This article on ‘Trade Secrets: Concepts and Laws’ was written by Jessica Fernandez, an intern at Legal Upanishad.
In 1955, India became a member of the World Trade Organisation (WTO) and subsequently, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was also signed in 1994. According to Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, there are three essentials to a trade secret, the secret must be such that:
- It is not generally known to the public;
- It confers economic benefit on its holder because the information is not publicly known; and
- Where the holder makes reasonable efforts to maintain its secrecy.
In this article, the author tries to analyse the concept of trade secrets and the laws governing it in India and across the globe.
TRADE SECRET: MEANING AND CONCEPT
A trade secret is an intellectual property with inherent economic value because it is not generally known or readily ascertainable by others, and the owner takes reasonable measures to keep it secret. Types of trade secrets include includes formulas, practices, processes, designs, instruments, patterns, or compilations of information. Intellectual property law gives the owner of a trade secret the right to enjoy it himself by restricting others from disclosing it.
WHAT CAN BE PROTECTED UNDER TRADE SECRETS?
In general, a trade secret can be any kind of proprietary business knowledge that gives a company a competitive advantage and is kept private from the public. Technical information like manufacturing process data, pharmaceutical test results, computer program designs and drawings, and commercial knowledge like distribution strategies, supplier and customer lists, and advertising tactics are all considered trade secrets.
GENERAL WAYS OF PROTECTING TRADE SECRETS
- Non-disclosure agreement (NDA): In order to keep confidential corporate information private, employees and business partners should sign an NDA.
- Non-compete agreement (NCA): In order to keep workers from going out of business once their employment or service agreement expires, businesses should require all workers, contractors, and consultants to sign a non-compete agreement.
- Strong infrastructure for IT security.
- Limiting the availability and accessibility of significant documents.
INTERNATIONAL LAWS AND TREATIES PROTECTING TRADE SECRETS
The Paris Convention for the Protection of Industrial Property (Paris Convention) administered by WIPO deals partly with the protection of trade secrets as does the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).
The TRIPS Agreement was the first international agreement to protect trade secrets expressly. The approach laid out in the TRIPS Agreement is based on the notion that protection against unfair competition should include protection for undisclosed information. In presenting this approach, the TRIPS Agreement makes reference to the prior-existing protection against unfair competition as presented in the Paris Convention for the Protection of Industrial Property, a convention that is administered by the World Intellectual Property Organization.
Section 7 of Article 39 of the TRIPS provides Protection to Undisclosed Information. Through this provision, TRIPS reflected the then-current practice in many countries and shaped subsequent law-making. In protecting Trade Secrets, The TRIPS Agreement makes reference to the Paris Convention’s anti-unfair competition provisions. Article 10bis of the Paris Convention highlights the nature of protection against unfair competition.
Article 10bis: Unfair Competition:
- The countries of the Union are bound to assure nationals of such countries effective protection against unfair competition.
- Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
- The following in particular shall be prohibited:
- 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;
- 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;
- 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 characteristics, the suitability for their purpose, or the quantity, of the goods.
In the above article, the term ‘Union’ refers to all the member countries to which the Paris Convention applies.
REGULATION OF TRADE SECRETS IN INDIA
In India, there has been no specific law enacted for the purpose of protecting trade secrets and other such confidential knowledge possessed by organizations and businesses. It is based on common law and the principles of equity, justice and good conscience.
Trade Secret law in India is mostly governed by common law such as:
- Section 27 of the Contract Act – Law that bound the parties not to disclose information contrary to the terms of the contract between the parties i.e., Non-Disclosure Agreements.
- Section 405-409 of the Indian Penal Code, 1860 deals with the cases when there is a Criminal Breach of trust.
In the case of Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber, the defendant was a former worker for the plaintiff and used the plaintiff’s contact list to launch a competing enterprise after quitting. The Hon’ble High Court of Delhi ruled that the plaintiff had used skill and labour to create the contacts database, protecting it under the laws of trade secrets and confidential information.
The defendant in the case of Mr. Diljeet Titus & Ors. vs. Mr. Alfred A. Adebare & Ors” was an advocate who worked for the plaintiff’s legal practice. Upon the plaintiff’s termination of employment, the defendant stole significant proprietary drafts and client lists that belonged to the plaintiff. Since there was no employer-employee relationship between the parties, the defendants argued that they were the proprietors of the copyrighted work because it was created while they were employed. The plaintiff had a clear right to the material that the defendant had seized, according to the Delhi High Court, which rejected this argument.
The Delhi High Court therefore barred the defendant from making improper use of the material that had been unlawfully seized. It is noteworthy that the defendants were not barred from providing a comparable service by the Delhi High Court. The plaintiff’s interests had to be safeguarded, thus the defendants were merely prohibited from using the information they had obtained.
Trade secrets, in simple words, refer to the secrets kept while trading by the owner of that particular business as well as other people who are made aware of such secrets. It is basic confidentiality that is required to be observed by them in order to throw away any competition that might arise at the potential disclosure of that trade secret.
The Paris Convention for the Protection of Industrial Property (Paris Convention) and the Agreement on Trade-Related Aspects of Intellectual Property Rights are the two documents that deal with trade secret laws on the international front whereas India does not have any particular legislation for the same, became a member of the WTO and thereby also became a signatory to the protection provided to the trade secrets through the conventions.
- Lekhana Padmanabhan, Trade Secret Laws in India and Germany: a Comparative Analysis of Developed and Developing Nations, SSRN E-Journal (2023)
- Paris Convention for the Protection of Industrial Property, WIPO database of Intellectual property, available at: https://www.unido.org/sites/default/files/2014-04/Paris_Convention_0.pdf
- Trade Secrets, WIPO, available at: https://www.wipo.int/tradesecrets/en/