In the past, there hasn't been much debate in India on the protection of
trade secrets. The current effort to examine the issues is based on the recent
interest in the topic, which is evidenced by the United States Special 301
reports from 2014 and 2015, which made reference to the inadequacy of the
Indian trade secret regime, and the submission made by the IPR think tank
established by the Indian Government in its first draft, which expressed the
need for enacting a law to address gaps in Trade Secret protection.
The Special 301 report's concerns are based on three main tenets: first, the
lack of procedural safeguards to prevent the disclosure of trade secrets and
other confidential information in civil or criminal litigation makes the current
regime less effective at combating trade secret theft when there is no
contractual relationship; second, the difficulty in obtaining damages; and
third, the difficulty in obtaining damages.
The research continues by saying that owners are significantly discouraged from
using the legal system to enforce their rights by the revelation of trade
secrets in legal proceedings. This essay aims to investigate each of these
issues in relation to India's trade secret protection laws.
Information of commercial significance that is kept secret is referred to as a
trade secret. It might include information on consumer profiles, a list of
clients and suppliers, distribution networks, marketing plans, manufacturing
procedures, and technological know-how, to name a few. Trade secrets are not
truly "property rights" because the owner is not granted exclusive rights,
unlike copyrights, patents, designs, and layout circuit designs.
The policy for trade secrets permits independent discovery, reverse engineering,
and third-party use. Positively, a trade secret is created when it is created,
and acquiring a right to it doesn't cost anything. The drawback is that the
advantages can only be obtained for as long as they remain a secret or are not
regularly created or generated by another person or entity via legal ways.
So, the owner of the trade secret must exert effort and use resources to
safeguard his exclusive information. Such a defence mechanism might entail
contracts or confidentiality agreements with workers, suppliers, and other
business partners to whom the trade secret would have to be disclosed or might
be revealed in the regular course of business, as well as the establishment of a
system to guarantee trade secret protection.
Since no new rights are being created, the best way to protect trade secrets
would be to give owners of the information legal recourse in the event that
their information is leaked without authorization or in a way that is "contrary
to honest commercial practices", which refers to unfair competition due to
breaches of confidentiality clauses in contracts or due to ethical/fairness
The earliest type of intellectual property protection is trade secret
protection. It has been used by traditional groups who have created customary
rules and methods to make sure that knowledge is kept within a community or with
specific identifiable members of the community.
The guild system, which restricted access to technical knowledge to the guild's
members only, encouraged the usage of trade secrets during the mediaeval era.
The United States Uniform Trade Secret Act (UTSA), which was the first
multilateral agreement to discuss the protection of trade secrets, brought
clarity to the definition more recently by defining the parameters in the form
of three requirements that any information claiming to seek trade secret
protection must meet.
The information must be hidden, or not usually accessible or known to people who
typically deal with the type of material, as the first criteria. The third need
is that the owner should have made reasonable measures to protect the
information, and the second condition is that it must have commercial benefit
from being kept secret.
Does trade secret protection hinder the development of technology to its full
The product of human mind is what is referred to as intellectual property.
Technology-enhanced creativity is non-rivalrous81 in use, meaning that one
person's use of it does not preclude another from using it. Also, it cannot be
excluded from use because there is no formal right to exclude anyone from using
Positive externalities occur from this circumstance of seamless technological
dissemination since society unquestionably gains from the expansion of the body
of knowledge even though it is not actively involved in its creation. The
advantages to the individual innovator from discrete advancements in technology
would, however, be significantly lesser than what would be conceivable if he
could have had exclusivity over the innovation because the benefits of progress
get distributed throughout society for everyone and everyone to use.
A situation where technical advancements would be underprovided and the
equilibrium would be socially undesirable would come from the divergence in the
advantages gained by the private innovator and the society if left to market
To address the market failure, government action is required to establish an
artificial system of rights. In exchange, this makes it easier for the idea to
be disclosed, which in turn increases
adds to the body of knowledge and encourages additional study and advancement.
So, the goal of the rights-based system was to enable society to reach the
highest possible level of technological advancement and diffusion, a goal that
is also represented in Article 7 of TRIPS.
So, the question is whether trade secrets, a type of intellectual property,
address market failure and promote the highest possible level of technical
advancement. It is crucial to understand that there are two reasons why the
market fails to respond to technological advancements. The first is the
inability to prevent others from utilising advancements, and the second is the
benefit that accrues from spreading and adding to the body of knowledge.
Since the Uniform Trade Secret Act of the USA served as the foundation for the
creation of Article 39.2 of the TRIPS Agreement and is by far the most extensive
explanation of the topic, it would be a good place to start if the TRIPS
Agreement provided a definition of the scope. A formula, pattern, compilation,
programme device, method, technique, or process could all be considered trade
secrets under the UTSA.
To put it another way, it might be any business knowledge that has an economic
benefit from being kept a secret and whose owner takes reasonable steps to do
so. In general, this would include data created during regular business
operations like customer profiles and lists, data on suppliers and distribution
networks, and information on marketing and distribution plans, as well as
technical data on a manufacturing process or method, a programme device, or a
As a result, the first category consists of private company data gathered during
regular operations, such as client lists, supply chains, and marketing plans.
When these are kept a secret, they act as barriers to entry for new businesses
since it would take more time and money for competitors to obtain the same
important information, which would not contribute to the advancement of
technical expertise or know-how.
The second kind of trade secrets is technical/technological information. By a
common explanation of the Marginal Benefit and Marginal Cost analysis in the
context of the amount of R&D and research costs, I examine the effects of
keeping technological advancements a trade secret. The x-axis shows the quantity
of R&D, which is taken to be comparable to technological innovation, while the
y-axis shows the research costs.
The analysis shows that trade secret protection results in an unfavourable
equilibrium with less research output than what would be desired for society and
expenditures that are far higher than what might be acceptable. This is the case
because technological advancements that are retained as trade secrets do not
advance human knowledge and cannot serve as a foundation for independent
research by other parties.
Additionally, the diversion of resources from research and development to the
maintenance and protection of trade secrets, on the one hand, and investments
made by third parties to duplicate efforts in an environment of asymmetric
information, on the other, also have a negative impact on society as a whole.
It would be accurate to say that the marginal private costs of technological
improvements are significantly higher than the marginal social costs, which is a
classic result of the positive externalities of technological advancements,
while the social benefits of private research are significantly greater than
those that accrue to individual inventors. Returning to the market failure
issue, we can see that a trade secret aids in preventing others from adopting
the technology, but the loss of positive externalities as a result of this
exclusion results in a less than ideal solution.
Thus, is trade secret protection completely pointless?
No. Businesses can
effectively keep their competitive advantage by using trade secrets. It has
evolved as a private person's solution to the issue caused by the inability to
forbid a third party from accessing the technological information generated in
the absence of a formal right. This approach gives inventors the impetus they
may otherwise lack if technology were to spread instantly after it was produced.
All that is being said is that corporations always have options for safeguarding
technological advancements, and while trade secret protection is one of those
possibilities, it is not the best option from the perspective of society.
When will expertise in a particular field remain a trade secret? Situations
where technological know-how is likely to be kept a secret fall into one of
three categories. The first is when technological advancements are deliberately
kept under wraps since doing so will yield considerably better results than
simply patenting them.
There could be two different outcomes for this. First, if the invention's
utility is expected to outlive the 20-year patent protection and reverse
engineering is challenging without disclosure (the Coca-Cola formula and
Hershey's chocolates seem like good examples82), then this situation might
If the product itself does not reveal the method used, as is the case with
metallurgical inventions, trade secret protection may be helpful even though the
utility of an invention may have a horizon of less than twenty years. On the
opposite end of the scale, there are inventions that have a very short shelf
life, making it counterproductive for inventors to apply for a patent right.
The second group of technical know-how that should be kept a secret would be any
that is unlikely to meet the requirements for patentability. Knowledge that
enhances a patented innovation but is not essential to the patent itself falls
into the third category.
This frequently holds true for biotechnological advancements as well as for
wind, solar, and other climate change-related technologies. It would be
challenging to use the patent even after the patent period has passed because
the combination of a patented invention with tacit know-how would increase the
value of the invention.
As a result, trade secret protection may be necessary for a wide range of
technology. The owner's appraisal of the advantages and disadvantages of these
possibilities, which in turn would be governed by the policy and legal
framework, as well as his assessment of the sector's needs, would be a major
determinant of the type of protection sought.
Indian Trade Secret Protection
Trade secrets are not specifically protected by law in India. Trade secret
protection in India has developed through court rulings and has been upheld in
accordance with equity and common law principles.
The essence of this branch of law, whatever its source may be, is that a person
who has obtained information in confidence is not allowed to use it as a
springboard for activities harmful to the person who made the confidential
communication, according to the Calcutta High Court in the Fairfest Media Ltd vs
Lte Group Plc and Ors, (2015).
The Indian case laws have attempted to address a variety of trade secret
protection issues, including the definition of trade secrets and private
information, the legal justifications for trade secret protection, and the range
of available remedies. Although Indian courts have frequently used English case
law, they are now relying more and more on the nation's expanding body of
indigenous trade secret protection jurisprudence.
In order to discuss the definition and significance of the term "confidential,"
the boundaries of the protection offered, and the remedies available-including
in circumstances where there may not be an underlying contract and when action
against third parties is necessary-it has been attempted to examine the Indian
case laws on trade secrets in the following paragraphs.
This part will also examine the legal precedent concerning the unavoidable
disclosure of trade secrets during legal proceedings. This section is divided
into three subsections. The first section focuses on the legal definition of
secret information, the second covers the specifics of the range of available
remedies, and the third discusses the inevitable disclosure issue.
What exactly is considered to be confidential information or a trade secret?
- The Court of Appeal's ruling in the Saltman Engineering Co. With
In order to determine whether information transferred between the owner and
the recipient is truly secret, Indian courts frequently cite Engineering Co
Ltd. (hence referred to as the "Saltman case"
information "must not be something which is public property or public
knowledge," the court had said in this case.
On the other hand, it is entirely possible to have a confidential document, be
it a formula, a plan, a sketch, or something of the like, which is the result of
work done by the maker on materials that may be accessible to anyone; however,
what makes it confidential is the fact that the maker of the document used his
brain and as a result produced a result which can only be produced by someone
who goes through the same process. Ltd v. Shri Naveen Jain
, which was
decided in 2005, stated that a "trade secret" is a piece of protected
information that an employee has gained while working for the company and that
is not supposed to be shared with anyone else.
However, routine day-to-day operations of the employer, which are known to many
people and are generally known to others, cannot be referred to as trade
secrets, according to the Calcutta High Court in the Fairfest case (2015), the
Delhi High Court in Diljeet Titus v. Alfred A Adebare and Ors
Hi-Tech Systems and Services Ltd. v. Suprabhat Ray and Ors
Burlington Home Shopping Pvt. Ltd Vs Rajnish Chibber
unequivocally that information that is properly safeguarded by its owner and
If exposed, could potentially harm the owner would be covered as trade secret or
confidential information. According to court rulings, trade secrets can include
formulas, technical know-how, or an unusual operating procedure used by the
employer but kept secret from competitors. Additionally, it might comprise
loan agreements, names of clients, joint venture agreements, and agreements
relating to client disclosure.
In the Burlington Shopping case,
while the arguments focused on copyright
infringement of the client database, the applicability of trade secret
protection to compiled databases was also stressed. Other items that could be
classified as trade secrets include financial arrangements, customer lists,
business information like cost and pricing, projected capital investments, and
inventory marketing strategies.
The information presented above makes it clear that in India, a wide range of
information falling under the categories of business or industrial information,
technical know-how, or processes would be protected as trade secrets as long as
the information is not easily accessible to people, has a commercial benefit
from being kept a secret, and the owner has taken steps to protect it.
Trade secrets now have a much greater impact and significance in the industrial
economy than they did a few years ago for a variety of reasons. The pace of
technological progress has accelerated during the last few decades. The speed of
this shift has significant effects on local and global economy. The advancement
of technology has outpaced the regulations already in place to safeguard
innovations and inventions, which has had an impact on the area of intellectual
Trade-secret theft is in many ways a predictable result of growing global
marketplaces. There is currently no defined law in India to protect trade
secrets. The cases cited make it abundantly evident that common law principles
have been used in India to safeguard trade secrets.
Despite having some practical relevance, these Common Law ideas have lost their
significance in light of the rapidly expanding economy. Instead of relying
solely on common law principles, there is an urgent need for statutory
protection of trade secrets in the form of an appropriate policy framework to
ease regulation of protection. Numerous businesses in a variety of industries
favour protecting trade secrets as an aspect of intellectual property.
Owing to a lack of a policy framework, many businesses decide against investing
in the nation. As a result, India stands to lose out on significant foreign
direct investment, which in turn hinders the development of the economy. Trade
secret protection has become crucial and one of the Indian government's most
To conduct business with our nation, foreign investors must have confidence in
us and assurance that their trade secrets will be protected. In the majority of
cases, the courts have primarily cited Section 27 of the Indian Contract Act.
Enforcement of non-disclosure agreements between the employee and employer is
the main type of relief demanded in these circumstances.
According to the trend in adjudication, the courts have been highly reluctant to
enforce covenants that place restrictions on the employee after termination of
employment. Such situations have frequently caused the courts to face difficult
decisions. The courts have viewed these situations as a conflict between two
interests-the employee's right to a living and the employer's right to
profit-for which there is no set norm that can be applied.
- www.dipp.nic.in/English/Schemes/intellectual_ property_rights.aspx
- Friedman, David D, Landes William. M and Posner, Richard Some Economics
of Trade Secret Law
- In a manner contrary to honest commercial practices' is a phrase used in
the TRIPS Agreement
- The UTSA defines trade secret to mean information, including a formula,
pattern, compilation, program device, method, technique, or process, that: i)
derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
- Creativity could be in the form of artistic expression or could be a
technological improvement or innovation, or a design of an object or a mark
that uniquely identifies a product to its producer. However, for the sake of
the paper, I assume creativity to imply technology improvements only.
- High Court of Calcutta while summarizing the legal status of trade
secret protection in India in the Fairfest Media Ltd Vs lte Group Plc and
Ors (Calcutta High Court, 8th January 2015) http://indiankanoon.org/doc/65868467/
-  65RPC 203
- Ambience India Pvt Ltd Vs Shri Naveen Jain (Delhi High Court;2005) Eq.
citation: 122 (2005) DLT 421, 2005 (81) DRJ 538
- Hi-Tech Systems & Services Ltd Vs Suprabhat ray and Ors (High Court of
Calcutta; 2015) MANU/WB/0464/2015
Award Winning Article Is Written By: Ms.Diksha Mahavir Agarwal
Authentication No: AP309971088356-9-0423