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Trade Secret Protection In India: The Policy Debate

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[1], 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[2], 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[3], 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"[4], which refers to unfair competition due to breaches of confidentiality clauses in contracts or due to ethical/fairness principles.

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)[5], 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 potential?
The product of human mind is what is referred to as intellectual property. Technology-enhanced creativity[6] 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 the technology.

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 forces.

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 pattern.

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 occur.

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[7] 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)[8].

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?
  1. The Court of Appeal's ruling in the Saltman Engineering Co. With Campbell
In order to determine whether information transferred between the owner and the recipient is truly secret, Indian courts frequently cite Engineering Co Ltd.[9] (hence referred to as the "Saltman case"). Confidential 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 (2006), the Hi-Tech Systems and Services Ltd. v. Suprabhat Ray and Ors (2015), and Burlington Home Shopping Pvt. Ltd Vs Rajnish Chibber (1995) established unequivocally that information that is properly safeguarded by its owner and that:
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[10]. 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[11] 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 property rights.

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 challenging jobs.

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.

  2. property_rights.aspx
  3. Friedman, David D, Landes William. M and Posner, Richard Some Economics of Trade Secret Law
  4. In a manner contrary to honest commercial practices' is a phrase used in the TRIPS Agreement
  5. 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.
  6. 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.
  7. 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)
  8. ibid
  9. [1948] 65RPC 203
  10. Ambience India Pvt Ltd Vs Shri Naveen Jain (Delhi High Court;2005) Eq. citation: 122 (2005) DLT 421, 2005 (81) DRJ 538
  11. 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
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