14_protection of trade secrets

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PROTECTION OF TRADE SECRETS

Submitted By:

1. Aditi Yadav ABM10037

2. Kaki Maheedhar PGP29409

3. Nihar Sreeram Shetty PGP294064. Rajesh Chandran PGP29408

5. Salana Lavan a PGP29407


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PROTECTION OF TRADE SECRETS Page 2

TABLE OF CONTENTS

1. What are trade secrets? 3

2. Importance of trade secrets 6

3. Law for Protection of trade secrets 8

4. Trade secret misappropriation 10

5. Obligation of confidence 15

6. Licensing of Trade Secrets 17

7. Judicial Policy for Trade Secrets in India 21

8. Trade secrets legal suits 25

9. Conclusion 28

10. Reference 32


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Chapter 1. WHAT IS A TRADE SECRET

Trade secrets is one of the most elusive difficult concepts in the law to define

US Court Of Appeals forthe Fifth Circuit1

A Trade secret is a formula, practice, process, design, instrument, pattern,

or compilation of information which is not generally known or reasonably ascertainable,

by which a business can obtain an economic advantage over competitors or

customers2. Trade secrets are referred to as confidential information, proprietary

information, undisclosed information etc. in the various jurisdiction laws.

When a competitor of a company or any entity acquires the trade secret of

the company by espionage or illegal means then a trade secret misappropriation suit is

filed. But others can develop the trade secret independently and derive economic

benefit from it.

According to TRIPs the following are the conditions for some information to

be considered a trade secret and thus eligible to receive protection from judiciary 3:

(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.

There are some types of Information which cannot be classified as trade secrets.

(a) Trivial InformationInformation of a company that does not have any economic

value or is not commercially exploitable. The scope of this exception is restricted

because it is not easy for courts to label any information as trivial.

1http://www.thetso.com/date:21.07.2013

2Wikipedia -http://en.wikipedia.org/wiki/Trade_secretdate:21.07.2013

3Licensing Intellectual Property: Law & Management, By Raman Mittal, Published by Satyam law International in

January 2011, Page.322
http://www.thetso.com/http://www.thetso.com/http://www.thetso.com/http://en.wikipedia.org/wiki/Trade_secrethttp://en.wikipedia.org/wiki/Trade_secrethttp://en.wikipedia.org/wiki/Trade_secrethttp://en.wikipedia.org/wiki/Trade_secrethttp://www.thetso.com/


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(b) Immoral information No immoral information will be given confidentiality

protection by court.

(c) Information that is vagueVague (Not simple ideas) will not be protected by law.

For receiving protection idea should be sufficiently developed to be capable ofbeing realized.

Trade secrets are among the most difficult assets of the company to quantify, or

even to identify because of the intangible nature of knowledge. Its takes lot of

money and time for companies to make intellectual property audit and ascertain

what is a trade secret and its value. Many companies usually avoid these pains to

their own economic determinant.4

TYPES OF TRADE SECRETS5

(a) Technical informationR&D reports , experimental data, prototype , processes,

design data, design manuals , formulas, diagrams, drawings, vendor supplier

information, components, experiments, operation manuals

(b) Production information This kind of know how relates to the processes used

like machinery used, technology used, prices of the product etc.

(c) Sales and marketing information marketing plans , marketing budget, sales

leads, customer leads, customer related information , sales call reports and

promotion plans

(d) Internal financial information budgets, profit and loss statements, product

margins, operating reports, forecasting,

(e) Quality information- methods, manual and reports, quality control procedures,

(f) Procurement and materials- Cost, price data, inventory data and records, vendor

and suppliers information,

(g) HR & Personnel- training programs , HR policies, incentives schemes, employee

records, recruitment tests, salary structure

4Protecting trade secrets, Nishan Swais, Self-Counsel Press, 01-Jan-1996 - Business & Economics, page 45,46

5Securing Intellectual Property: Protecting Trade Secrets and Other Information Assets, Butterworth-Heinemann,

09-Dec-2008, page 34


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(h) Administrative information organization structure, strategic business plans,

softwares used, decision makers.

Comparison of Trade Secrets with Patents6,7

(a) A Trade secret need not be novel unlike patents.

Even a customer list - a compilation of otherwise publicly available information-

can be a trade secret if the overall compilation is not readily ascertainable by

competitors is a trade secret. Even thoughindividual components the list could be

obtained from publicly available sources, it does not prevent protection.

(b) Patent or copyrights one usually has to make some disclosure or publication of

the informationwhereas in Trade secrets there is no need. As long as the holder

is successful in maintaining the secrecy of the information the protection exists.Patent or copyright protection is more appropriate where commercial exploitation

of the information will result in its disclosure. Trade secret protection is better if it

is possible to keep the information secret such as chemical components used in

manufacture are preferred. In such cases due to the difficulty in identifying

infringements patentingis less effective

(c) Trade secret laws unlike patents do not grant exclusive right to exploit the secret

information. Others may develop the information independently. They may even

derive it by reverse engineering the trade secret owners product.

(d) For patents Temporary protection is provided for a period of years, after which

the information becomes freely available to the public. A trade secret can receive

protection for an unlimited period of time.8

(e) Unlike patents, trade secrets are protected without registration, that is, trade

secrets are protected without any procedural formalities.

Chapter 2. IMPORTANCE OF TRADE SECRETS

6Protecting and profiting from trade secrets, Practicing Law Institute, 1975, page 56

7Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur Press, 09-Oct-2007 -

Business & Economics, page 63,648Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-Hill, 1982, page 22


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The existing other intellectual tools may not be to protect some

intellectual knowledge. Patents, for example, are available only for inventions in the

field of technology and that too for only limited period. Patent is not suitable to protect

other business secrets in conducting the day to day activities of business. Again, incase of scientific invention, which is protected by patent-a time period is necessary to

get patent protection. This time period commences from the moment of submission of

patent application to the moment of granting of patent. During the pendency of the

patent application the subject matter of patent, i.e. the invention is not protected.

During this period, Trade Secret can be effectively used for the protection of scientific

invention. It will give protection to the owner of invention against any wrongful

disclosure of the invention by the others, irrespective of the fact whether patent will be

granted or not.

Trade Secrets are the intellectual property of the new millennium

and can no longer be neglected. Trade secret misappropriation costs Walt Disney 240

million dollar and Cargill 300 million dollar. Trade Secret covers over 90% of new

technology. Patents are tips of icebergs in an ocean of Trade Secrets. Trade Secrets

precede, accompany and follow patents. Trade Secrets can be virtually any kind of

business information. These are important to industry and the economy because they

protect and encourage innovation.

A Trade Secret has the advantage of protecting information that

possibly could not be protected by a patent, a copyright, or the law on industrial

designs. Indeed, getting a patent for a product requires that it be innovative. Exactly in

the same way, copyright only applies to an original work. But, an innovation in case of

patent and originality in case of copyright is not required in case of Trade Secret

protection. Like other Intellectual Property Instruments, no fixed time limit of validity is

necessary for trade secret. An inventor need not disclose a Trade Secret for itsregistration like patent. So long as the Trade Secret remains undisclosed, protection is

available for an indefinite period of time. We are living in an era of Globalization.

There are fierce competitions in the market and goods are circulated

freely throughout the world. At this juncture, the proper protection and use of Trade

Secret is the sine qua non. Confidential information or Trade Secret is no doubt an


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important intellectual property tools to protect the secret knowledge. However, in

comparison with other IP tools e.g. patent, Trade Mark, Design, Copyright etc. it has

some advantages. In case of Patent, Trade Mark, Industrial Design etc., some

registration fees are necessary for the registration. Patent protection is not availablefor indefinite period of time. After some specified period of time, the invention must be

disclosed in the public domain. But in case of Trade Secret, no registration fees are

necessary and no limited and defined protection is applicable here. There is no

compulsion of disclosure of trade secret.

All research and development data, including data relating to

better modes, developed after patent filing, whether or not invention, can also be

protected by trade secret. Trade Secret protection operates very quickly without delay.

Trade Secrets encompass near about 80% of the assets of some companies and

before obtaining patent protection, virtually all inventions are protected by trade secret.

So, importance of Trade Secret cannot be denied.


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Chapter 3. LAWS FOR PROTECTION OF TRADE SECRETS

TRIPS -The Agreement on Trade Related Aspects of Intellectual Property

Rights- is an international agreement that sets down minimum standards for protection

of many forms of intellectual rights, including trade secrets. All WTO members are

obliged to respect TRIPs agreement. Article 39 of TRIPs covers Trade secrets. This

article has been incorporated in 1994 after hectic lobbying by American and European

countries and was one of the most important events in protection of trade secrets. 9

The Section 7: protection of undisclosed information, Article 39 states that:10

1. In the course of ensuring effective protection against unfair competition as provided in

Article 10b is 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 3.

2. 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 practices(Note.1)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.

3. 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,

9Competition Law, Technology Transfer and the TRIPS Agreement: Implications for Developing Countries, Dr. T

Thanh Nguyn, Edward Elgar Publishing, 01-Jan-2010, page 2110

WTO website :http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7date:21.07.2013
http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#Footnote10http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#Footnote10http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#Footnote10http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#Footnote10


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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 use.

Note 1. For the purpose of this provision, a manner contrary to honest commercialpractices 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

Trade secret protection India11, 12

In India protection of trade secret is common law based. Section 27 of Indian

contract act bars any person form disclosing any information which he acquires as a

part of contract. India has been lagging behind in protection of trade secrets because

since independence India has given importance to socialist pattern of growth and

attached less importance to private intellectual rights.

Pressure is building in government to make statutory protection to trade laws

due to TRIPs agreement and growing competitive environment.

Proofs required strengthening a Trade secret law suit

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(a) Existence: The petitioner should be able to prove existence of the trade secret.

(b) Ownership: It should have proof of ownership to the trade secret and all the

rights related to its usage.

(c) Access: It should be proved that the defendant had access to the trade secrets

under scan.

(d) Notice: A proof that the defendant was well aware that the trade secret(s) was

the property of the petitioner.

(e) Use: A proof that the trade secret information was used by the defendant.

(f) Damages: A proof that a remedy exists within the power of the court to apply

11Managing intellectual property: the strategic imperative, Vinod v. Sople, PHI Learning Pvt. Ltd., 2012, pg 196

12Competitive Intelligence and Global Business, David L. Blenkhorn, Craig S. Fleisher, Greenwood Publishing Group,

Jan-2005 , page 3713

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056,dated 05-8-2013
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056


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Chapter 4. TRADE SECRET MISAPPROPRIATION

Trade secret misappropriation involves improper means used to

acquire or use a trade secret. Misappropriation of Trade secrets as per Uniform Trade

Secrets Act (UTSA) which is the rules in USA concerning protection of trade secrets is

defined as:14, 15

1. If the trade secret of another entity is acquired by a person who knows or who

has a reason to know that improper methods were used.

2. Without the express or implied consent for disclosure or use of trade secret by an

individual who

2.1.1 Acquired the knowledge of trade secrets by improper means

2.1.2 Knew or had reason to know that his knowledge of the trade secret at

the time of disclosure or use was

2.1.3 Acquired from or through an individual who utilized improper methods

2.1.4 Acquired under circumstances where there is a duty to maintain its

secrecy and limit its use

2.1.5 Acquired from or through an individual who owed a duty to the

individual seeking relief to maintain its secrecy or limit it use

2.1.6 Before a material change of an individuals position, knew or hadreason to know that it was a trade secret and that knowledge of it had

been acquired by accident or mistake.

Economic Espionage

Whoever, intending or knowing that the offense will benefit any foreign

government, foreign instrumentality, or foreign agent, knowingly 16

steals, or without authorization appropriates, takes, carries away, or

conceals, or by fraud, artifice, or deception obtains a trade secret

14 Protecting and profiting from trade secrets, Practicing Law Institute, 1975, page 122

15 Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur Press, 09-Oct-2007 -

Business & Economics, page 15816

Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-Hill, 1982, page 231


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without authorization copies, duplicates, sketches, draws, photographs,

downloads, uploads, alters, destroys, photocopies, replicates, transmits,

delivers, sends, mails, communicates, or conveys a trade secret

receives, buys, or possesses a trade secret, knowing the same to have beenstolen or appropriated, obtained, or converted without authorization

attempts to commit any offense described in any of paragraphs (1) through

(3)

conspires with one or more other persons to commit any offense described in

any of first three paragraphs, and one or more of such persons do any act to

effect the object of the conspiracy

Shall, except as provided in subsection second, be fined not more than

$5,000,000 or imprisoned not more than 15 years, or both.

Any organization that commits any offense described in subsection shall

be fined not more than the greater of $10,000,000 or 3 times the value of the stolen

trade secret to the organization, including expenses for research and design and other

costs of reproducing the trade secret that the organization has thereby avoided.

Theft of Trade Secrets

Whoever, with intent to convert a trade secret, that is related to a product or

service used in or intended for use in interstate or foreign commerce, to the economic

benefit of anyone other than the owner thereof, and intending or knowing that the

offense will, injure any owner of that trade secret, knowingly

steals, or without authorization appropriates, takes, carries away, or conceals, or

by fraud, artifice, or deception obtains such information;

without authorization copies, duplicates, sketches, draws, photographs,

downloads, uploads, alters, destroys, photocopies, replicates, transmits,

delivers, sends, mails, communicates, or conveys such information;

receives, buys, or possesses such information, knowing the same to have been

stolen or appropriated, obtained, or converted without authorization;


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attempts to commit any offense described in paragraphs (1) through (3); or

conspires with one or more other persons to commit any offense described in

paragraphs first through third, and one or more of such persons do any act to

effect the object of the conspiracy, shall, except as provided in subsectionsecond, be fined under this title or imprisoned not more than 10 years, or both.

Any organization that commits any offense described in subsection first shall be

fined not more than $5,000,000.

Exception to prohibitions

Exception to prohibition does not prohibit

any otherwise lawful activity conducted by a governmental entity of the United

States, a State, or a political subdivision of a State; or

The reporting of a suspected violation of law to any governmental entity of the

United States, a State, or a political subdivision of a State, if such entity has

lawful authority with respect to that violation.

Orders to preserve confidentiality

In any prosecution or other proceeding under this, the court shall

enter such orders and take such other action as may be necessary and appropriate

to preserve the confidentiality of trade secrets, consistent with the requirements of

the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence,

and all other applicable laws. An interlocutory appeal by the United States shall lie

from a decision or order of a district court authorizing or directing the disclosure of

any trade secret.

Civil Proceedings against violations

The Attorney General may, in a civil action, obtain appropriate injunctive relief

against any violation of this chapter.


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The district courts of the United States shall have exclusive original jurisdiction of

civil actions under this section.

Administration and Trade secrets

Some developing countries forcefully argued that the system of administrative

control of the food and drugs industry practiced in most Western countries led to

the accumulation of a wealth of data concerning technical procedures to

manufacture new drugs or concerning the effects of drugs or agrochemicals on

the health of the consumers or the environment; therefore, the developed

countries' administrations should put this confidential information to the disposal

of countries of the South.

The United States and Sweden have passed the Freedom of Information Act

and similar legislation in order to assure a continuous flow of information from

the government to the citizens, as a means of heightening the legality and

objectivity of the decisions of the Administration, but also to avoid that

knowledge precious to Society be buried forever in the drawers of the public

offices.

Significantly, exceptions were made under the Freedom of Information Act to

protect trade secrets. Therefore, the Western governments had an easy day to

refute the demands of South countries. It is obvious that the Administration

cannot give access to confidential. Information for any other use than helping to

protect the public health.

TRIPs has reached a compromise solution. It protects only the

information given by private industry in order to get the official approval for themarketing of products which utilize new chemical entities. It protects only

compilations of data which have requested a considerable effort (a test

conspicuously absent of the general definition of confidential information).

Moreover, the legal protection is subject to two exceptions:


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a) Where necessary to protect the public, protection shall lapse entirely, and

disclosure can be made without restriction by the Administration of one country.

This exception is Unobjectionable. To issue warnings that a given chemical or

pharmaceutical may have adverse effects on the consumer's health belongs tothe functions of a modern State, and the health of the people has a higher ethical

value than the profits of the industrialists.

b) No disclosure by an Administration is otherwise acceptable, unless precise

measures shall ensure that no unfair commercial use of those data shall be

possible. The distinction between fair and unfair use refers to honest commercial

practices. The test of commercial use is simple to apply. What is not clear is the

nature of the steps necessary in order to avoid such unfair commercial use. It

may only mean that communiqus and press releases shall be carefully

scrutinized, so that no trade secrets be leaked in any usable form; in other words,

imprecision and censorship shall ensure that the Administrations do not divulge

confidential information contrary to TRIPs.

After all, this regime is not without merit. It constitutes an

acknowledgement that, in a figurative way, the public Administration is not the

owner of the confidential information necessary to control the marketing of drugs

and agrochemicals, but only the trustee of that information, the public being the

ultimate beneficiaries, but only for very limited purposes.

In this respect however, the "public" should also be understood as the whole

mankind. Even if the information disclosed to a State agency is of material

relevance only to the citizens of another country, TRIPs should not prevent that

Administration to issue a warning19 and give medical details to the attention of

the word - rather than to keep under the cloak of secrecy some information that

is not relevant for its own citizens.


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Chapter 5. OBLIGATION OF CONFIDENCE

Persons related/working with a company have an obligation of confidentiality

of companys trade secrets. The various types of obligation are:

(a) Direct Relationship. In case of direct relationship, duty of confidence maybe

contractually, as a result of type of relationship between parties, or because of the way

information is communicated.

A person may be under a contractual obligation not to use or disclose

information, which may be expressed or implied. Expressed obligation of

confidentiality is typically in employment contracts. An example of implied

obligation of confidentiality is the relationship between banker and

customer.

An obligation of confidentiality might arise in case of fiduciary relationship

between parties. A fiduciary relationship is an equitable relationship in

which one party has a duty to act for the benefit of another, for example,

between doctor and patient, husband and wife, trustee and beneficiary.

Obligation of confidence may arise from the way information is

communicated between the parties. In these circumstances, the test for

whether there is a duty of confidence is to ask, would a reasonable recipient

have realized that the information given to them was in confidence. An

obligation of confidence may also be inferred from the circumstances.

(b) Third Party Recipients

If a person owing an obligation of confidence discloses confidential information to a third

party, the factors that determine when the third party will be treated as being subject to

obligation not to disclose the information are:-

An indirect recipient of information who is aware of its confidential status will

normally be bound by a duty of confidence.

If a person receives information innocently, but subsequently discovers that

the information is confidential, they will be bound by a duty of confidence.

(c) Where there is no relationship between parties.


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A person may come by confidential information without having it imparted

to them by the confident, or by a person owing an obligation of confidence. For

example, a burglar might uncover confidential files, or a member of public might find a

confidential document in the street. The courts have adopted two different approacheswhen deciding whether a stranger receipt of confidential information falls under a duty of

confidence.

The first focuses on the conduct of the stranger in acquiring the information.

Here the courts have looked at whether the stranger has acted illegally. I

the stranger acted illegally, he or she comes under obligation, otherwise

not.

The second line of cases focus on the question of whether the stranger

knew the information was confidential.

(d) Employees of the company

Different obligations are imposed on an employee during employment than after the

employment relationship.

During employment

During the period of employment , the courts will enforce the express terms

of the contract

If the contract does not contain express clauses imposing a duty of

confidentiality upon an employee, employee is still under an implied duty of

fidelity to their employers.

PostEmployment

A restraint of trade clause will only be enforceable if it is appropriately limited

to time, geographical applicability and the scope of activities.

Court also imposes implied obligations post-employment.

(e) Statutory obligations and public bodies

Obligation of confidentiality can be imposed by statue. Where a statue permits a public

body to acquire information, the statutory body is under a duty of confidentiality only to

use the information to satisfy the statutory purpose.


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Chapter 6. LICENSING OF TRADE SECRETS

Trade Secret, being an intellectual property can be legally transferred

from one party to the other. Such a transfer generally takes place between the inventor

of the trade secret and a larger party that can exploit the secret in creating revenues.

The transfer of the trade secret can be on a temporary basis or

on a permanent basis i.e. the owning party can rent the trade secret or can sell it on the

whole. Licensing trade secrets does face issues with the fact that it is an intangible

property. The requirements for transferring a trade secret are:

1) The present owner of the trade secret has maintained the confidentiality of theinformation and that the information is not yet publically known.

2) The present owner did not disclose the trade secret to a third party who is not

obligated to maintain the confidentiality of the secret.

3) Both the parties have to enter into a written agreement clearly stating the terms

and conditions of the property transfer.

There are several problems pertaining to the transfer of Trade Secrets.

1) Being an intangible property in the form of knowledge/information, the propertyeven after the transfer stays with the original owner.

2) The original owner might try to re-transfer the same trade secret to another party.

3) The buying party needs to know the usability of the trade secret before going

through the transaction. This needs him to have some or complete exposure to

the trade secret in order to check its value. In case the transaction does not

happen, the buying party will have the know-how of the trade secret without

actually buying it.

Value of a trade secret

How much and for what period will the licensee needs to pay to the

licensor for the usage of the trade secret. Trade secret being a unique property has no


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other scale to compare to in order to fix its price. In most of the cases the price is fixed b

bargaining between the licensee and the licensor. The following factors mostly

determine the value of the trade secret.

1) Risk involved in maintenance of the secret

2) Size of market that it can serve

3) Capital needed to convert the trade secret into revenues

Steps involved in Licensing of a Trade Secret

1) Preliminary Agreement: Before the actual purchase of a trade secret the licensee

should have an access to enough part of it, so that he can decide upon the value

and the usability of the trade secret. He has to confirm that the trade secret is

actually exploitable by the manufacturing unit/ industry to convert it into

revenues. He may conduct some test run/ test production using the trade secret.

Thus, upon this study he would base his decision on whether or not to go forward

to the actual agreement. During this time frame the trade secret is vulnerable to

infringement in the premises of the licensee. Thus a preliminary agreement is

used to protect the licensor from the trade secret infringement caused by the

licensee. It also prevents the licensee to use the trade secret if he decides not to

buy the trade secret.

2) The Licensing Agreement: This agreement transfers the rights from the licensor

to the licensee completely or as per the terms stated. This agreement consists of

all the terms and conditions of the transfer of this intellectual property in detail.

The following information is generally included.

- The identity of the trade secret: The provision of technical assistance:- The scope of the license

- The payment terms

- The duration of the license

- General undertakings


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The Identity of the trade secret: There is a need to precisely mention the identity of the

trade secret i.e. nature, extent and ownership details etc. The more precise the

definition the lesser chances exist that the trade secret can be exploited. For example,

in a field of paints, the licensor may have variations between household, industrial andmarine paints concerning the same basic formula. The licensee may not be interested in

manufacturing all the three or the licensor may not be interested in giving the rights for

all the three. Thus it is important to specifically mention the purpose for which the paint

formula is to be used in the agreement. Formulae, specifications and drawings will, in

due course, have to be provided once the option has been exercised and these have to

be annexed along with the agreement so that there will be no doubts regarding the

same in the future.

Provision of Technical Assistance: In case the trade pertains to any technical/industrial

know-how, it quite usual that the licensee will appoint a technical advisor, who generally

not bound by the agreement between the licensor and the licensee, to evaluate the

trade secret. In such a case the technical expertise have to be chosen with an equal

consent from both the parties. There needs to be a separate confidentiality agreement

taken from the expertise. Clauses covering such an agreement should include:

Number of such technical advisors and their qualifications and status

A clear and detailed description of the duties

All monetary terms like pay, insurance, accommodation, maintenance etc.

An indemnity covering any damages to the trade property due to negligence or

action on part of any person belonging to the technical advisory group.

A limit of the time up to which the trade secret can be accessed by the expertise

The scope of the license: There are three aspects to consider when it comes to scope

of the agreement.

Where it concerns the place of manufacturing

Where it concerns the territory in which the licensee may apply the trade secret

Extent to which the licensor is restricted from using the trade secret


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Payment Terms: The most important aspect in any commercial agreement is the

pricing. The cost of a trade secret is quite difficult to evaluate as it is not a tangible

asset. None the less, it is attained through the negotiations between the licensor and

the licensee. The payment terms have to be precisely mentioned in the agreement. Theexact amount that is payable by the licensee, the mode in which the payments have to

be made, will the payment be made at one or the payments are made in installments,

for how long will the licensee have to pay the licensor.

The licensor has to make an informed and intelligent decision through the

speculations based on the business expertise and the market trends. The licensee will

have to make a decision based on the extractable value of the trade secret based on

the production costs, market trends and the good will of the trade secret.

The duration of the license: A trade secret, unlike patents has no defined life time. But

the fact that a trade secret has value only till it becomes public, poses a problem. A

trade secret seizes to have a value in case as and when it becomes public. But of

course, there is ambiguity on what kind of incidents can be defined as going public. In

general, the trade secret will lose its value, when the competitors of the licensee are

able to use it without paying for the same, as the property is no longer a secret. But it

still has a lot of ambiguity around it. Thus the duration of the license has to be strictly

defined as to under what conditions the license is deemed to be cancelled.

Protection of the Rights: Both the parties under the agreement will be equally

responsible for the protection the trade secrets under question. The terms pertaining to

the protection also have to be mentioned clearly in a licensing related to trade secrets.

Both parties may negotiate and agree upon the steps required to maintain the secret

and to have a vigilance in the market place.


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Chapter 7. JUDICIAL POLICY FOR TRADE SECRETS IN INDIA

In the US, trade secrets are afforded statutory protection, both at the

federal and state levels, with meaningful civil and criminal remedies to counter the

misappropriation of trade secrets, including compensatory and punitive damages,

injunctive relief, and attorneys fees. That is not the case in India. India provides no

statutory or other legal protection of trade secrets. This non-legal environment presents

a number of challenges concerning trade secret protection and enforcement and can

jeopardize a US customers IP unless it carefully employs certain contractual

mechanisms that are enforceable in India. In India, parties must primarily rely on

contracts to protect trade secrets. Indian law does recognize the common law tort ofbreach of confidence irrespective of the existence of a contract. But the torts utility is

limited in an offshore sourcing context because the duty of confidence at issue can be

enforced only against a party that is either a fiduciary to the US customer or in an

employer employee relationship with the complaining party.

Also, the duty arguably only extends to the unauthorized disclosure

of confidential information to a third party and does not prevent the recipients own

misappropriation of the information. The Indian courts on several occasions delineatedthe concept of trade secret. The court defined trade secrets as formulae, technical

know-how or a peculiar mode or method of business adopted by an employer which is

unknown to others. Such information has a reasonable impact on the organizational

expansion and economic interests.

Similarly the Court further ruled that the concept developed and evolved

by employee as the result of the work done by the employee upon material which may

be available for the use of anybody, but what makes it confidential is the fact that the

employee has used his brain and thus produced a result in the shape of a concept.

Moreover court held that the database complied by the organization could be subject

matter of copyright and its unpermitted use by other party amounted to infringement.


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Thus, the judicial policy for the trade secrets protection can be deducted from the

courts interpretation of NDAs, NCC and restraint of trade under Contact law.

An agreement to restraint an employee form competing with his employer

after termination of employment may not be allowed by the courts. Thus if an attempt is

made to restrain an employee from competing for five years after the period of service,

it is observed that, Contracts by which persons are restrained from competing, after the

term of their agreement is over, withtheir former employers within reasonable limits, are

well known in English law, and the omission to make any such contract an exception to

the general prohibition contained in section 27 indicated that it was intended to give

them legal effect in this country.

These principles have been approved by the Supreme Court again where

a company manufacturing type cord yarn was offered collaboration by a foreign

producer on the condition that the company shall maintain secrecy of all the technical

information and that should obtain corresponding secrecy arrangements from its

employees. The defendant was appointed for a period of five years, the condition being

that during this period he shall not serve anywhere even if he left the service earlier and

this agreement was held to be valid. The defendant was accordingly restrained from

serving anywhere else during the currency of the agreement. The observation of the

supreme court was that the injunction issued against the employee is restricted as to

time, the nature of employment and as to area and cannot therefore be said to be too

wide or unreasonable or unnecessary for the protection of the interest of the respondent

company.

From the above two landmark decisions of Supreme Court, it is clear

although an employer is not entitled to restrain his employee after the termination of

employment from offering competition, the employer is entitled to reasonable protection

against exploitation of trade secrets. In line with this principle, the Delhi High Court, was

of the view that the agreement between the parties prohibiting the employee for two

years form taking employment with any present, past or prospective customer of the

employer is void and hit by section 27 of the Indian Contract act 1872. This stipulation


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was prima facie against public policy in India and an arm twisting tactic adopted by the

employer.

The court finally stated that the relief sought for an order of ad interim

injunction till the disposal of the suit should not be granted on these grounds. It is the

view of Supreme Court that an employee cannot be restrained for all times to come

from using his knowledge and experience gained by the employee 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.

A restrictive clause in an employment contract imposing constraints on the

employee preventing him from misusing or revealing the confidential information and

the trade secrets acquired during the tenure of his employment was upheld in court of

law. This legislation thus provided a remedy to organizations from third party disclosure

of confidential information and trade secrets in the form of injunction against the

employee.

Indian Contract law besides bringing disclosure of trade secrets under

the breach of contract, offers remedies to encourage of creativeand innovative abilities.

Protection afforded by law is based on the principle that various facets of a product maybe protected by different form of IP.

The remedies of breach of confidence include action for an account of

earnings from the use of the information; action for damages and an injunction for

prevention of misuse. For an action to succeed it would be necessary to show that there

was information of confidential nature which was shared under an obligation of

confidence with the person proceeded against and that there was an actual or

threatened use or disclosure of the information.

If the information has already become a part of public knowledge no action

may lie. Since the information alleged to be confidential may be of value to the plaintiff

only for a certain period, interim injunction will only be granted for a specified period


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depending upon the circumstances and the nature of the confidential information. With

regard to balance of convenience the following factors are considered:

1. Whether the effect of an injunction against potential disclosure be disastrous

to defendants,

2. 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

3. Whether it is certain based upon the material before the court even if

successful at a trial, the plaintiff would obtain an injunction rather than

damages.

By way of relief, the damages or compensation is determined on the basis

of the market value of the confidential information based on a notion of scale between

willing purchasers. This method may be more appropriate for confidential information

related to industrial designs or processes or business secrets. Trade secrets are

protected forever, if kept confidential, if the confidentiality of the information is breached

it is no more a trade secret.


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Chapter 8. TRADE SECRET LEGAL SUITS

Coco Cola case

The best example of trade secret is 'the formula for soft drink Coco Cola'. It is not

protected by any patent. The names "Coco Cola" and "Coke" are both registered

trademarks orcopyright. Despite many years of high sales and correspondingly intense

efforts by rivals to determine the formula of the drink, the secret is still safe. For over

125 years, the secret formula is been kept in each bottle and going all through the

world.In 2007, a secretary was accused of helping two employees of Coco cola in

stealing the trade secret and sell it to rival Pepsi. The three suspects were charged for

stealing and selling of trade secrets. They were ordered to pay $40,000 and werearrested in late July 2007 for time duration of seven years.

American Super Conductor Corporation (AMSC) case

In June 2013, a federal grand jury in Wisconsin returned an indictment charging

Sinovel Wind Group Co. and two of its executives with stealing trade secrets from

American Super Conductor Corporation (AMSC). Sinovel is China's third biggest maker

of wind turbines and until March 2011, AMSC supplied Sinovel with Turbine control

software. According to the indictment, Sinovel owed AMSC more than $100 million for

delivering software. But instead of paying debts, Sinovel and two of its executives

plotted with a former AMSC employee to steal AMSC turbine control source code and

use it in Sinovel turbines. Summons are placed by both the parties and Sinovel is asked

to quash the summon by August 16, 2013.The main problem in such cases is that

prosecuting a foreign corporations or individuals for trade secret theft is not easy.

Before it moves forward, the United States has to follow the legal requirements to serve

them with a copy of the summons.

National Football Scouting Inc. Plaintiff

A football scouting company brought action against sports writer and

website owner Robert Rang, alleging claims of copyright infringement and


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misappropriation of trade secrets based on publication of player grades from company's

scouting reports. The scouting company compiles yearly scouting reports to use during

the draft and is shared only with member clubs. Arguments from either side are

submitted and judgment was filed on December 2012. Football Companys claim wasdenied and Defendants claim on copyrights are granted but claim on trade secrets are

denied.

Berg Nelson Case

Berg Nelson Company, Inc. was a company that designs and

fabricates rubber and metal hoses, belting, Valves and fittings. It worked with Chevron

Corporation for almost ten years developing quality control and safety procedures for

flexible using high pressure hoses and designed couplings for a number of different

uses within Chevrons EI Segundo, Calif., and refinery. They also designed and

fabricated proprietary, specialized fuel injection hoses for turbine generating units at

refinery, which were sold to Chevron on individual purchase basis.

On December 2006 Berg Nelson filed a lawsuit claiming that

Advanced Sealing and Supply, a competitor, misappropriated trade secrets by

wrongfully obtaining a technical drawing from a former Berg Nelson employee and asample of the co-gen hose, and also confidential price list from Chevron employees with

whom it had a long standing relationship. They claimed that this disclosure allowed their

competitor, Advanced Sealing and Supply to reverse engineer the hose and avoid the

expense and time involved with its own product development with their idea

implementation. The claim also alleged that armed with Berg-Nelsons confidential

designs and pricing information, Advanced Sealing and Supply interfered with Berg-

Nelsons contract and non-contractual business relationship with Chevron.

Cummins & White, LLP, pursued a variety of legal theories in

order to protect Berg-Nelson. The major dispute in this case was whether the Berg

Nelson hoses designed for Chevron constituted trade secrets. Berg-Nelson contended

that the design and make-up of the hoses was not known to the general public or even


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to Chevron, which had previously requested the information without success. As the trial

progressed, Charles Spagnola, lead trial counsel from Cummins & White, argued that

the Berg-Nelson hoses did not need to be protected by a written non-disclosure or

confidentiality agreement in order to consider them as a trade secret. Mr. Spagnolaprovided compelling evidence supporting the claim of misappropriation of trade secrets,

including the fact that Berg-Nelsons complaint was filed and served on its competitor,

Advanced Sealing and Supply before it had even started selling the hoses to Chevron.

The fact that it proceeded to sell the hoses with actual knowledge of

the allegations after the complaint was filed showed their witty and malicious behaviour.

Mr. Spagnola argument was based on Chevron companys written corporate policies

regarding the exchange of proprietary information and secrets. As part of its business

dealings with Chevron, Berg-Nelson went to extreme ends to clarify Chevrons position

regarding other contractors at the refinery and potential illegal disclosure of trade

secrets. Chevron has had written corporate policies to protect proprietary information of

its business partners and provided a written statement of hiring practices upon which

Berg-Nelson based on which its decision to enter into a services agreement with

Chevron was taken.

Result: After the trial, the jury awarded $242,000 to Berg-Nelson. The jury ordered the

defendant, Advanced Sealing and Supply Co., Inc., to pay substantial damages.

Chevron Corp., also named as a defendant in the original lawsuit which was settled

before the trial.


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Chapter 9. CONCLUSION

Trade secrets are important to industry and provide protection

for the results of investment of time and money and research and development that are

difficult to protect by other means. Their importance in industry seems to be growing.

Trade secret, as a form of intellectual property law mechanism,

is the creation of the common law courts in England. This is a new element of

intellectual property outside the various classical forms of intellectual property like,

patents, copyrights, industrial design etc. There are no procedural complications for the

protection by Trade Secret like other IP instruments. Protection under Trade Secret is

very easy and less costly in comparison with patent and other IP instruments. But most

of the companies and business establishments do not provide a comprehensive

framework for safeguarding trade secrets. Instead of that, they often impose the

responsibility upon collective heads i.e. upon various persons. This collective and

divided responsibility may pose a serious threat to the security of Trade Secret.

Ultimately, this divided responsibility may turn into no ones responsibility. A single or

maximum two responsible persons must be given the responsibility to keep the trade

secret in secret. Theft and reverse engineering may pose a threat to the protection oftrade secret.

The danger may also come from outside the business.

Generally, other market competitors will always try to discover and use for themselves

the important intellectual property- Trade Secret. The moment they will be successful,

the trade secret will lose its value and protection would not be available anymore. To

prevent this risk the company and business house must act in a diligent and intelligent

manner. They should first identify the trade secrets then they should use themstrategically for the sake of protection of trade secret. Technology is changing so rapidly

that trade secret protection is, in some cases, has become the most attractive, effective

and easily available intellectual property right. Just like other intellectual properties,


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trade secrets can be very valuable to a companys growth, development and sometimes

even to its survival.

Government of India should consider the enactment of a law like

The Uniform Trade Secret Act (UTSA) of U.S.A. for extending better protection to the

trade secret owners. Indias trade and commerce is widening very rapidly day by day.

To keep pace with this rapid development legal mechanism should also be framed

accordingly so that intellectual properties are properly protected and respected and also

enterprises and new creators are encouraged to create new inventions. Otherwise, they

will lose interests in new inventions and new creations which may be suicidal to the

entire development of the country in the days ahead.

The law in relation to trade secrets in the world varies widely in

some countries the protection is effective; in others sometimes because of the

difficulty in enforcement - the law provides inadequate protection. It would be

advantageous if there were consistency as to the types of information that can be

protected. However, attempting to produce a both detailed and comprehensive

definition of "trade secret" is probably unnecessary. TRIPS simply uses the expression

"undisclosed information" and specifies criteria which must be met for such information

to be protectable.

The enforcement action should not depend upon there being an

existing contractual relationship with the defendant. Many cases of serious industrial

espionage involve individuals or companies with whom no such relationship exists.

Although generally restrictions imposed by the law during employment are similar from

State to State, the position varies to some extent post-employment. This is important

because a large proportion of cases involve ex-employees. This issue is entangled with

employment law and public policy and some differences are, perhaps, unsurprising.

Member States attempt to reach a balance between the interests of the employer and

employee. The balance varies from State to State. In some countries there is no

protection post-employment or only in extreme circumstances. This limited, or lack of,

protection can cause problems. There are differences in approach to remedies available


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against "innocent" recipients of trade secrets. In some countries it is possible to prevent

third parties making use of the information however innocent they are. In other cases it

is necessary to show bad faith on behalf of that party otherwise nothing can be done.

Where no injunction is available to prevent further use of the trade secret this maycause considerable damage to the owner.

There can be considerable difficulties in obtaining evidence of

misuse and damage. If the necessary evidence cannot be obtained the action may

never get off the ground. Some courts will not (or cannot) compel defendants to provide

the relevant documents or information. To be effective there is a need for:

(a) Procedures to be available to compel defendants to provide information and/or

documents

(b) Effective search orders to be granted on an ex parte application where there are

serious grounds to suspect the defendant is dishonest.

(c) There is no clear correlation between the existence of statutory protection and the

effectiveness of protection.

(d) Common law countries which do not have statutory provisions have good and

effective protection in the main,

(e) Complex technical trade secret cases may require specialist judges.

(f) The methods used to calculate damages might also be reviewed to ensure plaintiffs

are properly compensated.

(g) The courts need to have means to protect secret information during proceedings.

This can be achieved with confidential schedules to pleadings and restricting the

disclosure of information during trial and in the judgment itself. Public) and the

protection of information contained in court documents.

(h) Amending the Customs Regulation to include trade secrets may be of someassistance in controlling the flow of unlawfully manufactured goods, although, in

practice, this may not be effective in complex cases.


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MUST-TAKE STEPS IN ORDER TO PROTECT TRADE SECRETS(a) Ensure that a duly executed non-disclosure agreement is in place before sharing

confidential information. The organization may have different non-disclosure

agreements depending upon the sensitivity of the information shared under the

agreement.

(b) Label the information as confidential or proprietary. By doing this, you are putting

the other party on guard in terms of treatment given to the information.

(c) Champion the confidentiality policies amongst all employees, including providing

adequate training to all employees.

(d) Share the information within the organization only on a need-to-know basis.

(e) Treat and demonstrate that third parties confidential information is protected equally.

(f) Have an exit interview with terminated employees. During the interview highlight/

refresh their memory, on their obligations with regards to the non-disclosure

agreement they have signed, on keeping information that had access to during their

employment as confidential, it is okay to share best-known-methods with the next

employer but under no circumstances can the employee share trade-secrets. Also,

the fact that the next employer would understand that the employee cannot share

some information because it is confidential.

(g) The organization may also tailor a trade secret acknowledgment form which

terminating employee could sign-off before leaving. This form primarily helps in

enumerating the trade secrets that the employee is aware of during his employment.

(h) Other usual security measures of identifying sensitive areas, having certain areas

with restricted access, pass-words, badges, document retention / destruction policy,visitor control systems etc.


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REFERENCES

1. Practical Intellectual PropertyCompiled and edited by DLA Piper , Published by

Thomson, Sweet and Maxwell, Year of Publishing- 2011

2. Intellectual Property Law, Author-Lionel Bently, Brad Sherman, Published by -

Oxford University Press Inc., New York, Year of Publishing- 2001

3. Licensing Intellectual Property: Law & Management, Author- Raman Mittal,

Published by -Satyam law International ,Year of Publishing- 2011

4. The Law of Trade Secrets and Personal Secrets 2nd ed , Authors- Robert Dean,

Tony Thomas Publisher: Thomson Reuters Australia

5. Managing Intellectual Property , Author - Vinod V. Sople, Published by - Prentice-

Hall of India Pvt. Ltd., Year of Publishing2006

6. The Business of Industrial Licensing , Author - Patrick Heam, Gower Publishing

Company ltd., Year of Publishing1986

7. Cases and Materials on Intellectual Property , Author - William Cornish,

Published by - Sweet and MaxwellLtd., Year of Publishing - 2006

8. Wikipedia.http://en.wikipedia.org/wiki/Main_Page

9. WTO website. -http://www.wto.org

10.Intellectual Property -David Bainbridge- Pearson Longman- 2009 edition

11.Intellectual PropertyMargreth Barrett Aspen Publishers 2008 Edition
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12.Intellectual Property, A reference Handbook Aaron SchwabachABC-CLIO Inc.

2007 edition

13.Intellectual PropertyEconomic and Legal Dimensions of Rights and Remedies Roger

D. Blair, Thomos F.Cotter Cambridge University Press 2005 edition

14.Protecting trade secrets, Nishan Swais, Self-Counsel Press, Jan-1996

15.Securing Intellectual Property: Protecting Trade Secrets and Other Information Assets,

Butterworth-Heinemann, Dec 2008

16.Protecting and profiting from trade secrets, Practicing Law Institute, 1975

17.Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur

Press, Oct-2007

18.Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-

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