Study of Trade Secret Laws in India in Comparison To United States

Page 277 - 288
INTERNATIONAL JOURNAL OF LEGAL

SCIENCE AND INNOVATION
[ISSN 2581-9453]
Volume 3 | Issue 2
2020
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277 International Journal of Legal Science and Innovation [Vol. 3 Iss 2; 277]
Study of Trade Secret Laws in India in

Comparison to United States
JUHI SAXENA1
ABSTRACT
In the present scenario trade secrets protection is prime to encourage innovative steps,
foreign investment and to promote healthy competition. Trade secrets give the commerce
a spirited edge over the competitors and thus one must make sure that he adequately
protects his business-related confidential information from his competitor. Trade secret
as a new form of Intellectual Property could be very substantial and it is garnering wide
significance because in the era of globalization, failure or success of any company
depends on its secrets allow them to be policies related secrets or information of their
clients. Through this paper, the author has tried to put an effort to highlight the Trade
Secrets laws protected in India and deficiency of Indian Laws with respect of Trade
Secrets laws governing in United States.
I. INTRODUCTION
A trade secret is a piece of information, not generally known or reasonably ascertainable, that
offersa business an economic gain or advantage over its competitors. It simply refers to any
data or information relating to the business which is not generally known to the public and
reasonable attempts has been made to keep the information as secret and confidential. Trade
Secret Protection needs reasonable efforts to maintain secrecy.
However, there are also some disadvantages in the protection of secret information. The
producer will maintain secret about the research until it can be protected by means ofLaw of
Patent, thereby leading to a great deal of duplicated research which isn’t always efficient.
These considerations need to be kept in mind while deciding what information should be
protected. In certain circumstances, it has been decided that the misuse of secrets should be
considered for taking action. If the disadvantage outweighed the advantages, the Civil Law
should not intervene.
Trade Secret Laws under NAFTA
According to North American Free Trade Agreement (NAFTA), a trade secret defines as
1
Author is a student at Asst Professor at Amity Law School, Amity University, Lucknow, India.
© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

“information having commercial value, which isn’t within the public domain, and that
reasonable steps have been taken to maintain its secrecy2”. Trade secret” means information,
including a formula, pattern, compilation, program, device, technique, or process3, that-
i) Derives independent economic value, actual or potential, from not being typically
regarded 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 topic of efforts that are reasonable under the circumstances to take care of
its secrecy.
Trade Secret under Trips Agreement
Article 39 of the Trade-related Aspects of Intellectual Property Rights (TRIPS) states three
norms for in view of any information as undisclosed information4. Those norms or conditions
are as follows-
(a) the information isn’t, as a body or within the precise configuration and assembly of its
components, generally known among or readily accessible to persons that normally affect the
type of data in question;
(b) the information has actual or potential commercial value because it’s secret; and
(c) the person lawfully in control of the information has taken responsible steps under the
situations to make it secret.
Essentials of Trade Secret
1. Trade secret is not readily accessible.
2. Trade secret must have commercial value as a secret.
3. Lawful owner must take necessary steps to retain secrecy.
4. Some of the famous trade secrets include recipe, algorithm, computer program,
manufacturing process, technical information, etc.
How Long does Trade Secrets Last?
1. If the information continues to meet the norms and if it is not revealed, it remains a
trade secret.
2Article 1711 of NAFTA

3
Section 1(4) of the Uniform Trade Secrets Act, 1985 Amendments
4
Article 39.2 of the Trade-related Aspects of Intellectual Property Rights (TRIPS)

2. This indefinite life span means that trade secret can be very much valuable assets for
any company.
3. However, rights in a trade secret only exists as long as the secret is maintained.
II. PROTECTION OF CONFIDENTIAL INFORMATION

A person who receives valuable or secret information in confidence owes an obligation or
duty referred to as “a duty of confidence” neither to disclose nor make use of that information
for any use other than that for which the disclosure was made without the consent. Should the
receiver of such information threaten to do so, the person who imposed it to him or her is
entitled to an injunction to restrain such unauthorized use or disclosure. Confidentiality is an
ethical principle associated with several professionals are “privileged and may not be
discussed to third parties. In those jurisdiction in which the law makes provision for such
confidentiality, there are usually penalties for its violation.
V.N. Deshpande v. Arvind Mills5
In this case Court considered a clause concerning confidentiality of information and stated
that, a clause, namely, Clause 9 of the agreement prevents the Appellant from divulging any
secret information of such nature mentioned therein clause after getting termination of his
service. The Defendant isn’t prevented from acquiring knowledge, which makes him a far
better employee for the general public for future employment, but, it only prevents him from
divulging information, which he has received as respondents' employee to different party.
Hence, it is clear that the clause as worded is proper and an injunction granted in terms
thereof is not unreasonable or wider latitude than justified in law.
III. DIFFERENCE BETWEEN TRADE SECRET AND CONFIDENTIAL INFORMATION

Brown v. Rollet Bros Trucking
In this case, the court made a distinction between access to an actual trade secret and less
valuable confidential information. The latter is not amenable to protection through a non-
complete. In this case, access to a rate sheet listing his ex- employer’s shipping rate and fuel
surcharges has given to a dispatcher. That sheet was adjusted at various times- sometimes
monthly and sometimes annually. Relying on ling- standing Missouri Precedent, the court
observed that this types of Confidential Information was not a Trade Secret. In so holding,
the court specifically noted the key difference between the two legal concepts, i.e.,
5
https://indiankanoon.org/doc/1150206

Confidential Information is usually limited to a one or ephemeral event within the conduct of
a business, whereas a trade secret is may be a process or device for continuous use in the
operation of a business. Concerning to pricing out a customer job, a trade secret is frequently
found if the employer uses a specifically developed code or formula to churn out bids.
However, as it was in the Brown Case and in countless other fields, pricing information is
often fleeting with sales manages given huge discretion to match a completes bid or adjust
prices based on a fluctuating cost of materials.
IV. PROTECTION OF TRADE SECRET IN INDIA

In India trade secrets is a most ignored field as there is no proper policy framework for the
protection of trade secrets. Trade secrets in India are protected mainly through contract law or
through the equitable doctrine of breach of confidentiality.It is common to insert clauses in
the agreement with the employees, that protect the confidentiality of the secrets of the
company not only at their employment period but also after they’re terminated. In a case of
Attwood v. Lamont,1920, it was stated that one of the principles is that a master is not
entitled to stop his servant after the determination or termination of employment from
offering competition, but he is entitled to reasonable protection against exploitation of Trade
Secrets6.
1. The Indian Contract Act, 1872
The Indian court relies on the common law remedies for the protection due to the lack of law
for the protection of trade secrets. Reliance is placed by Indian courts on the case of Saltman
Engineering Co. Ltd. v. Campbell Engineering Co. Ltd., 19487, where the issue is of
confidential information, whether or not a manufacturer owed a duty of confidence to a
company who had supplied them drawings and designs to produce tools to make leather
punches. Basically, India has Indian Contract Act to be relied upon for the protection of
Trade Secret.
Section 27 of the Contract Act, provides remedy and it restricts a person from disclosing any
information which he acquires at the time of employment or through a contract. but there is
not a single provision of criminal remedy in it. According to Section 27 of the Contract Act
confidential information must be highly confidential before it could be considered as a trade
secret. It also decides whether information amounted to a trade secret or not. There are
following relevant factors for the same–
6
Avtar Singh, Contract & Specific Relief, Twelfth Edition.
7
Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd., 1948 (65) R.P.C. 203.

(i) The nature of the work of the employee and his status.
(ii) The nature of the information itself
(iii)Whether the employer impressed the confidentiality of the information on his

employees
(iv) Whether the information could easily be isolated from other information which the
employee was free to use8.
An employer can prohibit lawfully his employee from accepting, after determining his
employment, such a position where he is likely to utilize the information of secret processes
and trade secrets acquired by him during the course of employment. He can also covenant to
ban his employee from fixing up on his own, or accepting employment with the employer’s
competitors likely to destroy the employer’s trade connections by a misuse of acquaintance
with the employer’s clients.
2. Copyright Act, 1957
In the case of Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber9, Court observed that
the law of Trade Secretaries to protect a good range of business data, Customer lists and other
compilations of business data could also be copyrightable as a fact works. Law of Trade
secret and Law of Copyright protect different sections of compiled business data, with
copyright protecting the expression in these compilations and trade secret law protecting the
underlying data. However, protection of Copyright and Trade Secret for compilations of
business data frequently converge. In this specific case Defendant was restrained from using
database of Plaintiff consisting of compilation of the addressed of the clients. Court held that
if the Defendant is permitted to form use of the database of Plaintiff, it’s bound to cause an
injury to the plaintiff, which might be incapable of being estimated in terms of money.
3. SEBI
(i) The SEBI has issued SEBI (Prohibition of Insider Trading) regulations,1992
which renders use and disclosure of Confidential Information by an insider subject
to protection under SEBI Act of 1992.
(ii) In one respect this regulation also crystallizes the obligation of confidence arising
out of relationship between an insider and the company and in certain cases will
protect information qualifying as “Trade Secret”.
8Pollock &Mulla, Indian Contract and Specific Relief Acts, Thirteenth Edition.
9 https://indiankanoon.org/doc/130087

(iii) However, a third party who makes use of this information is not made liable.
(iv) It was observed in a case that activities like Insider Trading fraudulent trade
practices and professional misconduct are absolutely detrimental to the interests of
ordinary investors and are strongly deprecated under the SEBI Act, 1992 and
therefore the Regulations made there under. No punishment is to serve for those
indulging such activities10.
4. It Act, 2000
While the Information Technology Act of 2000 (IT Act), has provisions regarding cyber and
related IT laws in India and delineates the scope of access that a party may have to on data
stored on a computer, computer system or computer network, the provisions of the IT Act
don’t address the need for a stringent data protection law being in place.
The Information Technology Act, 2000 has recently been amended to satisfy challenges in
Cybercrime. it has introduced two important provisions that have a robust pertaining to the
legal regime for data protection. These are sections 43A and 72A, inserted into the IT Act by
the amendment Act.
However, this amendment Act hasn’t specified the meaning of the term "sensitive personal
data or information" and merely states that it’d mean such personal information as could even
be prescribed by the Union government in consultation with such professional bodies or
associations because it going to deem fit.
5. Design act, 2000
In this case picture emerges that the court shall entertain injunction only as long as an
equivalent is protected either through Copyright or Designs along-side a non-disclosure
agreement.
6. Civil Procedure Code
The trade secrets, during the proceedings can be protected and there is no compulsion on
Plaintiff to disclose the details during litigation. However, disclosures may be sought by
either of the parties against each other to prove or disapprove the fact as to whether the
information was confidential in nature and was shared with the defendant under such
understanding.
7. Indian Penal Code
10
Samir C. Arora vs Securities and Exchange Board of INDIA, 2005 59 SCL 96 SAT

In a case, the Respondent contending that the action of the petitioner's amounts to Criminal
Breach of Trust and cheating because the technical expertise know-how acquired by the
respondents amounts to 'property', filed a criminal-complaints. Court didn’t answer the
question of whether or not a trade secret amounts to being a property, because the case had
not satisfied the other conditions for attracting criminal liability. The plaintiffs did not prove
the dishonest intention on the-part of the appellants. The court evades choose on whether it
might amount to 'property.'. But, the court had made an observation that if the petitioners use
the technical knows how in contravention of the agreement of service, then section 408 and
420 are often attracted. But because the burden of proof is much higher in criminal cases, its
scope is minimized11.
8. National innovation act, 2008.
1. National Innovation Act of 2008 has been released by department of Science and
Technology.
2. The government in the pursuance has invited comments to the same.
3. The aim of the National Innovation Act of 2008 is to push to innovation and
exploitation of technology bridging the gap between innovation and lack of it in the
present Patent Law. Defining and dealing with new inventions, satisfying the criteria
of utility, novelty, non- obviousness and industrial applicability, the Patent Act does
not allow innovations to be exploited under its provisions.
V. OBJECTIVE OF NATIONAL INNOVATION ACT, 2008.

1. The Preamble of this Act aims to aid innovators and researchers exploit the fruits of
their innovations to the maximum possible extent.
2. The Preamble reads as-
a- An Act to facilitate public, private or public- private partnership initiatives for

building an innovations support system to encourage innovation, evolve a Nation.
Integrated Science and Technology Plan and codify and consolidate the law of
confidentiality in aid of protecting Confidential Information, Trade Secret and
Innovation12.
11Pramod s\o LaxmikantSisamkar and UdayNarayanraoKirpekar Vs Garware Plastics and Polyester Ltd. and Anr
12
https://www.prsindia.org/uploads/media/draftinnovationlaw.pdf

b- There was a Bill proposed called the National Innovation Bill of 2008 in which
Chapter VI talked about the Confidentiality of Information. It broadly says three
things which are as follows-
(i) Confidentiality
(ii) Misappropriation
(iii) Damages and Injunction
Describing what aimsand objectives to be included in the ambit of a “Innovation”, the draft
legislation states innovation to be a process for incremental or significant technical advance
or change which provides enhancement of measurable economic value, and shall include-
(i) Introducing new or improved goods or services
(ii) Implementing new or improved operational processes
(iii) Implementing new or improved organizational/ managerial process.
Further Court may restrict any person or class of persons impleaded in an action not to
disclose the Confidential Information mentioned in the claim without prior orders of the
court13.
Additionally, there’s a provision which provides exception14, in these conditions confidential

information shall not are misappropriated where, the Confidential Information was available
within the public in large; or the Confidential Information has been alone derived by the
alleged Misappropriator, or by any third party from whom the alleged Misappropriator
received the information; or where disclosure of the Confidential Information is held to be in
the interest of public by a court of law. But this draft couldn’t come into existence.
VI. PROTECTION OF TRADE SECRET IN U.S.A

In the United States of America., the relevant laws for prohibiting unauthorised commercial
use of a trade secret are as follows-
1. The Uniform Trade Secret Act (UTSA)
The most important goal of UTSA is to make the state laws which governs the trade
secrets trade uniformly, especially important for those companies that operate in more than
one state. Uniform Trade Secret Act defines “Trade secret” as an information, consist of a
formula, pattern, compilation, program device, method, technique, or process, that:
13
Section 10 of the National Innovation Act, 2008.
14Section 11 of the National Innovation Act, 2008.

(i) procure independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who may obtain economic value from its disclosure or use, and
(ii) is the subject matter of efforts that are reasonable under the circumstances to
maintain its secrecy. To decide what amount or forms of safeguards are
reasonable to guard the secrecy of proprietary information, for this there’s no clear
cut formula.In the Economy Roofing& Insulating Co. v. Zumaris, the Court said
that: “there’s virtually no category of information that cannot, as long as the
information is protected from disclosure to the public, constitute a trade secret.
(iii) Section 5 of the Act says that in an action under UTSA, a Court shall preserve the
secrecy of an alleged trade secret by reasonable means, which may include
granting protective orders in reference to discovery proceedings, holding in-
camera hearings, sealing the records of the action, and ordering a person involved
within the litigation to not disclose an alleged trade secret without prior court
approval.
The UTSA has also defined the definition of “Improper means” and “Misappropriation”.
2. Economic Espionage Act of 1996
Under the Economic Espionage Act of 1996, an information will be considered as Trade
Secret if-
(a) the owner has taken reasonable measures to keep such information secret; and
(b) the information derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable through proper means by the general
public. The requirement ‘not being generally known to the public or other persons’ doesn’t
require that information be generally known to the public for trade secret right to be lost. If
the principle person, one can obtain economic benefit from information is conscious of it,
there’s no trade secret. If a company discovers a competitor’s trade secret through proper
means, the secret will be known as two companies but will not be generally known.
In a case of the United States v. Genovese15, courtheld that a trade secret doesn’t lose it’s
protection under the Economic Espionage Act, if it is temporarily, accidently or illicitly
released to the public, provided it doesn’t become ‘generally known’ or ‘readily ascertainable
through proper means’.
15
409 F. Supp. 2d 253, 257 (S.D.N.Y. 2005)

Further the Act has provision to punish the provider and the receiver of unauthorised trade
secrets16.
Doctrine of “Inevitable Disclosure”
Some of the US Courts have recognized that the trade secret misappropriation is inevitable if
an employee with knowledge of a company’s specialized trade secrets accepts an equivalent
position with a competitor. In that situation, they find that an employee who wants to do good
work will inevitably rely on whatever he knows, which also includes the former employer’s
trade secrets. In a famous case, an employee was prohibited from working in a particular field
because he had worked as an engineer in the plaintiff’s space suit program, and then left to
work for a competitor in the same area. It was held that it would be impossible to perform his
managerial functions without relying on his knowledge of the plaintiff’s trade secrets.
In the case of Pepsico, Inc. v. Williame Redmond, defendant (William Redmond), worked for
PepsiCo from 1984 to 1994, Redmond became the Manager of the Northern California
Business Unit in June, 1993, and he got promoted one year later to General Manager of the
business unit which covers all units of California. Redmond's relatively high-level position at
PCNA gave him details of access to inside information and trade secrets. Redmond, same as
other PepsiCo management employees, had signed a confidentiality agreement with PepsiCo.
Afterwards he joined a competing company, known as Quaker. Against this PepsiCo filed a
suit, seeking a non- permanent restraining order to enjoin Redmond from assuming his duties
at Quaker and to stop him from disclosing trade secrets or confidential information. The
District Court issued an order enjoining Redmond from assuming his position at Quaker
through May, 1995, and permanently from using or disclosing any trade secrets or
confidential information. Court found that Redmond's new job posed a transparent threat of
misappropriation of trade secrets and confidential information that would be enjoined under
Illinois statutory and customary law. Against this an appeal was made to the United States
Court of Appeals for the Seventh Circuit, the Seventh Circuit affirmed the District Court's
order.
VII. INADEQUACY OF SUI GENERIS LAWS FOR TRADE SECRETS IN INDIA

In India, Trade Secret protection is largely based on common law. The law relies on common
Law principles like breach of trust and breach of confidence. The only statutory provision
governing trade secrets law is Section 27 of the Indian Contract Act, which states that every
agreement by which a person is restrained from carrying on any trade, business or profession,
16
Sec. 1832 of the Act

is invalid. This provision brings within its ambit non-disclosure and non-complete
agreements, which are indispensable for the protection of trade secrets may be located
include the Securities ExchangeBoard of India (Prohibition of Insider Trading) Regulations,
1992, which renders the use and disclosure of confidential (undisclosed) information by an
Insider subject to prosecution under the Securities Exchange Board of India Act.But there is
no uniformity in the views of the Courts over this issue. Unlike US, there is no provision of
criminal liability in India.
There is no established Law when Information is improperly obtained. In a case17, it was held
that equity would only supervene if the information been communicated in circumstances
importing an obligation of confidence. But, the case was silent as to the applicability of the
principle in other circumstances like when then information is obtained surreptitiously.
VIII. CONCLUSION
Though the law of trade secrets fits into the existing framework of law of contracts and other
laws, there are certain problems with respect to its inception in the field of intellectual
property rights. Therefore, a separate legislation for trade secrets might do away with that
disparity as well. India, being a growing nation have to have a sturdy regulation for shielding
or protecting trade secrets. The TRIPS Agreement mandated that its Member Stateshave
toex-alternate their legal guidelinesand convey in new legislationto satisfythe obligations as
under the TRIPS Agreement. It is time now for a statutory law to come into force in India
that not only protects trade secrets and confidentiality but also makes suitable amendments
regarding the same.
The criminal law of the country, the Indian Penal Code, 1860, also needs amendingthat
provides for criminal liability in cases where there’s breach of confidence or disclosure of
trade secrets just like what exists in one of a similar Countries. The mere presence of a
criminal law doesn’t act as deterrence for individuals who indulge in such practices and
accordingly intensive action and practice likewise had to maintain such incidents at bay.
Therefore, for the protection of trade secrets a transparent, clear and definite policy with
regard to trade secrets protection is need of the time. This clearly underlines the need for a
comprehensive legislation on trade secrets, in compliance with Article 39 of TRIPS.
The provisions provided under Uniform Trade Secret Act and Economic Espionage Act of
1996 in US must be followed in India also, therefore a legislation which provides civil also
17Coco v. A.N. Clark Ltd.

criminal liabilities should be put into practice. Indian legislature should take recourse to the
provisions laid down under the UTSA and EEA in US.
*****

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Page 277 - 288

INTERNATIONAL JOURNAL OF LEGAL

Follow this and additional works at: https://www.ijlsi.com/

In case of any suggestion or complaint, please contact [email protected].

Study of Trade Secret Laws in India in

Trade Secret Laws under NAFTA

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

Trade Secret under Trips Agreement

Essentials of Trade Secret

1. Trade secret is not readily accessible.

2. Trade secret must have commercial value as a secret.

3. Lawful owner must take necessary steps to retain secrecy.

How Long does Trade Secrets Last?

2Article 1711 of NAFTA

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

II. PROTECTION OF CONFIDENTIAL INFORMATION

V.N. Deshpande v. Arvind Mills5

III. DIFFERENCE BETWEEN TRADE SECRET AND CONFIDENTIAL INFORMATION

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

IV. PROTECTION OF TRADE SECRET IN INDIA

1. The Indian Contract Act, 1872

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

(ii) The nature of the information itself

(iii)Whether the employer impressed the confidentiality of the information on his

2. Copyright Act, 1957

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

5. Design act, 2000

6. Civil Procedure Code

7. Indian Penal Code

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

8. National innovation act, 2008.

2. The government in the pursuance has invited comments to the same.

V. OBJECTIVE OF NATIONAL INNOVATION ACT, 2008.

2. The Preamble reads as-

a- An Act to facilitate public, private or public- private partnership initiatives for

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

(iii) Damages and Injunction

(i) Introducing new or improved goods or services

(ii) Implementing new or improved operational processes

(iii) Implementing new or improved organizational/ managerial process.

Additionally, there’s a provision which provides exception14, in these conditions confidential

VI. PROTECTION OF TRADE SECRET IN U.S.A

1. The Uniform Trade Secret Act (UTSA)

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

2. Economic Espionage Act of 1996

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

Doctrine of “Inevitable Disclosure”

VII. INADEQUACY OF SUI GENERIS LAWS FOR TRADE SECRETS IN INDIA

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

17Coco v. A.N. Clark Ltd.

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

© 2020. International Journal of Legal Science and Innovation [ISSN 2581-9453]

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