TRADE SECRETS - AN EMERGING NEED FOR

INDIA
PRANAV NARANG
 Table of Contents
INTRODUCTION .................................................................................................................................. 2
TRADE SECRET - THE TERM ............................................................................................................ 2
MISAPPROPRIATION .......................................................................................................................... 3
TRADE SECRETS AND PATENTS ..................................................................................................... 4
PROTECTION OF TRADE SECRETS IN INDIA ................................................................................ 4
AVAILABLE REMEDIES ..................................................................................................................... 5
ADVANTAGES AND DISADVANTAGES OF TRADE SECRETS .................................................. 5
PROPOSED LEGISLATIONS ............................................................................................................... 6
CONCLUSION ....................................................................................................................................... 6

1
I. INTRODUCTION
Whether through laborious and costly research, decades of experience, or a sudden
burst of creativity, companies constantly develop information which can help them to
perform better, faster or at lower cost.1 Such information or knowledge can include anything
from new manufacturing process to advertising strategies or from consumer profiles to
improved recipes. Also known as the fourth type of intellectual property, such information or
knowledge is generally called as Trade Secret.2
Being a member of the World Trade Organisation (WTO) and a party to the
Agreement on Trade Related Aspects of Intellectual-Property Rights (TRIPS) India is
obligated to provide trade secret protection.3 However, despite this, India, till now does not
has a single statute dedicated for the purpose or does not even have any laws for their
protection. Hence the theme of this paper, which tries to explore what basically are trade
secrets, some of their features, their advantages as well as disadvantages, and the contrasting
features between them and patents. The concluding section of this paper has been written
from a perspective of India.

II. TRADE SECRET - THE TERM

There exists no universal definition which can be used for trade secret as it varies
from jurisdiction to jurisdiction. However, there are three features which are common to most
of the defining words of trade secret, which have also been incorporated by in Article 39 of
the TRIPS4 agreement, namely:
1. The trade secret is generally not known to public at large,
2. Such trade secret confers some sort of economic advantage to the holder of such
secret (where the benefit is not just derived from the value of such information, but
also from the fact that it is not publically known)
3. Such secret is subject to the reasonable efforts made in order to maintain its secrecy.
Of its various definitions, one such comprehensive definition of trade secret is that it
is a formula, practise, process, design, instrument, pattern, commercial method or
compilation of information which is not generally known or reasonably ascertainable by
others, and can provide economic advantage over customers or competitors.5 WIPO broadly
defines it as any confidential business information which provides an enterprise a competitive
edge.6
Information protected through a trade secret can be strategic for decades (for example,
a recipe or a chemical compound), or ephemeral (for example, the results of a marketing

1
"Trade secrets", GROWTH Internal Market, Industry, Entrepreneurship and SMEs, European Commission ,
last accessed on December 28, 2015
http://ec.europa.eu/growth/industry/intellectual-property/trade-secrets/index_en.htm
2
Office of Policy and International Affairs, Trade Secret Policy, Text, last accessed December 28, 2015,
http://www.uspto.gov/patents-getting-started/international-protection/trade-secret-policy.
3
Member States, accessed December 29, 2015, http://www.wipo.int/members/en/.
4
TRIPS Uruguay Round Agreement, WTO, last accessed December 28, 2015,
https://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm.
5
Tom C. W. Lin, Executive Trade Secrets, SSRN Scholarly Paper (Rochester, NY: Social Science Research
Network, April 28, 2012), last accessed on December 28, 2015, http://papers.ssrn.com/abstract=2047462.
6
"What is a Trade Secret?", World Intellectual Property Organization, last accesssed on December 28, 2015,
http://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm

2
study, the name, price and launch date of a new product, or the price offered in a bidding
procedure).7
The unauthorised use of such information by persons other than the holder is regarded
as an unfair practise and a violation of the trade secret. The United States is among some
countries that possess a specific statue dedicated to protection of trade secrets. This statute is
known as Uniform Trade Secrets Act, 1970 and was drafted by the National Conference of
Commissioners on uniform State Laws.8 Almost all states have adopted trade secret laws,
most of them being quite similar to each other, as all of them have been derived from the
Uniform Trade Secrets Act.9
This Act empowers the courts to protect trade secrets by enjoining misappropriation,
ordering parties that have misappropriated a trade secret to take further steps to maintain its
secrecy as well as ordering to pay the royalty from profits to the owner. In addition to this the
courts can are also empowered to award damages, court costs and reasonable attorneys' fees.
However, such protection is limited to a great extent as a holder of a trade secret is protected
from unauthorised disclosure and use only when it falls under the category of
misappropriation. If, in case, the holder of the trade secret fails to maintain secrecy or if the
information is discovered independently, becomes released or otherwise becomes publically
known, then in such a case the protection as a trade secret is lost.
Trade secrets are an integral part for a company and like some other Intellectual
Property Rights, are invisible in nature. In many cases its contribution to the company's
production can be very large hence the reasoning for sufficient steps taken by the company to
maintain its secrecy. Owing to their nature of invisibility, their contribution to the market
capitalisation is very tough to measure or monitor.10

III. MISAPPROPRIATION
Just because some knowledge or information is valuable to someone does not
prevents others from using it or disclosing it.11 Hence trade secrets can be provided lawful
protection only when unlawful methods have been employed by a person to know such
secrets. Such unlawful methods or unfair practises mainly include industrial or commercial
espionage, breach of a contract and breach of confidence. The importance of unfair means to
trade laws is that, when used, the secret is said to be misappropriated. Thus only the
aforementioned cases lead to misappropriation.
On the other hand there may be ways by which trade secrets may be discovered and
these may be perfectly legal methods. For instance a person may very well stumble upon the
exact recipe using the trial error method thus leading to revelation of a long kept secret
recipe. Reverse engineering is one such another method by which the technical know-how of
manufacturing a good can be discovered. The state of California for example, (and
subsequently almost all other jurisdictions) regard the process of reverse engineering as a
legal method and cannot be held as a basis for reverse engineering. 12 Once discovered and

7
Supra Note 1
8
Ron Sklansky, Legislation on the Uniform Trade Secrets Act (Legislative Reference Bureau, 1985).
9
Trade Secrets| Patents & Patent Law, IPWatchdog.com | Patents & Patent Law, last accessed on December
28, 2015, http://www.ipwatchdog.com/tradesecret/.
10
Baruch Lev, Intangibles, Management, Measurement and Reporting (Brookings Institution Press, 2001).
11
The 3 Elements of Trade Secret Misappropriation, last accessed December 28, 2015,
http://www.avvo.com/legal-guides/ugc/the-3-elements-of-trade-secret-misappropriation.
12
"Basics of a Trade Secret Claim", Digital Media Law Project, last accessed on December 28, 2015,

3
revealed, the trade secret would no longer remain a "secret" and hence would not be covered
under legal protection.

IV. TRADE SECRETS AND PATENTS

Trade secrets, many a times are also regarded as an alternative to patents. Whereas
patents require the inventor or the patent holder to provide an elaborate and enabling
disclosure regarding the invention in exchange for the right to exclude others from practising
the invention for a limited period of time, depending on jurisdictions, trade secrets on the
other hand require no such disclosure and provide legal protection to them indefinitely. Once
the limited time period of protection of information is over, patents expire, but trade secrets
continue to exist. However, unlike trade secrets, patents protect against independent
discovery. Also patent protection eliminates the necessity to maintain secrecy, as no other
person, except the holder of the patent can legally use the information.

V. PROTECTION OF TRADE SECRETS IN INDIA

Currently, there is no specific legislation or any law in India that purports to protect
trade secret and other confidential information in India. However, on the principals of equity,
Indian courts do protect trade secrets relying on equitable and common law remedies. For this
purpose, the most common case law, currently being used in Indian courts is an English Case
by the name, Saltman Engineering Case13 which states that, "...maintenance of secrecy,
according to the circumstances in any given case, either rests on the principles of equity, that
is to say the application by the court of the need for conscientiousness in the course of
conduct, or by the common law action for breach of confidence, which is in effect a breach of
contract."14
The legal jurisprudence on this issue, naturally is miniscule owing to various evident
factors. In the case of Ambiance India Pvt. Ltd. v. Shri Naveen Jain15 , it was held that trade
secrets can be a formulae, technical know-how or a peculiar mode or method of business
adopted by an employer which is unknown to others." However, it was also added that
"routine day-to-day affairs of employer which are in the knowledge of many and are
commonly known to others cannot be called trade secrets."
Due to absence of any statute, the formation of contract is one of the primary things
that companies have to rely upon for maintaining trade secrets.16 One such unlawful form of
misappropriation, 'breach of confidence' is recognised under common tort law, immaterial of
existence of a contract.17
For the cases involving employer-employee relationship, the common law principals
have been recognised for the following circumstances as a precedent:

http://www.dmlp.org/legal-guide/basics-trade-secret-claim
13
Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd., 1948 (65) R.P.C. 203
14
Patrick Hearn, The Business of Industrial Licensing: A Practical Guide to Patents, Know-How, Trade Marks,
and Industrial Design, 1986.
15
Ambiance India Pvt. Ltd. v. Shri Naveen Jain, 122 (2005) D.L.T. 421 ; American Express Bank, Ltd. v. Priya
Puri, (2006) 3 L.L.N. 217
16
Sonia Baldia, Offshoring to India: Are Your Trade Secrets and Confidential Information Adequately
Protected? (Mayer Brown Bus. & Tech. Sourcing Rev.), March 1 2008.
17
Id.

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 1. Where an employee comes into possession of secret and confidential information in
the normal course of his work, and either carelessly or deliberately passes that
information to an unauthorized person,
2. Where an unauthorized person (such as a new employer) incites such an employee to
provide him with such confidential information . . . ; and,
3. Where, under a license for the use of know-how, a licensee is in breach of a condition,
either expressed in any agreement or implied from conduct, to maintain secrecy in
respect of such know-how and fails to do so.18
Many aspects of trade secrets in employer-employee relation are covered under
restraint of trade clauses. These can be Non-Disclosure Agreements (NDAs) or Non-Compete
Clauses. Indian Courts have time and again held that " although an employer is not entitled to
restrain his servant after the termination of employment from offering competition, he is
entitled to reasonable protection against exploitation of trade secrets."19

VI. AVAILABLE REMEDIES

One available remedy in cases of action for protection of trade secrets is an award of
an injunction (inter-locutory or permanent) preventing a third party from disclosing the trade
secrets20. Some others include return of all confidential and proprietary information and
compensation or damages for any losses suffered due to disclosure of trade secrets.21 The
absence of a legislation for this purpose seriously limits the remedies available to an affected
party. The court, in some cases may also pass an order for the party at fault to "deliver-up"
such materials.22
The specific instances where the injunction is to be provided, its nature (interim or
permanent) is governed by the Gujarat Bottling Co. Ltd. Case23 which lays down some
specific conditions.

VII. ADVANTAGES AND DISADVANTAGES OF TRADE SECRETS

As with any other aspect of an issue, trade secrets, while having advantages, also have
some disadvantages linked to them. Many inventions or manufacturing processes do not meet
the set criteria for patentability for which trade secret might come to ease. However, some
inventions that have a strong chance of being discovered by other with time, or processes
such reverse engineering, patents best serve the required purpose.
Among the various advantages of trade secrets, some of the primary advantages are:
1. Trade secret protection has the advantage of not being limited in time. They continue
indefinitely as long as the secret does not comes out in public domain,
2. Trade secrets have no registration costs (although, in most cases, the costs of
maintaining the information as confidential can be very high),

18
Homag India Private Ltd. v. Mr. Ulfath Ali Khan, M.F.A.No.1682/2010 C/W M.F.A.No.1683/2010 (CPC)
19
Zafar Mahfood Rahmani & Faizanur Rahman, Intellection of Trade Secret and Innovation Laws in India,
16(4) J. Intell. Prop. Rts. 341, 347 (July 2011)
20
Deepak Gogia, Chakravartys Intellectual Property Law 753 (2010)
21
Id.
22
Parameswaran Narayanan, Intellectual Property Law 331 (1990)
23
Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 S.C.C. 545, para. 43

5
 3. Trade secrets have an immediate effect, with their protection being initiated as soon as
the secret is discovered,
4. Trade secret protection does not require formalities and mandatory disclosure of the
information to a government body.
However, trade secrets also have their own disadvantages, major of them being:
1. If the secret is incorporated in any kind of an innovative product, people at large are
open to its inspection, dissection and analysis, i.e. it becomes prone to reverse
engineering which would led to discovery of the secret and thus entitling other people
to use the technology. Indeed, trade secret protection of an invention does not provide
an exclusive right to use the specific information or technology, and others are free to
use it, unless there has been some misappropriation in procuring such information.
2. Once the secret is made public, anyone may have access to it and use it at their will.
3. Comparatively, a trade secret is more difficult to enforce than a patent. Also the legal
protection extended to trade secrets is very weak when compared to what is provided
to a patent.
4. A trade secret can be patented by any other person who discovered the relevant
information by legitimate means.

VIII. PROPOSED LEGISLATIONS

No legislation in our country has been enacted till now which provides for protection
of trade secrets. Neither has any such legislation been proposed which categorically target the
issue of protection of trade secrets. However, there have been some Bills (and not any Act)
which could have eased out the situation. In December 2006, for instance a Bill named "The
Personal Data Protection Bill" was introduced in the Upper House, Rajya Sabha, however, it
has not yet been approved by the Lok Sabha, making the current status of the draft unclear. 24
In yet another purported legislation, in 2008, the Department of Science and Technology,
being a part of the Ministry of Science and Technology, introduced draft legislation,
"National Innovation Act" which aimed at codifying and consolidating the law of
confidentiality in aid of protecting confidential information, trade secrets and innovation.
Unfortunately this Bill too, has not attained the assent of Parliament.25

IX. CONCLUSION
Hence, as seen from the above discussion, there is a strong urgency to introduce laws in our
country that provide for protection of trade secrets. Trade secrets can give a much needed
alternative for the filing of patents. India all the more needs this keeping in mind that it is a
developing nation. Though having a patent and keeping a trade secret have their own
advantages and disadvantages, choosing between the two is a decision that has to be taken by
a specific company or individual, the holder of such information. This may depend on
business considerations and weight of the relative benefits of each type of intellectual
property from the perspective of that specific business.

24
Trade Secrets- As an Intellectual Property and Its Protection, accessed December 29, 2015,
http://www.legalserviceindia.com/article/l123-Trade-Secrets.html.
25
Tariq Ahmad, Protection of Trade Secrets: India, Text, (August 2013),
http://www.loc.gov/law/help/tradesecrets/india.php#_ftn10.

6
Not having a unified system throughout the country has several drawbacks. Without clear
legislation, the courts are forced to take a subjective approach towards any case which would
give them non-extended discretion. Also owing to the laxity shown by Indian investigation
agencies, most of the accused persons of breach of trade secrets go unpenalized or do not get
suitable conviction/ punishment.
India, with the increased efforts of current government and owing to its other attributes is a
minefield of investment and is seeing an increasing participation of foreign investors.
However, what comes along with this is their ability to safeguard confidential information for
being misappropriated by corporate espionage, theft or by any other improper means. No
presence for a statute for the same puts the investors in a sceptical position owing to lack of a
statute and heavy reliance on Contractual Law. For this purpose, several of international
investors are pressing for introduction of a trade secret regime.26
Keeping in view the increased cases of commercial thefts, it is imperative for the government
to introduce laws for protection of trade secrets. More discussion and debate needs to be done
on the issue for protection of trade secrets. Clearly, at present, what is lacking is its presence
in public discourse. For all its advantages or disadvantages, being a member of the WTO and
TRIPS, India, nevertheless is obliged to form laws for the purpose. This would only be
possible if stringent steps are taken by the government and it shows an increased interest for
the issue.

X. TRIPS and Computer Related Inventions

The members of WTO signed TRIPS agreement that created an obligation on member
countries to implement standard policy for protection of Intellectual Property. Article 27 of
TRIPS defines the scope of inventions that should be considered for granting patents. It
clearly mentions that patent protection should be granted for inventions in all field of
technology provided invention is novel, inventive and non-obvious to person ordinary skilled
in the art. There was no requirement mentioned for exclusion of mathematical methods,
business methods or computer programme per se. The agreement was signed in early 1990s
when software industry was in its early stage. The trend of patent protection to software came
later and innovators considered copyright for protecting their software code as literary art.

26
Trade Secrets Protection in India A Law Whose Time Has Finally Come, LinkedIn Pulse, accessed
December 29, 2015, https://www.linkedin.com/pulse/trade-secrets-protection-india-law-whose-time-has-
finally-kamat.