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What Are Trade Secrets And How Are They Protected In India

One frequently comes across meal recipes that appear to use basic components. However, the chef would refer to the recipe as a secret one. Given that the substances are so commonly utilized, why is it being kept a secret? The amounts of the components and the method of preparation for that particular dish make it special and distinctive from others, and when it is employed for business, it turns into a Trade Secret that offers the company an advantage over rivals in the market. The owner gets the benefits of exclusive rights over the trade secret as long as it can be kept hidden.

Information is a valuable resource for every organization, but trade secrets are frequently essential to the company’s very survival. It may also include any other material that is confidential in nature and needs to be kept a secret, such as plans, drawings, client databases, formulas, and software.

A trade secret is defined as any information having commercial value that is not in the public domain and whose disclosure would result in considerable injury to the owner, according to a landmark judgment by the Delhi High Court in 1995. Trade secrets are crucial to any company’s ability to conduct business, hence it is crucial that they are legally protected.

What Are Trade Secrets? 

Trade secrets are secrets of any trade or industry that are known only to a small number of people and have a commercial worth. According to WIPO, trade secrets are intellectual property rights on private information that can be bought or licensed (World Intellectual Property Organization). Trade secrets are not subject to registration, in contrast to other Intellectual Property Rights. 

The Components of a Trade Secret

  • Being a secret, it ought to be valuable in the marketplace.
  • Only a small number of people related to the company should be aware of it.
  • Only a small number of people connected to the firm should be aware of it.
  • The owner has taken the necessary precautions to safeguard the privacy of the information.
  • It consists of calculations, procedures, codes for software, client lists, supply routes, financial data, etc.

Laws Dealing With Trade Secrets in India

Trade Secret and Confidential Information Protection is controlled by:

  • Common law:  The precise statute, Section 27 of the Contract Act, that forbade the parties from disclosing material in violation of their nondisclosure agreements with one another.
  • Copyright: Trade secrets contained in corporate data are likewise protected by copyright law. A specialized regulatory framework for the Protection and Privacy of Data of Personal and Non-Personal Data in Any Form was also introduced by the Personal Data Protection Bill, 2019 (digital or non-digital).
  • IT Act, 2000: A fine is imposed for violating confidentiality and privacy under Section 72 of the Information Technology Act of 2000.
  • The Indian Penal Code, 1860, deals with cases of criminal breach of trust in sections 405 through 409.

India is a signatory to the TRIPs Agreement, and as a participant, it has the freedom to enact legislation limiting the illegal disclosure of information and preserving trade secrets as previously specified. Indian courts and tribunals have supported the protection of trade secrets under various laws such as contact law, copyright law, principles of equity, and common law actions of breach of confidence, despite the fact that there is no special legislation or regulation on trade secrets in India (which is basically breach of an obligation to keep a piece information secret). In addition to the foregoing, the Information Technology Act of 2000 establishes legal safeguards for the protection of private data stored in electronic records.

The act of illegally discovering a trade secret through techniques that are not authorized by law is referred to as “misappropriating a trade secret.” Therefore, civil actions for breach of contract and misconduct resulting from misappropriation; and criminal actions for theft and breach of trust, constitute the common causes of action against misappropriation or unauthorized disclosure of trade secrets.

A person may be contractually prohibited from disclosing information under contract law. Non-disclosure agreements (NDAs), for instance, are the most popular method used to safeguard trade secrets. The sensitive information that should be treated as secret and kept from third parties should be specified in an NDA.

Additionally, the NDA’s severe penalties for violations can deter other parties from disclosing information. Every NDA should include an alternative dispute resolution (ADR) clause even though there are no specialized ADR procedures for disputes involving trade secrets in India. This is so that, in the event of a dispute, the matter can be resolved outside of the courts by conventional ADR procedures like mediation, conciliation, and arbitration, saving time and money. ADR processes are, in fact, frequently far quicker and less expensive than legal proceedings.

The primary element that must be shown in any case for breach of confidentiality is confidentiality. The company must demonstrate that adequate measures had been implemented to guarantee the confidentiality of the data or information. In essence, it is critical for the owner of a trade secret to demonstrate in court that the knowledge was truly confidential; otherwise, the information lacks the characteristics of a trade secret and is not protected as such.

In order to keep a trade secret safe and confidential, the owner of the trade secret must ensure that the proper measures are actually taken. These steps may include developing a trade secret policy, limiting access to specific information, and cultivating a compliance culture by educating and overseeing employees.

Burlington Home Shopping Pvt Ltd v. Rajnish Chibber, in which the Delhi Supreme Court also highlighted the fine line between copyright infringement and trade secret violation when it comes to disclosing customer lists or compiling business data, provides an example of unfair acquisition of trade secrets by an employee.

Theoretically, copyright and trade secret laws protect separate aspects of compiled corporate data, with trade secret laws protecting the underlying data and copyright laws protecting the expression in the compilations. But in reality, these two factors frequently overlap to the point that any copyright violation could also jeopardize the company’s trade secrets. 

The “Saltman Engineering Case,” also known as Saltman Engineering Company Limited v. Campbell Engineering Company Limited (1948), 65 RPC 203, had Saltman challenging the Act of Campbell when Campbell began using the drawings for its own purposes. Campbell contended that he is not required to treat designs as confidential in the absence of a contract.

According to Lord Greene, “whether there was a contract or not” would not have made a difference in the slightest. What mattered was that Campbell was aware that Saltman owned the designs and that they were confidential since the defendants had access to them only temporarily. As a result, it was determined that the defendant, in this case, had broken a trust.

To prevent people who have access to trade secrets as part of their employment obligations from transferring them illegally, India likewise needs statutory legislation akin to the UTSA. These actions can aid in fostering a culture of respect in industrial circles for trade secrets and concealed knowledge as intellectual assets belonging to their owners, especially when combined with terms relating to contract breach or Non-Disclosure Agreements. Without particular legislation, this is probably one area where India’s protection of intellectual property rights falls short.

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Aayushi Chopra
Aayushi Chopra
Aayushi Chopra is a law student who is interested in creating content on education, lifestyle, law, health, and environment. She enjoys researching different topics and then expressing her views on them.
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