TRADE SECRET

Question: 1
What is Trade Secret? Can Trade Secret be registered, if Yes then under
which IP Act, If No, then Why?
Answer:

Nearly all businesses in all industries and sectors possess trade secrets. Trade secrets are a
highly valuable and useful form of intellectual property right (IPR).

 According to the World Intellectual Property Organization (WIPO), any confidential

business information (for example sales methods, distribution methods, consumer
profiles, advertising strategies, lists of suppliers and clients, manufacturing processes,
etc.) which can be of considerable commercial value to businesses and which provides an
enterprise with a competitive edge, may be considered a trade secret.
 Trade secrets encompass manufacturing and industrial secrets as well as commercial
secrets, and may include technical know-how, new products or business models, business
operation manuals, recipes and formulae, customer and supplier information, or special
techniques uniquely and confidentially employed by a business in the development of a
product or service, all of which are closely guarded by the companies in question.
 Typically, three general standards exist (which are referred to in Article 39 of the
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)), and a
trade secret is usually defined as information that must be:

a) known only to a limited group of persons (kept as confidential); and

b) confers some sort of economic benefit on its holder (where this benefit must
derive specifically from the information not being generally known, not just
from the value of the information itself – in other words: it must have
commercial value because it is a secret);
c) subject to reasonable steps taken by the rightful holder of the information to
keep it secret, including the use of confidentiality agreements for business
partners and employees.
  The unauthorized acquisition, use or disclosure of such secret information in a manner
contrary to honest commercial practices by others is regarded as an unfair practice
and a violation of the trade secret protection.
 In USA, Trade secrets are protected by the Lanham Act and Uniform Trade Secrets
Act, however there is no formal registration procedure.
 Protection lasts only as long as the trade secret remains that way, but can last forever
if nobody discloses the secret.
 Contrary to patents, trade secrets are protected without registration, i.e. trade secrets
require no procedural formalities for their protection. A trade secret can be protected
for an unlimited period of time, unless it is discovered or legally acquired by others
and disclosed to the public.

Anything that has independent economic value for a company can be considered a trade
secret. This includes:

 Recipes and formulas, like the KFC Colonel's secret recipe

 New inventions for which you have not filed a patent application

 Marketing techniques unique to the company

 Manufacturing methods

 A company's customer information

Not all trade secrets are necessarily intended to be kept forever. You may only need to keep
them secret until you are ready to reveal them. For example, if you plan to patent your
invention, it is only a trade secret until you do so, because your patent application effectively
makes the information public.

No, Trade Secret can’t be registered because registration procedure makes the information
public tends to lose its character of secrecy which is a significant character of Trade Secret.
Question: 2

Name five Trade Secrets.

Answer:

1. The Google Search Algorithm

Google developed a search algorithm and continues to refine it. Some changes are announced
but many are not. Google continues to modify its top-secret algorithm to keep businesses and
people from gaming the system. It is the top search engine today and shows no signs of
giving up its place. 

2. Kentucky Fried Chicken

The secret ingredients for KFC's original recipe were originally kept in Colonel Sanders'
head. He eventually wrote the recipe down, and the original handwritten copy is in a safe in
Kentucky. Only a few select employees know the recipe, and they are bound by a
confidentiality agreement. 

For better protection, two separate companies blend a portion of the herb and spice mixture.
Then it is automatically processed to standardize the blending before it is sent to the
restaurants. 

There are rumours of other requirements about the secret recipe. One says when KFC updates
its security systems, the recipe is temporarily moved to secure location in an armoured car
escorted by a high-security motorcade. 

3. Coca-Cola

Coca Cola made a choice to brand the recipe a trade secret instead of patenting it, which
would have lead to the disclosure of the ingredients. Since one of those ingredients may have
been cocaine, Coca-Cola decided to keep the recipe as confidential information. 

This trade secret has spawned rumours of its own. One is that the recipe contains bugs or
insects. Another is that two employees each know only half the recipe or that only two people
know the combination to the safe where it is stored. 
In case you doubt it, corporate espionage is real. In 2006, and employee and two accomplices
stole the formula and tried to sell it to Pepsi. Pepsi blew the whistle and let Coke officials
know what was happening. The employee and friends were arrested. 

4. Lena Blackburn’s Baseball Rubbing Mud

Lest you think all trade secrets have to do with food, Blackburn’s Baseball Rubbing Mud is
an example that does not. 

The rubbing mud was developed to dull the surface of new baseballs, making them easier to
grip. All the mud comes from the same place, but the business assures everyone it is on
public land. It is a trade secret passed on to new generations to prevent people from walking
on the source. 

5. WD-40

Originally WD-40 was developed to prevent corrosion. The chemist kept the formula secret
and sold it a few years later. Even now, it is the company’s only product. 

Like Coca-Cola, the secret formula has never been patented, so competitors could not
discover what is in it. The company does reveal what is NOT in the formula, including a
statement that there are no known cancer-causing agents. 

The formula has been in a bank vault for years, only taken out to change banks, and, once, to
be carried by the company’s CEO to celebrate its 50th anniversary. The CEO wore armoured
and rode on horseback.

The formula is mixed in three different cities around the globe before being given to the
manufacturing partners. The formula has been reversed engineered, but the trade secret is
kept for marketing purposes. 

Question: 3

Can any under other act Trade Secret be protected?

Answer:

Generally, most countries do not have a specific law for trade secrets. The owner of trade
secrets has to rely on relevant provisions of the national law against unfair competition or by
court action under the law of torts and by appropriate clauses or provisions in employment
agreements and other types of business agreements in accordance with the contract law of the
country. Consequently, Trade Secret can be protected under other acts of a country.

As follows:

(1) Unfair competition law / Principles of tort

When misappropriation is done by competitors who have no contractual relationship or

indulge in an act of theft, espionage, or of subversion by employees. The law of tort is judge‐
made law in 'common law' countries.

(2) Contract law

When the agreement between the parties seeks to protect the trade secret by using a non‐
disclosure clause or confidentiality clause, through an anti‐reverse engineering clause, or
where an implied confidential relationship exists, such as between an attorney and his client,
or an employer and his employee etc.

(3) Criminal law

When an employee steals trade secrets from a company or someone does espionage or in
involved in acts that may be considered as invasion of privacy, etc., or circumvention of
technical protection measures of IT / non-IT systems.

Although India has no specific trade secrets law, Indian courts have upheld trade
secrets protection under various statutes, including contract law, copyright law, the principles
of equity and – at times – the common law action of breach of confidence (which in effect
amounts to a breach of contractual obligation). Section 72 of the Information Technology Act
2000 also provides certain protection, although this is limited to electronic records. 

 Contract law
In India, a person can be contractually bound not to disclose information that is revealed to
him or her in confidence.

However, in case of Richard Brady v Chemical Process Equipment’s P Ltd (AIR 1987
Delhi 372) the court went further by invoking a wider equitable jurisdiction and awarding an
injunction in the absence of a contract. The plaintiff had invented a fodder production unit
and, for indigenous production of the same, had sought a supply of thermal panels from the
defendant. The plaintiff shared technical material, detailed know- how, drawings and
specifications concerning the fodder production unit with the defendant. An agreement was
set out between the parties for the supply of specialised thermal panels; however, the
plaintiffs later discovered that the defendants were unable to supply the required thermal
panels and did not place an order. After learning about the defendant's own fodder production
unit, the plaintiff filed a suit for misappropriation of know-how, drawings, designs and
specifications disclosed to the defendant.

 Copyright law

In some cases, the courts have recognised client information stored in the form of databases
as copyrightable material.

During the course of their operation, businesses regularly collect data which they arrange
systematically or methodically and can be accessed electronically – for example, in order to
analyse business profitability or customer behaviour, or simply to maintain an inventory of
goods. Thus, databases are an important tool for businesses, allowing them to run smoothly
and plan their future development. Databases are protectable under copyright law. Section
2(o) of the Copyright Act 1957 defines compilations, including computer databases, as
“literary works”.

In case of Govindan v Gopala Krishna (AIR 1955 Mad 391), which concerned a
compilation, it was held that although the amount of originality in a compilation is small, it is
still protected by law. Hence, no party may steal or appropriate the result of another's
intelligence, skills or labour, even in such works.

The present legal position mandates that every effort, industry or expense of skill result in
copyrightable work, but only those works are protectable which: 
  are somewhat different in character; 
 involve some intellectual effort; and 
 involve a minimum degree of creativity.

 Inter-fact between trade secrets and copyright law

In theory at least, the treatment of databases as trade secrets can be a stronger form of
protection, since it helps to protect the underlying or inherent data rather than the mere form
of expression or layout protected by copyright law.

In case of Burlington Home Shopping Pvt Ltd v Rajnish Chhibber (61(1995) DLT6), the
Delhi High Court observed that although trade secrets protection applies to a wide range of
business data, customer lists and other compilations of business data may be copyrightable as
works of fact. In theory, copyright and trade secrets law protect different elements of
compiled business data, with copyright protecting the expression in these compilations and
trade secrets law protecting the underlying data. However, copyright and trade secrets
protection for compilations of business data in fact frequently converge: copyright protection
for business directories often extends to the underlying data and trade secrets protection may
extend to particular expressive arrangements of data.

In Burlington Home Shopping, the court dealt with an application for interim relief in a suit
by a mail order service company against its employee for an injunction restraining “breach of
copyright and confidentiality”. The court held that although its sources may be commonly
situated, a compilation of addresses developed by devoting time, money, labour and skill
amounts to a literary work in which the author has a copyright. Finding that the defendant’s
database was substantially a copy of the plaintiff’s database, the court granted the interim
injunction. 

 Proving confidentiality of information

In case of Ritika Pvt Ltd v Biba Apparels Pvt Ltd (Del HC DE 0784 2016), where a suit was
filed for infringement of the plaintiff’s clothing designs, the court took the view that if an
injunction order were sought with respect to trade secrets, the specific trade secrets would
have to be mentioned, as well as how the plaintiff had ownership of them; only then would
the court consider granting an injunction order. A general order in respect of an unspecified
trade secret could not be passed against the defendant. Further, no relief under the Copyright
Act could be granted, since Section 15(2) of the act provides that once a drawing, sketch or
design has been used for creation of more than 50 garments, no copyright can subsist in it. 

In Genetics India Pvt Ltd v Shailendra Shiv (2011 (47) PTC 494), the court observed:
“Pleadings of the nature and quality of information which is confidential are crucial and, in
the absence, thereof there is no question of confidentiality.”

Thus, a trade secret suit should make amply clear that the subject information is confidential.
Apart from pleading that the information is confidential, the plaintiff must prove that
reasonable efforts have been made to keep it confidential. If the owner of the information
cannot prove as much, the information risks losing the quality of confidentiality.

Further, if the information and technique are neither unique nor novel, and the database is
merely a documentation or compilation of existing material or techniques which are freely
available or widely practised, there is no question of confidentiality. Thus, the mere fact that
information is documented in the form of a database does not make it confidential: it must
also have the requisite exclusivity. If a court were to accept, uncritically and without any
statutory regime, a plaintiff’s blanket assumption that it possessed confidential information in
something which was plainly part of the public’s material resources, that court would
overstep the mandate of the Constitution, specifically, the rights to occupation (Article19(1)
(g)) and livelihood (Article 21).

 Breach of confidence 

In Diljit Titus, Advocate v Alfred A Adebare (130 (2006) DLT 330) it was held that the
courts must step in to restrain a breach of confidence independent of any right under law. The
court held that in the context of a law firm, copyright existed in a list which had been
specially designed by an advocate and contained details of the firm’s clients, along with the
nature of work and contact person for each one. Notably, this obligation need not be
expressed, but need only be implied.

Future of trade secrets in India

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 10 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 for ensuring its secrecy.

Article 39 states 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 here 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 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 IP law.

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 2016 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 for judicial
academies on trade secrets 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.