• Nikita Sultania

Best Kept Secret


Trade secret in common terminology refers to any information of commercial value that is kept a secret, away from the public domain. They are usually information pertinent to a business for its continuance and profitability. Unlike other Intellectual Property components, trade secret is not really a 'property right' as no exclusive rights are assigned to the trade secret owner[i]. It comes into existence the moment it is created and no cost incurred in getting a right on it, like patent. But the catch is, the benefit is enjoyed as long as it remains a secret or is not generated by some other person in the normal course of action. Therefore, steps must be taken to protect such information by means of a contract or confidentiality agreements.


Trade secret is a potent weapon for businesses in maintaining their competitive advantage over others. Trade secret is a remedy created in order to exclude third parties from accessing any technical information. It is the oldest form of intellectual property protection[ii]. Various countries have developed laws and mechanisms to ensure that the knowledge is kept within the organization. Many nations have codified legislations in order to govern trade secrets and provide for remedies in case of breach.


Article 39 of The Agreement On Trade Related Intellectual Property Rights (hereinafter referred to as TRIPS) was the first concrete provision in a multi-lateral agreement that discussed the protection of trade secrets. India and the United Kingdom are among the 164signatories to the agreement but unlike the United Kingdom, India did not opt for a codified legislation. The reason being flexibility granted to member States to address the issue either through a dedicated law or through common law systems in order to accept the vast divergence in the mechanisms adopted by countries to protect trade secrets.


Trade secret protection has evolved over the years through judgments on the basis of equity and common law action for breach of trust. The jurisprudence on Trade Secret developed rapidly in1990's owing to the liberalization of the Indian economy.


The earliest Indian case relating to Trade Secret was in 1987 in the Delhi High Court wherein the plaintiff had filed a suit alleging misappropriation of know-how information, designs, specification etc., disclosed to the defendant.[iii]


The Courts in India relied on the principles laid down in Saltman engineering case[iv] which states that, " maintenance of a secrecy according to the circumstances in any given case either rests on the principles of equity, that is to say the application by the Court of the need of the conscientiousness in the course of conduct, or by the common law action for breach of confidence which is in effect a breach of contract."[v]


As stated earlier India approached protection of trade secret on the basis of equity, action for breach of confidence and contractual obligations with civil and criminal remedies available.


The concept of equity simply states that if the owner of any information which amount to trade secret[vi], discloses the same to an independent person for the purpose of such person running the business, he or she is not allowed to take advantage of the information and utilize it for unfair trade practices, irrespective of the presence or absence of a contract. Undue profit or gain at the expense of another goes against the principle of equity and fairness[vii]


The person to whom any information (trade secret) was disclosed in good faith should also maintain it as a secret as the owner had full confidence in him. Thus, this protection is not just a responsibility of the owner but also the other person who knows it and if such confidence is breached then legal action can be taken.[viii]


Section 27 of the Indian Contract Act, 1872 provides for remedies and restricts any person from disclosing any information which one might have acquired at the time of employment or through a contract.


In the case of Niranjan Shankar Golikari v. Century Spinning[ix] it was held that negative covenants in employment agreements pertaining to non-disclosure of confidential information operative during the period of employment and even after its termination is not regarded as restraint of trade under Section 27 of the Indian Contract Act, 1872.


Apart from the abovementioned ways of protecting one's trade secrets, certain civil as well as criminal remedies are available to the owner of such information like:

  • Filing for an injunction that be either interlocutory or permanent.

  • Demand the return or destruction of all confidential and proprietary information.

  • Claim damages or compensation for any losses suffered due to disclosure of trade secret. Though Indian Courts do not usually award exemplary damages and the claiming part is required to adduce proof of actual damage incurred.


Section 72 of the Information Technology Act, 2000 provides for criminal remedies wherein a person can be punished with imprisonment along with a fine if he is found to have secure access to any electronic form of information without the consent of the person. Section 43A of the same Act provides for compensation in case of failure to protect sensitive personal data.


The owner of a trade secret can lodge a criminal complaint with the police under section 378 of the Indian Penal Code, 1860 alleging theft. But in order to apply this section the trade secret must have a physical form example client list etc and must be proven to have actually been stolen. A complaint alleging criminal breach of trust under section 408 of the Code read with section 408 of the Code read with section 420 alleging cheating can also be initiated.

In the United Kingdom, earlier there was no codified legislation before the European Council adopted the EU Trade Secrets Directive in May 2016, wherein every EU member (including the United Kingdom) had to implement it by May 2018.


The United Kingdom along with Ireland had based their approach of trade secret protection to a 'judge made law' as to breach of confidence that dates back to the 19th century on the basis of a case[x] where the Court had granted Prince Albert an injunction restraining the defendant from publishing a catalogue describing certain etching made by the Prince.[xi]the United Kingdom Intellectual Property Office had earlier stated that there was no ne he UK Intellectual Property Office had earlier stated that there was no need for the Directive to be imbibed into United Kingdom because the current system worked well and was rightly upheld as one of the gold standards in Europe But the government after consultation explained why it decided to go ahead and introduce the Trade Secrets (Enforcement, etc.) Regulation on 9th June 2018.


"…where it is clear that measures are already provided for under current legislation, case law or courts rules, there is no need for [the UK] to implement these. Where there is uncertainty as to whether the provisions of the Directive apply across all legal jurisdictions, in order to put matters beyond doubt and ensure transparency, coherence and consistency, the Government has taken the view that certain provisions should be implemented fully"[xii]


The most significant change is the introduction of a statutory definition of trade secret which was undefined earlier and derived from the TRIPS agreement. The new Legislation defines trade secret as information that:

  • Is secret i.e., not readily or easily accessible to people operating within the same circle that deal with such information,

  • Has commercial value because it is a secret,

  • Has been subjected to reasonable steps to ensure it remains a secret.[xiii]


The regulation provides for the following remedies:

  • To ask the party to stop misusing the trade secret and producing or selling infringing goods

  • To recall the goods, modifications of the goods to deprive them of their infringing quality or destruction of the goods.,

  • Grant damages, referring to the loss of profits,

  • Provide for compensation, not exceeding the hypothetical cost of the license fee for using the trade secret.


The Regulation of 2018 is unlikely to have a significant impact on UK due to the presence of the existing common law in confidentiality. But the implementation of this Regulation is a welcome statutory confirmation of what falls under the definition of Trade Secret and what reasonable steps must be taken to protect such information and what are the statutory remedies available to parties faced with the unlawful use of the trade secrets. [xiv]


The provisions have been implemented to primarily ensure consistency cross all UK jurisdictions.


The European Union (Withdrawal) Bill which was published in 2017 states that any EU-derived domestic legislation in force in the United Kingdom before the day the United Kingdom exits the European Union, will remain in force.


Brexit is not likely to have any impact on the provisions of The Trade Secrets (Enforcements, etc.) Regulation 2018 derived from the Trade Secrets Directive, 2016 although the Parliament can alter them in the future if the situation so demands.


In conclusion we can say that the existing trade secret protection regime does not emphasize on the relevance that growth of new and developing laws of Intellectual Property has in the world. The current business environment is that of cut-throat competition where everyone is striving to outrun the other by using any means they can lay their hands on. Therefore, trade secret definitely needs specific legislation dedicated towards its protection to protect the companies whose information are used unfairly and they suffer a loss. It would also help clear the dust of ambiguity that exists in foreign judgments and decisions on the issue of trade secret. New trade secret legislation is the only way to ensure strong and effective IPR protection, which would in turn open up different avenues for economic prosperity


It is important to understand that the stronger the trade secret law, the incentives to keep technological improvements secret also increase. But the action of the inventor might either work in favour of him and thereby maximize his returns or it might work against the society because without complete disclosure the knowledge may not augment thus affecting technological advancements and dis-balancing the objects behind different intellectual property rights. The inventor must be ready to ready to take all necessary steps in order to ensure that such information remains a secret. There must be due diligence from their side and the Companies must build a strong protection system and establish strong psychological loyalty with its employees.


"Your most precious, valued possessions, and your greatest powers are invisible and intangible. No one can take them. You, and you alone, can give them." - W. Clement Stone



References


[i]Friedman, David D, Landes William. M and Posner, Richard “Some Economics of Trade Secret Law” [ii]Jorda KF. 2007 “Trade Secrets and Trade-Secret Licensing”. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org. [iii] John Richard Brady and Ors. V. Chemical Process Equipment P. Ltd. And Another, AIR 1987 Del 372. [iv] Saltman Engineering Co. Ltd v. Campbell Engineering Co. Ltd., 1948 (65) R.P.C. 203. [v] Patrick Hearn, The Business of Industrial Licensing: A Practical Guide to Patents, Know-how, Trademarks, and Industrial Design 112 (1986), quoted in John Richard Brady and Others v. Chemical Process Equipments P. Ltd. And Anr. AIR 1987 (Delhi) 372. [vi] The Delhi High Court in American Express Bank Ltd. V. Priya Puri (2006) defined trade secret as: Formulae, Technical know-how, Method of business adopted by an employer, which is unknown to others and such information has an impact on the organizational expansion and economic interests. [vii] John Richard Brady and Ors. V. Chemical Process Equipment P. Ltd. And Another, AIR 1987 Del 372. [viii]Zee Telefilms Ltd. v. Sundial Communication Pvt. Ltd. 2003 (27) PTC 457 (Bomb). [ix] AIR 1967 SC 1098. [x] Prince Albert v. Strange 18 LJ Ch 120, 41 ER 1171, [1849] EWHC Ch J20, (1849) 1 Mac &G 25. [xi]https://www.academia.edu/33623733/Protecting_Trade_Secrets_in_India (Accessed on 13th September, 2019 at 11:30 pm). [xii]https://www.limegreenipnews.com/2018/06/trade-secrets-uk-implements-eu-directive-on-time-but-uncertainties-remain/ Accessed on 14th September 2019 at 10:30 am). [xiii] http://www.mondaq.com/uk/x/735068/Trade+Secrets/Recent+Changes+To+UK+Trade+Secrecy+Laws+Explained (Accessed on 14th September 2019 at 11:00 am). [xiv] https://www.buckles-law.co.uk/site/blog/business-blog/trade-secrets-regulations-2018-what-are-the-implications (Accessed on 17th September 2019 at 7:30 pm).



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