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Trade Secret: an effective tool to protect Intellectual Property Rights

Written by: Pradip Das - Asst. Prof. Bengal law college, Santiniketan
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Trade secret is a formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors. It is an information-including a formula, pattern, compilation, program, device, method, technique, or process that-
1) derives independent economic value, actual or potential, from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and
2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy."

According to Chambers 21st Century Dictionary, (Reprint on 2000,page1491) the term Trade Secret means –an ingredient, technique, etc. that a particular company or individual will not divulge because they see it as giving them an advantage over their rivals.

Again, according to Oxford advanced learners Dictionary the term Trade Secret means a piece of information, for example, about how a particular product is made, that is known only to the company that makes it.
Any confidential business information which provides an enterprise a competitive edge may be considered a trade secret . So; a trade Secret is a formula, practice, process, design, instrument, pattern, or compilation of information used by a business to obtain an advantage over competitors or customers. Sometimes these trade secrets are also known as

“confidential information.” A trade Secret is any formula, pattern, physical device, idea, process, compilation of information or other information that:
# provides the owner of the information with a competitive advantage in the market place; and

# is treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, except through improper acquisition or theft.

Unlike other forms of intellectual property, trade secrets are essentially internal instruments. The responsibility for their protection is in the hands of the owner of the trade secret. They are kept confidential. Most famous example of trade secret is the coca-cola formula. This formula is kept locked in a bank vault in Atlanta, can be opened only by a resolution of the company,s board and is known to only two employees at the same time. The public has no access to the name of those employees and they are not allowed to fly on the same air plane. Trade Secret is confidential information not generally known to others. The information must derive independent economic value, actual or potential. The secret must give the holder a competitive edge. However, the English Law does not distinguish between various types of confidential information. But, generally, Trade Secrets, relate to different types of information.

Some of these are as below :
(I) Technical and Scientific information
(ii) Commercial information
(iii) Financial information and
(iv) Negative information

Technical and scientific information may include technical composition of a product (e.g. paint, chemicals etc.), manufacturing methods, know-how to produce a product, designs, drawing, Laboratory confidential data, computer codes etc. Commercial information may include any business strategy or plan, lists of suppliers and name of clients, customer’s requirements and preferences etc. Financial information includes- internal cost structure, employee’s agreements, salary and compensation plans etc. Again, negative information includes- causes of failure ness to rectify and solve any problem at the time of manufacturing of certain product, unsuccessful efforts to attract customers in purchasing a product etc. A Trade Secret is not merely a simple secret. It must fulfill the following conditions:
A) the information must only be known by a restricted circle of persons outside the business;
B) the information only be known by a few and selective employees of the business;
C) measures must have been taken to keep the information a secret;
D) the information must have a value for the business and its competitors;
E) the information should be difficult to acquire by outsiders.

Where, however, the confidential information is disclosed to the third parties, or where the information has entered into the public domain, it will no, longer be regarded as confidential and hence it is not protect able by trade secret . However, absolute secrecy is not required; there must be a substantial element of secrecy so that third persons face difficulty in acquiring the necessary secret information. No heroic attempt to preserve secrecy is necessary. What is necessary is that the business owner has taken reasonable efforts to maintain secrecy. This reasonableness will differ from case to case. Business houses and undertakings often face fierce competition among themselves in the market. In order to survive and to be the leader in the market, competitive strength will be attained only by acquiring some innovative techniques, new idea and knew know- how in the industrial and commercial world. Importance of these new innovative techniques, idea and know-how is very important. It is this idea and/or know-how which will make difference. This specified knowledge and secret will give a competitive edge to the concerned business house. That’s why protection of this secret is very important.

Importance of Trade Secret:

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, in case 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 thesame 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 its registration 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 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 available for 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.

Protection of Trade Secret

Though trade Secret is one of the valuable intellectual properties, its protection is also equally important. The unauthorized use of valuable secret information by unauthorized users is considered as misappropriation of business values of the holder of that value. The real owner loses his competitive and economic advantage over the other competitors in the market. In many countries of the world Trade Secret law protects valuable business information and inventions very easily with low cost than the patent protection. The United States Trade secret law , for example, simply requires that the information be of value and that it must be kept in secret. So, secrecy requirement is the sine qua non for the trade secret protection. Trade Secret law provides protection for facts, ideas, inventions and information. It protects only economically valuable information. In U.S., the Economic Espionage Act of 1996 has been enacted which makes the theft or misappropriation of a trade secret a federal crime .Some countries of the world treat trade secrets as a subject matter of Tort Law. Generally, when court finds that trade secret theft has occurred, it may issue an order or injunction to the person in wrongful possession of the information to refrain from using it or disclosing it to others. The court may also award the trade secret owner monetary compensation or damage to compensate for any monetary loss suffered as a result of those theft. In cases of willful or deliberate theft; the court may also awarded punitive damages to punish the wrongdoer. The growth of Internet and information technology has increased the risks of loss of trade secrets. So, proper legal machineries should be framed to protect trade secret. Responding to this urgency for framing legal regulation to protect the interest of creators and investors, the TRIPS Agreement now contains detailed provisions in article 39 regarding trade secret protections. This article says that persons who have secret information lawfully in their control be able to prevent its unauthorized disclosures , acquisition or use in a manner contrary to honest commercial practices. Again, Paris convention of industrial property also contains (Article 10bis) some provisions for the protection of trade secret. However, these are discussed below.

Trips Agreement And Trade Secret
The Paris Convention for the protection of Industrial property introduced provisions on unfair competition in Article 10bis. TRIPS, however, has extended this concept specifically to trade secrets and to confidential information.

Article 39(1), interalia, says that –members shall protect undisclosed information in accordance with Article 39(2) and data submitted to Governments or Governmental Agencies in accordance with Article 39(3).

Article 39(2), says that- 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 so long as such information:
- 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;
- has commercial value because it is secret; and
- has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Article 39(3) says that - 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, 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.

Paris Convention And Undisclosed Information

Article 10bis of the Paris convention says that:
(1) The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.
(2) Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
(3) The following in particular shall be prohibited:
(i) all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;
(ii) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor;
(iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.

However, though, Article 10 bis(3) do not include the wrongful misappropriation of trade secrets or confidential information, the protection of industrial and business- secrets is implied by the general obligation under Article 10 bis(1) and (2).so, prior to TRIPS, international IP law recognized that Acts contrary to honest business practices must be prohibited.

Besides the above legal provisions for the protection of trade secret, the European Convention on Human Rights, 1950 stipulates, in its Article 8, that everyone has the right to respect for his private and family life, his home and his correspondence. But this is not absolute right. It is subject to legally sanctioned interference for various reasons including for “the protection of the rights and freedoms of others” . The World Intellectual Property Organization has also taken various initiatives to protect trade secrets from unauthorized users.

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 one’s 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 of trade 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 them strategically for the shake of protection of tradesecret. 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, trade secrets can be vary valuable to a company’s 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. India’s 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.

1. Bainbridge David, Intellectual Property, fifth edition, Pearson Education, Page no. 282-283.
2. Black’s Law Dictionary, Eighth Edition, Thomson, West, page no. 1533.
3. CORNISH WILLIAM & LLEWELYN DEVID, Intellectual Property: patents, copyright, trademarks and Allied Rights, 5th Edition, SWEET& MAXWELL (2005), Page No.299-300.
4. Jorda Karl F; The role and value of Trade Secrets in IP management strategies ( on 21/01/2010).
5. Watal Jayashree; Intellectual Property Rights in the WTO and developing countries (oxford University Press, First Edition).
6. The Uniform Trade Secret Act (UTSA) of USA.
7. The European Convention on Human Rights ROME, 4 November 1950 and its Five Protocols (PARIS 20 March 1952, STRASBOURG 6 May 1963, STRASBOURG 6 May 1963, STRASBOURG 16 September 1963, and STRASBOURG 20 January 1966).
10. The Hindu on line Edition; Thursday, Nov.22,  2001, (http:/

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Date of Publication: 14 Feb 2010

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