Trademarks Act – Protection Of Trade Secrets

Protection Of Trade Secrets Descriptive Questions

Question 1. The TRIPS agreement provides protection to trade secrets. Elucidate.
Answer:

The TRIPS Agreement under Article 39 protects trade secrets in the form of “undisclosed information”. The protection must apply to information that is secret, which has commercial value because it is secret and that has been subject to reasonable steps to keep it secret.

• The Agreement does not require undisclosed information to be treated as a form of property, but it does require that a person lawfully in control of such information must have the possibility of preventing it from being disclosed to, acquired by, or used by others without his or her consent in a manner contrary to honest commercial practices.
• “Manner contrary to honest commercial practices” includes breach of contract, breach of confidence, and inducement to breach, as well as the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.
• The Agreement also contains provisions on undisclosed test data and other data whose submission is required by governments as a condition of approving the marketing of pharmaceutical or agricultural chemical products that use new chemical entities.

In such a situation the Member government concerned must protect the data against unfair commercial use. In addition, Members must 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.

Question 2. What is a trade secret? How are trade secrets protected?
Answer:

A trade secret is any kind of information that is secret and not generally known in the relevant industry giving the owner a benefit over competitors.

• In other words, any information that can be used in business and is sufficiently valuable to afford an actual or potential economic benefit over others is a trade secret.
• Trade secrets include formulas, patterns, methods, programs, techniques, processes, or compilations of the information providing a competitive edge. Trade secrets are not protected by any law as a registered trademark or a patent.
• Article 39 of the TRIPS agreement protects trade secrets in the form of ‘undisclosed information’ and provides a uniform mechanism for the international protection of trade secrets.
• These are protected by a variety of civil and commercial means. Any other person (including employees) with the potential to come to know the secret is asked to sign a confidentiality and/or non-disclosure agreement.
• Infringement or infringement of these agreements generally entails financial penalties.
• In India, the only remedies available for the protection of trade secrets are civil or equitable remedies for a breach of confidence cause of action.

They include:

1. An award of injunction “preventing the third party from disclosing the
   trade secrets,” and “confidential and proprietary information,” and;
2. In the case of “for any losses suffered due to disclosure of trade secrets.” The court may order any damages or compensation to be given to the plaintiff. The court may also order the party at fault to “deliver up” such materials.

Question 3. Article 1 (2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) states that intellectual property shall include protection of undisclosed information. Discuss India’s National IP Rights Policy for the future of Trade Secrets in India.
Answer:

Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights provides that member nations must ensure that natural and legal persons have the “possibility” of preventing such information, within their control, from being disclosed, acquired, or used by others without their consent, in a manner contrary to honest commercial practice.

• It can be inferred that the “possibility” referred to implies that trade secrets should be accorded protection within the legal system and not necessarily in the IP legislative framework of the member nation.
• The 1989 General Agreement on Tariffs and Trade (GATT) discussion paper on India establishes that trade secrets cannot be considered IP rights, because the fundamental basis of an IP right rests in its disclosure, publication, and registration, while trade secrets are premised on secrecy and confidentiality.
• The paper goes on to state that the observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate civil law, not by Intellectual Property (IP) laws. On May 12, 2016, India approved the National IP Rights Policy, which has seven objectives.
• One of these objectives is to ensure an effective legal and legislative framework for the protection of IP rights.
• The steps to be taken towards achieving this objective include the identification of important areas of study and research for future policy development; one such area identified was the protection of trade secrets.
• In a discussion paper on IP rights at the subsequent US-India Trade Policy Forum held on October 20, 201 6, in New Delhi, India’s representatives noted that India protects trade secrets through a common law approach and reiterated the country’s commitment to the strong protection of trade secrets.
• It was agreed that a toolkit would be prepared for industry, especially small to medium-sized enterprises, to highlight applicable laws and policies that may enable businesses to protect their trade secrets in India.
• A training module on trade secrets for judicial academies may also be considered. A further study of various legal approaches to the protection of trade secrets will also be undertaken in India.

At present, Indian trade secrets law is a judiciary-made law, based on the principle of equity and common law actions against breach of confidence, with the jurisprudence as a whole revolving around an employee’s obligations and duties towards the employer regarding confidential information gained during the course of employment.

• Indian jurisprudence regarding trade secrets is unclear on a number of important aspects, including:
• The scope of damages in the case of a breach of confidential information;
• Theft of trade secrets by business competitors; and
• Procedural safeguards during court litigation.

Further, in the absence of a specific trade secrets law, the courts have ruled in favor of the proprietor of information as literary work as defined under copyright law.

• The recent creation of the National IP Rights Policy has raised hopes for the enactment of a trade secrets law, being this is one of the objectives of the policy.
• It can be safely deduced that India requires exclusive legislation on Trade Secrets and Confidential Protection. It will not only boost the future of Intellectual Property in India but also do wonders on the economic front.

A country like India is supplicating now in its own mind for legislation that will supplant the non-existing legislation on trade secrets. The initiative taken by the rest of the world in relation to the legislation on trade secrets should jolt India out of its slumber in order to be abreast with the world.

Question 4. What are the cases and the legislations you can quote that will justify that trade secrets are protected in India? Elucidate.
Answer:

Trade secrets, just as other intellectual property rights, can be extremely valuable to a company’s growth and sometimes even critical for its survival.

• Businesses must ensure that they adequately protect their business processes, technical know-how, and confidential information from competitors.
• A trade secret may refer to a practice, process, design, instrument, or compilation of data or information relating to the business which is not generally known to the public and which the owner reasonably attempts to keep secret and confidential.
• Such data or information may also involve an economic interest of the owner in obtaining an economic advantage over competitors.

The precise language by which a trade secret is defined may differ, however, there are three factors, which can be said to be common to all such definitions. They are:

• It must not be generally known or readily accessible by people who
  normally deal with such type of information.
• It must have commercial value as a secret.
• The lawful owner must make reasonable efforts to maintain its secrecy.

But the Indian Courts have tried putting the trade secrets of various businesses under the purview of various other legislations in order to protect them and also they have tried to define what a trade secret is in various cases, some of them are as follows:

1. American Express Bank Ltd. v. Ms. Priya Puri (2006) III LLJ 540(Del) Delhi High Court, in this case, defined trade secrets as “… formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.”
2. MichaelHeath Nathan Johnson v. Subhash Chandra And Ors (60(1 995) DLT 757) and John Richard Brady And Ors v. Chemical Process Equipments P. Ltd. And Anr (AIR 1987 Delhi 372) took note of the contentions of the counsels who referred to English decisions to define trade secrets.
3. Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors [97 (2002) DLT 257] the Delhi High Court held that the concept developed and evolved by the plaintiff is the result of the work done by the plaintiff upon material which may be available for the use of anybody, but what makes it confidential is the fact that the plaintiff has used his brain and thus produced a result in the shape of a concept.

The legislations which are having a connection with the trade secrets can be summed up as:

1. Copyright Act, 1957 [Sections 51,55 and 63]
2. Designs Act, 2000
3. The Information Technology Act, 2000[Section 65, 72]
4. Indian Penal Code [Section 408, 415]
5. The Indian Contract Act [Section 27]
6. The Competition Act, 2002 [Section 3]
7. Civil Procedure Code
8. Criminal Procedure Code.

Question 5. Why do some experts suggest that it may be prudent for companies to conduct an intellectual audit to identify protectable business information? What are the measures taken by Japan, Brazil, China, and Israel for the International Protection of Trade Secrets?
Answer:

Intellectual Property (IP) Audit is a tool that is mostly used by companies to take into account the intangible assets that they have generated/developed in a certain span of time.

• Though the IP is intangible in nature, it contributes to a very crucial core value of the company, i.e. the goodwill that the brand has in the market. Tentatively speaking the goodwill of the IP is one of the crucial reasons for which the industries acquire protection.

This goodwill thus generated is then represented as the consumer preference and the acceptability of the brand in the market which is now a major reason for generating revenue.

Through various embodiments, the IP Audit affective provides an assessment of the following concerns:

1. To identify the scope of the present and to create a future profile for the tangible assets of the company.
2. To reinforce the IP protection mechanism and device secure portfolio to avoid legal conflicts.
3. To identify the idle IP to set them in process and to harness them as a potential.
4. To assess the financial equivalent of the assets and to be able to use them as leverage or guarantee with other financial institutions.
5. To foresee and steer clear of any risks or unwanted litigation that may evolve or affect the functioning and profile of the applicant in the market.
6. To reduce unnecessary cost and legal expenses.

Measure taken by Japan:

Effective June 15, 1991, Japan enacted a national trade secrets law. Trade secrets include any “technical or business information that has commercial value, is not in the public domain, and which has been “administered” as a trade secret.

• Infringement occurs when a person procures a trade secret, by theft, fraud, or extortion or when there is an unauthorized use or disclosure of a lawfully acquired trade secret for unfair competition. An injured party may obtain injunctive relief and damages.
• The trade secret holder may also request the destruction of any articles that have been manufactured as a result of the illegally obtained trade secret.
• The statute has similarities to the Uniform Trade Secrets Act. For example, there is a 3-year statute of limitations after the discovery of the trade secret violation. There are no criminal penalties in the statute.

Measure taken by Brazil:

In 1996, Brazil revamped its intellectual property laws. Trade secrets are protected under the rubric of “unfair competition.

• “ Borrowing from U.S. law, a variant of the Section 757 (6-Factor) test is used to determine whether a particular piece of information qualifies as a trade secret, Common knowledge, knowledge in the public domain, or knowledge that is apparent to an expert in the field cannot qualify for protection as trade secrets.
• The trade secret owner must take positive steps to safeguard the secrecy of the information.
• The full panoply of relief is available-compensatory damages, punitive damages, and injunctions. There are also criminal sanctions available against anyone who releases, exploits, or uses without authorization a trade secret to which he or she had access by virtue of a contractual or employment relationship.

Measure Taken By China:

The Law of the People’s Republic of China (PRC) against Unfair Competition (Unfair Competition Law) was promulgated by the State Council on September 1 993 and became effective on December 1, 1993. This is China’s first trade secret law.

• The term “trade secrets” is defined as technical and management information that is unknown to the public, can bring economic benefits, is of practical value, and for which the rightful party has adopted measures to maintain its confidentiality.
• Article 1 0 of The Unfair Competition Law prohibits business operations from engaging in certain acts and the law also provides for the remedies in case of infringement of trade secrets.

Measure Taken By Israel:

Israel has a criminal statute (Penal Law 1977 Section 496) prohibiting the disclosure of trade secrets by an employee. Employee contracts enjoin employees from using trade secrets and industrial know-how. There is an implied obligation of confidentiality between employers and employees.

Question 6. Jane a microbiologist, wanted to pursue his dream of having his own distilleries, with the support of family and friends, he struck out on his own to establish a microbrewery, Smokey Mountain Brews, in a college town. Over the past decade, his business flourished not only with established customers but also with regional restaurants. Transporting beer, including his signature brew, Smokey Mountain Ale, to surrounding localities, including the city of Asheville, North Karnataka, has been time-consuming and expensive. So, two years ago, Jane began planning to open a second brewery in Asheville, a city nationally known for its microbrews, and those plans are in the final stages. The facility is ready to go, equipment is in place, and an assistant brewmaster is hired. He wants to protect his Intellectual Property Rights before moving further in this regard. Advise him on the best ways to protect his Intellectual Property Rights. Give justification for your advice.
Answer:

The best way to protect his Intellectual Property rights is to maintain the information as a trade secret. Though, there is no specific legislation in India to protect trade secrets and confidential information.

• Nevertheless, Indian courts have upheld trade secret protection. The Delhi High Court in American Express Bank Ltd. v. PriyaPuri, [(2006) HI LLJ 540 (Del)] defined trade secret as formulae, technical know-how, or a method of business adopted by an employer which is unknown to others and such information has reasonable impact on organizational expansion and economic interests.
• Indian courts have approached trade secrets protection on the basis of principles of equity, action of breach of confidence, and contractual obligations.
• On the issue of trade secrets, the Learned Judge observes, It is also to be added that a trade secret is some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer.
• However, routine day-to-day affairs of employers which are in the knowledge of many and are commonly known to others cannot be called trade secrets.
  • In this case, the central issues were with respect to breach of confidentiality and disclosure of trade secrets. The defendant was given the responsibility of supervising the Wealth Management Division of the plaintiff (the employers) and was required to act in accordance with the code of conduct for all employees.
  • The defendant was not allowed to engage in activities, which conflicted with the plaintiff’s interest. Additionally, during the defendant’s course of employment, all confidential information, like customer records and information, was to be protected from society and competitors.
  • The defendant gave her resignation letter to the Director of the Wealth Management Department. It was soon discovered that the defendant was in the process of joining the competitor firm.
  • It was also found that the defendant had taken advantage of her position and had acquired a comprehensive list of all customer information and investment-related data.
  • The plaintiff, being a reputed bank, filed a suit for injunction against the defendant restricting her not to release any confidential information and trade secrets related to the transactions as they have a duty of confidentiality to their customers.
  • It was contended by the plaintiff that even though the confidential information is not in any document, it existed in the mind of the defendant.
  • Hence, this existent, intangible threat was sufficient enough to prevent her from disclosing it. On the other hand, the defendant asserted that customer details like their phone numbers and addresses cannot come under the ambit of confidential information or trade secrets.
• The being that the same were common knowledge and could be easily accessed reason as they were in the public domain. However, the court held that “trade secrets are acquired over a period of time and are the formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others….”
• Here the defendant had acquired all the information and data during her course of employment. Trade secrets do not cover the knowledge that is attained through daily operations of the business.

The court further stated that the defendant couldn’t be prohibited from changing her job as it helps in overall development.

Article 1(2) of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement), states that intellectual property shall include protection of undisclosed information.

Article 39 of the TRIPS Agreement states that in the course of ensuring effective protection against unfair competition as provided in Article 1 0bis of the Paris Convention, with respect to information which is

• A secret not generally known or readily accessible,
• Has commercial value by virtue of secrecy, and
• Has been subjected to reasonable steps to ensure its secrecy.

Practical Questions.

Question 7. The protection of trade secrets and undisclosed information is attracting a lot of attention throughout the world for obvious reasons. As the situation stands, trade secrets are not registered like other intellectual property rights and are also not creatures of statutes. The judicial system of each country determines the requirements for ensuring trade secrets protection. A survey conducted by the American Society for Industrial Security (ASIS) on intellectual property loss by Fortune 1000 companies and the 300 fastest-growing companies in the US reveals that $44 billion were lost due to known and suspected intellectual property losses during a 17-month period in 1996- 1997. The sum of $44 billion was calculated on the basis of the responses of only 12% of the survey participants. At the international level, the Trade-Related Aspects of Intellectual Property Systems (TRIPS) Agreement protects trade secrets in the form of undisclosed information. On the right of the above, highlight:

1. The role of international institutions for the international protection of trade secrets.
2. The status of protection of trade secrets in India.
   Answer:

1. Trade Secrets have been provided protection by a large number of agreements and countries throughout the world as well as various International Institutions. For example-

NAFTA.

Member countries must protect trade secrets from unauthorized acquisition, disclosure or use. Remedies must include injunctive relief and damages. In response to NAFTA, Mexico has amended its 1991 trade secrets law to permit private litigants to obtain injunctive relief.

GATT.

On April 15, 1994, the major industrialized nations of the world, including the United States, concluded the Final Act resulting from the Uruguay Round of GATT (General Agreement on Tariffs and Trade). GATT established the World Trade Organization (WTO) and promulgated various trade-related agreements including TRIPS or the Trade-Related Aspects of Intellectual Property Rights.

Under GATT, “undisclosed information” must be protected against use by others without the consent of the owner if the use is contrary to honest commercial practices. Also, there is a third-party liability for misappropriation if third parties knew or were grossly negligent in not knowing that such information had been obtained dishonestly.

TRIPS.

The TRIPS makes it obligatory for member states to ensure the Protection of Undisclosed Information under Article 39 of the Agreement.

• The TRIPS Agreement under Article 39 protects trade secrets in the form of “undisclosed information”, and provides a uniform mechanism for the international protection of trade secrets.
• Such information must be a secret, i.e. not generally known or readily accessible to persons within the circles that normally deal with all kinds of information in question.
• Also, the information must have commercial value because it is secret and the information must be subject to reasonable steps by its owners to keep it secret.

The TRIPS Agreement also requires member countries to provide effective remedies for trade secret misappropriation including

1. Injunctive relief
2. Damages and
3. Provisional relief to prevent infringement and to preserve evidence.

2. Trade Secrets seem to be a neglected field in India, as there is no enactment or policy framework for the protection of trade secrets. This form of intellectual property is a new entrant in India but is nevertheless a very important field of IP.

• Protection of trade secrets is a very important and one of the most challenging tasks for the Indian government as this will enhance foreign investment in India giving a boost to the Indian economy.
• So a proper policy for the protection of trade secrets in India is the need of the hour in order to provide a sense of security among the foreign investors and the local businessmen regarding their trade secrets which will further boost the Indian economy.

As mentioned above, in India, no substantive authoritative separate statute to deal with trade secrets. Even very few case laws are available to determine the nature or ambit of trade secrets.
The legislations which are having a connection with the trade secrets can be summed up as:

1. Copyright Act, 1 957[Sections 51, 55 and 63]
2. The Designs Act, 2000
3. The Information Technology Act, 2000[Sections 65, 72]
4. Indian Penal Code [Section 408, 41 5]
5. The Indian Contract Act [Section 27]
6. The Competition Act, 2002 [Section 3]
7. Civil Procedure Code
8. Criminal Procedure Code

Since India is a signatory to the Paris Convention, it is relevant to mention that Article 1(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) states that intellectual property shall include protection of undisclosed information.

• Further, Article 39 of TRIPs states concerns ensuring effective protection against unfair competition as provided in Article 10b of the Paris Convention, with respect to trade secrets.
• On May 12, 2016, India approved the National IP Rights Policy, which has seven objectives. One of these objectives is to ensure an effective legal and legislative framework for the protection of IP rights.

The steps to be taken towards achieving this objective include the identification of important areas of study and research for future policy development; one such area identified was the protection of trade secrets.

Descriptive Questions.

Question 1. What is a trade secret? How are trade secrets protected?
Answer :

The trade secret is any business information withheld from public knowledge in order to gain a competitive edge over the other companies.

• It has been stated that any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable to afford an actual or potential economic advantage over others is a trade secret.
• The trade secret is expected to be treated in such a way that it is not available to others (public or competitors) unless obtained by theft or by improper acquisition. Thus, trade secret depends on three factors:

1. It is not generally known to the relevant portion of the public;
2. Confers some sort of economic benefit to its holders; and
3. It is the subject of reasonable efforts to maintain its secrecy.

Examples of trade secrets are:

• • Formula
  • Pattern
  • Idea
  • Process
  • Physical device.

The measures to protect trade secrets are:

To make sure that a limited number of people know the secret and that, all those who do, are well aware that it is confidential information.

• Signing confidentially agreements with business partners whenever disclosing confidential information.
• Including confidentiality agreements within employees’ contracts. Under the law of many countries, however, employees owe confidentiality to their employer even without such agreements.

The duty to maintain confidentiality on the employer’s secrets generally remains even after the employee has left the employment.

Question 2. Enumerate the measures that a company should take to protect trade secrets/confidential business information.
Answer: Every company should take some important measures to protect its trade secrets.

They are as follows :

• Technical information/research and development;
• Proprietary technology information ;
• Formulas ;
• Compounds ;
• Prototypes ;
• Processes ;
• Laboratory notebooks ;
• Experiments and experimental data ;
• Analytical data ;
• Calculations ;
• Drawings – all types ;
• Diagrams – all types ;
• Design data and design manuals ;
• R&D reports – all types ;
• R&D know-how and negative know-how;
• Production/process information;
• Proprietary information concerning production/process etc.

Question 3. What are the factors that need to be taken into consideration while determining whether information used by a Company is a trade secret?
Answer :

There are six factors that need to be taken into consideration while determining whether information owned or used by a company is a trade secret in terms of the necessary level of security to ensure adequate protection of those trade secrets. These are :

1. The extent to which the information is known outside the company.
2. The extent to which the information is known by employees and others involved in the company.
3. The extent of measures taken by the company to guard the secrecy of the information.
4. The value of the information to the company and the competitors.
5. The expenditures by the company in developing the information.
6. The ease or difficulty with which the information could be properly acquired or duplicated by others.