final legal aspect

7/29/2019 Final Legal Aspect

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Genesis

No specific law for Trade Secrets in India

It is beyond doubt that intellectual property comprises of inter alia copyright, trademark, patent and trade secrets. India has enacted Copyright Act, 1957, which provides complete and

comprehensive copyright protection in India. Further it has enacted Trademarks Act, 1999,

which repealed the Trade and Merchandise Marks Act, 1958. The Patents Act, 1970, extends

protection to patents in India. But, it is very evident that there is no specific law of protection

of trade secrets in India. As opposed to India, other contracting parties to TRIPS have enacted

specific and comprehensive laws with the sole objective of protection of trade secrets. But in

India, some indirect provisions from contract law, criminal law and copyright law protecttrade secrets. It is submitted that these laws are not sufficient for adequate protection of trade

secrets in India.

The intellectual property laws in India have had an almost docile and stagnant existence ever

since they were framed. Being a signatory of the TRIPs Agreement India is under an

obligation to bring its intellectual property laws in conformity with international standards.

India has achieved this to a large extent by enacting new and amending existing legislations

on intellectual property laws. However, unlike the US and other developed countries India

has no legislation dealing with trade secrets.

In India protection of trade secrets is Common Law based. However, section 27 of the Indian

Contract Act provides some sort of limited remedy; it bars any person from disclosing any

information which he acquires as a result of a contract. There are scores of reasons for the

absence of any statute dealing with trade secrets. India has since its independence followed a

socialist pattern because of which the Indian legal system has always strived for social benefitand public rights as a result of which private rights like intellectual property rights have not

been given any importance. Another reason for absence of any trade secret laws is the

dependence of Indian economy on agriculture. Also, with the absence of big private corporate

houses in India until recently there has hardly been any pressure on the government for

granting statutory protection to trade secrets. Protection of trade secrets is a very important

and one of the most challenging tasks for the Indian government as this will enhance the

foreign investment in India giving a boost to the Indian economy. Foreign investors have to

be assured of the protection of their trade secrets, so that they can do business with our


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country. A proper policy for trade secret protection will further enhance the security in our

own industry. Almost all the countries in the world have a policy for the protection of trade

secrets and India also being a signatory to the TRIPS is under an obligation to amend its laws

or create a new law in order to safeguard the trade secrets of various businesses. So a proper

policy for the protection of trade secrets in India is the need of the hour in order to provide a

sense of security among the foreign investors and the local businessmen regarding their trade

secrets which will further boost the Indian economy.

As mentioned above, in India, no substantive authoritative text or case laws are available to

determine the nature or ambit of trade secrets. But the Indian courts have tried putting the

trade secrets of various businesses under the purview of various other legislations in order to

protect them and also they have tried to define what a trade secret is in various cases, Trade

Secret law has gained importance in India only recently with the intensification of

competition. Coca colas formula has been protected for over a century under Trade Secret

law.

Introduction

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 customers. In some jurisdictions, such

secret s are referred to as confidential information, but should not be referred to as

classified information, due to the nature of the word classified in the USA.

The precise language by which a trade secret is defined varies by jurisdiction (as do the

particular types of information that are subject to trade secret protection). However, there are

three factors that, although subject to differing interpretations, are common to all such

definitions: a trade secret is information that is not generally known to the public; confers

some sort of economic benefit on its holder (where this benefit must derive specifically from

its not being generally known, not just from the value of the information itself) is the subject

of reasonable efforts to maintain its secrecy.

A trade secret is some sort of information that

1. is not generally known to the relevant portion of the public

2. confers some sort of economic benefit on its holder


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3. is the subject of reasonable efforts to maintain its secrecy

Section 2(3) of Indian I nnovation Bill defines Confidential Information as Confidential

Information means information, including a formula, pattern, compilation, program device,

method, technique or process, that: (a) is secret, in that it is not, as a body or in the preciseconfiguration and assembly of its components, generally known among or readily accessible

to persons within circles that normally deal with the kind of information in question; (b) has

commercial value because it is secret and (c) has been subject to responsible steps under the

circumstances by the person lawfully in control of the information, to keep it secret.

Rights of the owner of Trade Secrets

A trade secret owner can prevent the following groups of people from copying, using, or

benefiting from its trade secrets or disclosing them to others without permission:

people who are automatically bound by a duty of confidentiality not to disclose or use

trade secret information, including any employee who routinely comes into contact

with the employer's trade secrets as part of the employee's job

people who acquire a trade secret through improper means such as theft, industrial

espionage or bribery

people who knowingly obtain trade secrets from people who have no right to disclose

them

people who learn about a trade secret by accident or mistake, but had reason to know

that the information was a protected trade secret, and

people who sign nondisclosure agreements (also known as "confidentiality

agreements") promising not to disclose trade secrets without authorization from the

owner

There is one group of people that cannot be stopped from using information protected under

trade secret law. These are people who discover the secret independently, that is, without

using illegal means or violating agreements or state laws. For example, it is not a violation of

trade secret law to analyse (or "reverse engineer") any lawfully obtained product and

determine its trade secret.

The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) under the

auspices of the World Trade Organisation lays down the following three criteria for regarding

any information as undisclosed information (or trade secrets):


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It must not be generally known or readily accessible by people who normally deal

with such type of information

It must have commercial value as a secret

The lawful owner must take reasonable steps to keep it secret.

Ways of discovering trade secrets

Companies often try to discover one another's trade secrets through lawful methods of reverse

engineering or employee poaching on one hand, and potentially unlawful methods

including industrial espionage on the other. Acts of industrial espionage are generally illegal

in their own right under the relevant governing laws. The importance of that illegality to trade

secret law is as follows: if a trade secret is acquired by improper means (a somewhat wider

concept than "illegal means" but inclusive of such means), the secret is generally deemed to

have been misappropriated . Thus if a trade secret has been acquired via industrial espionage,

its acquirer will probably be subject to legal liability for acquiring it improperly. (The holder

of the trade secret is nevertheless obliged to protect against such espionage to some degree in

order to safeguard the secret. As noted above, under most trade secret regimes, a trade secret

is not deemed to exist unless its purported holder takes reasonable steps to maintain its

secrecy.)

Who Can Know a Trade Secret?

Obviously, the proprietor of a business can know its trade secrets, so can the employees (who

have been instructed not to disclose the secret) involved in its use. Other people can know the

trade secret if they are pledged to secrecy. Others may also know of a trade secret

independently, as, for example, when they have discovered the process or formula by

independent invention and are keeping it secret. Nevertheless, a substantial element of

secrecy must exist, so that, except by the use of improper means, there would be difficulty in

acquiring the information.

Features and Aspects

The definitions included above provide a fairly clear picture of what constitutes a trade

secret. At the most basic level, a trade secret is simply information and knowledge. More

specifically, it is any proprietary technical or business information, often embodied in


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inventions, know-how, and show-how. The definitions roughly agree on three

requirements that must be met for enforceable trade secrets to exist. The proprietary

information must be:

1. secret, in the sense that it is not generally known in the trade

2. valuable to competitors that do not possess it

3. the subject of reasonable efforts to safeguard and maintain it in secrecy

There are critical limitations on trade secrets and pitfalls in trade-secret enforcement and

litigation. The requirement to maintain secrecy is a frequent pitfall. Moreover, any

information that is readily ascertainable, or is derived from the personal skills of

employees, cannot be considered an enforceable trade secret.

For trade secrets, there is no subject matter or term limitation, registration or tangibility

requirement. Furthermore, there is no strict novelty requirement, and trade-secret

protection obtains as long as the subject matter is not generally known or available.

What does matter is secrecy?

The information is not to be known by outsiders. And maintaining secrecy requires

reasonable affirmative measures to safeguard it. Such measures might include:

stipulating in writing a trade-secret policy

informing employees of the trade-secret policy

having employees sign employment agreements with confidentiality obligations

restricting access to trade-secrets (on a need-to-know basis)

restricting public accessibility and escorting visitors

locking gates and cabinets to sites that house trade secrets

labelling trade-secret documents as proprietary and confidential

screening the speeches and publications of employees using secrecy contracts in dealing with third parties

conducting exit interviews with departing employees

Exclusive Rights of the Owner

Trade secret owners generally have exclusive rights against persons who disclose or use the

trade secrets, without authorization of the owner, if

the person misappropriated the trade secret, the person acquired it by improper means, or


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even if acquired by proper means, the disclosure or use constituted a breach of a

contractual or implied duty owed by the person to the trade secret owner

A trade secret owners exclusive rights focus on the way someone else acquires the trade

secret information or the circumstances under which that party is using it, not just the nature

of the information itself. What does this mean? Among other things, it means that unlike

patents, which protect against infringement regardless of how the alleged infringer acquired

the patented invention trade secrets do not protect against the use by people who may

acquire or develop the trade secret on their own. Trade secret owners thus have no rights

against others who discover them by fair and honest means, that is, through independent

invention, by legitimate reverse engineering, or by negligent or accidental disclosure on the

trade secret owners part.

Protection for Owner

Assuming that certain information qualifies as a trade secret and someone else has

misappropriated it or is otherwise using it in breach of a lawful duty to the owner, what rights

does the owner have to prevent it? What remedies are available to the owner to compensate it

for the misuse of or injury to the value of the secrets?

Generally, a trade secret owner who proves misappropriation, wrongful use, or unauthorized

disclosure by a third party is entitled to

financial damages to compensate for injury suffered, and/or

an injunction to prevent further injury or threatened injury to the trade secrets

In broad terms, these are the same kinds of remedies that a patent owner may obtain for

infringement of patent rights. Again, however, important specific differences should be

considered in deciding whether to seek trade secrets instead of patent protection for specific

technology or business information.

For example, under the patent code, a patent owner is not entitled to recover an infringers

profits on sales of infringing products, although the owner may recover its own lost profits on

sales it would have made but for the infringement. A trade secret owner, however, may in

certain cases recover a defendants unjust enrichment resulting from its unauthorized use,

that is, the defendants profits on sales of products made with the plaintiffs trade secrets.

Ways of protecting Trade Secrets

It is better not to wait for a situation to occur where trade secrets are in jeopardy before takingaction. Preventive measures may decrease the likelihood that a former employee (or, indeed,


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a current employee) may disclose trade secrets. And, if someone does disclose or attempt to

use trade secrets, then proof that the employer did consider this information to be valuable

and confidential and took steps to insure its confidentiality will be helpful. To help protect

your business you should take the following steps:

1. Have all employees, independent contractors and temporary personnel execute

confidentiality agreements as a condition of new or continued employment. A

confidentiality agreement should contain, among other terms, a definition of trade

secrets, limitations of how employees can utilize trade secrets, and the types of

monetary and injunctive relief that a company can recover if the employee breaches

the agreement.

2. Conduct regular meetings with employees, independent contractors and temporary

personnel to remind them about what information the company considers confidential

and the reasons why it wants to protect it.

3. Identify any information that the company considers confidential as confidential and

proprietary by either placing it in a separate file or stamping confidential and

proprietary on it.

4. Limit access to confidential information to only those persons who absolutely must

see it. A company can place the information in a separate locked file cabinet or

require selected employees to use a password to gain access to it.

5. When establishing a new employment relationship, the company should inquire

whether that persons previous employer required him or her to sign a confidentiality

agreement. A company should follow this policy, because it promotes awareness by

the new employee that his future employer respects the confidential and proprietary

information of that persons former employer.

6. If this is the case, advise other employees, independent contractors and temporary

personnel that the company has been required to enforce a confidentiality agreement.7. Include confidentiality provisions in personnel manuals.

8. Require vendors, suppliers and potential customers to sign non-disclosure agreements

about the confidential and proprietary information made available to them, and make

the companys employees aware of that policy. A non -disclosure agreement is similar

to a confidentiality agreement in that both seek to protect trade secrets. (Non-

disclosure agreements are typically signed by vendors, suppliers and potential

customers whereas confidentiality agreements are signed by employees.) Acompanys employees will develop a better understanding that the company places a


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significant value upon its confidential and proprietary information if they see that

third parties are being required to sign non-disclosure agreements.

9. Create an understanding among employees, independent contractors and temporary

personnel that any confidential information that they create on behalf of the company

belongs to the company.

10. Hold thorough exit interviews and require personnel who have terminated their

relationship with the company to return all confidential information that had been in

their possession, including any information that is on their office or home computer.

Background

As a general principle of trade-secret law, a trade secret can be any piece of information

that:

1. is exclusively known by the party claiming it (i.e., it is truly a secret)

2. is protected by measures that are reasonable under the circumstances

3. is of some economic value -- either because owner of the secret experiences a direct

and tangible economic benefit (say, a cheaper way of making a formulation) or

because the competitors of the owner would have to expend considerable resources

to discover the secret through lawful means (say, by reverse- engineering)

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 invention and

new creations which may be suicidal to the entire development of the country in the days

ahead.

Trade Secrets seems to be a neglected field in India, as there is no enactment or policy

framework for the protection of trade secrets. This form of intellectual property is a new

entrant in India, but is nevertheless a very important field of IP. Protection of trade secrets is

a very important and one of the most challenging tasks for the Indian government as this will

enhance the foreign investment in India giving a boost to the Indian economy. Foreign

investors have to be assured of the protection of their trade secrets, so that they can do

business with our country. A proper policy for trade secret protection will further enhance the

security in our own industry. Almost all the countries in the world have a policy for the


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protection of trade secrets and India also being a signatory to the TRIPS is under an

obligation to amend its laws or create a new law in order to safeguard the trade secrets of

various businesses. So a proper policy for the protection of trade secrets in India is the need

of the hour in order to provide a sense of security among the foreign investors and the local

businessmen regarding their trade secrets which will further boost the Indian economy.

Examples:

The KFC recipe is part of a larger class of corporate knowledge known as trade secrets.

Broadly defined, a trade secret is a process (think of things like Web search algorithms),

formula, practice, design, or other secret information to which the public doesnt have accessthat allows a company to gain a competitive advantage over the rest of its industry. In this

case, KFC feels that its spice blend enables the company to make particularly delicious

chicken thats differentiated from the rest of the fried -chicken market. The public seems to

agree; KFC raked in over $5 billion in domestic sales last year. If another chicken company

got their hands on this spice blend, they could conceivably replicate the delicious fried

poultry and effectively eat away at KFCs market share. As such, KFC maintains it s recipe as

a trade secret to keep competitors at bay.

The Coca Cola formula

Known by the code name Merchandise 7X, is possibly the best -known trade secret in the

world. The formula, which dates back to the drinks 1886 invention by Joseph S. Pemberton,

is written on a piece of paper that resides in an Atlanta bank. Despite decades of attempts to

figure out the formula, no one has succeeded yet; these failures are why the knock-off store

brand sodas you buy never taste quite like the real thing. Coke is not afraid to go to greatlengths to maintain the secrecy of the formula. In 1977 the Indian government demanded that

the company reveal the recipe to keep its ability to sell the beverage in India. Coke decided it

would rather leave the market altogether r ather than give up its secret; you couldnt buy a

Coca-Cola in India until the government relented in 1993.

Google Adwords


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AdWords is Googles advertising product that places pay -per-click banner and text ads

throughout the Web and provides site-targeted ads. The system is certainly successful; it

pulled in over $16 billion last year. How do the ads get placed on individual pages, though?

Good question, but its one that will remain a mystery since the algorithm is a trade secret.

Gillete Razor Designs

Here s an example of why you dont want to steal a trade secret. In 1997, Wright Industries

was helping Gillette design a new razor that was extremely confidential and potentially

valuable. Wright Industries employee Steven L. Davis worried that his job was in jeopardy

and had a grudge against his supervisor, so he swiped a bunch of trade secrets, including

drawings of razor designs and data and sent them to Bic, Warner-Lambert, and other competitors. Bad move. The 1996 Congressional passing of the Economic Espionage Act

made stealing trade secrets a federal crime. Davis pled guilty to five counts of theft of trade

secrets and received a sentence of 27 months in jail and over a million dollars in fines.

Features associated with Trade Secrets

Intellectual property rights or IPRs are rights given to people over the creations of their

minds. These rights are given by society through the State, as an incentive to produce and

disseminate ideas and expressions that will benefit society as a whole. Unlike Fundamental

Rights of citizens which are guaranteed by the Constitution of a country, IPRs are statutory

rights enacted by the law making authority in a country. Conventionally, many forms of IPRs

are recognised. They are traditionally classified into two main categories:

Copyright and related rights: i.e., rights granted to authors of literary and artistic

works, and the rights of performers, producers of phonograms and broadcastingorganizations. The main purpose of protection of copyright and related rights is to

encourage and reward creative work. The distinguishing feature of this category of

rights is that they protect only the tangible expression of an idea and not the idea

itself. Further, these rights generally come into existence the moment a work is

created and need not be registered with any central authority.

Industrial property: This category includes:

(1) the protection of distinctive signs such as trademarks and geographicalindications, and


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(2) industrial property protected primarily to stimulate innovation, design

and the creation of technology which are protected through laws on

protection of inventions (patents), industrial designs and trade secrets.

IPRs grant protection to the owner as they give the creator an exclusive right over

the use of his/her intellectual creations generally for a limited period of time. However,

in the case of certain categories of IPRs, the rights e.g. trade secrets and geographical

indications can exist indefinitely so long as the right holder takes steps to protect his right. In

the case of certain other time limited IPRs; it is possible to renew the rights periodically

either for an indefinitely long period as in the case of trademarks or for a pre-specified

maximum limit as in the case of industrial designs.

The IPRs covered by the TRIPS Agreement are:

Copyright and related rights (i.e. the rights of performers, producers of sound

recordings and broadcasting organizations)

Trademarks, including service marks

Geographical indications including appellations of origin

Industrial designs

Patents including the protection of new varieties of plants

Layout-designs (topographies) of integrated circuits

Undisclosed information, including trade secrets and test data

Patents

Patents provide property rights to inventions. An 'invention' may be defined as a novel idea

which permits in practice the solution of a specific problem in a field of technology. Patents

are available for any invention, whether products or processes, in all fields of technology,

provided that they are new, involve an inventive step and are capable of industrial

application.Thus, the TRIPS Agreement stipulates that countries shall grant patents for inventions in all

fields of technology and for both:

Products, and

Processes, including those used in manufacturing products.

Trademarks

A trademark is a sign or mark that is used to distinguish the goods or services of oneenterprise from those of another enterprise. It can be any distinctive word, letter, numeral,


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drawing, picture, shape, colour, sound, smell, logotypes, or any combination of these that

may be used for distinguishing goods and services, of any given business. A trademark is

used extensively by an enterprise to reach customers by enabling customers to identify and

locate the product. A trademark is issued by a national office and is granted for a period of 10

years and may be renewed indefinitely.

Copyright

Copyright is a right given by law to the creators of literary, dramatic, musical and

artistic works and the producers of cinematographic films and sound recordings on their

creations and productions. It is one of the intellectual property rights designed to encourage

creativity. Copyrights are intended to safeguard, protect and reward the rights of creators of

artistic works in their respective creations: Writers, artists, designers, dramatists, musicians,

architects, producers of sound recordings, cinematographers, computer software developers

etc. are empowered through copyright.

TRIPS provides that the rights of authors of literary and artistic works (such as books and

other writings, musical compositions, paintings, sculpture, computer programs and films) are

protected by copyright, for a minimum period of life of the author plus 50 years after his/her

death.

The interesting aspect of copyright protection is that it need not be registered with any

authority to be protected under law. Secondly, it protects only the tangible expression of an

idea and not an idea itself. This has led to many a litigation to settle the idea-expression

dichotomy. The Indian Copyright Act, 1957 protects original literary, dramatic, musical and

artistic works and cinematograph films and sound recordings from unauthorized uses. Unlike

the case with patents, copyright protects the expressions and not the ideas. There is no

copyright protection for ideas, procedures, and methods of operation or mathematical

concepts as such. In India, the duration of copyright for authors is life of the author plus 60years after his/her death and for cinematograph films and sound recordings 60 years from the

year of production. After the death of the owner, the rights pass on to his/her legal heirs.

Punishment for Stealing Trade Secrets

However, the nature of a trade secret is an important factor in determining the kind of

compensation you could get if you sue someone for damages who has stolen your trade

secrets. If the trade secret consists of a device or process which is a novel invention and has


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patentable, the court would ordinarily prevent the further use of, and require the accounting

of any profits derived by someone who acquired the trade secret wrongfully.

If, on the other hand, the trade secret consists of mechanical improvements that a good

mechanic could make without knowing the trade secret, the wrong doer's liability may be

limited to damages, and an injunction against the future use of the improvements made with

the aid of the trade secret may be inappropriate.

Conclusion

The Innovation Bill of 2008 is considered to be a dynamic approach towards protection of

Trade secret but it has been argued invariably and needs to be emphasized.

To conclude, first is Enactment of a strong statute for protection of confidential information

and trade secrets would certainly help the Indian industry. In any event, strategies for

protection of the organizations confidential information and trade secrets have, in todays

economic scenario, become a prerequisite to the organizations survival. Although realizing

the need of legislation for the protection of trade secrets, the Indian legislature came up with

a bill named as The Personal Data Protection Bill which was introduced in Rajya Sabha on

8th December, 2006, but unfortunately the bill has not been passed till now and is pending

the approval of the Indian Parliament before it can become an act.

And the last point is, to protect the vast repository of Undisclosed Information and

knowledge kept as trade secrets by their practitioners, India should consider a pro-active

legislation under a `Sui Generis' system as provided for under Art. 10 bis of the Paris

Convention and Article 39(2) and 39(3) of TRIPS, formal legislations on the lines of USTSA,

need to be brought in. Such legislations, even if they are difficult to enforce, except through

complex litigations, still will deter illegal transfer of trade secrets by people who had access

to them as part of their employment duties. These steps along with provisions under Breach

of Contract or Non-disclosure Agreement would go a long way in developing a culture in the

industrial circles to respect trade secrets and undisclosed information as proprietary assets of

their owners.

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