Overview of Protection of Trade Secrets Bill, 2024

Trade secrets encompass a wide array of confidential information which derives its value from being kept  secret. They may include strategies, designs, customer databases, formulas and programs that must be kept confidential to protect a company's competitive advantage.  

Though trade secrets are part of the larger intellectual property system, given their impermanence and unboundedness, it is hard to categorise them as property leading to patchwork protective measures in India through means of contract law, criminal law and principles of equity. With no formal protective legislation to protect trade secrets any form of voluntary/involuntary disclosure or exchange of information can lead to alienation of the intellectual asset. Furthermore, given the present era of artificial intelligence and industry 4.0 wherein, national boundaries are being blurred and businesses seamlessly operate and provide services across the globe, there is a necessity to provide specific legislation to adequately address and enforce trade secrets protection in India.  In response to the growing need for specialized legislation to protect trade secrets, the 22nd Law Commission of India after deliberate consultations with academia, industry and governmental institutions proposed the Trade Secrets and Espionage Report No. 289 along with a draft trade secrets bill. The key highlights of the proposed bill can be summarised as follows:

1. Clarification on the definition of a trade secret

The commission clarified the definition and categorisation of  ¨trade secrets ¨ by stating that trade secrets cannot have a property-like conception, as there are no monopoly rights associated with trade secrets.  Further, it stated that though TRIPS Agreement has categorized trade secrets as ¨intellectual property¨, such categorisation does not ipso facto confer the status of property and trade secrets can only be considered on principles of unfair competition or misappropriation based on principles of common law and breach of confidence 

With respect to the defining a trade secret, the commission has adhered and has followed the broad definition prescribed under Art. 39(2) of Trade Related Aspects of Intellectual Property System (TRIPS). Sec 2(f) of the proposed bill defines trade secret as,  any information:

• that  is generally not  known or easily accessible to the relevant persons,
• that derives economic value on the account of being a secret
• that the holder of the information  has taken reasonable steps to maintain its secrecy,
• that the disclosure of which could be harmful to the holder of such information. 

Furthermore, as an explanatory note the definition clarifies that skills and know-how acquired by an employee in the course of his or her  employment, and any information that discloses a violation of law are not to be considered as trade secrets. 

The draft bill further provides an exhaustive list of ways in which trade secrets can be obtained lawfully namely:

•  Information obtained by independent discovery or creation 
• Information acquired by observation, reverse engineering, disassembly, 
• Through any other practices that are in conformity with honest commercial practices; or 
• In pursuance of a law, by a contract, or as permitted by law.

2. Rights and Duties  of trade secret holders , Use and Disclosure of trade secrets:

The draft bill provides usage, disclosure, contractual and  licensing rights to the holder of the information. That is, the holder of a trade secret is entitled to use and disclose trade secrets under confidentiality agreements with employees, third parties, partners in any manner they deem fit.  

Additionally, the draft bill explicitly provides the right to institute civil suits in respective commercial courts in case of misappropriation of the said secrets.  Apart from the rights, the draft bill additionally lays down certain responsibilities on the holders, namely - 

• That the holder must demonstrate that reasonable measures such as contractual agreements and confidentiality clauses, physical security measures, digital security measures  had been taken to keep the information a secret. 
• Also, the holders must ensure that the secret complies with all the relevant laws, including labour laws and contractual laws of India.

3. Compulsory licensing and Government Use: 

Compulsory licensing provisions are introduced to allow the central government to order the disclosure of trade secrets to third parties or the government in critical situations such as national emergencies, extreme urgencies of vital public interest, including health emergencies, and national security. This is similar to the provision contained in Section 100 of the Indian Patents Act, 1970.

4. Misappropriation of trade secrets: 

Sec. 2(d) of the proposed bill defines misappropriation and lists a set of activities which constitute misappropriation of the trade secret: 

• Acquiring trade secrets without consent of the holder by unauthorized access, appropriation, or copying of material, or conduct contradictory to honest commercial practices. 
• Use or disclosure of trade secrets without the holder’s authorization by acquiring them unlawfully, by way of a breach of confidentiality agreement, a breach of contract, or any other duty. 
• Acquisition, use, or disclosure of a trade secret by a person who had or ought to have knowledge that the information was acquired by disclosure made by another person unlawfully.
• Exceptions to misappropriation are also listed, such as, disclosure of trade secrets to expose an unlawful act or professional misconduct, i.e., to protect whistleblowers or in good faith to protect public interests.

Conclusion

Although this draft law is only a recommendation and it is up to the government to decide whether to implement it, if adopted it would create a more secure business environment favourable to innovation and development. For European small and medium-sized enterprises (SMEs), this could mean access to a more robust legal framework that protects their intangible assets and encourages investment in new technologies. It could also improve the confidence of foreign investors in India, facilitating cooperation and technology transfer that could benefit European SMEs operating in the Indian market. 

For more information, we recommend you our guide to trade secret protection in India. You can also read our case study on enforcement of trade secrets and employees in India. And if you are considering whether to opt for expensive patent protection or cheaper but riskier protection, we recommend you read this case study (patents or trade secrets).