Trade secrets include confidential information or undisclosed information that is kept as a secret and it provides a competitive advantage over competitors and other players in the market. This information can be either tangible or intangible, technical or business information, or both. Unlike a patent, trade secret information need not be unique, novel, and non-obvious to be protected. Thus, maintaining confidentiality is crucial for safeguarding this valuable information. Overall, trade secrets or confidential information play a vital role in a business’s success and market strategy.
Distinction Between Trade Secrets And Confidential Information
The terms “Trade secrets” and “confidential information” have often been used interchangeably, but they embody different kinds of information. When the information has commercial value, and is reasonably protected, to derive benefit, then it is confidential information Whereas, the information that is confidential and has a commercial value in the sense that it is not available to every individual, and is prohibited from disclosure is termed a trade secret. Trade secrets provide certain advantages like non-registration, unlimited use, and no registration cost. Every business enterprise uses trade secrets to blossom and prosper in a competitive market and trends have also shown that competition always favours secrecy and vice versa.[1]
Types Of Confidential Information And Trade Secrets
Various types of information that can be protected under confidential information and trade secrets are:
- Formulas, patterns, recipes, ingredients, apparatus, etc.;
- Manufacturing processes, techniques, product specifications, pricing, operations and know-how;
- Business strategies, plans, marketing sales, advertisement, promotional plans and other plans;
- Information on research and development activities, financial, technical, etc.
- All types of data and databases, personal, salary structure, income, profits, expenditures, agreements, list of customers, suppliers, etc.;
- Designs, drawings, maps, blueprints, manuals, etc.;
- Algorithm, codes, etc.
Criteria For The Protection Of Confidential Information And Trade Secrets
In the case of Coco v. A N Clark Engineers Limited,[2] the English High Court of Justice Chancery Division provided certain criteria for the information to become confidential information or trade secret; that the Information must have the necessary quality, must have been imparted in circumstances importing an obligation of confidence and there must be an unauthorized use of that information to the detriment of the party communicating it.
In India, there is no such specific legislation for confidential information and trade secrets, but there are certain existing laws like as the Paris Convention, 1883 through Article 10bis[3], and TRIPS, 1995 in Part II, Section 7 and Article 39 provide laws relating to the protection of undisclosed, confidential information and trade secrets.[4] In view of liberalization, Privatization, and Globalization (LPG), India being a signatory of the TRIPS agreement[5] is under an obligation to safeguard the trade secrets of businesses even though there is no specific legislation.
On a case-by case basis, Indian courts have been protecting confidential information and trade secrets based on common law and the values of justice, fair play, and good faith. The court in Emergent Genetics India Pvt. Ltd. v. Shailendra Shivam,[6] ruled that for information to be considered confidential, the involved parties must invest time, money, efforts, and other resources.
Protection Of Trade Secrets
In order to commercialize trade secrets, it is necessary to disclose the information to employees, co-ventures, suppliers, and other parties. However, the parties still carry the risk of misappropriation. While restricting the extent of trade secret disclosure, a party may include two main types of contractual clauses. Firstly, a non-disclosure clause, which brings a binding restriction with it on both the parties so as not to disclose the trade secret. Secondly, a non-compete clause which binds the employee not to indulge in similar activities and compete with the employer after he/she leaves the organization. In case, a trade secret owner wants to protect trade secrets from a third person and do not want to disclose the information. The owner can give notice to a third party that a trade secret exists belonging to the trade owner, and that other named individuals have a duty not to use or disclose this information.[7]
In the case of Zee Telefilms Ltd. v. Sundial Communications, it was held that he who has received the information in confidence shall not take unfair advantage of it and profit from the wrongful use or publication of information. If the ideas or information have been acquired by a person under such circumstances that it would be a breach of good faith to publish them and he has no just case or excuses for doing so, the court may grant injunction against him.[8]
In India, these contractual agreements are governed by the Indian Contract Act, 1872. The employer and the employee could be made bound by the terms of the non-disclosure clause during the term of the employment. However, the balance of interests must be used to determine whether such a clause is applicable post-employment. Whereas, for the non-compete clause the Indian courts have specifically held after Superintendence Co. of India (P) Ltd. v. Krishan Murgai that no test of “reasonableness” could be applied for upholding the same post-employment. They are void ab initio.[9] In certain cases, When a trade secret owner discovers that someone knows a trade secret and might reveal it to a third party, he may in some circumstances give a notice before the disclosure occurs.
What Is Not Protected
The information which is available in the public domain, voluntarily revealed, insufficiently guarded, or reverse-engineered may not be protectable.
Management Of Confidential Information And Trade Secrets
The business enterprises that are having and running the businesses mainly by using confidential information and trade secrets have to safeguard them. Top priority has to be given to their management. Because if it is leaked it will be the end of the business. The following measures may be taken up for the management of confidential information and trade secrets:
- Identifying the confidential information and trade secrets;
- Entering Confidentiality Agreements, Non-Disclosure Agreements, and Non-Compete Agreements;
- Developing information security policy in the business enterprise;
- Educating all employees on their obligations and the importance and other issues related to confidential information and trade secrets;
- Precautions to be taken in hiring and with outgoing employees;
- Precautions to be taken in giving assignments, licenses, know-how of the confidential information;
- Restrict or keep vigilance on internet access, passing data, storage devices of the employees and visitors, etc.
The confidential information and trade secrets are misappropriated by acquiring them by theft, by industrial espionage, internal theft, fraud, coercion, or by other unlawful or dishonest acts.[10]
Remedies For Breach Of Confidential Information And Trade Secrets
Being an equitable remedy, an injunction is discretionary and the decision to grant an injunction is influenced by several factors whether the defendant was only subconsciously and innocently knowing the extent of the defendant’s own contribution to the design of a successful product, or whether the information was economic or personal, the fact that the information had become public, etc.
If the information has been used or revealed in breach of confidence, it is also considered a general tort or a breach of contract. In such cases, the court will award damages following the normal principles applying to these common law wrongs. Damages are determined by the nature of confidential information. The damages would be equal to either the fee of the consultant; or to the price that a willing buyer would pay for the information if the information was something special and involves an inventive step.
In cases where the defendant has violated confidentiality by using the information for commercial purposes, the plaintiff may seek an account of profits as a remedy. Also, if the defendant uses the plaintiff’s confidential information in breach of confidence, the court may order the defendant to produce the articles or even destroy them. This is an equitable remedy and therefore discretionary.[11]
Conclusion
Every organization, business, and company should follow Secrecy Management and every reasonable step to guard the secret of any trade. While India may not have any special legislation for trade secrets and confidential information various legal provisions offer protection. As businesses continue to navigate rapidly, effective management and protection of trade secrets will remain essential in fostering innovation, sustaining competitive edge, and ensuring long-term success. Ultimately, understanding and valuing trade secrets can empower organizations to compete and succeed in today’s environment.
[1] Anthony Arundel, ‘The Relative Effectiveness of Patent and Secrecy for Appropriation’ (2001) 30(4) Research Policy 611-24
[2] COCO v A N Clark (Engineers) Ltd [1969] RPC 41
[3] WIPO Copyright Treaty, [1996] WIPO Doc. 28,514, https://www.wipo.int/treaties/en/text.jsp?file_id=288514
[4] Ibid
[5] Agreement on Trade-Related Aspects of Intellectual Property Rights (15 April 1994) 1869 UNTS 299
[6] Emergent Genetics India Pvt. Ltd. v Shailendra Shivam 2011 (47) PTC 494 (Del)
[7]Sperry Rand Corp v Pentronix Inc 311 F Supp 910 (ED Pa 1970)
[8] Zee Telefilms Ltd v Sundial Communications (P) Ltd [1967] RPC 1
[9] Superintendence Co of India (P) Ltd v Krishan Murgai (1981) 2 SCC 246
[10] World Intellectual Property Organization, ‘WIPO India’ (WIPO) https://www.wipo.in accessed (13th October 2024)
[11] Industrial Furnaces v Reaves [1970] RPC 605
Author: Disha Patil is a BBA LL.B student at DES’s Shri Navalmal Firodia Law College, Pune.
