Introduction:
Trade secrets constitute a significant part of an organization’s property. But trade secrets should not be mistaken for mere possessions of a company, for they have a significant impact on the prosperity of a company. Trade secrets usually include devices, formulae, special practices followed in a company, data, instruments, etc. The type of trade secrets depends upon the type of business the company is involved in. Trade secrets constitute a significant portion of a company’s intellectual property including patents, trademarks, and copyrights, etc.
The owner of a company, or the board of directors, or managers must do everything in their power to safeguard their trade secrets to continue to survive in the market. A trade secret can be explained as a piece of information that is valuable to a company or an organization which is confidential and cannot be disclosed to the public. A trade secret must be kept out of the reach of the general public and must also hold commercial value. Trade secrets include any information valuable to the company and vary depending upon the type of business such as the Coke Formula used by Coca Cola or the search algorithm used by Google, they all constitute trade secrets.
Our lawmakers have enacted numerous laws governing different aspects of business. But, there still seems to be no law for the protection of trade secrets and the provision of proper remedies to companies for the loss caused. Even though India lacks a specific legislation for the protection of trade secrets, it is granted through provisions of other legislation governing business in a country such as the companies Act, Partnership Act, Indian Contract Act, Information Technology Act, etc. But these provisions do not prove to be enough to safeguard and/or grant compensation to affected companies.
Trade secrets help a company or an organization in numerous ways to grow and prosper. It is also an important factor in determining Foreign Direct Investment in the country. But since there is an absence of specific legislation for the same, deciding cases regarding trade secrets pose as a challenge to Indian Courts and therefore, has an impact on FDI. It is evident that the protection of trade secrets is essential for the smooth running of markets and this necessity requires specific legislation.
Protection of Trade Secrets in India
As already explained above, trade secrets play a major role in the growth of a company and therefore, must be protected and kept confidential by companies to protect themselves and restrict any other business from using their secrets for their benefit. A trade secret may include techniques, practices, instruments, important data, processes, designs, or any other information pertaining to a certain company that is deliberately kept confidential and has commercial value. These trade secrets give a company a certain edge over its competitors and prove very profitable to the company.
Trade Secrets have not been defined by any legislation in India but there have been numerous interpretations by numerous institutions. All definitions of trade secrets, though different from one another, have three points in common:
- A trade secret is supposed to be confidential and must not be accessible by people
- A trade secret is supposed to a certain commercial value for the company
- The owner of the secret must actively take steps to protect the secret.
There is an absence of a particular legislation that deals with the protection of trade legislations. But this did not stop Indian Courts from making decisions in favor of the protection trade secrets and their companies. Indian Courts have upheld the protection of trade secrets while relying on the principle of equity and breach of confidence which usually results in the breach in the performance of a contractual duty. Courts have granted remedies to the companies in the form of injunctions directed towards parties from releasing such secrets, obtaining all confidential information and documents, and compensation to cover the losses that occurred as a result of the revelation of the trade secrets.[1]
Due to the absence of a codified law, there is a lot of ambiguity when it comes to the protection of trade secrets and compensation. It is essential that companies take efforts to maintain the confidentiality of a trade secret and if such efforts are not proved by the owner of the secrets then legal protection would not be granted. Thus, failure of proving reasonable efforts taken by the owners would ultimately lead to the company losing its trade secrets and risk the disclosure of those secrets to everyone, even if the secret was acquired by the other party through unfair means.[2]
Laws governing businesses in India are not completely ambiguous towards the protection of trade secrets. Business Laws such as the Indian Contract Act, Partnership Act, and Information Technology Act, etc indirectly provide for the protection of trade secrets.
The Indian Contract Act contains a provision which restricts the revelation of any information or data obtained by him by means of a contract. This is provided under Section 27 of the Indian Contract Act.
Under the Securities Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, it is held that it is a punishable offense under the Securities Exchange Board of India Act to use or disclose any data that is supposed to be confidential.
Remedies for the breach and evasion of measures implemented for the protection of confidential “works” which mainly refers to copyrights have been provided under the Copyright (Amendment) Act, 2012. The Act provides for remedies for evasion of protection protocols if such acts have been carried out with the purpose of violating the copyrights of a company under Section 65B. This provision provides for criminal penalties to be imposed.
The Information Technology Act also provides for criminal penalties to be imposed in a situation where any party obtained access to confidential electronic records, information, data, or any other document without authorization from the concerned authority and proceeds to disclose the data obtained. This is provided under Section 72 of the Information Technology Act. Furthermore, Section 43A of the act also mentions the compensation to be provided for the failure to protect sensitive personal data. Sensitive data for the purpose of this section includes biometric information, financial details, passwords to various platforms, etc.[3]
Need for Legislation
The competition in the Indian markets usually depends upon the confidentiality of a company’s trade secrets. This can determine the success rate of a company in the market. Since Indian companies prefer securing their intellectual property as trade secrets rather than through a patenting especially because they enjoy a higher degree of autonomy and confidentiality, the need for a legislation dealing particularly with the protection of trade secrets is absolutely necessary.
In the absence of a concrete legislation, Indian courts have been relying on foreign judgments to pass orders while dealing in cases relating to the protection of trade secrets. The need for a separate legislation was recognized by the Ministry of Science and Technology who then published a draft legislation with the aim of protecting information, trade secrets, and other confidential information known as the National Innovation Act, 2008 which is yet to be discussed and passed by the parliament, thus rendering a very sensitive aspect of businesses in India unregulated.[4]
Therefore, it is essential for the lawmakers of the country to legislate a law primarily dealing with the protection of trade practices. Such legislation must include proper definitions of important terms such as trade secrets, inappropriate means, and misappropriation etc, provision for protection in case there does not exist a non-disclosure agreement, civil and criminal remedies and penalties, a provision providing for the overriding effect the legislation has on the existing business laws, and lastly a provision regulating third party agreements.
Conclusion
It is essential to understand that mere recognition of the importance of protection of trade secrets indirectly by various legislations in the country is not adequate for security of such secrets and compensation to be granted in case of disclosure of such secrets. The protection of trade secrets requires certain stringent measures to ensure a high degree of confidentiality within the company itself and this needs to be ensured by the company at regular intervals.[5]
Enhancing the protection of trade secrets in India by following the rules and regulations adopted by different countries would pave the way for India to be at the forefront of trade secret protection. From the above, it is evident that trade secret protection in India is still growing and for the full development of this protection, legislations need to be introduced with special consideration to businesses since trade secrets have a vast impact on the survival of a business in the market. The introduction of a legislation that is conducive towards businesses would ultimately result in business prospering without the threat of disclosure of important confidential information that the entire business relies on.
References:
[1] Trade Secrets In Indian Courts – Intellectual Property – India Mondaq.com, https://www.mondaq.com/india/trade-secrets/204598/trade-secrets-in-indian-courts#:~:text=There%20is%20no%20specific%20legislation,a%20breach%20of%20contractual%20obligation.
[2] Emergent Genetics India Pvt. Ltd. vs. Shailendra Shivam, Suit No. 50/2004, High Court of Delhi.
[3] Protection of Trade Secrets Under Indian Law Legalserviceindia.com, http://www.legalserviceindia.com/legal/article-310-protection-of-trade-secrets-under-indian-law.html
[4] What You Need to Know About Trade Secrets in India | Seyfarth Shaw | Trading Secrets Trading Secrets, https://www.tradesecretslaw.com/2014/08/articles/trade-secrets/trade-secrets-in-india/
[5] Trade Secret Laws: Need Of An Hour – Intellectual Property – India Mondaq.com, https://www.mondaq.com/india/trade-secrets/800380/trade-secret-laws-need-of-an-hour
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