. M Alfred A. Adebace 130 (2006) DLT 330
15) Maegacet Duches of Arufell v. Duke of Argull [1965] All ER 611
16) Puneet Industries Controls Pvt. Ltd. V. Classic Electronic 1997 Sup ARBLR 195 Delhi (1997)
17) Tractors & Farm Equipment Ltd v. Green Field farm Equipment Pvt. Ltd. AIR 2005 Mad 19.
7
18) Pepsi Foods Ltd v. Bharat Coco-Coca Holding Pvt. Ltd. 81 (1999) DLT 122
19) Greig v. Insole 1978 3ALL ER 449
20) Torquay Hotel v. Cousins [1969] 1 All ER 522
21) Star India Pvt Ltd v. Laxmiraj Seethram Nayak 2003 (3) Born CR 563.
22) Wipro Ltd v. Beekman Loultee International SA 2006 (2) CTLJ 57 (Del).
23) Taprogge Gesellschaff MBH v. IAEC India Ltd AIR 1988 Bom 157.
24) Ambiance India Pvt. Ltd v. Shri Naveen Jain 122 (2005) DLT 421.
25) Krishna Murgai v. Superintendence Co. of India AIR 1979 Del 232
26) Niranjan Shankar Golikar v. The Centurary Spinning & Mfg. Co. Ltd. AIR 1961 SC 1098,
27) WH Milsted & Son Ltd. 1927,
28) Sandhya Organics Chemicals Pvt. Ltd. v. United Phos Phonoes Ltd. AIR 1997 Guj. 177.
29) M/s Socidade de Fomento Industrial Ltd. v. Ramindarnath Subraya kamat AIR 1999 Bom 150
30) Shree Gopal Paper Mills Ltd v. Sureder k. Gamshdas Malhortra AIR 1962 Cal 161
31) Pramod Son of Laxmikant Sisamkar and Uday Narayanroo Kirpekar v. Garware Plastics and
polyster ltd. 1968 (3) Bom CR 411
32) Control Print (India) Limited v. Sanjay Sribastab 2006 CALLT 145 (HC)
33) Anil Gupta & Anr v. Mr. Kunal Das Gupta & others 97 (2002) DLT 257
34) Zee films ltd & Shot & Anr v. sundial Communication pvt. Ltd & ors. 2003 (5) Bom CR 404
8
35) Arvind Kejriwal v. Central Public Information officer and others LPA 2010 Del
36) Niranjan Shankar Golikari v. Century Spg & Mfg Co. Ltd, AIR 1967 SC 1098
37) Gopal Paper Mills v. Sureender K. Ganeshdas Malhotra AIR 1962 Cal 161
38) Bharamputra Tea Co. v. E Scarth (188) 11 Cal 545
9
LITERATURE REVIEW
As force of globalization and liberalization sweeps across the globe, new forms of properties
have evolved. Earlier man used to reap benefits of his physical labour, but as the society
advanced the intellectual input gave more importance, one of such intellectual property right
is, Trademark.
A Trademark is a visual symbol in the form of a word, a device or a label applied to
articles of commerce with a view to indicate to the purchasing public that they are the goods
manufactured or otherwise dealt in by a particular person as distinguished from similar goods
manufactured or dealt in by other persons.
Broadly, Trademark Laws whether statutory or common law is based on three concepts
distinctiveness, deceptive or similarity of marks and similarity of goods.
In today's Global Mark, where numerous no. of traders are competing against each other
claiming superiority over one another, regarding quality of goods & services it becomes
imperative to safeguard the interest of traders & to ensure consumer that a company with a
registered trademark cams a definite quality and is an authenticated.
Thus trademark are identifiers that enable buyers to distinguish the product of one producer
from another and this way serve as a marketing client of a company with the consumer.
Trademark plays important role not only in domestic market but also in international trade &
are becoming increasingly important in this competitive world. Growing industrialization in
developing countries has allowed competing manufacturers to offer a variety of goods in the
same category to consumers, consumers can thus choose between various goods and can
distinguish between products of different manufacturers. But sometimes deception and
similarity is so close that it is hard to differentiate between a quality product of a reputed
manufacturer and a duplicate and cheap substitute of the same good. Here lies the genesis of
trademark law to protect interest of manufactures as well as consumer of goods and services.
10
OBJECTIVE OF STUDY
This Dissertation aims at exploring importance of various principle of 'expansion of Rights' in
Trade Mark Law. Also a different kind of exhaustion and their applicability in global market
to balance competition policy and parallel importation is also discussed.
It also aims at explaining various aspects of Trademark Law in trade secrets, emphasizing on
importance & Applications of trademark law in global market. Also various case studies have
been put in between which marked the role of trade secrets in competitive global market.
11
STATEMENT OF PROBLEM
Due to globalization and the development based on new world order, it has become crucial to
restructure the legal grounds and means of protection of trademarks as well as to establish a
balanced system of free movement of goods worldwide. One of the principles used in
balancing is the "trade secret protection" this Doctrine is based on the concept protecting the
different trade secret which allow consumer to differ the goods from the others.
12
HYPOTHESIS
Adoption of TRIPS agreement and consequent scrupulous obedience to the treaty by enacting
Trademarks act 1999 has enlarged the umbrella of protection accorded to trademarks.
However, experience has shown that it is not devoid of challenges.
The passing-off and infringement of trademarks are global phenomenon and most domestic
jurisdictions have been experiencing the consequences thereof. The passing-off and
infringement of trademarks result not only in causing loss to the affected trade mark
owner/user but they also result in causing immeasurable loss to the consumers.
The laws relating to protection of trademarks in India have been proved to be inadequate in
effectively preventing the large scale theft of Trademarks by unscrupulous elements. The
enforcement of rights relating to well-known trademarks has implications on the domestic
market and some multinational companies are indulging in litigation in India to harass the
domestic companies under the pretext of infringement of well-known trademarks.
13
RESEARCH METHODLOGY
The methodology followed by the Researcher is the present work has been undertaken
with guided intellectual inquisition based and organized and by systematic investigation
by employing purely doctrinal/non-empirical in nature. For the purpose of preparing this
Dissertation, the Researcher has relied on various books, case laws, case studies,
legislative analysis, international treaties, agreements and regulations. The Researcher
has also relied on various case laws to substantiate or refute his points as and when they
arise. The paper is structured on the various issues pertaining to Trademark: Trade Secret
Protection and its Global application.
14
CHAPTER – I
INTRODUCTION
Ever wondered why every food joint cannot offer the same flavour to your burger as
McDonalds does or why Coca Cola has a strong hold on market better than its
competitors? The answer is simple – the secret recipe. These are the secrets which
help these brands to have an edge over the others. These are the secrets which are
known as “Trade Secrets”. These secrets can be defined as the information related to
businesses which grants them distinctiveness and individuality. Trade Secrets,
therefore, are of extreme value to a company‟s growth and sometimes even critical
for its survival. A trade secret may refer to a practice, process, design, instrument or
a compilation of data or information relating the business which is not generally
known to the public and which the owner reasonably attempts to keep secret and
confidential. Business must ensure that they adequately protect their business
processes, technical know-how and confidential information from competitors. In
today‟s globalised scenario trade secret protection is fundamental to encourage
innovative steps, foreign investment and to promote healthy competition.
As the international trade increases around the world, trademarks, patents, copyrights
and trade secrets need to be a subject of more global perspective. This significant
feature of Trade Secrets forces the need to protect them by law and legislation. Trade
secret law, the oldest part of intellectual property rights is widely recognised 1. Even
in ancient Rome, trade secret laws established legal consequences for a person who
induced another‟s employee to divulge secrets relating to the employer‟s confidential
1
Raman Mittal, Licensing Intellectual Property – Law and Management 321 (Satyam Law International,
New Delhi, 1st edn.,2011).
15
affairs2.In as long as 1868, a Massachusetts Court held a secret manufacturing
process as property, and was protectable against misappropriation, and that a secrecy
obligation for an employee outlasted the term of employment3.
There is no global law for the protection of trade secret or even a definition of trade
secret. Almost 40 countries of the world rely on Uniform Trade Secret Act for the
protection of trade secret4. The protection of trade secret start with the enactment of
Paris convention, the article 10 bis is of the convention provides protection to the
undisclosed information. Other agreements which provide global protection to the
trade secrets are TRIPs5 and NAFTA6.
A term trade secret refers to information that is maintained in secrecy and has
commercial value. There is no unique or universally accepted definition of „trade
secrets‟. A trade secret is a formula, practice, process, design, and instrument,
pattern, or compilation of information used by business to obtain an advantage over
competitors or customers. In some jurisdictions, trade secrets are referred to as
confidential information. World Trade Organization (WTO) treaties, General
Agreement on Trade and Tariffs (GATT) and Agreement on Trade Related Aspects
of Intellectual Property Rights (TRIPS) address the concept of trade secrets as
follows:7
2
S.R Myneni, Law of Intellectual Property 443 (Asia Law House, Hyderabad, Ist edn., 2001).
Peabody v. Norflok, 98 Mass. 542(1868).
4
The UTSA codifies the basic principles of common law trade secret protection, preserving its essential
distinctions from Patent Law.
5
The Agreement on Trade Related Intellectual Property Rights (TRIPS) is an international agreement
administered by the World Trade Organization (WTO) that sets down minimum standards for many
forms of Intellectual Property (IP) regulation as applied to nationals of other WTO members. It was
negotiated at the end of the Urguay Round of the General Agreement on Tariffs and Trade (GATT) in
1994.
6
North American Free Trade Agreement.
7
Article 39(2): General Agreement on Tariffs and Trade, Multilateral Trade Negotiations (Uruguay
Round). Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 15 April 1994.
Part II, Section 7: Protection of Undisclosed Information, article 39 (2).
3
16
Natural and legal persons shall have the possibility of preventing information
lawfully within their control form 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.
The definition of trade secret found in the Restatement of Torts reads8:
A trade secret may consist of any formula, pattern, device or compilation of
information which is used in one‟s business, and which gives him [or her] an
opportunity to obtain an advantage over competitors who do not know or use it. It
may be a formula for a chemical compound, a process of manufacturing, treating or
preserving materials, a pattern for a machine or other device, or a list of customers.
The American Uniform Trade Secrets Act (UTSA) of 1985, defines trade secret as
follows:9
A trade secret is any information, including a formula, pattern, compilation, 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
8
Restatement of the Law (First), Torts (1929).
Section1(4)
of
Uniform
Trade
Secrets
Act,
www.law.upenn.edu/bll/archives/ulc/fnac99/1980s/utsa85.html.
9
1985
available
at
:
17
use, and (ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
There is no authoritative text or case law existing to determine the nature and scope
of trade secrets in India. The courts, however, have tried to place trade secrets within
the purview of various legislations in order to protect them. Hey have also tried to
define „trade secret‟. In American Express Bank Ltd. v. Ms. Priya Puri,10 the Delhi
High 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.
Analysing these definitions, at the most basic level, a trade secret is simply
information and knowledge and is subject to certain requirements which when
fulfilled, transform the information into a trade secret. To qualify as trade secret,
such information does not have to meet the standards of novelty as in the case of
patents or originality as in the case of copyright. There are no subject matter
restrictions and no tests of creativity or obviousness to acquire the proprietary status.
Business world is much concerned with keeping certain information secret for which
huge investments and cumbersome efforts are made. The secrets in trade or business
are protected and enforced against unauthorised exploitation or use11. Law
guarantees enforcement of trade secrets for the purpose of remedying the loss or
damage suffered by the owner due to the unauthorised exploitation of trade secrets.
Trade secret is considered as a form of intellectual property rights across the world.
Information or knowledge encompasses certain intellectual efforts, which are
protected through offering protection to trade secrets.
There is no specific legislation in India to protect trade secrets and confidential
information. Protection of trade secrets is a neglected and under privileged issue.
10
American Express Bank Ltd. v. Ms. Priya Puri (2006) III LLJ 540 (Del).
V.K Ahuja, Intellectual Property Rights in India 1179 (Lexis Nexix Butterworthd Wadhwa, Nagpur,
Vol.1 2009).
11
18
Indian courts have upheld trade secret protection on basis of principles of equity, and
at times, upon a common law action of breach of confidence which in effect amounts
a breach of confidential obligation. In the absence of statutory measures for the
protection of trade secrets protection is offered under common law and contract,
India is lagging behind the protection of trade secrets.
In this dissertation doctrinal method is used by the scholar with special emphasis on
case study.
The goal in the dissertation is threefold. First, analyse the steps, if any are required in
India to make effective protection of Trade Secrets. The Second goal is to, exploring
the different tools used by the business houses in Indian subcontinent to safeguard
their trade secret where no specific law exist. The third goal is to analyse the issues
and practical implication of present laws dealing with the cases on trade secrets and
the overlap between trade secrets and patent laws.
The Chapters in this dissertation takes the following shape:
The First chapter begins with, the introduction part. This chapter gives various
definitions of Trade Secrets. Then after the research questions were discussed and in
the end the overview of all the chapters of dissertation were discussed.
The Second chapter is divided into two parts. First part covers the theories and the
second part covers the misappropriation of trade secrets. This Chapter gives the brief
summarization about the subject matter of the trade secrets. Then after the few
theories associated with trade secrets will be discussed. After words in this chapter
we discuss the meaning, concept, liability and defences like lack of secrecy,
independent creation, privilege etc. In the end the remedies portion was discussed.
19
This Third chapter will deals with the various international treaties for the protection
of trade secrets. This chapter looks at various conventions, agreements, treaties and
international legislations dealing with the trade secrets in the World. This chapter
highlights the detailed study provisions dealing with the trade secrets in Paris
Convention (1967), GATT (General Agreements on Tariff and Trade), TRIPs
Agreement, NAFTA (North American Free Trade Agreement) and UTSA (Universal
Trade Secrets Act).
The Fourth chapter will deal with the litigation in the trade secrets in various
countries. This chapter looks at various precedents dealing with the trade secrets in
United States of America, United Kingdom and India. An analysis is made of how
the litigation proceedings in different countries create ambiguity with special
reference to India perspective.
The Fifth chapter highlight the laws dealing with trade secrets in India and their
inadequacy in the view of legal regime. After words this chapter draws a outline of
the possible legislation for the protection of trade secrets in India. Later on the
reasons were mentioned that why trade secrets are increasingly important. And in the
end the need for a Sui Generis System to as a tool to protect trade secrets and
national innovation law was discussed in detail.
The Sixth chapter will deals with the conclusion part and end with some suggestions
for the protection of trade secrets.
20
CHAPTER – II
SUBJECT MATTER AND MISAPPROPRIATION OF TRADE
SECRETS
This chapter is divided into two parts. First part covers the theories and the second
part covers the misappropriation of trade secrets. This Chapter gives the brief
summarization about the subject matter of the trade secrets. Then after the few
theories associated with trade secrets will be discussed. After words in this chapter
we discuss the meaning, concept, liability and defences like lack of secrecy,
independent creation, privilege etc. In the end the remedies portion was discussed.
2.1 SUBJECT MATTER OF TRADE SECRETS
Trade Secrets are not bounded by any specific or defined subject matter. Trade
Secrets represent that information which is secret and which provides a business with
a competitive advantage12. Therefore, it is the relationship between the business and
the information that establishes the proprietary value of the information. Such
information can be either confidential technical information or business information
which may potentially include „know-how‟, manufacturing processes, product
formulas, designs, plans, patterns, software, physical devices, sales and advertising
strategies, distribution methods, customer lists, computer algorithms, methods of
bookkeeping, business plans or designs, codes, source code to software, materials
outlining special customer needs, revenue forecast, minor improvements to known
processes and the like.
12
Supra note. 1.
21
A trade secret can be a combination of elements that may exist individually and
independently in the public domain, but the secret consists in a particular
combination of such elements.13 As opposed to other tools of intellectual property,
there is no statute that clearly identifies a definite subject matter of protection under
trade secrets. The subject matter that can be protected as a trade secret could differ
among nations; some states provide no legal protection for trade secrets at all.14
Following are the elaborations of some of the important aspects covered within the
subject matter of the trade secrets:
Formula15: A formula or recipe for manufacturing a product can be protected under
trade secret laws. Some common formulas which have been acknowledged to have
trade secret value belong to food, drug, and cosmetics industries and include
formulas for cheese, butter flavouring, breakfast cereal, mixed alcoholic beverages,
and hair conditioner. One of the most familiar examples of a trade secret formula in
the food industry is the Coca Cola formula. It is the most valuable property for the
company and its entire business depends on the formula being kept secret. Therefore,
the Coca Cola Company has put numerous security measures in place to keep this
formula a secret. The company ensures that no single person knows every step of the
formula.
Process: A process is that method or technique which is used to make the end
product; for example, a process to manufacture fibreglass and a process to treat
metal. The following is an example of using a process as a trade secret: Suppose you
work at a hair salon and when a customer wants you to dye his or her hair, you use a
hair dye formula that is pre-bottled. However, you have also developed your own
unique process in applying the formula to hair so that the hair colour stays longer.
13
Integrated Cash Management Services, Inc., v. Digital Transactions, Inc., 732 F. Supp. 370 (SDNY
1989).
14
Karen A. Magri, “International Aspects of Trade Secrets Law” available at:
http://www.myersbigel.com/ts_articles/trade_secret3.htm#top .
15
Supra note. 1.
22
Because your process gives you a competitive business advantage, you may obtain
trade secret protection of your dye process.
Know-how: Information and experiential expertise which makes it possible to use
formulas and processes can be described as „know-how‟. Examples of know-how
include innovation records, research records and reports, development reports,
experimental and other engineering reports, production plant designs, productions
specifications, raw material specifications, quality control reports and specifications,
drawing, photographs, models, manufacturing and production techniques, etc. Knowhow acquires the status of the trade secret only when it qualifies as trade secret, i.e. if
it is secret and has economic value and if measures are in place to secure its secrecy.
Know-how may not be secret, but is often used interchangeably with trade secret.
Computer Databases: The Indian courts have extended trade secret protection to
include computer databases which could cover customer lists. In Burlington Home
Shopping Pvt. Ltd. v. Rajinish Chibber,16 the Delhi High Court decided that the
compilation of a customer list qualified as a trade secret, in addition to warranting
protection under copyright laws.
2.2 THEORIES ASSOCIATED WITH TRADE SECRETS
Theory of Contractual Obligation17
I.
As a matter of practice trade secrets are given protection under the contracts law,
which gives rise contractual obligations on the part of the parties to the contract. The
person possessing the trade secrets may enter into a contract with a person or persons
16
Burlington Home Shopping Pvt. Ltd. v. Rajinish Chibber,1995 PTC (15) 278.
Sreenivasulu N.S., “Protection of Trade Secrets: The Legal Regime on Trade Secrets in India” in
Sreenivasulu N.S.(eds), Intellectual Property Rights173(Regal Publications, New Delhi, 3rd edn., 2007).
17
23
to whom he is going to communicate the trade secrets not to disclose it to others. The
other party to the contract will be under the obligation to keep the confidentiality of
the information or not to breach the confidence of the owner and the contract as well.
The person to whom the secret is disclosed or whoever comes across a trade secret
should not disclose it to other or should not misuse it to deprive the owner from
enjoying the benefits of its secrecy.
II.
Doctrine of Unjust Enrichment/ Misappropriation
Misuse of trade secrets is considered as misappropriation of a thing that never
belongs to the misuse. Misuse of trade secret will have a bearing impact on the
owner who laboured for gathering the information or for earning knowledge and who
made efforts to protect the information secret. In a way it also deprives the owner
from enjoying its commercial advantage and the competitive edge over competitors.
Misappropriation of trade secret amounts to unjust enrichment of the cost of the one
who laboured for it. The doctrine of unjust enrichment states that a person who has
not worked for it has got no right to use it depriving the one who worked for it.
The doctrine is more a moral principle than a doctrine of law, since it demands to
adhere to moral obligation in the absence of contractual or obligations under the law.
The Competition law of India also considers unfair trade practices, which results n
unjust enrichment as violation of law. These provisions of law could be given effect
to in protecting trade secrets while prohibiting unfair trade practices and unjust
enrichment.
III.
Doctrine of Fiduciary Relationship
Most common law jurisdictions protect trade secrets on the basis of fiduciary
relationship, which prevails between the employer and the employee. The employee
24
has got a duty not to disclose the secrets of the employer to others, since he place
himself in a relationship of trust and confidentiality with the employer who has
disclosed the secrets of his business under the contract of employment.
2.3 MEANING OF MISAPPROPRIATION
U.S. courts have developed the tort of misappropriation, which imposes liability on
the third parties for the use of trade secrets. The tort of misappropriation is not
committed by a person who applies or publishes a trade secret unless that person has
used some unlawful means or breached some duty created by contract or implied by
law resulting from some employment or similar relationship. 18 It is the use of
improper means to procure the trade secrets, rather than the mere copying or use,
which is the basis of liability19.
Uniform Trade Secret Act 1985 & Supp.1989 (UTSA) Section 1(2) contains
definition of “Misappropriation” which means :
i
acquisition of a trade secret of another by a person who knows or has reason to
know that the trade secret was acquired by improper means; or
ii
disclosure or use of a trade secret of another without express or implied consent by a
person who –
a) used improper means to acquire knowledge of the trade secret; or
b) at the time of disclosure or use knew or had reason to know that his knowledge of the
trade secret was
a) derived from or through a person who has utilized improper means to acquire it;
b) acquire under circumstances giving rise to a duty to maintain its secrecy or limit its
use; or
18
19
Smith v. Snap-On Tools Corpn., 833 F 2d 578, 581 (5th Cir. 1988).
Trandes Corpn. v. Guy F. Atkinson, 996 F 2d 655, 660 (4th Cir. 1993).
25
c) derived from or through a person who owed a duty to the person seeking relief to
maintain its secrecy or limit its use; or
iii
before a material change of his position, knew or had reason to know that it was a
trade secret and that knowledge of it had been acquired by accident or mistake.
“Improper means” is defined to include theft, bribery, misrepresentation, breach or
inducement of a breach of duty to maintain secrecy, or espionage through electronic
or other means. Thus, misappropriation occurs when a trade secret is lawfully
acquired but then improperly used or when the trade secret is acquired by improper
means.
The American Restatement of Laws has given the definition of “improper means” to
include the unauthorised 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.20 The courts have held that even if there was no
contractual nexus between parties, liability arises if the confidentiality of the
information is obvious.21 It must be emphasised that third parties are liable only
when the information is not only known to be confidential in character.22
2.4 THEFT
OF
TRADE
SECRET:
MISAPPROPRIATION
Not all uses of another‟s trade secrets constitute misappropriation. Acquisition or use
of a trade secret is illegal in only two situations: where it is done through improper
means, or where it involves a breach of confidence.23
20
Restatement of Laws (3rd ed., 1995).
Saltman v. Campbell [1963] 3 All ER 413.
22
Fraser v. Thames Television Ltd. [1983] 2 All ER 101.
23
Robert P. Merges, Peter S. Menell, et.al., Intellectual Property In The New Technological Age
63(Aspen Law & Business, California1997).
21
26
However, criminal route for good reasons is rarely used. Firstly, it is the government
which has to prosecute the case which places unnecessary burden on the government
in respect of a dispute which is essentially civil in nature, and even through private
persons under section 302 can launch prosecution, the discretion lies with the
magistrate to allow it which makes such recourse uncertain. Secondly, the burden of
proof is higher than in civil cases and thirdly, the remedy or relief, which is granted
by a criminal court, makes less sense to business and commerce of an entrepreneur
and does not curb the economic loss24.
Trade Secret does not provide the owner with the exclusive right to use the
confidential information. Therefore a person is not legally precluded to use the trade
secret, as long as the trade secret, as the trade secrets was acquired by the improper
means. The acquisition of the trade secret a person using improper means.
Misappropriation is an amorphous tort that is a part of state unfair. In the term of
law, the misappropriation is the intentional, legal use of the property or funds of
another person for one‟s own use or other unauthorised purpose, particularly by a
public official, a trustee of a trust, an executor or a dead person‟s estate or by any
person with a responsibility of care for and protect another‟s assets. As he trade
secrets also constitute a property so the intentional or illegal use of the trade secret is
also a misappropriation.25
Few countries protect trade secrets under criminal law. Application of criminal law
in the sphere of trade secrets is warranted by the thefts of trade secrets. The theft of
trade secrets constitutes crime in many countries26. For instance US consider theft of
trade secrets as crime under The Economic Espionage Act, 1996. The Act provides
criminal sanction for the offence of theft of trade secrets through prosecution. Trade
secrets theft forms a federal crime in US, which attracts sanctions in the forms of
penalty of $2,50,000 ($5,00,000 for organisations )and imprisonment for a term of
ten years. Besides the Act states that if the breach of the trade secret is benefiting a
foreign country the punishment
is penalty of $5,00,000 ($10,00,000for
24
Jayashree Watal, Intellectual Property Rights in the WTO and Developing Countries 187 (Oxford
University Press, 2005).
25
Neelan Satija, “Trade Secret:Protection & Remedies” available at :
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1614222 .
26
Supra note. 24.
27
organizations) and fifteen years of imprisonment German also provides for criminal
sanction for the theft of trade secrets under its unfair competition laws.27
2.5 LIABILITY FOR MISAPPROPRIATION OF TRADE SECRETS
Someone who misappropriated a trade secret is liable for damages Also, the owner of
the information can apply for an injunction to stop him from using the information.
The misappropriation may have resulted in loss of the trade secret status. 28. Then an
injunction is often limited in time to the “lead time” obtained by the misappropriator.
That is, the court tries to determine how long it would have taken to independently
come up with the same information, and forbids the misappropriator to use trade
secrets information for that period. If in the meantime a lot of different people have
legitimately acquired the protected knowledge, the court is less likely to award an
injunction. The only remedy then is a compensation for the damages suffered by the
loss of trade secret status. These damages can be computed as the profit made by the
misappropriator. 29
(i) Absence of Written Agreement
While a written agreement prohibiting misappropriation of trade secrets can be
enforced through an action for breach of contract, a company‟s trade secrets can be
protected against misappropriation even in the absence of any written agreement
between the parties. A party owning trade secrets can bring an action in tort for
breach of the duty of confidentiality, which duty can arise even without an express
agreement.30 Court will impose a duty of confidentiality when parties stand in a
special relationship with each other, such as an agent principal relationship (which
includes employer–employee relationships) or other fiduciary or good faith
27
Ibid.
Haron K. Sandeen and Elizabeth A. Rowe, Trade Secret Lawin a Nutshell 23 (West Academic Pub.
Cambridge, 6th edn., 2013).
29
Supra note. 37.
30
Deborah E. Bouchoux, Intellectual Property: The Law of Trade Marks, Copyrights, Patents, and Trade
Secrets 344(West Legal Studies Thomas Learing, USA, 3edn., 2002).
28
28
relationships and their officers and directors, or between attorneys and clients).
Courts have confidentiality held that employees owe a duty of loyalty, fidelity, and
responsibility to their employers. Other persons found to be subject to a duty of
confidentiality are customers, suppliers, trainees and students, licensees, and
independent contractors. In fact, more trade secret cases are brought in tort for breach
of confidentiality than in contract for breach of written agreements.
Similarly, courts can find that the parties had an implied contract arising out of their
common understanding. For example, if ABC Company is attempting to make a sale
to Jones that the ABC product is superior to that of competitors because it involves a
new breakthrough in technology and explains the trade secret, courts would likely
find that Jones is subject to a duty not to disclose the information. Similarly, if ABC
Company explains its trade secrets to its bankers in an attempt to obtain financing, be
precluded from disclosing or using the information. Such implied contracts to protect
the information generally arise when the parties‟ conduct indicates they intended the
information to be kept confidential or impliedly agreed to keep it confidential.
(ii) Misappropriation by Third Parties
The protection of trade secret information that is to be disclosed to third parties need
careful consideration. The first matter to be decided is the drafting of a suitable
confidentiality agreement. This is not a routine matter and thought must be given to
such aspects as the duration of the confidentiality period, to whom disclosure may be
made, any exceptions and the destruction of samples or copies of the information
when the agreement ends, amongst other matters. 31
31
Ernie Pichfork, “The Protection of Confidential Information”11 JIPR 365 (2006).
29
The area of confidential Information and disclosure to third parties was recently
considered by the New Zealand Court of Appeal and the Privy Council in the
Norbrook Laboratories case.32
The Court of Appeal held that in order to succeed in a claim for breach of
confidence, the plaintiff had to established that the information was of a confidential
nature, that it had been communicated in circumstances importing an obligation of
confidence and that the defendant had made or was about to make an unauthorised
disclosure of the information. The Court of Appeal also held that the onus was on the
plaintiff to prove misuse and that the in a commercial situation there was no
presumption against a party in possession of confidential information. The Privy
Council agreed that the burden of proof lay on the plaintiff, but stated that if the
plaintiff adduces evidence from which, in the absence of any adequate explanation,
an inference of breach may properly be drawn, an evidential burden or provisional
burden fell on the defendant.33
Thus, if A entrusts B in confidence with confidential information, and B is precluded
by contract from using that information for its own purposes, and the relationship
between them ends and B markets a product which could not ordinarily be made
without using A‟s confidential information, a claim by A for breach of contract is
likely to succeed unless B shows that it obtained the information from another
legitimate source, or as a result of independent research, or in some other manner not
involving misuse of A‟s information. In this context, it is interesting to note that the
Court of Appeal stated that the purpose of the law of confidence was to prevent
disclosure and misuse and not to stifle competition34. Thus possession of confidential
information did not of itself preclude a person from developing an equivalent
product, provided that the confidential information was not misused.
32
Norbrook Laboratories Ltd. v. Bamac Laboratories Ltd. [2004] 3 NZLR 49 and [2006] UKPC25.
Brown v. Rolls Ryce Ltd. [1960]1 WLR 210.
34
Supra note. 44.
33
30
On the facts of the case, the Court of Appeal agreed with the High Court that the
defendant had not misused the confidential information but had merely taken some
comfort from that information. The Privy Council came to the opposite conclusion
and allowed the appeal. It is a noteworthy aspect of the litigation that the High Court
made two important findings of fact that the Court of Appeal held was wrong. The
Privy Council also disagreed with the Court of Appeal and found that the defendant
disclosed the confidential information „exactly and unambiguously‟ whereas the
Court of Appeal found no misuse of information by the defendant.
A number of other parties may also have liability for misappropriation of trade
secrets if they knew or should have known they were the recipients of protected
information. For example, assume Lee is employed by XYZ Company. In the course
of his employment with XYZ Company, Lee learns valuable trade secret
information. If Lee leaves his employment with XYZ Company and begins working
for New Company, Lee and New Company may be prohibited from using the
information. Lee may not misappropriate the information because he was in an
employee-employer relationship with XYZ Company, and New Company may be
prohibited from using the information if it knows or should know that the
information was acquired by Lee under circumstances giving rise to a duty to
maintain its secrecy or limit its use. In such cases, XYZ Company would generally
prefer to sue New Company inasmuch as it is far likelier to have “deep pockets,”
meaning it is more able to pay money damages than is an individual such as Lee35.
If New Company has no reason to know the information was secret or that Lee may
not reveal it, New Company would not have liability for such innocent use of the
information. Similarly, if trade secret information were innocently obtained by New
Company by mistake (for example, by a misdirected package or letter), New
Company would have no liability for subsequent use or disclosure of the information.
35
Ibid.
31
However, once New Company receives notice of the secrecy of the information (for
example, by a letter from XYZ Company informing New Company of the nature of
the Trade Secret and demanding that New Company ceases use), it may not
thereafter use the information unless New Company has so changed its position
based on the information that to preclude New Company from further use would be
unjust. For example, assume that after acquiring information from Lee, New
Company, mistakenly believing it may use the information, incurs great expense in
building a new plant facility so it may use the information in a complex
manufacturing process. In such cases, Indian courts often attempt to fashion relief for
both parties by requiring the party in New Company‟s position to pay a royalty or
compensation to XYZ Company for continued use of the information. Companies in
New Company‟s position should protect themselves by requiring employees to verify
in writing that they will not use information gained in confidence from previous
employers.
One who obtain trade secrets by improper means, such as espionage, theft, bribery,
or placing one‟s own employees at a competitor‟s place of business, cannot use or
disclose the information. For example36, in one case, a court prohibited a party from
using information gained by hiring a plane to make a low-attitude flight over a
competitor‟s half completed plant to determine its layout and features. While the
plane was properly flying in public airspace, the court held that improper means,
namely, means that fell below the generally accepted standards of commercial
morality and reasonable conduct, subjected the actor to liability. To require the
owner of the plant to erect a roof over the half completed plant would impose an
unreasonable burden and expense on the owner, and thus the measures it took to
protect its plant at ground level were reasonable and sufficient.37
Finally, a recipient of trade secrets may be liable for misappropriation even if
modifications or improvements are made to the original confidential information if
36
37
Ibid.
E.I.Du Pont De Nemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970).
32
the resulting product or information is substantially derived from the owner‟s
original trade secret.
2.6 DEFENSES TO TRADE SECRET MISAPPROPRIATION
A variety of defences may be raises by a party accuses of misappropriating another‟s
trade secrets. The most commonly asserted defences are as follows:
i
Lack of secrecy.
A defendant may a assert that the owner of the trade secret failed to take appropriate
and reasonable measures to protect the trade secret and the information has thus
entered the public domain38. Courts will then examine the measures taken by the
trade secret owner and determine if they were reasonable under the circumstances. If
the information could have been readily protected but was not, courts are likely to
hold the owner has lost its rights to the information. Thus, discussions of information
at conferences or in publications may result in loss of trade secret protection. Some
recent cases have examined whether memorization of information is a defense,
holding that reconstruction of a trade secret, such as a customer list, through
memorization (as opposed to physically taking or copying the list) is not a defense
and s another form of misappropriation.
ii
Independent Creation.
Just as independent creation is a defense to a claim of copyright infringement,
independent creation of information that is a trade secret of another is permissible.
As long as a party did not breach a duty of confidentiality or an agreement to hold
information in confidence, and did not use improper means in acquiring the
38
Supra note. 35.
33
information, independent creation will be a defense to a claim of misappropriation.
Reverse engineering, namely, the inspection or analysis of a product to determine the
method by which it was developed, is generally a protected form of independent
creation. An assertion that the information lacks protection because it could have
been reverse engineered is generally successful only when others have in fact reverse
engineered the item or when reverse engineering could be easily accomplished39.
iii
Privilege.
A party may be compelled to disclose a trade secrets in the course of some judicial or
administrative action. Such disclosure is privileged and is non-actionable40. Many
written confidentiality agreements require that one called to testify about a trade
secret provide notice to the owner of the trade secret so it may attempt to protect
itself by seeking some judicial relief, such as exclusion of bystanders and the media
from the courtroom during disclosure41.
iv
Unclean hands or laches.
A defendant may assert that the trade secret owner‟s conduct is so reprehensible that
its “unclean hands” bars any recovery. Additionally, a defendant may assert that the
trade secret owner has so delayed in bringing the action that the defendant has been
prejudiced by such delay and thus the action should be barred42. Laches (an
unreasonable delay that prejudices the other party) is often asserted when a defendant
has innocently acquired the trade secret and then expended a great deal of time and
money in promoting or marketing the information. To require the defendant to cease
use in such circumstances may be inequitable.
39
Ibid.
Supra note. 18.
41
Ibid.
42
Ibid.
40
34
2.7 Remedies For Misappropriation
The remedies available for infringement of intellectual property rights have been
applied to breach of confidence without much difficulty, save in the case of
damages43. Typically the plaintiffs hope to contain the confidence before escape;
hence the importance of injunctions. There has been no doctrinal impediment to
awarding equity‟s ancillary forms of relief- account of profits and delivery up or
destruction on oath in appropriate cases44. A trade secret owner may request a variety
of remedies from a court. Among them are the following:
i.
Injunctive Relief.
In many cases, a trade secret owner is more interested in ensuring the defendant
cease use of the trade secret (or s precluded from commencing use) than in
recovering damages. In cases in which money damages may not sufficient to protect
a trade secret owner, a court may issue an injunction45. Injunctions can be issued to
prohibit a party from further using or disclosing the information or to ensure the
party does not begin to use or disclose the information if disclosure is threatened,
imminent, or inevitable. A court may also issue a preliminary injunction during the
pendency of the action; if the plaintiff prevails, the injunction may be made
permanent. A court may also issue an injunction to compel the defendant to
surrender or destroy trade secret information. In fact, courts may issue injunctions to
prevent “inevitable disclosure,” reasoning that even if a former employer cannot
show a particular secret has been taken, it is inevitable that key employees will
eventually disclose what they know to a new employer. In such cases, even in the
absence of a covenant not to compete, courts have enjoined employees from working
on particular projects, imposed time limits during which the new employee cannot
43
William Cornish and David Llewelyn et.al.,Intellectual Property: Patents, Copyright, trademarks, and
Allied Rights 264 (Sweet & Maxwell, Limited, London. South Asian Edition, 7 th edn., 2010).
44
Industrial Furnaces v. Reaves [1970] R.P.C. 605.
45
Supra note. 34.
35
work for another, or even prohibited employees from working for a new company in
any capacity46.
ii.
Money Damages.
A trade secret owner whose information has been misappropriated may recover
money damages from the defendant. The plaintiff may recover its lost profits as well
as the profits made by the defendant. Alternatively, the plaintiff may seek and
recover a reasonable royalty arising from defendant‟s use of the trade secret. Punitive
damages may also be awarded in cases in which the defendant‟s conduct is reckless,
wilful, and intentional. The UTSA provides that punitive damages not exceed more
than twice the compensatory damages awarded.
2.8 Remedies Available In India47
The remedies for breach of confidence generally consist of an injunction and
damages. The injunction may be interlocutory or permanent. The information may
remain confidential will not extend beyond that period. The principles governing the
grant of interlocutory injunction are the same for all kinds of actions. Since the
information alleged to be confidential may be of value to the plaintiff only for a
certain period, interim injunction will ordinarily be granted only for a specified
period depending upon the circumstances and the nature of the confidential
information.
In regard to balance of convenience, the following factors are considered:
i
Whether the terms of injunction would be disastrous to the defendant;
46
Ibid.
D.S. Sengar, “Protection of Trade Secrets And Undisclosed Information: Law And Litigation” 53(2)
JILI 255(2011).
47
36
ii
Whether the terms of injunction are such that it is extremely difficult for the
defendants to know what they may do and what they may not do;
iii
Whether it is certain upon the material before the court that even if they were
successful at the trial, the plaintiff would obtain an injunction rather than damages.
Damages or compensation is determined on the basis of the market value of the
confidential information based on a notional sale between a willing seller and a
willing purchaser. This method may be more appropriate for confidential information
relating to industrial designs or processes or business secrets.48
In the case of infringement of trade secrets, the remedy may be injunction or
damages. The Specific Relief Act, 1877 is applicable for an action of injunction. The
requirement of prima facie case and balance of convenience and irreparable injury
must be established. In many cases, the courts have refused to grant injunction for
breach of obligation of confidence in the absence of a prima facie case or for
insufficiency of evidence. The courts have observed that in order to obtain an
injunction from the court there should not be concealment of material fact by the
plaintiff before getting the equitable relief from the court. The Act provides that an
injunction which cannot be specially enforced and supervised by the court should not
be granted. 49 The Act also prohibits grant of such injunctions.
48
49
P. Narayanan, Intellectual Property Law 375 (Eastern Law House, New Delhi, 3rd edn., 2001).
The Specific Relief Act, 1877, s. 41(e).
37
CHAPTER –III
TRADE SECRETS AND INTERNATIONAL SCENARIO
3.1 INTERNATIONAL TREATIES FOR THE PROTECTION OF TRADE
SECRETS
This chapter will deal with the various international treaties for the protection of
trade secrets. This chapter looks at various conventions, agreements, treaties and
international legislations dealing with the trade secrets in the World. This chapter
highlights the detailed study provisions dealing with the trade secrets in Paris
Convention (1967), GATT (General Agreements on Tariff and Trade), TRIPs
Agreement, NAFTA (North American Free Trade Agreement) and UTSA (Universal
Trade Secrets Act).
It is appropriate at this juncture to look into the international and comparative norms
governing trade secret laws. In this connection, it is necessary to understand the
American law and precept in proper context because it represents one of the most
advanced forms of trade secret law in the world. 50
Importance of the protection of trade secret is largely recognised in United States and
abroad. Many major technologies worldwide are protected as trade secret rather than
by patent. Now, even the small scale organisations need to be protected on
international basis. Various treaty and the agreements are enacted to protect the
intellectual property on global basis. Both the North American Free Trade
Agreement (NAFTA) and Agreement on Trade Related Aspects of Intellectual
50
Md Zafar Mahfooz Nomani and Faizanur Rahman, “Intellection of Trade Secret and Innovation Laws
in India” 16 JIPR 343 (2011).
38
Property (TRIPS) ratified during the Uruguay Round of the General Agreement on
Tariff and Trade (GATT) include specific provisions directed toward increasing the
protection of trade secrets51
Also, in past few years, there has been a trend for the adoption of domestic
legislations specifically directed at the increased protection of trade secrets. There is
a little difference in the international treaty and agreements for the protection of trade
secrets.
3.2 Paris Convention (1967):
The Paris Convention52 for the protection of industrial property (1983) was enacted,
in part, to discourage the unfair competition. Article 10 bis of the Paris Convention
provides a potential source of support for the international standards of trade secret
protection. It is not clear from the convention statement if unfair means to
appropriate a trade secret comprises unfair competition. Convention stipulates that
the international property should be understood in its broadest sense.
Article 10 bis of the Paris Convention says that:
1. The countries of the Union are bound to assure to nationals of such countries
effective protection against unfair competition.
2. Any act of competition contrary to honest practices in industrial or commercial
matters constitutes an act of unfair competition.
51
Supra note. 37.
Paris Convention for the Protection of Industrial Property, available at:
http://www.wipo.int/treaties/en/text.jsp?file_id=288514 .
52
39
3. The following in particular shall be prohibited:
a) all acts of such a nature as to create confusion by any means whatever with the
establishment, the goods, or the industrial or commercial activities, of a competitor;
b) false allegations in the course of trade of such a nature as to discredit the
establishment, the goods, or the industrial or commercial activities, of a competitor;
c) indications or allegations the use of which in the course of trade is liable to mislead
the public as to the nature, the manufacturing process, the suitability for their
purpose, or the quantity, of the goods.
However, through, Article 10 bis (iii) do not include the wrongful misappropriation
of trade secrets or confidential information, the protection of industrial and business
secrets is implied by the general obligation under Article 10 bus (i) and (ii) so, prior
to TRIPS, international IP law recognised that Acts contrary to honest business
practices must be prohibited.
Besides the above legal provisions for the protection of trade secret, the ECHR53
stipulates, in its Article 8, that everyone has the right to respect for his private and
family life, his home and his correspondence. But this is not absolute right. It is
subject to legally sanctioned interference for various reasons including for “the
protection of the rights and freedoms of others”. The WIPO 54 has also taken various
initiatives to protect trade secrets from unauthorised users.
3.3 GATT:
On April 15, 128 the major industrialized nations of the world55, including the United
States, concluded the Final Act resulting from the Uruguay Round of GATT56.
53
European Convention on Human Rights, 1950.
World Intellectual Property Organization.
55
153 members as on 10 February 2011, the latest numbers available with WTO. Information available
at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm .
56
General Agreement on Tariffs and Trade.
54
40
GATT established the WTO57 and promulgated various trade related agreements
including TRIPS58. or the Trade Related Aspects of Intellectual Property Rights.
Under GATT, “Undisclosed Information” must be protected against use by others
without the consent of the owner if the use is contrary to honest commercial
practices. Also, there is third- party liability for misappropriation if third parties
knew or were grossly negligent in not knowing that such information had been
obtained dishonestly.
3.4 TRIPs Agreement:
The protection of confidential information in the TRIPs Agreement will no doubt be
useful for industries that must obtain regulatory marketing approval and must submit
confidential data to governmental authorities in order to obtain such approval. This is
reinforced by the insistences in several bilateral treaties to have a specific period of
time during which the secrecy must be maintained (five year or longer). The
Agreement does not specify a time period59.
TRIPS was the first multilateral instrument dealing in detail with the protection of
what in various national laws may be called “trade secrets”, “ confidential
information” or the like and is often protected not by specific intellectual property
legislation but by general civil law standards. This field is not regulated in
multilateral conventions,60 apart from the general obligations in respect of unfair
competition found in art.39(1) was used to justify the inclusion of this section in the
TRIPS Agreement61.
57
World Trade Organization.
Trade Related Aspects of Intellectual Property Rights.
59
Daniel Gervais, The TRIPS Agreement: Drafting History and Analysis 424 (Sweet & Maxwell,
London,2nd edn., 2008).
60
The scope of the TRIPS Agreement is far less extensive than envisaged by some participants (compare
with the relevant provisions of document W/76). See also X. Y. Chen, “A Proposal for the International
Convention for Protection Against Unfair Competition” (1996) 8 E.I.P.R. 450, and A. Coleman, The
Legal Protection of Trade Secrets (Sweet & Maxwell, London, 1992).
61
One could also mention art.2 of the 1967 Convention Establishing the World Intellectual Property
Organisation, which defines the term “intellectual property” as including “the protection against unfair
58
41
TRIPS Agreement covers the area of protection of Undisclosed Information 62.
The expression used in the Agreement, i.e. “undisclosed information” was chosen to
avoid referring to an expression linked to a given legal system. The result may be
misleading, however, because what is protected is not really “undisclosed”
information, but rather information disclosed selectively and under precise
condition.63 Information in this context must be used in the widest sense, and covers
all types of data, including formulas and test data, as long as the information is
identifiable. In cases where the information may not be identified with precision, the
legal obligation has no precise object and cannot be enforced64.
(i)
Protection Under Unfair Competition
In the course of ensuring effective protection against unfair competition as provided
in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed
information in accordance with paragraph 2 and data submitted to governments or
governmental agencies in accordance with paragraph 365.
Although Article 39.1 refers to „undisclosed information‟ and to „undisclosed test‟ or
other „data submitted‟ to governments as two separate issues, it seems clear that in
the latter case the data also need to be „undisclosed‟ in order to be covered under the
terms of the Agreement66.
competition and all other rights resulting from intellectual activity in the industrial, scientific, literary and
artistic fields".
62
Section-7 of the TRIPS Agreement.
63
Supra note. 83.
64
Ibid.
65
Article 39(1) of the TRIPS Agreement.
66
Carlos M. Correa, Trade Related Aspects of Intellectual Property Rights 466 (Oxford University Press,
New York,2nd edn., 2007).
42
There are two general considerations:
First, the Agreement subjects the legal treatment of „undisclosed information‟ to the
discipline of unfair competition, as regulated by Article10 bis of the Paris
Convention. With this approach, the Agreement clearly avoids the treatment of
undisclosed information as a „property‟, as suggested by the US in some early
informal submissions. The fact that the „undisclosed information‟ is deemed to be a
„category‟ of intellectual property, hence, does not imply the existence of a property
right. It is generally accepted that unfair competition is one of the disciplines of
industrial property, and obligation to confer exclusive rights on undisclosed
information, but just to protect it against unfair commercial practices67.
Second, the text does not use the terms „know how‟ or „trade secrets‟ which are usual
to refer to secret information of technical or commercial value, and it does not
contain either a definition of „undisclosed information‟. The difficulties in finding a
common and acceptable understanding on what those notions mean, favoured the
adoption of the technology used, which does not characterize the contents of the
adoption of the information, but just its „undisclosed‟ character68.
In a landmark decision in Du Pont Powder Company v. Masland69, the US Supreme
Court stated:
“The word property as applied to trademarks and trade secrets is an unanalyzed
expression of certain secondary consequences of the primary fact that the law makes
some rudimentary requirements of good faith. Whether the plaintiffs have any
valuable secret or not, the defendant knows the facts, whatever they are, through a
special confidence he accepted. The property may be denied but the confidence
cannot be. Therefore, the starting point for the present matter is not the property or
due process of law, but that the defendant stood in confidential relations with the
plaintiffs, or one of them.”
67
Ibid.
Ibid.
69
244 US 100, 61L Ed 1016, 37 S Ct 575 (1917).
68
43
(ii)
Conditions For Protection
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 practices70 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 secret71.
Article 39.2 specifies the conditions that the information needs to meet in order to be
deemed „undisclosed‟ and protectable: it should be secret, posses a commercial
value, and be subject to reasonable steps, under the circumstances, to be kept secret.
The conditions set forth are substantially based on US legislation on the manner, as
enacted by many States of the Union72.
70
For the purpose of this provision, „a manner contrary to honest commercial practices‟ shall mean at
least practices such as breach of contract, breach of confidence and inducement to breach, and includes
the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing
to know, that such practices were involved in the acquisition.
71
Article 39.2 of TRIPS Agreement.
72
In accordance with the definition provided by the US Restatement of Law of Torts a trade secret may
consist of any formula, pattern, device or compilation of information which is used in one‟s business and
which gives him an opportunity to obtain an advantage over competitors who do not know or use it‟. In
addition, the Restatement lists certain factors to be considered in determining the existence of a trade
secret. These are the following:
i. The extent to which the information is known outside the business to which it refers;
ii. The extent to which it is known by employees and other involved in the business;
iii. The extent of measures taken by the owner to guard the secrecy of the information;
iv. The value of the information to the owner and his competitors;
44
This article clarifies both natural and legal persons can institute legal actions based
on unfair competition disciplines regarding undisclosed information. The working
„shall have the possibility of preventing‟ is indicative of the broad room that
Members enjoy to determine the means to be applied to prevent the enumerated
practices.73 It makes clear that there is no requirement to establish exclusive rights, as
such rights are not provided for in the context of unfair competition disciplines.
Members have the right to take civil, criminal or commercial sanctions as is the case
in many jurisdictions.
Article 39.2 does not define the nature of the rights to be conferred it, indicates
which are the acts that holders of undisclosed information should be entitled to
prevent. They are disclosure; acquisition; or use of the information by other provided
that take place without the title holder‟s consent and „in a manner contrary to honest
commercial practices‟.
In all three cases (disclosure, acquisition, use) the right- holder could take action only
it the acts were made (1) without their consent; and (2) in a manner contrary to
honest commercial practices‟. A key element in establishing the existence of unfair
competition is what „honest commercial practice‟ means in this context.74
Article 39 will, in sum. Apply to any kind of business information, providing it meets
the requirements set out in Article 39.2. When interpreting this section at the national
level an appropriate balance should be sought among the interests of the possessor of
secret information and society‟s interests in the diffusion of technologies. Too
stringent an interpretation may hinder, in particular, the mobility of personnel in
areas where trade secrets are especially relevant (eg. Chemical industries, software
production).
v. The amount of effort or money expended by him in developing the information; and
vi. The ease or difficulty with which the information could properly be acquired or duplicated by others
(Section 757, Comment (b) (1939).
73
Supra note. 90.
74
Ibid.
45
iii.
Test Data of Pharmaceutical And Agrochemical Products
Members, when requiring, as a condition of approving the marketing of
pharmaceutical or of agricultural chemical products which utilize new chemical
entities, the submission of undisclosed test or other data, the origination of which
involves a considerable effort, shall protect such data against unfair commercial use.
In addition, Members shall protect such data against disclosure, except where
necessary to protect the public, or unless steps are taken to ensure that the data are
protected against unfair commercial use75.
Article 39.3 has been one of the most controversial in the TRIPS Agreement. Despite
the fact that Article 39.3 does not provide for the granting of exclusive rights,
research-based industry and the governments of some developed countries have
argued that investment made for developing test data can only be ensured if a
minimum period (eg. Five years for agrochemicals) of exclusivity is granted76.
It should be noted that Article 39.3 contains three limitations regarding effective
protection of data exclusivity under trade secret.
First, it applies only to pharmaceutical products and chemical agricultural products;
Secondly, the protection is extended only against unfair competition uses; and
Thirdly, the government authority is exempted from the requirement of
confidentiality in public interest. Thus, it has been held that a government accrediting
agency may use the confidential test data of an applicant when considering
applications by other applicants in respect of similar products77.
The protection of IP is one of the most significant tasks, as it encourages foreign
investment in many fields. Any developing country in general and India in particular,
should devise a proper law for protection of trade secrets78. The Indian Law still
depends on the old traditional common law principles which have lost their
75
Article 39.3 of TRIPS Agreements.
Supra note. 83.
77
S. K. Verma and Raman Mittal (eds.), Intellectual Property Rights: A Global Vision, 518-521 (Indian
Law Institute, New Delhi, 2004).
78
Supra note. 74.
76
46
significance in the present scenario, for proper policy framework to regulate
protection of trade secrets. There are large numbers of companies, especially
chemical companies who prior trade secrets as a form of protection for their IP.
These companies are reluctant to invest in India because India cannot offer
appropriate protection for their trade secrets. Thus, India is losing out on a lot of
foreign direct investment79.
3.5 NAFTA80
NAFTA stands for North American Free Trade Secret. U.S, Mexico and Canada are
the countries which are the signatories of the NAFTA in late 1992. The NAFTA
carries a specific provision that provide uniform standards for the trade secrets
protection. NAFTA was basically followed in the United States with the prime
objective to protect Trade Secrets. Commercially valuable information, which is not
publically known and the owner of which takes reasonable steps to maintain the
secrecy of the information is called „Trade Secret‟ as defined under NAFTA.
The NAFTA carries a provision directed to provide uniform minimum standards for
protecting trade secrets.
“Article 1711 (1) reads as follow81:
1. Each Party shall provide the legal means for any person to prevent trade secrets
from being disclosed to, acquired by, or used by others without the consent of the
person lawfully in control of the information in a manner contrary to honest
commercial practices, in so far as:
(a) the information 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 that normally deal with the kind of information in question;
79
Ibid.
North American Free Trade Agreement.
81
North American Free Trade Agreement, available at: http://www.sice.oas.org/trade/nafta/chap-172.asp.
80
47
(b) the information has actual or potential commercial value because it is secret; and
(c) the person lawfully in control of the information has taken reasonable steps under
the circumstances to keep it secret.”
A Party may require that to qualify for protection a trade secret must be evidenced in
documents, electronic or magnetic means, optical discs, microfilms, films or other
similar instruments82.
No Party may limit the duration of protection for trade secrets, so long as the
conditions in paragraph 1 exist83.
No Party may discourage or impede the voluntary licensing of trade secrets by
imposing excessive or discriminatory conditions on such licenses or conditions that
dilute the value of the trade secrets84.
If a Party requires, as a condition for approving the marketing of pharmaceutical or
agricultural chemical products that utilize new chemical entities, the submission of
undisclosed test or other data necessary to determine whether the use of such
products is safe and effective, the Party shall protect against disclosure of the data of
persons making such submissions, where the origination of such data involves
considerable effort, except where the disclosure is necessary to protect the public or
unless steps are taken to ensure that the data is protected against unfair commercial
use85.
82
Article 1711(2) of the NAFTA Agreement.
Article 1711(3) of the NAFTA Agreement.
84
Article 1711(4) of the NAFTA Agreement.
85
Article 1711(5) of the NAFTA Agreement.
83
48
Each Party shall provide that for data subject to paragraph 5 that are submitted to the
Party after the date of entry into force of this Agreement, no person other than the
person that submitted them may, without the latter's permission, rely on such data in
support of an application for product approval during a reasonable period of time
after their submission86.
For this purpose, a reasonable period shall normally mean not less than five years
from the date on which the Party granted approval to the person that produced the
data for approval to market its product, taking account of the nature of the data and
the person's efforts and expenditures in producing them. Subject to this provision,
there shall be no limitation on any Party to implement abbreviated approval
procedures for such products on the basis of bioequivalence and bioavailability
studies.
Where a Party relies on a marketing approval granted by another Party, the
reasonable period of exclusive use of the data submitted in connection with obtaining
the approval relied on shall begin with the date of the first marketing approval relied
on87. It seems quite clear that NAFTA protection of Trade Secrets is almost the same
as that provided by TRIPS to undisclosed information88.
3.6 UTSA, 1985:
The Uniform Trade Secret Act codifies the basic principles of common law trade
secret protection, preserving its essential distinctions from patent law.
86
Article 1711(6) of the NAFTA Agreement.
Article 1711(7) of the NAFTA Agreement.
88
The contracting countries of Mexico, United States of America and Canada must protect trade secrets
from unauthorised acquisition, disclosure or use. Remedies must include injunctive relief and damages.
In response to NAFTA, Mexico has amended its 1991 trade secrets law to permit private litigants to
obtain injunctive relief. USA already has a strong trade secret protection and Redressal mechanism in
place. Canadian trade secret law is apart from the province of Quebec. Common law in nature.
87
49
Section 1 (4)89 of the UTSA defines “Trade Secrets” as an 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
ii.
is the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.
The definition of “Trade Secrets” contains a reasonable departure from the
Restatement of Torts (First) definition which required that a trade secret be
“continuously used in one‟s business”. The broader definition in the proposed Act
extends protection to a plaintiff who has not yet has an opportunity or acquired the
means to put a trade secret to use. The definition includes information that has
commercial value from a negative viewpoint, for example, the result of lengthy an
expensive research which proves that a certain process will not work could be a great
value to a competitor.
In an action under UTSA, a court shall preserve the secrecy of an alleged trade secret
by reasonable means, which may include granting protective orders in connection
with discovery proceedings, holding in camera hearings, sealing the records of the
action, and ordering any person involved in the litigation not to disclose an alleged
trade secret without prior court approval.90
89
Section 1(4) of the Uniform Trade Secrets Act (UTSA), drafted by the National Conference of
Commissioners on Uniform State Laws, as amended 1985.
90
Section 5 of the UTSA.
50
CHAPTER- IV
CASE LAWS ON TRADE SECRETS
4.1 LITIGATION IN TRADE SECRETS
The protection of trade secrets is slightly different under various nations but the aim
and nature of protection is same. There is no law on the trade secrets protection
which provides them protection in all countries at ones. So, for the trade secrets
protection, the individual countries are doing well and there was a noticeable
movement towards increased protection of trade secrets in many countries of the
world. There is found a surprising uniformity in the treatment of trade secrets.91
Worldwide countries have different legislations and agreement for the protection of
trade secrets but these legislations and agreements are based on common principles.
Even though these principles vary in different countries, the main aim of these
agreements and legislations is to protect the trade secret disputes in each country.
Over the years, different laws and agreements have been formed like Restatement
(first) of Torts, Restatement (third) 1993 of Unfair Competition, GATT (General
Agreements on Tariff and Trade), NAFTA (North American Foreign Trade
Agreement), UTSA (Uniform Trade Secrets Act), TRIPS (Trade Related Aspects of
Intellectual Property Rights), and Paris Convention.
4.2 COURT PROCEEDINGS PERTAINING TO TRADE SECRETS IN:
4.2.1 United States
91
Supra note. 37.
51
In the U.S., the relevant law for prohibiting unauthorised commercial use of a trade secret are
the Uniform Trade Secret Act (UTSA), and the Economic Espionage Act 1996 (EEA).92
The most widely used common law definition of a trade secret was set forth in the
Restatement of Torts, Section 757 comment b (1939):
“A trade secret is any formula, pattern, device or compilation of information which
is used in one’s business, and which gives him an opportunity to obtain an advantage
over competitors who do not know or use it.”
In recent years, trade secret law in the US has largely become statutory. The Uniform
Trade Secret Act (UTSA) has been adopted (sometimes with modifications) in most
states93. Nonetheless, and despite the UTSA‟s widespread adoption, the Restatement
definition retains vitality and is often referred to by the courts during the course of
their deliberations in applying the UTSA.
The Economic Espionage Act (EEA) of 1996 provides for trade secret protection at
the federal level. The EEA was enacted as a federal criminal statute. The EEA does
not provide for a private civil right of action. Accordingly, a victim of trade secret
theft seeking redress must persuade the federal prosecutor in its judicial district that
their particular case is worthy of prosecution.
In federal court, the action will be governed by the Federal Rules of Civil Procedure
relating to federal civil actions generally. These rules set the times for responding to
the complaint, matters pertaining to motions and discovery, and any other litigation-
92
Ravindra Chaba and Shyam Sunder Chhaba, “Inadequacy of the Trade Secret‟s Protection Laws in
India
and
Legal
Regime
Existing
in
U.S”
available
at:
www.manupatra.com/readup/369/Articles/Inadequacy.pdf.
93
Abinav Kumar, Pramit Mohanty, et.al., “Legal Protection of Trade Secrets: Toward a Codified
Regime” 11 JIPR 401 (2006).
52
related matters.94 Most states have rules relating to civil procedure that are modeled
substantially after the Federal Rules of Civil Procedure and likewise govern the
litigation.
After the complaint is filed, the defendant will respond by filing an answer, usually
denying that any breach of agreement or misappropriation has occurred and asserting
various defences. If the defendant has a cause of action to assert against the plaintiff
relating to the trade secret, it must be asserted by way of a counterclaim in the
litigation so that all disputes between the parties relating to the information can be
resolved at the same time.
After the complaint, answer, and counterclaim have been filed, various motions may
be made. Discovery will commence. The plaintiff and defendant will take
depositions to obtain testimony from those who may have information about the
case.
For example, the plaintiff may depose individuals in the defendant‟s company to
determine whether they were instructed to use the plaintiff‟s information.
Interrogatories may be served on either party to obtain information, such as to
inquire about experts either side may intend to call, now damages such as lost profits
were calculated, or to determine the existence of pertinent documents.
Ultimately, if the matter cannot be resolved by private agreement, it will proceed to
trial. The trade secret owner must prove misappropriation by a preponderance of the
evidence. Either party may request a jury trial; otherwise, a judge will render the
decision. Appeals may follow.
94
Supra note. 44.
53
One of the difficult issues in trade secret litigation arises from the fact that the trade
secret sought to be protected often must be disclose in the litigation so the judge or
jury can evaluate whether the information is sufficiently valuable that it affords its
owner a competitive advantage. Similarly, the owner‟s methods of protecting the
information often must be disclosed so the fact-finder can determine whether the
owner has taken reasonable measures to protect the alleged trade secrets.
Thus, the dilemma faced by trade secrets owners in litigation is that they must
disclose the very information they seek to protect. Courts can fashion a variety of
means to protect the information, from issuing protective orders (prohibiting the
parties and their counsel from any further disclosure), to holding private hearings in
the judge‟s chambers, to sealing court records.95
In the case of JustMed Inc. v. Byce,96 several examples of behaviour concerning a
trade secret that the court deemed inappropriate, but not misappropriation. A
disgruntled employee deleted copies of a source code of the company‟s crown jewel
software; deposited portions of the software as part of an attempt to register the
software‟s copyright; and threatened to withhold the software from the company97.
Misappropriation, however, requires wrongful acquisition, use, or disclosure of the
trade secret. Deleting it, withholding it and submitting partial copies in confidence to
the copyright office fall outside those categories.
JustMed also had an important holding on a related copyright issue. Just whose code
was it anyway? The software developer, after all, was accused of trade secret
misappropriation for taking code that he himself had written. If he was the author of
the code, he would hold the copyright in the code under the work made-for-hire
doctrine, however, if he wrote the code as an employee, the employer would be
95
Ibid.
JustMed Inc. v. Byce, 600 f. 3d 1118 (9th cir. 2010).
97
Stephen M. McJohn, “Top Ten in 2010: Patent, Trade Mark, Copyright, and Trade Secret” available
at: http://ssrn.com/abstract=1731887 .
96
54
deemed to be the author. So the key question was, whether he was working as an
employee or an independent contractor.
Several factors weighed toward independent contractor status. He worked at home,
not at the office. He set his own hours and had great freedom in setting his working
conditions. He did not receive a salary, rather was paid in stock. The company did
not list him as an employee for the tax purposes or the employee benefits. Under
older case law, those factors would have been decisive. In pa; reticular courts are
very leery where a company fails to treat a person as an employee for tax and other
filing purposes, the claims the person as an employee, to claim ownership of the
copyright. But JustMed took a more practical approach, emphasizing that the dispute
arose in a small, start-up company. Just ventures often pay insufficient attention to
formalities. The software developer worked under the supervision and direction of
the company; took on additional tasks, that were assigned as to an employee, as
opposed o the specific projects that an independent contractor took on, and appeared
to regard himself as an employee in his dealings with the company.
In JustMed, the court gave leeway for the informal practices of a start up company.
But informality may not foreign where it undercuts the relevant policy for protection.
Trade secret law helps those who help themselves. Valuable information, unknown
to competitors who could desire value from it, may not be a trade secret to have the
legal protection of trade secret law, a party itself must take reasonable measures to
keep the information secret98.
In Pepsico, Inc. v. Williame Redmond99, the defendant (William Redmond), worked
for Pepsico from 1984 to 1994, Redmond became the General Manager of the
Northern California business Unit in June, 1993, and was promoted one year later to
98
99
Ibid.
Pepsico, Inc. v. Williame Redmond 54 F3d 1262,1269.
55
General Manager of the business unit covering all of California100. Redmond‟s
relatively high-level position at PCNA gave him access to inside information and
trade secrets. Redmond, like other Pepsico management employees, had signed a
confidentiality agreement with Pepsico. Later on he joined Quaker, a competing
company.
Against this Pepsico filed a suit, seeking temporary restraining order to enjoin
Redmond from assuming his duties at Quaker and to prevent him from disclosing
trade secrets or confidential information.
The District Court issued an order enjoining Redmond from assuming his position at
Quaker through May, 1995, and permanently from using or disclosing any trade
secrets or confidential information. Court found that Redmond‟s new job posed a
clear threat of misappropriation of trade secrets and confidential information that
could be enjoined under Illinois statutory and common law. Against this an appeal
was made to the United States Court of Appeals for the Seventh Circuit, the Seventh
Circuit affirmed the District Court‟s order101.
4.2.2 United Kingdom
The UK has probably the most developed trade secret law, mainly due to the
industrial revolution and its common law legal system. Under the UK statute search
and seizure orders may be issued to protect the trade secrets and preserve the
evidences. The UK provides broad and effective protection for the trade secret. There
exists the full panoply of the remedies for a “breach of confidence” including the
injunctive relief, damages and the third party liability.102
100
Supra note. 123.
Ibid.
102
Supra note. 37.
101
56
The Law Commission of UK published a Consultation Report on „Misuse of Trade
Secrets‟ in November 1997 in which it is provisionally proposed that is should be a
criminal offence to use or disclose a trade secret without authority.103
In the case of Saltman Engineering Co. Ltd. and ors. v. Compbell Engineering Co.
Ltd.104, Saltman Engineering owned confidential drawings concerning the design and
construction of certain specialist tools. Through an agent they purported to contract
Campbell Engineering for the manufacture of some of these tools, and to that end
they handed over the drawings105. Campbell Engineering used these drawings for
their own purposes. There was contention as to whether or not there had been a
viable contract, and if not whether a breach of confidence could in law have
occurred. The Court of Chancery held that there was in fact no binding contract and
thus no breach of confidence.
Reversing the order, the Court of Appeal found that106:
a) There was such a contract as had been claimed, and that the documents provided by
Saltman Engineering were confidential and known to be such by Campbell
Engineering;
b) Apart from contract, there was an obligation of confidence resting on Campbell
Engineering by the delivery of the drawings, which they knew to be the property of
Saltman Engineering, and which had been provided to them for a limited purpose,
that is to say the manufacture of certain specific tools;
c) A document may not be confidential if it is the result of work done by its maker,
even if the matter contained therein is public knowledge;
103
Krishan Keshav, Intellectual Property Law 323(Singhal Law Publications, New Delhi,2nd edn.,2012).
Saltman Engineering Co. Ltd. and ors. v. Compbell Engineering Co. Ltd. 1963 (3) All England LR
413: (1948)RPC 203.
105
D.P. Mittal, Indian Patents Law and Procedure 335 (Taxmann‟s Allied Services Pvt. Ltd., New
Delhi, 2nd edn., 2002).
106
Ibid.
104
57
d) This being so, Campbell Engineering had broken confidence by using documents for
purposes other than those for which they had been delivered, and there was no
agreement releasing them from the obligation of confidence; and
e) Saltman Engineering was entitled to have the documents retuned to them and to
receive damages for the breach.
The court held, “it seems to me that it would not matter the least bit whether there
was a contract; but contract or no contract, the defendants got those drawings into
their hands knowing, or knowing shortly afterwards, that they belonged to Saltmans,
that they were obviously confidential matter, and they knew that they had got them
into their hands for a strictly limited purpose.”
In the case of Coco v. A.N. Clark (Engineers)Ltd.,107 the claimant had designed a
new „Coco‟ moped, which featured special engine parts and had entered into
negotiations with the defendants with a view to them ultimately manufacturing it. He
showed the defendants a pro type and also supplied them with information, drawings
and other aids towards the production of the moped. After several months of
discussions, the defendants broke off negotiations and subsequently began
manufacturing and selling their own „Scamp‟ moped, which was highly successful.
The defendants admitted that the piston and carburettor were of the same types as the
„Coco‟ moped. The claimant then sought an injunction against the manufacture and
sale of any machines in which the defendants had made use, directly or indirectly, of
any confidential information which was the property of the claimant. This was
refused by Megarry J.
The test for a cause of action for breach of confidence was laid as108:
1. The information itself must have the necessary quality of confidence about it;
107
108
Coco v. A.N. Clark (Engineers)Ltd (1969) FSR 415.
Ibid.
58
2. That information must have been imparted in circumstances imparting an obligation
of confidence;
3. There must be an unauthorised use of that information to the detriment of the party
communicating it.
4.2.3 India
In India, several cases in courts and tribunals have been filed dealing with trade
secrets, confidential information and know how. The courts in these cases were
confronted with the issues of copyright, contract law, law of injunctions, privileged
communication, etc. Trade secrets can be generally protected by an action of
misappropriation under common law109.
Misappropriation of trade secrets may occur by way of breach of obligation of
confidence which can arise expressly when it is stipulated by a contract between two
or more employer and employee or when while information was disclosed, the
confidential nature was expressly spelt out or when the circumstances were such that
any reasonable person would have realized that upon reasonable grounds the
information was being given to him in confidence. The other way of
misappropriation may be theft when the third party accessing confidential
information in an unauthorised manner and without consent.110
The courts in India have given due appreciation to the common law principles like
obligation of confidence to protect trade secrets and the principles like obligation of
confidence to protect trade secrets and the courts, while dealing with the cases, have
frequently pointed out that in the absence of legislation, it is protecting trade secrets
under the common law. Therefore it is crucial for a company to safeguard its trade
secrets through reasonable means such as non disclosure agreements and non-
109
110
Harshwardhan and Saurav Keshri, “Trade Secrets: A Secret Still to Unveil” 13 JIPR 210 (2008).
Ibid.
59
compete clauses which will augment the trade secret holder‟s stand in case trade
secret legislation is initiated. 111
To determine whether particular information is a trade secret or not courts generally
look into the following points112:
1. The extent to which the information is known to the outside world,
2. The extent to which the information is known to the employees,
3. What measures are taken by the company to protect the secret?
4. The value of the information to the business and to the competitors,
5. The amount of time and money spent in developing the information, and
6. The ease or difficulty with which the information can be acquired and duplicated by
others.
The above list however is not exhaustive and it would in the end depend on the facts
of the case.
In John Richard Brady v. Chemical Process Equipments P Ltd.113, the Delhi High
Court invoked a wider equitable jurisdiction and awarded injunction even in the
absence of a contract.
Facts: The plaintiff invented a “Fodder Production Unit” (FPU) and for indigenous
production of the same south supply of thermal panels from the defendant and in that
process shared technical material, detailed know-how, drawings and specifications
111
Ayushi Kiran, “Trade Secrets: An Overview” 40 PTC J-2 (2009).
K.V Swaminathan, “Trade Secrets”in Prof. A.K. Kaul and Dr. V. K. Ahuja (eds.), The Law of
Intellectual Property Rights: In prospect and retrospect 38-42(DU,2001).
113
John Richard Brady v. Chemical Process Equipments P Ltd.AIR 1987 Del. 372.
112
60
with the defendant concerning the FPU114. An agreement was set out between the
parties for the supply of specialised thermal panels but later the plaintiff after
discovering the inability of the defendants to supply the requirements to supply the
required thermal panels did not place any order.
The plaintiffs after learning about the defendant‟s FPU preferred a suit alleging
misappropriation of know-how information drawings, designs, and specifications
disclosed to defendants.
Issues Considered:
(a) Whether the defendants fodder production unit is based on the plaintiff‟s
drawings and the related know-how passed to them under the express condition of
confidentiality?
(b) Whether the technical drawings of the defendants are artistic works that qualify
for protection under the Copyright Laws?
The Court took the position that even in the absence of an express confidentiality
clause in the contract, confidentiality is implied and that the defendant is liable for
breach of the confidentiality obligations.
The Delhi High Court in a case involving unauthorised use of trade secrets observed
that it would also be in the interest of justice to restrain the defendants from abusing
the know-how, specifications, drawings and other technical information regarding
the plaintiffs‟ fodder production unit entrusted to them under express condition of
114
Kamakhya Srivastava,
www.mondaq/india/x/204598 .
“India:
Trade
Secrets
in
Indian
Courts”
available
at:
61
strict confidentiality, which they have apparently used as a „spring- board‟115 to jump
into business field to the detriment of the plaintiffs or from using in any other
technical information about the fodder production unit disclosed to them by the
plaintiffs.
In Daljeet Titus v. M Alfred A Adebare116, the learned judge observed, “I am in full
agreement with the views expressed in Maegaret, Duchess of Argyll (Feme Sole) v.
Duke of Argyll117 that a court must step in to restrain a breach of confidence
independent of any right under law. Such an obligation need not be expressed but be
implied and the breach of such confidence is independent of any other right as stated
above.” The court while granting injunction also directed that the defendants would
not be entitled to make use of the stuff of the plaintiff to which the defendants has
access in a confidential manner.
The defendants, having worked with the plaintiff, cannot utilize the agreements, due
diligence reports, list of clients and all such materials which had come to their
knowledge or had been developed during their relationship with the plaintiff and
which was per se confidential118.
In the light of the responsibility of banks to maintain secrecy towards its customers
under the common law, the Delhi High Court held that the bank owed a duty of
secrecy to its customer which arose out of the confidential nature of bank-customer
relationship and was not limited to contractual and equitable obligations and was
115
Spring Board Doctrine are discussed at 10.57-10.85 of Employee Competition: Covenants,
Confidentiality, and Garden Leave (2nd ed, 2011). See also: Case Law Jean Patou Inc. v. Jacqueline
Cohran Inc. 201 F. Supp 861 “The Springboard doctrine developed by the English Courts attempts to
prevent a person from using any special information that may have been obtained in confidence from
gaining an advantage over others who would have had to obtain the information by means. In essence,
the doctrine aims to ensure that a person who breaches a duty of confidence is not able to benefit from
the breach”.
116
Daljeet Titus v. M Alfred A Adebare 130 (2006) DLT 330.
117
Maegaret, Duchess of Argyll (Feme Sole) v. Duke of Argyll [1965]1 All ER 611.
118
Ibid.
62
well established in bank‟s fiduciary duty towards its customers. But the court also
observed that if the customers decided to do trade with the employee of bank,
particularly even when they joined a new bank, the obligation could not be pleaded
as no secrecy was hampered.
(i)
Protection under Copyright Law
In Puneet Industries Controls (P) Ltd. v. Classic Electronics,119 the issues in this
case was whether the defendants are guilty of infringement of the plaintiffs
Copyright under Section 51 of the Copyright Act, 1957. In this case the plaintiff who
was engaged in the manufacturing and selling broad range of electric goods, alleged
that his relative, misusing the trade secret and confidential information, had started
his own manufacturing unit and started imitating the products of the plaintiff. The
court held that plaintiff had copyright over the information and restrained the
defendants from imitating the products of the plaintiff.
In Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber,120 the plaintiff was a
mail order service company. It published mail order catalogues dealing with several
consumer items and posted to the select list of plaintiff‟s clients. He defendant was at
one time an employee of the plaintiff and later established himself as a competitor by
entering into mail order shopping business. He managed to get a copy of the
database, an otherwise guarded secret of the plaintiff and started making use of the
same for the purpose of establishing relationship with the plaintiff‟s customers121.
The questions arose whether a database consisting of compilation of mailing
addresses of customers can be subject matter of a copyright and whether the
defendant can be said to have committed infringement of the plaintiff‟s copyright.
119
Puneet Industries Controls (P) Ltd. v. Classic Electronics (1997) Sup ARBLR195 Delhi (1997).
Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber 61 (1995) DLT 6.
121
Ibid.
120
63
Section 2(o)122 defines „literary work to include, among others, computer
programmes, tables and compilations including computer databases. Section 2(y)123
defines „work‟ as meaning any of the following works, namely:
i.
A literary, dramatic, musical or artistic work,
ii.
A cinematographic film, and,
iii.
Sound recoding.
Section 14124, literary work is one of the items wherein exclusive rights can be
claimed so as to amount to copyright. Under Section 17(c), 125 if a work is made in
the course of other‟s employment under a contract of a service or apprenticeship, it is
the employer who is the first owner of the copyright therein in the absence of any
agreement to the contrary. It was held that the defendant was restrained during
pendency of the suit from carrying on any business including mail order business by
utilizing the list of client / customers included in the database exclusively owned by
the plaintiff. Thus, it is recognised by the courts that a database consisting of
compilations of mail addresses of clients and subscribers can be subject matter of
copyright and cannot be used without prior permission.
In Tractors and Farm Equipment Ltd. v. Green Field Farm Equipments Pvt. Ltd.,126
the plaintiff wanted to restrain the respondents/ defendants from manufacturing,
selling, offering for sale, advertising or directly or indirectly dealing, in tractors
named Maharaja or substantial imitation and reproduction of the digital images,
photographs, drawings of the applicant‟s Hunter tractor, thereby amounting to
infringement of applicant‟s copyright. Also the second respondent was a former
employee was charged with passing on the trade secrets of the plaintiff to the
respondent.
122
Section 2(o) of Copyright Act, 1957.
Section 2(y) of Copyright Act, 1957.
124
Section 14 of Copyright Act, 1957.
125
Section 17( c) of Copyright Act, 1957.
126
Tractors and Farm Equipment Ltd. v. Green Field Farm Equipments Pvt. Ltd. AIR 2005 Mad. 19.
123
64
The suit was filed under sections 51, 55, and 62 of the Copyright Act but since the
Hunter tractor remained an incomplete concept, it was not a production model and
this being the position, there was no question of the first respondent/ defendant
passing of their products as that of the applicant‟s products. The court decided to
grant injunction but held that if the respondents did not use the digital images and
other plans of the Hunter tractors project, they were free to manufacture tractors.
In Pepsi Foods Ltd. v. Bharat Coca-Cola Holdings Pvt. Ltd.127, it was alleged that
Coke started approaching the employees of Pepsi with inducements to terminate their
existing contracts with Pepsi and enter into an employment contract with Coke. It
was further mentioned that in certain cases, Coke had successfully approached and
induced some of Pepsi‟s employees into illegally terminating their existing contracts
and entering into new employment contracts with Coke.
The employment contract inter alia, contained a provision that the contract can be
terminated only by a three months‟ notice. The employees has also executed a
confidential undertaking in favour of Pepsi, wherein they had undertaken, inter alia,
to keep secret all information, knowledge, data, etc. acquired by them during the
course of their employment with Pepsi and had also undertaken not to take up any
employment with the competitor of Pepsi within one year of leaving Pepsi‟s
employment for any reason whatsoever. The issue was whether Coke induced the
employees of Pepsi to breach their contract of employment.
It was held that the principles of law as laid down in English case Greig v. Insole128,
was fully applicable to the facts of the present case, particularly regarding the
principles of the tort of inducement of breach of contract. The defendant must be
shown to have knowledge of the relevant contract. In bringing an action other than
127
128
Pepsi Foods Ltd. v. Bharat Coca-Cola Holdings Pvt. Ltd 81 (1999) DLT 122.
Greig v. Insole [1978] 3 ALL ER 449.
65
Quia Timet Action129, the plaintiff must show that he suffered a special damage, i.e.
more than the nominal damage. In Torquay Hotel v. Cousins,130 Lord Denning M.R.
extended liability to direct and deliberate interference with the execution of a
contract without causing a breach thereof. He stated that there were three
requirements of such extended liability:
(i)
An interference in the execution of a contract, extending to cases where the
defendant “prevents or hinders” performance (even though there is no breach) which
is
(ii)
Deliberate and
(iii)
Direct.
Such interference with business did not require proof that existing contracts had been
breached; but the cause of action existed only when the defendant had circumstances
of this case, prima facie, of the totality of the facts and circumstances of this case,
prima facie, the plaintiffs were not entitled to injunction. Thus, the defendants were
held to have not induced breach of contract between employees and Pepsi.
(ii)
Employment Agreement and Trade Secrets
In Star India Pvt. Ltd. v. Laxmiraj Seetharam Nayak,131 the employee cannot be
restrained by contract of confidence after termination of his employment for making
use of the skill, knowledge and experience acquired by him during the course of
employment. He is at liberty to use the expertise and knowledge acquired by him for
his own benefit or for the benefits of the others. But an employee may not, either
during his employment or after the termination of his employment divulge or use
129
It is a Latin legal term used here means “because he fears”. “A legal remedy sought in an equity court
to enjoin someone from doing an anticipated damage. Such a remedy may be granted if the petitioner can
show imminent and irreparable harm would be done.” Available at: http://www.yourdictionary.com/quiatimet .
130
Torquay Hotel v. Cousins [1969] 1 ALL ER 522.
131
Star India Pvt. Ltd. v. Laxmiraj Seetharam Nayak 2003 (3) Bom CR 563.
66
confidential information obtained by him during the course of his employment. An
ex-employee may be restrained from using or disclosing a chemical formula or a list
of customers, which he has committed to memory.
There is a distinction between an employee and ex-employee regarding the
obligation of fidelity. There is a contractual obligation of fidelity by the employee to
the employer, express or implied, preventing a skilled employee from assisting to a
competitor despite the fact that no information has been disclosed to the employee in
confidence. The obligation of an ex-employee to his employer is obviously more
restricted. A person can work for a competitor of his former employer save in so far
as he is restricted convenient. The ex-employee also may be under an obligation not
to make use of or disclose information imparted to him in confidence by his former
employer.
The protection of trade secrets is of paramount importance for maintaining and
increasing market share. The largest threat to a company‟s trade secrets originates
from current and former employees132. The number one risk factor associated with
the theft of trade secrets is from those with the trust relationship, with the
organisation, primarily current and former employees. As Justice Holmes noted long
ago, misappropriation of trade secrets is fundamentally rooted in the unique nature of
employer and employee relationship. The word „property‟ as applied to... trade
secrets is an unanalysed expression of certain secondary consequence of the primary
fact that law makes some rudimentary requirements of good faith. Whether the
plaintiff have any valuable secret or not, the defendant knows the fact, whatever they
are, through a special confidence that he accepted. The property may be denied, but
the confidence cannot be. Therefore, important point in case of trade secret matter is
not property or due process of law, but that the defendant stood in confidence
relations with the plaintiffs133.
132
Bradford K. Newman, “Protecting Trade Secrets- Dealing with brave new World of Employee
Mobility”, 17 BLT 25 (2007-2008).
133
Ibid.
67
Employee mobility and departures pose a unique threat. According to Justice
Posner134, Trade secrecy is a two-edged sword: it's a cheaper way to protect the
invention but it makes it more difficult for the public to learn how the technology
works. Keep in mind that trade secret is really just a piece of information such as a
customer list, or a method of production, or a secret formula for a soft drink. The
only way the secret can be unmasked is by unlawful activity. In other words, trade
secrets comprise information that is fundamentally defined by a confidential
relationship the employee enjoys with his or her employer. Unlike patent, copyright
and trademark, where the plaintiff claims a clear property right against whole world,
trade secret information is fundamentally relational in nature. However, if an
employer establishes the existence of the trade secret and that the current or former
employee misappropriated it, the employer must still establish that it took reasonable
measures to protect its confidential property in its relations with its employee. This
poses new problems on the modern business when employees are well versed in
using private web e- mail accounts and other means of communication that transcend
the company email system.
Thus, the employee mobility has potential adverse impact on the ability to protect
trade secrets from disclosure to competitors. Some companies focus on creating and
implementing internal controls in this area before it is too late. Intellectual property
management systems may not effectively protect trade secrets unless they have
backing and sanction of law.135
(iii)
Protection Under Contract Act, 1872:
Section 27 of the Contract Act, 1872, gives statutory recognition to the common law
principle of restraint of trade. This section has attracted most of the trade secret
134
William M. Landes and Richard A. Posner, “The Economic Structure of Intellectual Property Law”
38(Harvard University Press, 2003). available at:
http://books.google.co.in/books/about/The_Economic_Structure_of_Intellectual_P.html?id=L2P3EHagf8
cC&redir_esc=y.
135
Supra note. 71.
68
litigation in India. Section 27 provides that every agreement by which a person is
restrained from carrying on any trade, business or profession, is invalid.
In Wipro Limited v. Beckman Coulter International SA136, Delhi High Court dealt
with the existing authorities on the doctrines of restraint of trade secrets in India. In
this case, the court initially referred to Star India Pvt. Ltd. v. Laxmiraj Seetharam
Nayak,137 and quoted the observation of the court that “If the plaintiff had right to
terminate the contract on the ground of misconduct it cannot be said that the
defendant had absolutely no right to resign from the employment on account of better
prospects or other personal reasons.”
The court in Taprogge Gesellschaft MBH v. IAEC India Ltd.,138 observed that the
distinction between the restraints imposed by a contract, operative during the
subsistence of the contract and those operative after the lifetime of the contract is of a
fundamental character, the purpose for which a restraint is expected to serve
determines the character of the restraint. The restraints which operate during the term
of the contract should fulfil purpose of furthering the contract whereas the restraints
operative after the termination of contract should strive to secure freedom from
competition from a person who no longer works within the contract. Generally
speaking, the negative covenants operative during the term of the contract is not hit
by section 27 of the Contract Act because they are designed to fulfil the contract and
not to restrain them. On the other hand, when a restriction applies after the contract is
terminated, the restriction on trade, business or profession takes the form of restraint
on trade, business or profession. This distinction which is of a fundamental nature
has to be borne in mind.
136
Wipro Limited v. Beckman Coulter International SA 2006 (2) CTLJ 57 (Del).
Star India Pvt. Ltd. v. Laxmiraj Seetharam Nayak 2003 (3) Bom CR 563.
138
Taprogge Gesellschaft MBH v. IAEC India Ltd.AIR 1988 Bom. 157.
137
69
In Ambiance India Pvt. Ltd. v. Shri Naveen Jain,139 the plaintiff sought an ad interim
injunction till the disposal of the suit to restrain the defendant from continuing in the
employment of another and to divulge information, know-how and trade secrets
which the defendant had acquired during his employment with the plaintiff company.
The primary issue was whether an employee can be restricted from taking
employment elsewhere and whether that attracted section 27 of the Contract Act.
In Krishna Murgai v. Superintendence Co. Of India140, it was held that an employee,
particularly after the cessation of his relationship with his employer, is free to pursue
his own business or seek employment with someone else. However, during the
subsistence of his employment, the employee may be compelled not to get engaged
in any other work or not to divulge the business/ trade secrets of his employer to
others and, especially, the competitors. 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 situation. In the present case, the court was of view that the
agreement between the parties prohibiting the defendant for two years from taking
employment with any present, past or prospective customer of the plaintiff was void
and hit by section 27 of the Contract Act.
In Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd.,141 the
appellant accepted the post of shift supervisor offered by the respondents and signed
standard form of contract of five years. The appellant received training for nine
months but due to some difficulty between the respondent and appellant, he absented
himself from work and then handed over his resignation letter which was not
accepted. The appellant informed the respondent that he had joined another company
for a higher pay. The company proceeded for an injunction against the appellant to
restrain him from employment pursuant to clause 9 of the contract for 4 years and not
to divulge secrets as in clause 17 of the contract. The issue involved was whether the
above mentioned clauses of the contract were unreasonable in the light of section 27
139
Ambiance India Pvt. Ltd. v. Shri Naveen Jain 122 (2005) DLT 421.
Krishna Murgai v. Superintendence Co. Of India AIR 1979 Del. 232.
141
Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd.AIR 1967 SC 1098.
140
70
of the Contract Act. It was held that the negative covenant in the present case
restricted as it was to the period of employment and to work similar or substantially
similar to the one carried on by the appellant when he was in the employment of the
respondent company was reasonable and it was necessary for the protection of the
company‟s interests and not such as the court would refuse to enforce.
There was, therefore, no validity in the contention that the negative covenant
contained in clause 17 amounted to a restraint of trade and therefore, against public
policy. A negative covenant that the employee would not engage himself in a trade or
business or would not get himself employed by any other master for whom he would
perform similar or substantially similar duties is not, therefore, a restraint of trade
unless the contract as aforesaid is unconscionable or excessively harsh or
unreasonable or one sided as in the case of W.H. Milsted & Son, Ltd.142 Thus,
negative clauses in the agreement did not amount to restrain of trade, as per section
27 of the Contract Act.
In Sandhya Organics Chemicals P. Ltd. v. United Phosphorous Ltd.143, the Supreme
Court was of the view that an employee cannot be restrained for all times to come
from using his knowledge and experience gained by him in the course of his
employment especially when he was not in the service of the employer i.e. after the
termination of the service.
In this case there was an application to restrain the defendant from producing
aluminium phosphide and zinc phosphide by applying method as used by the
plaintiff. There was evidence to prove that the defendant was carrying on production
either also and same was within the knowledge of the plaintiff but the plaintiff failed
to object to such operation of defendant at that time. Thus, the court was of the view
that the balance of convenience, as per principles of equity and fraud, was in favour
of the defendants and if the injunction as granted by the trial court was continued, the
142
143
W.H. Milsted & Son, Ltd [1927] W.N. 233.
Sandhya Organics Chemicals P. Ltd. v. United Phosphorous Ltd.AIR 1997 Guj. 177.
71
defendants would certainly suffer irreparable loss which will not be compensated in
terms of money and especially when the plaintiff had already claimed damages to the
tune of Rs. 10 crore. Therefore, the court sought to achieve a balance between the
right of livelihood of the employees and the right of the employer to make profit.
In M/s. Sociedade de Fomento Industrial Ltd. v. Ravindranath Subraya Kamat,144
plaintiff company‟s assertion was that contract against the employee was binding
forever and, therefore, company could seek restraint against the employee from
competing and engaging in business similar to one of the company. The issue was
examined by the court within the purview of section 27 of the Contract Act which
held that specific pleading with facts was to be made for the plea to be accepted; a
mere submission on the plea was not sufficient and engagement in similar business
could not be per se termed as being similar business. Thus, it was held that when the
period of appointment was upto a specified date, the plaintiff company‟s assertion
that the contract was binding for all the time was nit tenable. The court also held that
the contract cannot be termed as void under section 27 of the Contract Act till the
period of agreement was in force.
In Shree Gopal Paper Mills Ltd. v. Surender K. Ganeshdas Malhotra145, the Calcutta
High Court upheld the restrictive clause in an employment contract, imposing
constraints on the employee preventing him from misusing or revealing the trade
secret acquired during the tenure of his employment. The appellant sought an
injunction to restrain the defendant during the continuance of the agreement of
employment from giving his services or advice to any person or company
whatsoever other than the plaintiff or from becoming interested or engaged in any
enterprise or undertaking either alone or jointly with other or any other in any
business or trade other than the plaintiff‟s business or trade was sought. The
defendant was given special training in the manufacture of paper and, by reason of
his association with the said paper mills, the defendant acquired special knowledge
144
145
M/s. Sociedade de Fomento Industrial Ltd. v. Ravindranath Subraya Kamat AIR 1999 Bom. 158.
Shree Gopal Paper Mills Ltd. v. Surender K. Ganeshdas Malhotra AIR 1962 Cal. 61.
72
and experience in the manufacture of paper and by reason of his having acquired
such knowledge and experience, the plaintiff came to repose confidence in him.
Later on, the defendant abruptly left the employment of the plaintiff to join another
competitor. The defendant stated that the plaintiff committed breach of the
agreement by not giving him necessary training as provided in the agreement of
apprenticeship but by utilising his services for gain and malfunctioning work. The
defendant denied that he was given any special training or that he acquired any
special knowledge or experience in the manufacture of paper.
The question before the court was whether the said contract of employment attracted
section 27 of Contract Act. The court was of the view that there was no enforceable
covenant preventing the defendant from being employed at another place and the
plaintiff was not entitled to an injunction. The court is empowered to decide whether
restrain in question is valid and justified. Thus, the court held that it had to test the
validity of restrain and whether the covenant of restrain was designed to protect his
trade secrets against disclosure or revelation by employee. Similarly, a buyer of
goodwill of any business may protect it from competitive activities of seller, but in
no case, law will allow an action competitive activities of seller, but, in no case, law
will allow an action merely to avoid competition and the restrain wider than
protection of proprietary interest will also not be permitted under the law146.
In Pramod, Son of Laxmikant Sisamkar and Uday Narayanrao Kirpekar v. Garware
Plastics and Polyester Ltd.,147 the respondent claimed that petitioners, who were exemployees of respondent‟s company, were under possession of some important
documents of the company which they were required to handover at time of leaving
company. But no specification was given by the respondent as to which documents
were in possession of the petitioners. The issue was whether the petitioners were
liable for possession of secret documents and as they were spreading of trade secrets
146
Ibid.
Pramod, Son of Laxmikant Sisamkar and Uday Narayanrao Kirpekar v. Garware Plastics and
Polyester Ltd.1986 (3) Bom. CR 411.
147
73
of the respondents and were liable for conviction under sections 408 148 and 420149. It
was held that neither in the complaints not in the verification statement, any specific
documents were mentioned which were in the possession of the petitioners at the
time they left the service. There was not even a general statement which documents
of the company used to be in their possession during their services which they would
be required to hand over at the time of leaving their service. Thus, the court held that
no offence could be said to be committed by the petitioners by merely carrying the
said technical know-how in their hands unless their malafide intention can be proved.
In American Express Bank Ltd. v. Ms. Priya Puri,150 the issue involved was of
enforcement of post–employment contract. The defendant employee was restrained
from using information and data regarding wealth of customers of the plaintiff bank.
The defendant contended that the allegation had been made against her only with a
view to coerce her to remain in her job and not to join any competitor bank. The
legal question was whether the said post-employment contract attracted section 27 of
the Contract Act and whether the said restraint was unreasonable. It was held that,
prima facie, the defendant did not obtain any data as alleged by the plaintiff bank.
Further, mere knowledge of names and addresses and even the financial details of the
customer would not be material, as the consent of the customer and his violation as
to with whom was of prime importance. The right of an employee to seek and search
for better employment are not to be curbed by an injunction even on the ground that
she had confidential data. Balance of convenience was, therefore, held to be in
favour of the defendant. Thus, the court differentiated between service trade secrets
and what were routine day to day affairs of employer which were in the knowledge
of many and were commonly known to others which could not be called trade
secrets. Trade secret could be a formula, technical know- how or a peculiar mode or
method of business adopted by an employer, which was unknown to others.
148
Section 408 (Criminal Breach of Trust) of Indian Penal Code, 1860
Section 420 (Cheating) of Indian Penal Code, 1860.
150
American Express Bank Ltd. v. Ms. Priya Puri 2006 (110) FLR 1061.
149
74
In Control Print (India) Limited v. Sanjay Sribastab151, the plaintiffs filed a suit for
permanent and mandatory injunctions and recovery of damages against the
respondents and to stop them from manufacturing, dealing in or servicing for ink jet
printers and to hand over all toolkits, service manuals, and/ or literature as well as
consumable including parts and components of ink jet printers lying in their
possession and custody. The respondents were former employees of the plaintiff and
were also charged with misusing the trade secrets of the plaintiff. The respondents
were also privy to and had access to information, formulae, process, method,
composition, service manuals, technical communications, field bulletins, documents
concerning the said equipments and /or the process of servicing and maintenance
thereof. During the course of their employment, the respondents received diverse
nature of specialized training in respect of their work and in respect of marking and
coding machines and /or parts, ink, make up cleaning solution, filters, maintenance
and servicing thereof. After resigning from their employment, these respondents
through another respondent were participating in the business of selling,
manufacturing and/ or servicing, products services similar to and / or comparable
with and / or competitive to the appellant business and / or services. The respondents
were purporting to render services and maintenance in respect of the appellant‟s
machinery, which only the appellant was authorised or entitled to do. The appellant
had come to learn that the respondents were attempting to produce and / or entice
further customers of the appellant. The court held that the respondent engineers were
free to repair and modify any equipment of their like, if their customers so desired.
Therefore, the court refused to allow the appeal since the law afforded no protection
to the appellants152.
4.3 AMBIGUITY IN FOREIGN CASE LAWS- CAN WE RELY ON IT?153
At the very outset, it is submitted that not enough direct Indian case law has surfaces
on the issue of trade secrets. Only Indian case which has surfaced on the issue of
151
Control Print (India) Limited v. Sanjay Sribastab (2006) 2 CALLT 145 (HC).
Ibid.
153
Supra note.124.
152
75
confidential information is Daljeet Titus v. M Alfred A Adebare154. As there is no
specific law on trade secrets penalizing use of confidential information, the plaintiffs
moved the High Court of Delhi for infringement of copyright. The High Court held
that the element of control had to be identified in every case for deciding upon the
nature of information used. If the information was obtained in the course of contract
of service and not contract for service then such information would get adequate
protection. The court didn‟t delve into the issue importance of pre-existing contract
or the distinction between trade secret and confidential information. So, this case
cannot be considered as a strong precedent for the pressing issues in trade secrets.
It is evident that India lacks a substantive piece of legislation governing trade secrets.
The absence of adequate protection for trade secrets in India can be attributed to the
socialist ideology of the intellectual property rights for the greater „public interest‟.155
This ideology is reflected in the stand taken by India during the negotiation of the
TRIPS Agreement, wherein the Indian Government contented hat trade secrets were
not a form of intellectual property right. It was further argued that the protection
against the unfair competition under Article 10 bis of the Paris Convention would
suffice, and that protection by contract and under civil law were to be preferred to
intellectual property rules.
It is submitted that cases which have decided on the issue of trade secrets, suffer
from inconsistency and ambiguity and hence cannot be relied upon. It is submitted
that Indian Courts when faced with the issue of the trade secrets, will have to place
reliance upon such foreign cases, which themselves are ambiguous. Therefore, this
situation makes it even more imperative for India to enact specific laws regulating
trade secrets so as to evade these inconsistencies.
So, it is quite clear from these cases that the courts have try to protect the interest of
the employees rather than the employer and in all these cases the court has taken a
154
155
Daljeet Titus v. M Alfred A Adebare 130 (2006) DLT 330.
Supra note. 124.
76
different stand in the circumstance of the respective case there is no uniform rule.
This is where the problem starts when there is no uniform rule you cannot be sure of
in which direction the court may lean on, this apprehension discourages development
of ideas and Investment by companies in areas where they can protect their
Intellectual Property through investment but if we have policy like a legislation this
will give an uniformity for protection of Trade Secrets then the courts will have to
bound by the legislation.
77
CHAPTER- V
PROTECTION OF TRADE SECRETS IN INDIA
This chapter highlight the laws dealing with trade secrets in India and their
inadequacy in the view of legal regime. After words this chapter draws a outline of
the possible legislation for the protection of trade secrets in India. Later on the
reasons were mentioned that why trade secrets are increasingly important. And in the
end the need for a Sui Generis System as a tool to protect trade secrets and national
innovation law was discussed in detail.
5.1 TRADE SECRETS LAWS IN PRESENT SCENARIO
Since 1991, India has a policy of globalization and industrialization, which
encourages the entry of foreign corporations into India and also advocates the policy
of removal of trade barriers. Under this policy, India is required to enact sufficient
laws in order to extend adequate protection to the interests of the corporations. It is
submitted that this policy cannot take effect unless India enacts laws protecting trade
secrets that are par with the laws of other countries.
Adequate protection is required in view of business planning and safeguarding the
rights of employers and employees. Protecting one‟s proprietary information in this
context became an essential aspect of business planning. Can we say that in a
business environment that exists in India, a specific trade secret law is not required?
The jurisprudence on recognizing and protecting Trade secrets is at a very nascent
stage in India and is gradually developing. India has enacted various statutes in the
field of intellectual property in conformity with its obligations under the TRIPS
Agreement; however its refusal to enact a legislation regulating the field of trade
78
secret is rather conspicuous and strange at the same time.156 This is a part stem from
the socialist ideology of the legislature reflected in the stand taken by the India
during the negotiation of the TRIPS Agreement where it contended that trade secrets
were not a form of intellectual property law and that protection by contract and civil
law is to be preferred to intellectual property rules157.
Courts in India follow the tradition of “common law” and protect trade secrets
through contracts. Contractual and equitable remedy may be obtain under Section 27
of the Indian Contract Act, 1872 read with Section 57 of the Specific Relief Act,
1963. Although Section 27 of the Contract Act makes agreement in restraint of trade
as void, but in the business contract the employer can impose condition of
maintaining trade secrets on his employee during employment and after termination
of employment. The remedy for breach of trade secret consists of injunction and
damages.
There are also certain provisions contained in the Information Technology Act,2000
and the Securities Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992. Moreover, since the courts have been compelled to rely on
principles of common law and equity in the absence of a statute, it has severely
constricted the rights and remedies available to owners of Trade Secrets.
Government of India in 2008 proposed National Innovation Bill, 2008 to grant
statutory protection to trade secrets but bill was not passed. It was mooted by the
Department of Science and Technology of Government of India and not the
Department of Industrial Policy and Protection under the Ministry of commerce that
156
The legislation enacted by India in pursuance of its commitment under TRIPS are(i)The Copyright
Act, 1957- amended in 2000 & 2012, (ii) The Trademarks Act,1999, (iii) The Geographical Indications
of Goods (Regulation & Production) Act,1999, (iv)The Designs Act, 2000, (v) The Patent Act, 1970,amended in 1999 & 2002, (vi) The Semi Conductor Integrated Circuits Layout Design Act ,2000, & (vii)
Protection of Plants Varieties & Farmers Rights Act,2001.
157
Communication from India, MTNGNG/NG11/W/37, 10 JULY 1989 at 18 Cited in Aayush Agarwala,
Aditya Narain Mathur, “Protectiion Of Trade Secrets In India”2 JOLTI 181 (2011).
79
deals with policy and law making in the area of intellectual Property Rights. The
definition of “Trade Secrets” in the National Innovation Bill, 2008 follows the
pattern of the definition contained in Section 4 of the UTSA.
According to the proposed law, parties are at the liberty to enter into contracts
settings out rights and duties concerning trade secrets. The law envisages that the
government may prescribe a set of rules that govern the terms and conditions of
transactions relating to trade secrets, but such rules will be subject to the terms and
conditions agreed by the parties.
Section 8 (3) of the proposed Bill further recognizes the legal right to enforce trade
secrets even in the absence of a contract thus giving statutory recognition to the
rights arising in equity or as a result of circumstances imparting an obligation of
confidence. This is the most important provision in the proposed law as it transforms
an equitable right to a statutory right.
The proposed law also prescribes civil remedies for misappropriation of confidential
information in the form of injunction and damages.
India’s Obligation under TRIPS
(i)
Being a signatory to TRIPS Agreement, India is under the obligation to bring its
intellectual property laws in conformity with international standards. This obligation
is further emphasised by Article 51 of the Constitution which makes it a directive of
state policy, to foster respect for international law and treaty obligations and in
dealings of organised peoples with one another.158 India has met with this obligation
to a large extent by enacting new and amending existing legislations on intellectual
property laws.
158
Article 39(2)(b).
80
However, unlike the US and other developed countries, India has no legislation
dealing with trade secrets. In India the protection of trade secret is largely common
law based. The law relies on common principles such as breach of trust and breach of
confidence. The only statutory provisions governing trade secrets law is Section 27 if
the Indian Contract Act. Other avenue where the law on trade secret may be located
include the Securities Exchange Board of India (Prohibition of insider trading)
Regulations 1992.This clearly underlines the need for a comprehensive legislation on
trade secrets.
In India trade secrets is a most deserted field as there is no proper policy framework
for the protection of trade secrets. Trade secrets in India are protected mainly through
contract law. Section 27 of the Contract Act, provides remedy and it restricts a
person from disclosing any information which he acquires at the time of employment
or through a contract, but in this there is no provision of criminal remedy159. As per
Section 27 of the Contract Act confidential information must be highly confidential
before it could be classifies as a trade secrets. Further n deciding whether
information amounted to a trade secret, the following factors are relevant- (a) the
status of the employee and the nature of his work (b) the nature of the information
itself (c) whether the employer impressed the confidentiality of the information on
his employees (d) whether the information could easily be isolated from other
information which the employee was free to use160.
An employer can prohibited lawfully his employee from accepting, after
determination of his employment, such a position where he is likely to utilise the
information of secret processes and trade secrets acquired by him during the course
of employment. He may also covenant to prohibit his employee from setting up on
his own, or accepting employment with the employer‟s competitors likely to destroy
the employer‟s trade connections by a misuse of acquaintance with the employer‟s
159
Supra note. 123.
Pollock and Mulla, Indian Contract and Specific Relief Acts 839 (Lexis Nexis Butterworths Wadhwa,
Nagpur, 13th edn., 2006).
160
81
clients. In the Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber161, 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. In theory, copyright and trade secret law protect different elements of
compiled business data, with copyright protecting the expression in these
compilations and trade secret law protecting the underlying data. In fact, copyright
and trade secret protection for compilations of business data frequently converge.
Copyright protection for business directories often extends to the underlying data,
and trade secret protection may extend to particular expressive arrangements of data.
In this Defendant was restrained from using Plaintiff‟s database consisting of
compilation of the addressed of the clients. Court held that if the Defendant is
permitted to make use of the Plaintiff‟s database, it is sure to cause an injury to the
plaintiff, which would be incapable of being estimated in terms of money.
In India, protection of trade secrets is largely common law based. The law relies on
common law principles such as breach of trust and breach of confidence. The only
statutory provision governing trade secrets law is Section 27 of the Indian Contract
Act, which states that every agreement by which a person is restrained from carrying
on any trade, business or profession, is invalid162. This provision brings within its
ambit non-disclosure and non-compete agreements, which are indispensable for the
protection of trade secrets. Other avenues where the law on trade secrets may be
located include the Securities Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992, which renders the use and disclosure of confidential
(undisclosed) information by an insider subject to prosecution under the Securities
Exchange Board of India Act.
This clearly underlines the need for a comprehensive legislation on Trade Secrets, in
compliance with Article 39 of TRIPS. A brief discussion on the law regarding trade
secrets in other member countries will further elucidate this point.
161
162
Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber 1995 IV AD (Delhi) 732.
Supra note.124.
82
(ii)
No Specific Laws for Trade Secrets in India.
It is beyond doubt that intellectual property comprises of inter alia copyright,
trademark, patent and trade secrets. India has enacted Copyright Act, 1957, which
provides complete and comprehensive copyright protection in India. Further, it has
enacted Trademarks Act, 1999, which repealed the Trade & Merchandise Marks Act,
1958. The Patents Act, 1970 extends protection to patents in India. But, it is very
evident that is no specific law for protection of trade secrets in India. As opposed to
India, other contracting parties to TRIPS have enacted specific and comprehensive
laws with the sole objective of protection of trade secrets. But in India, some indirect
provisions from contract law, criminal law and copyright law protect trade secrets. It
is submitted that these laws are not sufficient for adequate protection of trade secrets
in India.
5.2 OTHER LEGISLATIONS INDIRECTLY DEALING WITH TRADE
SECRETS
A trade secret is described, as property through it is required to be differentiated
from other real or personal property, as the possessor, in this case, is not conferred
with any special right to use or enjoy. Therefore, if through accident or reserve
engineering, the secret or information leaks out, then law provides no remedy. The
common law remedy is available in case of trade secrets only when the secret or
undisclosed information is lost through breach of contract or confidence. Protection
of trade secret has been made an integral part of principles of equity and it has been
held that protection would be available even in the absence of any contract.
However, in this regard, as shall be dealt with subsequently, the position of law is not
very clear and is definitely ambiguous. For, at some time it has also been held that
breach of contract and unauthorised use of the information has to be established for
any remedy in the court of law.
83
There is no specific single Act ensuring protection against the infringement of
undisclosed information. Generally, business contracts contains a clause on
confidential information particularly in cases where one party is obliged to transmit
to the other confidential information as a necessary and integral condition in the
working of the contract. The party to whom confidential information is transmitted
for purposes of fulfilling the contract not to reveal the information to any other third
party or utilize the information for himself during the subsistence of the contract.
This leads to the infringement of right of the owner of the undisclosed information.
(i)
Trade Secret Protection Preferred over Patents
Judges and lawyers have sometimes through that because trade secret law provides
less protection to the inventor than patent law does, no rational person with a
patentable invention would fail to seek a patent; and therefore, trade secret law must
protect a class of lesser inventions163.
David D Friedman in his celebrated work, „Some economic of trade secrets law‟ has
comprehensively laid down convincing arguments in favour of the increasing
importance of trade secrets in the present scenario and reasons for its preference over
patent protection.164 Trade secret protection is preferred over patent protection in the
following three situations:
In the first situation, the inventor has a patentable invention but the cost that has been
incurred by him on the invention is subsequently low and he believes that the cost
involved in obtaining patent would be higher than the cost incurred in invention. So,
he would market the product without obtaining patent till he recovers the cost. In the
instant case, deciding factor would be returns that are expected from the invention.
163
E.C Ormond, The Law of Patents in India 3-16(Eastern Law House, Delhi, 13th edn., 1986).
David D. Friedman, “Some economics of trade secret law”, 4 JOEP 63(1999) available at:
http://www.daviddfriedman.com/Academic/Trade_Secrets/Trade _Secrets.html.
164
84
In the second situation, the inventor has a patentable invention but it is the belief of
the inventor that competitors would be able to come up with the invention on similar
lines in a period less than the period for which patent protection is provided. In this
case, the deciding factor would be the confidence of the inventor on his invention,
which may depend upon the technology involved, or the idea itself.
In the third situation, the inventor has a non-patentable invention and therefore, he
cannot obtain patent. But, by maintaining the trade secret he can introduce the
product in the market and can prove the government wrong in not including his
invention within patentable inventions by showing returns.
It is submitted therefore, that the trade secret law supplements the patent system and
does not run contrary to it. Inventors would choose trade secret protection when they
believe that patent protection is too costly relative to the value of their invention or
that it would give them a reward substantially less than the benefit of their invention
either because the invention is not patentable or because the length of patent
protection is insufficient.
(ii)
India Copyright Act, 1957.
In India there is no specific law dealing with trade secrets. Therefore, some sections
of Indian Copyright Act, 1957 amended in 2012 which are having a connection with
the trade secret. These sections are Section 51165, Section 55166 and Section 63167.
165
Section 51. When copyright infringed.- copyright in work shall be deemed to be infringed(a)
When any person, without a licence granted by the owner of copyright or the Registrar of
Copyrights under this act or on contravention of the conditions of a licence so granted or of any condition
imposed by a competent authority under this act –
(i)
Does anything, the exclusive right to do which is by this Act conferred upon the owner of the
copyright, or
(b)
When any person85
The principle copyright is capable of helping to resist invasions of privacy, but the
intrusion must take the form of making at least one copy, or of giving a performance
in public, or of doing one of the other acts specified as constituting infringement168.
Coupled with this, there must be a copying of the manner of expression and not
merely use of the information contained in the copyright work.
The proceedings, moreover, must be brought by those with title to the copyright.
Breach of confidence protection resembles copyright in that the information which
the defendant seeks to deploy must derive from that which the plaintiff seeks to
(i)
Makes for sale or hire, or sells or lets for hire, or by way of trade displays or offers for sale or
hire, or
(ii)
Distributes either for the purpose of trade or to such an extent as to affect prejudicially the
owner of the copyright, or
(iii)
By way of trade exhibits in public, or
(iv)
Imports into India,
Any infringing copies of the work:
166
Section 55. Civil remedies for infringement of copyright.-(1) Where copyright in any work has been
infringed, the owner of the copyright shall, expect as otherwise provided by this Act, be entitled to all
such remedies by way of injunction, damages, accounts and otherwise as are or may be conferred by law
for the infringement of a right:
Provided that if the defendant proves that at a date of the infringement he was not aware and had no
reasonable ground for believing that copyright subsisted in the work, the plaintiff shall not be entitled to
any remedy other than an injunction in respect of the infringement and a decree for the whole or part of
the profits made by the defendant by the sale of the infringing copies as the court may in the
circumstances deem reasonable.
(2) Where, in the case of a literary, dramatic, musical or artistic work, [or, subject to provisions of the
sub-section (3) of section 13, a cinematograph film or sound recording, a name purporting to be that of
the author, or the publisher, as the case may be, of that work, appears] on copies of the work published,
or, in the case of an artistic work, appeared on the work when it was made, the person whose name so
appears or appeared shall, in any proceeding in respect of the infringement of copyright in such work, be
presumed, unless the contrary is proved, to be the author or the publisher of the work, as the case may be.
(3) The costs of all parties in any proceedings in respect of the infringement of copyright shall b in the
discretion of the court.
167
Section 63. Offence of infringement of copyright or other rights conferred by this Act. – Any person
who knowingly infringes or abets the infringement of –
(a)
The copyright in a work, or
(b)
Any other right conferred by this act, [expect the right conferred by section 53A]
[shall be punishable with imprisonment for a term which shall not be less than six months but which may
extend to three years and with fine which shall not be less than fifty thousand rupees but which may
extend to two lakh rupees;
Provided that [where the infringement has not been made for gain in the course of trade or business]
the court may, for adequate and special reasons to be mentioned in the judgment, impose a sentence of
imprisonment for a term of less than six months or a fine of less than fifty thousand rupees.]
168
Supra note. 66.
86
protect. But confidence protection is not generally tied to particular ways of using the
material. It is concerned with the information in substance and not in form, and only
the person to whom obligations of confidence are owed will be entitled to sue.
Thus, if a secret society has rules written for it by a functionary, who does nothing to
dispose of his copyright in them, a renegade member intent on “exposing” the
society to the public may be in breach of confidential obligations to the society,
however he chooses to summarise the rules. But he will infringe the author‟s
copyright in the rules only if he substantially reproduces their content. if he pleads “
public interest” in defence, the concept is probably the same in each case; but for
copyright there are further statutory defences of “ fair dealing” that may be apposite.
In the matter of Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and ors169. wherein
the plaintiff shared his idea of „Swayamvar‟, a reality television show regarding
match making. A newspaper report informed the plaintiff that the defendants were
planning to come out with a similar reality show. The court held it as a violation of
copyright as the theme was developed and evolved by the plaintiff was the result of
the work done by the plaintiff upon the material which may be available in the public
domain. Although it seems the Court herein employed the Copyright laws to protect
an “idea” of a reality show; a trade secret law might have proved more appropriate to
protect the confidential idea involved in this case.
In India, most cases of trade secrets are considered along with Copyright Act. In
ZeeTelefilms Ltd and Filma and Shot and Anr v. Sundial communications Pvt Ltd
and Ors.170 where the plaintiff No. 1, a company engaged in the business of
television programming, video programming, multi media programming and feature
films, television production etc. made a presentation to the defendant with the clear
169
Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and ors 97 (2002) DLT 257.
170
ZeeTelefilms Ltd and Filma and Shot and Anr v. Sundial communications Pvt Ltd and Ors .2003 (5)
Bom CR 404.
87
understanding that it was confidential and will not be used, exploited in any manner
other than through the plaintiffs.
In this case, the Court relied upon the basic principles of the law of confidence as set
out in Copinger and SkoneJames on Copyright, „he who has received information in
confidence shall not take unfair advantage of it or profit from the wrongful use or
publication of it. He must not make any use of it to the prejudice of who gave it,
without obtaining his consent or, at any rate, without paying him for it. It has for long
been clear that the courts can restrain a breach of confidence arising out of a contract
or any right to property. If a defendant is proved to have used confidential
information, directly or indirectly obtained from a plaintiff, without his consent,
express or implied, he will be guilty of an infringement of the plaintiff‟s rights.‟
(iii)
Right to Information Act, 2005
The right to information is the right of modern times, a right to ensure good
governance, by maintaining transparency in governance. In India, we have enacted
the Right to Information Act, 2005, which confers a right to information to every
citizen of India171. However, that right is not absolute. Such right is qualified with
exceptions, one exception being, it does not extend to any information relating to
trade secrets nevertheless the same can be disclosed if in the opinion of appropriate
authority is warranted in larger public interest. The Act has adequate provisions for
protecting the legitimate trade secrets and IPRs. In respect of trade secrets, the Act
further imposes a restriction on disclosure of any information related to third party172
by the appropriate authority without the consent of such third party.
171
Supra note. 152.
Section 2 (n) of Right to Information Act, 2005: The term „third party‟ has been defined as a person
other than the citizen making a request for information and includes a public authority.
172
88
The Division Bench of the Delhi High Court in Arvind Kejriwal v. Central Public
Information Officer & Ors. 173 gave an impetus to Section 11 and gave an intellectual
interpretation to the said section.
The core contention of the appellant is that the expression “relates to or has been
supplied by a third party and has been treated as confidential by that third party in
Section 11 of the Act should be read as “relates to and has been supplied by a third
party and has been treated as confidential by that third party”. In support of the said
contention, it was submitted that purposive and not literal interpretation is required
and if a restricted or narrow interpretation is given then in all cases where
information relates to third party, the PIO would be required to issue notice to the
third party or parties concerned.
This may happen in most cases and it would make the Act unworkable. It is further
submitted that in such cases, notices will have to be issued to third parties who may
be spread all over India and this process itself may take days, if not months to be
completed. This would also make the Act tedious, resulting in procedural difficulties
and delay in furnishing of information and is therefore contrary to the legislative
intent.
The Court found that the answer in regard the legislative intent is clear and reflected
in the proviso to Section 11(1) which spells out the parameters when third party
information can be furnished or denied to the information seeker.
The proviso to Section11(1) states that the confidential information except in cases
of trade or commercial secrets protected by law, shall be disclosed if interest in
disclosure outweighs any possible harm or injury to the interest of the third party174.
173
Arvind Kejriwal v. Central Public Information Officer & Ors. L.P.A. 719/2010 Del.
R. Murlidharan, “Third Party Information Under the Right to Information Act, 2005 Practice,
Procedure and Precedents”, 4 KLTJ 25 (2011).
174
89
The proviso as well as Section 8(1)(j)175 requires balancing of two conflicting rights,
i.e., right to information and the right to confidentiality or privacy. Reference can
also be made to Section 8(1) (e)176 of the Act in this regard. Thus in such cases,
which of the two conflicting right has to be given primacy depends upon larger
public interest. This is the test which has to be applied.
Section 11(1),(2), (3) and (4) are the procedural provisions which have to be
complied with by the PIO /Appellate authority, when they are required to apply the
said test and give a finding whether information should be disclosed or not disclosed.
When information related to a third party and can be prima facie regarded and
treated as confidential, the procedure under Section 11(1) must be followed.
Similarly, in case information has been provided by the third party and has been
prima facie treated by the third party as confidential, again the procedure prescribed
under Section 11(1) has to be followed. Section 11 also ensures that the principles of
natural justice are complied with. Information which is confidential relating to a third
party or furnished by the third party, is not furnished to the information seeker
without notice or without hearing the third party‟s point of view. A third party may
have reasons, grounds and explanation as to why the information as to why the
information should not be furnished, which may not be in the knowledge of the PIO/
appellate authorities or available in the records.
175
Section 8 (1) (j) of Right to Information Act, 2005: information which relates to personal information
the disclosure of which has no relationship to any public activity or interest, or which would cause
unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the
State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger
public interest justifies the disclosure of such information :
Provided that the information which cannot be denied to the Parliament or a State Legislation shall be
denied to any person.
176
Section 8 (1) (e) of Right to Information Act, 2005: information available to a person in his fiduciary
relationship, unless the competent authority is satisfied that the larger public interest warrants the
disclosure of such information.
90
Thus, Section 11(1) postulates two circumstances when the procedure has to be
followed. Firstly when the information relates to a third party and can be prima facie
regarded as confidential as it affects the right of privacy of the third party.
Secondly when situation is when information is provided and given by a third party
to a public authority and prima facie the third party who has provided information
has treated and regarded the said information as confidential. The procedure given in
Section 11(1) applies to both cases.
(iv)
Criminal Remedies
In India, the case of misappropriation of trade secrets can be brought under criminal
offenses dealt under Indian Penal Code, 1860 like, theft (Section 378)177, criminal
misappropriation (Section 403)178 and criminal breach of trust (Section 405)179.
However, criminal route for good reasons is rarely used. Firstly, it is the government
who has to prosecute the case, which places an unnecessary burden on the
government of a dispute which is essentially civil in nature and even though persons
under Section 302 can launch prosecution, the discretion lies with the magistrate to
177
Section 378. Theft – Whoever, intending to take dishonestly any moveable property out of the
possession of any person without that person‟s consent, moves that property in order to such taking, is
said to commit theft.
178
Section 403. Dishonest misappropriation of property – Whoever dishonestly misappropriates or
converts to his own use any moveable property, shall be punished with imprisonment of either
description for a term which may extend to two years, or with fine, or with both.
179
Section 405. Criminal breach of trust – Whoever, being in any manner entrusted with property, or
with any dominion over property, dishonestly misappropriates or converts to his own use that property,
or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode
in which such trust is to be discharged, or of any legal contract, express or implied, which he has made
touching the discharge of such trust, or wilfully suffers any other person so to do, commits “ criminal
breach of trust”
91
allow it which makes such recourse uncertain. Secondly, burden of proof is higher
than in civil cases and thirdly, the remedy of relief which is granted by the criminal
court makes less sense to business and commerce of an entrepreneur and does not
curb the economic loss.
(v)
Electronic Evidence
There are recent cases of computer crimes in which in order to effectuate
investigation, data needs to be collected from the computer. These computers often
contain lot of information which may not be required for the case. One of such
material is trade secret, and there is always a possibility that it may leak during the
course of proceedings. To handle the problem, an effective solution is provided by
German Law, where the provisions related to surveillance provide that all materials
obtained from computer for investigation are kept under judicial control and police is
allowed to access the material which is relevant for them.
(vi)
Indian Contract Act, 1872.
In India, there is no specific law which protects trade secrets. Courts in India follow
the tradition of „common law‟ and protect trade secrets through contracts.
Contractual and equitable remedy may be obtained under Section 27 180 of the Indian
Contract Act, 1872 read with Section 57 of the Specific Relief Act, 1963. Although
Section 27 of the Contract Act makes agreement in restraint of trade as void, but in
180
Section 27, Agreement in restraint of trade, void. Every agreement by which anyone 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 good will 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.
92
the business contract the employer can impose condition of maintaining trade secrets
on his employee during employment and even after termination of employment. The
remedy for breach of trade secret consists of injunction and damages.
The validity of agreements such as non-compete agreements, non-disclosure
agreements etc. have to be examined at the altar of section 27 of the Indian Contract
Act,1872. The Supreme Court in Niranjan Shankar Golikari v. Century Spg & Mfg
Co. Ltd.181 enumerated he tests to determine the validity of the agreements in terms
of Section 27. In the instant case, a foreign producer collaborated with a company
manufacturing tyre cord yarn by an agreement which stated that the company would
maintain secrecy of all technical information. In pursuance of the agreement, the
respondent company signed a non-disclosure agreement with the appellant, at the
time of his employment. Clause 9 of the agreement as well as thereafter the
employee shall keep confidential and prevent divulgence of any and all information,
instruments, documents etc., of the Company that might come to his knowledge.
Clause 17 further provided as follows:
“In the event of the employee leaving, abandoning or resigning the service of the
company in breach of the terms of the agreement before the expiry of the said period
of five years he shall not directly or indirectly engage in or carry on his own accord
or in partnership with others the business at present being carried on by the company
and he shall not serve in any capacity, whatsoever or be associated with any person,
firm or company carrying on such business for the remainder of the said period....”
The agreement was held to be valid. The defendant was accordingly restrained from
serving anywhere else for the duration of the agreement. The restriction imposed in
the present case was limited as to time, the nature of employment and as to area, and
181
Niranjan Shankar Golikari v. Century Spg & Mfg Co. Ltd. AIR 1967 SC 1098.
93
cannot therefore be said to be too wide or unreasonable or unnecessary for the
protection of the interests of the respondent company. The court held that there is an
implied term in a contract of employment that a former employee may not make use
of his former employer‟s trade secrets. But subject to this exception, he is entitled to
compete. The learned judge distinguished this case from the decision laid down in
the case of Gopal Paper Mills v. Surender K Ganeshdas Malhotra182, where an
injunction to enforce a negative covenant during the period of employment as the
agreement was for a period of 20 years and its terms were also unconscionable.
Thus, in Bharamputra Tea Co. v. E Scarth183 where an attempt was made to restrain
a servant from competing for five years after the period of service, the Calcutta High
Court observed:
Contracts by which persons are restrained from competing, after the term of their
agreement is over, with their former employers within reasonable limits, are well
known in English Law, and the omission to make any such contract are exception to
the general prohibition contained in Section 27 indicates that it was not intended to
give them legal effect in this country.
Therefore, it can be clearly noticed that the law regarding trade secrets in India is
guided solely by the existence of a non-compete agreement and its violation is
treated as a violation in contract law.
(vii)
Competition Act, 2002:
Anti-competitive agreements are basically governed by competition law. India has
recently enacted Competition Act, 2002 and has put in place a proper competition
182
183
Gopal Paper Mills v. Surender K Ganeshdas Malhotra AIR 1962 Cal. 61.
Bharamputra Tea Co. v. E Scarth (188)11 Cal 545.
94
law regime on modern lines184. The Competition Act, 2002 seeks to regulate anticompetitive agreements. Increasingly the agreements in restraint of trade, impinging
on employee freedom may amount to limitation of provision of services under
section 3 and will be anti-competitive under the Act. But Section 3 exempts
agreements which are made in order to effectuate realization of IPR, however the list
covers only those IPR which are protected by IPR legislations in India and there is no
legislation on trade secrets185.
5.3
REASONS
WHY
TRADE
SECRETS
ARE
INCREASINGLY
IMPORTANT?
Innovation ideas have always been the mainstay of any trade. With the advent of
industrialization and globalization there is a need to fiercely protect these trade
secrets from business competitors186. Secrecy of business ideas enables the traders to
ensure their financial interests and enhance their brand equity.
Non disclosure agreement or non compete clauses with the employees of the holder
of the trade secret offers limited protection. Trade secrets are acquired though
substantial investment of time and resources; thereby require a separate legislation to
value the holder‟s skill and labour, help in recovering his investment in the
innovations and reduce enforcement costs.
A trade secret law will also serve to protect the rights of the not so financially robust
holders of such secret knowledge who are incapable of taking reasonable protective
measures to safeguard their trade secrets.
184
Supra note. 152.
Ibid.
186
Supra note.154.
185
95
There is also the accompanying risk of the trade secret passing on from the holder
into the public domain in the absence of a specific law protecting the rights of the
holder of the trade secret. Moreover, since trade secrets are not registered, it becomes
difficult for the holder to prove that he came up with the trade secret187.
Presence of trade secret legislation in India will promote greater confidence and
security among foreign businesses in shaping their technology with their Indian
counterparts. The Coca-Cola‟s trade secret is a case in point. The Indian law at that
time required Coca–Cola, a foreign corporation operating in India, to transfer its
technology. Coke argued unsuccessfully that its secret formula was a trade secret and
not “technology”. The dispute ended when Coke abandoned its investment in India,
at an enormous cost, rather than reveal its trade secret.
5.3.1 Digital Technology
One reason for the ascendancy of Trade Secrets is that technology is making their
misappropriation easier188. Before computers, trade secret information was usually
stored in physical form. Picture a locked file cabinet in a locked room in the
basement of a secure manufacturing plant containing thousands of pages of
blueprints, a thief would have to gain access to the plant, to the room, and to the file
cabinet. Then the thief would have to either take the blueprints or copy them, and
loaded down with purloined documents, attempt to struggle them out of the
building189.
Now picture the same blueprints in today‟s digital world. Depending on the
sophistication of the trade secret owner, those blueprints would probably be stored as
187
Ibid.
David S. Almeling, “Seven Reasons Why Trade Secrets Are Increasingly Important” available at:
http://btlj.org/data/articles/27_2/1091_1118_Almeling_WEB_110612.pdf
188
189
Ibid.
96
a digital file on a computer network. The file may be encrypted, password protected
and restricted to employees on a need to know basis. And the network might reside
on a secure server behind a firewall. But if someone, such as a disgruntled employee,
were to gain access to that file, he could easily download it, e-mail it, post it on the
Internet, or simply save it, on a flash drive or hard drive and walk out the front door
undetected with thousands of pages information in his pocket.
Another trend that increases the risk of trade secret misappropriation is cloud
computing providing services and information over a network, typically the Internet,
instead them within a company‟s secured proprietary network.
The risks to digital trade secret information are not confined to the risks posed by
those with legitimate access. Hackers throughout the world can break into networks
and access confidential company information, including trade secrets, in way that
were unimaginable a few decades ago190.
5.3.2 A Changing Work Environment
Any employee is bound to keep confidence if he was entrusted with confidential
matter. On leaving the employment, the employee is expected to respect two specific
“interest” of his employer:- in “secret processes” that are in the strict sense “trade
secrets” and on the goodwill that exists between the employer and his customers191.
The employee, during the course of his service, becomes acquainted with discrete
technical secret which is protectable even if there is no contract; incidental
information is protectable only if there is a contract. He, however, acquires general
knowledge which is un-protectable. The breach of confidence consists in any
disclosure or use which contravenes the limited purpose for which the information
was revealed.
190
191
Ibid.
Supra note. 145.
97
5.3.3 The Rising Value of Intellectual Property of which Trade Secrets are a
Part.
Intellectual property can be differentiated into two main categories: that which is
published, such s patents, trademarks and copyright and intellectual property which
is confidential. The protection of such confidential information is of vital importance
to most organizations, and is of particular importance, given the frequency of
changes in employers and the emergence of joint ventures, which are common in
modern life192.
The sweep and span of trade secrets is the widest amongst all the forms of
intellectual property- from novel inventions to mundane customer lists, they are used
to protect all. For many businesses, trade secrets are the most valuable property. By
trade secret protection, inventors are encouraged to invent and are rewarded for the
same. By protecting trade secrets, law also encourages ethics in business193. The law
encourages the inventors to share the invention with others which otherwise might
not be made available; at same time it protects the privacy interests of the owner in
his property form espionage.
Applying for a copyright, patent or trademark registration can involve a rigorous
approval process that requires you to disclose your idea to the public at large. In
contrast, trade secrets are characterized by ease of obtaining protection, immediately
efficacy and low cost. While trade secrets can be extremely valuable, they are brittle
and can be lost with an ease not present in other forms of intellectual property. It is
the secrecy that gives proprietary value to the information and if that secrecy is lost,
the entire property is lost with it.
192
193
Supra note. 48.
Supra note. 1.
98
5.3.4 Boom for the Developing World194.
Trade Secret is an IPR which affords a non-technical simplified protection. It does
not require registration with government, or observance of any procedure, as opposed
to other forms of intellectual property (except copyright which becomes legally
protected from the moment it comes into existence). The protection endowed is not
limited by any time period but limited till a party can withhold the secret from
entering the public domain. In a country like India these advantages count much and
will attract small and even large enterprises who face difficulty in managing costs of
expensive IP protection, like, patents, however, trade secret is often treated as weak
mode of protection when compared with patents, Trade secrets around the world
protect the widest pool of knowledge, information and intellectual creations in
contrast with any other form of IPR.
Trade secret can be developed irrespective of the size or magnitude of investment
made by an enterprise. In many cases, it is treated as a good strategy for Small and
Medium Scale Enterprises (SME‟s) to resort to protection of trade secrets
particularly when the technology is changing at a higher pace or when the secrecy of
the information involved can be maintained for a longer duration. In India, SME‟s
contribute substantially to the GDP but still they have not been able to utilize the
benefits of IPR in a significant way.
5.4 NEED FOR A SUI GENERIS SYSTEM AS A TOOL TO PROTECT
TRADE SECRETS IN INDIA.
The large repository of the knowledge and practices are locked up with our vaidyas,
hakims, artisans and artists, which remain as a trade secret and have current or
potential commercial value. Their protection is vital for the survival of these systems
194
Supra note.152.
99
and practices195. To protect the vast repository of undisclosed information and
knowledge which is kept trade secret by their practitioners, India should consider
their protection under a pro-active legislation under a “sui generis” system. This sui
generis trade secret protection is provided under Article 10 bis of the Paris
Convention and Article 39(2) and 39(3) of TRIPS. Being a member of TRIPS, India
is obliged to make comprehensive rules and regulations to remove the uncertainty
with regard to Trade Secrets Protection Most of the information is already goes with
the international people which could prove beneficial for the mankind if known to us,
by keeping it trade secret196. Hence their protection is very essential. These types of
practices and products, possessed by our large number of our vaidyas, hakims,
artisans and artists, can be protected under “Sui Generis” legislation
Trade Secrets protection is very essential because it encourages innovations and
promotes commercial ethics and it is also crucial for a company‟s growth as it
promotes fair competition in the market. 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 less197.
5.5 TRADE SECRETS AND INNOVATION LAWS198.
To protect the vast repository of „undisclosed information. And knowledge kept as
trade secrets by their practitioners, India should consider a pro-active sui-generis
legislation as provided under Article 10 bis of the Paris Convention and Article 39
(2) and 39 (3) of the TRIPS Agreement, 1995. Thus, a formal legislation on the lines
195
Supra note. 37.
Ibid.
197
Ibid.
198
Supra note. 74.
196
100
of Uniform Trade Secrets Act, 1970 (UTSA) needs to be implemented in India. Such
legislations will deter illegal transfer of trade secrets by people who had access to
them as part of their employment duties. These steps along with provisions under
breach of contract or NDAs and NCCs would go a long way in developing a culture
of respect in industrial circles towards trade secrets and undisclosed information as
proprietary assets of their owners. In absence of legislation, it is perhaps the only
area where India is lagging behind as far as IPR is concerned. legislations will deter
illegal transfer of trade secrets by people who had access to them as part of their
employment duties. These steps along with provisions under breach of contract or
NDAs and NCCs would go a long way in developing a culture of respect in industrial
circles towards trade secrets and undisclosed information as proprietary assets of
their owners. In absence of legislation, it is perhaps the only area where India is
lagging behind as far as IPR is concerned199. In this context, Indian Government took
a step forward by releasing a draft National Innovation (NI) Act, 2008 to boost
research and innovation200. The draft Act proposed by the Department of Science and
Technology, Government of India has a three pronged approach. Firstly, it
undertakes to encourage innovation through an innovation support system facilitated
by public, private or public-private partnership. The second objective is evolving a
National Integrated Science and Technology Plan. The third objective is codifying
and consolidating a law of confidentiality in aid of protecting confidential
information, trade secret and innovation. 201
The draft NI Act was widely speculated to be modeled on America‟s COMPETES
Act202. The preamble of the COMPETES Act states that the objective of the law is to
invest in innovation through research and development, and to improve the
competitiveness of the United States.
199
N.S. Sreenivasulu, “TRIPS complaint Intellectual Property Regime In India: Implications Of TRIPS
In Modifying The Cantors And Canons Of Our System” 3(2) MIPR 79-80 (2007).
200
Supra note 40.
201
Ibid.
202
Creating Opportunities to Meaningfully Promote Excellence in Technology. Education, and Science
Act – popularly known as COMPETES Act.
101
The Draft NI Act through codification and consolidation of the law of confidentiality
demonstrates the significance of trade secrets and confidential information within the
realm of innovation. Innovation ideas, products and business practices help
enterprises to maintain competitive superiority in the market besides furthering their
economic interests203. It is for the reason that there is a need to prevent others from
taking advantage of another‟s breakthrough ideas and knowledge or in ordinary
parlance, the confidential information or trade secrets. Section 2(3) of the Indian
Innovation Bill defines „Confidential Information‟ as:
Confidential information means information, including a formula, pattern,
compilation, program device, method, technique or process, that (a) is secret, in 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 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 responsible steps under the circumstances by the
person lawfully in control of the information, to keep it secret.
Under the draft NI Act, trade secret and confidential information are elucidated in
Chapter VI titled as „Confidential Information, remedies and offences‟. The
obligation to maintain confidential information under the draft statute, rests on the
contractual terms and conditions. The remedy in case of any right arising out of
inequity is preventive or mandatory damages, on proof of breach of confidentiality.
The draft NI Act lays down the following scope regarding trade secrets and
confidential information:
203
Malathi Lakshmikumaran et.al., “Utility Models: Protection for Small Innovations” 46(2) JILI 322332(2004).
102
1. Section 8 of the NI Act casts an obligation of confidentiality to parties to
contractually set out the terms and conditions governing rights and obligations in
respect of confidential information to prevent misappropriation.
2. The confidentiality arising from non-contractual relationships such as equitable
considerations may also create rights to maintain and obligation to preserve
confidentiality and rights to prevent disclosure into public domain (Section 9).
3. The remedies to protect and preserve confidentiality and misappropriation include
granting mandatory protective orders in connection with discovery proceedings,
holding in-camera hearings, sealing the confidential information including
confidential filing or records of the action, etc. (Section 10).
4. The exception to misappropriation of confidential information enumerates that
confidential information shall not have been misappropriated if available in the
public domain and held to be in public interest by a court of law (Section 11).
5. The
remedy
includes
preventive
or
mandatory
injunction
restraining
misappropriation of confidential information (Section 12), besides the mandatory
damages (Section 13).
The draft has many salubrious provisions including the provision compelling the
Ministry of Science and Technology to present an Annual National Integrated
Science and Technology Plan to the government, tax and fiscal incentives for
innovation and the creation of designated special economic zones for innovation. The
management of intellectual property in trade secrets under the NI Act is dubbed
absurd by many IP practitioners. They are of the view that the disclosure of the
confidential information ban be held to be in public interest only by a court of law.
The ground for such criticism is the term „public interest‟ which in the Act is too
vague. Moreover, Section 12(4) which says that in injunctions restraining uses of
confidential information „may stipulate conditions for future use upon payment of a
reasonable royalty for no longer than the period of time for which use could have
been prohibited‟ is also controversial. The proposed exception constitutes
infringement and tantamount to introduce a compulsory license in trade secrets. To
buttress this point, one may say that these provisions would make it possible for
103
someone to steal the recipe for making Coca Cola and manufacture a drink using this
recipe at a cheaper price, while paying a 10 per cent royalty fee.
On the positive side, the draft Act has suitably identified the performance metrics for
building up an innovation-based competitive economy, although the parameters and
roadmap for their execution are yet to be designed204. The draft Act is open to public
suggestions and debate following which it shall become a final legislative enactment.
The final Act should reflect the plans and measures to be undertaken in furtherance
of the broad goals, the corpus to be set aside to realize them and should also identify
the various governments and authorities responsible for clearances, infrastructural
support, participation and benefit sharing. It also needs to be equipped with sound
provisions for different sectors for execution of goals put down. The enforcement
mechanisms and the infrastructural set up to effectuate the substantive provisions
have to be stated clearly. There is a need to integrate planning with building linkages
across different sectors to spur innovative activity.205
204
205
Tanushree Sangal, “Unfurling The Proposed National Innovation Act” 3(3) MIPR A-47(2008).
Ibid.
104
CHAPTER- VI
CONCLUSION AND SUGGESTION
Protection of trade secrets is a neglected and under privileged issue. But recently it
has gained importance due to the emergence of certain circumstances where it is
preferred over patent protection. Moreover, in today‟s globalizing world, India and
the existing businesses definitely need specific legislation for the protection of trade
secrets.
Indian courts adopt the common law approach and grant relief in case of
misappropriation of trade secrets. The case of misappropriation of trade secrets can
be brought under criminal offences. These offences may be theft (Sec. 378), criminal
misappropriation (Sec. 403) and criminal breach of trust (Sec. 405) under the Indian
Penal Code, 1860.206 Injunction Relief and Monetary Damages are the remedies
offered for misappropriation in India.
If we consider the Trade Secrets on the International scenario, the many treaties have
been formed with specific provisions directed toward increasing the protection of
Trade Secrets like Restatement (first) of Torts, Restatement (third) 1993 of Unfair
Competition, GATT (General Agreements on Tariff and Trade), NAFTA (North
American Foreign Trade Agreement), UTSA (Uniform Trade Secrets Act), TRIPS
(Trade related Aspect of Intellectual Property Rights) and Paris Convention. India is
far behind the competitive world in the implementation and execution of legislative
reforms in the same line of protection and has not been very active with being
member of the treaties. Yet, of late, India has started being the part of TRIPS and
few other treaties to smoothen the trade and trade secret protection in India. It is time
for India to establish it‟s own legislation now.
206
The Indian Penal Code (45 of 1860)
105
It is submitted that Indian when faced with the issues of the trade secrets, will have
to place reliance upon such foreign cases, which themselves are ambiguous.
Therefore, this situation makes it even more imperative for India to enact specific
laws regulating trade secrets so as to evade these inconsistencies.207
The courts in India have given due appreciation to the common law principles like
obligation of confidence to protect trade secrets and the courts, while dealing with
the cases, have frequently pointed out that in the absence of legislation, it is
protecting trade secrets under the common law. Therefore, it is crucial for a
company to safeguard its trade secrets through reasonable means such as disclosure
agreements and non-compete clauses which will augment the trade secret legislation
is initiated.
Till date protection is offered for trade secrets under the contract law and other
legislations. There is no statutory mechanism to offer protection of trade secrets.
Before 1991, India‟s business policy was such that it demanded for the disclosure of
trade secrets and technologies from the entrepreneurs. But that proved fatal for the
industrialization in the country as businesses across the world are offering protection
for the same instead of disclosures. However, after 1991, with liberalization and
economic reforms India changed its stand on trade secrets. Moreover, in keeping
with the mandate of Article 39 of the TRIPS Agreement, it is imperative for India to
enact a legislation dealing with the issue of trade secrets.
In India, we must have enacted, the Right to Information Act, 2005, which confers a
right to information to every citizen of India.208 However, that right is not absolute.
207
Abhinav Kumar, Pramit Mohanty, et.al.(eds), “Legal Protection of Trade Secrets: Towards a Codified
Regime” 11 JIPR 397-408 (2006).
208
Supra note.152.
106
Such right is qualified with expectations, one exception being, it does not extend to
any information relating to trade secrets nevertheless the same can be disclosed if
the opinion of appropriate authority is warranted in larger public interest.
To protect the vast repository of undisclosed information and knowledge which is
kept trade secret by their practitioners, India should consider their protection under a
pro-active legislation under a „sui-generic‟ system. Most of the information is
already goes with the traditional people, which could prove beneficial for the
mankind if known to us, by keeping it trade secret. Hence, their protection is very
essential. These types of practices and products, possessed by our large number of
our vaidyas, hakims, artisans and artists, can be protected under “Sui Generis”
legislation.
In absence of legislation, trade secret is perhaps the only area where India is lagging
behind as far as IPR is concerned. In this context, the Indian Government took a step
forward by releasing a draft National Innovation (NI) Act, 2008 to boost research
and innovation. The draft NI Act through codification and consolidation of law of
confidentiality demonstrates the significance of trade secrets and confidential
information within the realm of innovation. Innovative ideas, products and business
practices help enterprises to maintain competitive superiority in the market besides
furthering their economic interests.
It is also agreeable that trade secret have their own demerits and risks attached, often
they are considered as weak IPR and in certain situations it is not advisable to resort
to them for protection. However, if provided legislative base and effective
mechanism for enforcement, they can help in sustainable manner.
107
SUGGESTIONS
Since protection of trade secrets is a must for any business its administration and
maintenance is a matter of concern. Every business endeavour to protect its trade
secrets in order to gain commercial advantage over the competitors. Trade Secrets
last forever if properly protected. Unlike other kinds of intellectual property rights
which expire after stipulated period trade secrets never expire. Therefore, it is very
important to evolve a proper approach to protect trade secrets from being disclosed
or misused209.
At this juncture it is recommended to adopt the following measures for the effective
protection of trade secrets:
1. Restrict access to the secret information. Lock it away in a secure place.
2. Limit the number of people who know the information and execute proper
agreements with them to maintain confidentiality.
3. Companies should ensure that before disclosing confidential information to
employees, a non disclosure agreement is in place210.
4. Companies should mark files and relevant documents as confidential.
5. Companies should have in proper security systems for computers and networks
password should be provided and changed frequently.
209
Supra note. 24.
Akhil Hirani and Shrijit Mohanty, “Protecting Confidential Information and Trade Secrets” available
at :
http://www.majmudarindia.com/pdf/Protecting%20confidential%20information%20and%20trade%20sec
rets.pdf .
210
108
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112