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News article5 November 2021

A short introduction to trade secrets in India

Hana Onderkova

Head of IP - European Business & Technology Centre

 

Trade secrets in a nutshell

While information is an asset for any business, trade secrets are often crucial for the very survival of the business. It can include strategies, designs, client database, formulae, programs, and any other information which is confidential in nature and needs to be kept a secret. As per a landmark decision by the Delhi High Court (https://indiankanoon.org/doc/130087/) in 1995, a trade secret is defined as any information with commercial value, which is not available in the public domain and the disclosure of which would cause significant harm to the owner.  Similarly, the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement from the same year defines trade secrets as information which is kept secret, has a commercial value and the owner of the information takes reasonable steps to keep it secret. Due to the commercial importance of the trade secret for any business, legal protection of such information is essential.

Means to protect trade secrets in India

India is a signatory of the TRIPs Agreement, and as a member it has the flexibility to frame laws protecting trade secrets as defined above, by preventing unauthorized disclosure of information. Although there is no specific law or enactment on trade secrets in India, the Indian courts and tribunals have upheld protection of trade secrets under other laws such as contact law, copyright law, principles of equity and common law action of breach of confidence (which is basically breach of an obligation to keep a piece information secret). In addition to the above, the Information Technology law of 2000 also sets legal means of protection to confidential information in the form of the electronic records.  

Misappropriation of trade secret can be understood as discovery of trade secret by improper methods, which is not covered by any specific law. Therefore, the common cause of action against misappropriation or unauthorized disclosure of trade secrets includes civil action for breach of contract and wrongdoing due to misappropriation; and criminal action for theft and breach of trust.

Under contract law, a person can be bound contractually from disclosing information. For instance, non-disclosure agreements (NDAs) is the most common tool to protect trade secrets. An NDA should be specific about the confidential information which should be considered secret and therefore not to be disclosed to third parties. Moreover, hefty penalties specified in the NDA upon its breach can prevent the third party from spilling the beans.  Even though there are no specialized alternative dispute resolution (ADR) method for disputes arising out of trade secrets in India, every NDA should contain an ADR clause so that in case of dispute, the matter can be sorted outside the Courts by traditional ADR methods including mediation, conciliation and arbitration thereby saving valuable time. Indeed ADR methods tend to be much faster and less expensive than judicial actions.

 

Confidentiality is the central factor that needs to be proven in any action for breach of confidentiality. The business must establish that sufficient steps had been taken to ensure that the data/information remains confidential. Essentially, in courts it is important for the trade secret owner to prove that the information was indeed confidential, otherwise the information lacks the quality of being a trade secret and is therefore not protected as such. Therefore, in practice, the trade secret owner must ensure that appropriate steps are actually taken to keep trade secret safe and confidential  wherein except from executing NDAs, other steps such as developing a trade secret policy, restricting access to certain information, and cultivating a compliance culture by educating and monitoring employees might be implemented.

Unfair acquisition of trade secrets by employee for example, is outlined in in Burlington Home Shopping Pvt Ltd v. Rajnish Chibber, in which the Delhi Supreme also indicated the thin line between copyright infringement and trade secret violation when it comes to leaking customers lists or compilation of business data. Theoretically speaking, copyright and trade secret protects different elements of complied business data, whereas on one hand copyright protects the expression in the compilations and on the other trade secret laws protect the underlying data. However, in practice these two elements often converge so much so that any infringement of the copyright can also harm the secrets of the business.

Enforcement of trade secrets in India

When it comes to enforcement, both civil and criminal actions are available for trade secret misappropriation. An injunction granted by courts can restrain the wrongdoer from disclosing trade secrets as well as damages can be sought by the trade secret owner. Other civil actions which the courts can grant to the trade secret owner in case of trade secret leakage is return of trade secrets or materials containing trade secrets. On the other hand, fine or imprisonment can be granted by courts under penal code, copyright and information technology law.

Prevention is better than cure

Businesses that have information eligible for trade secret protection are required to undertake certain steps that protect such information from disclosure. These steps should include identifying exact scope and nature of the information to be protected as a trade secret, developing a proper trade secret policy, limiting the access to such information, executing confidentiality agreements and NDAs whenever necessary, to name but a few.

Details

Publication date
5 November 2021