DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

2019-20
“Cyber Law”
Final Draft:-

“Protection of Trade Secrets in Cyber-Space”

Submitted to: Submitted by:

Dr. Shakuntla Sangam

Assistant Professor (Law)

Dr. Amandeep Singh Vasudev Singh

Assistant Professor (Law) B.A.LL.B. (Hons.)

Semester-VII th.
Enroll no. 160101166

1|Page
ACKNOWLEDGEMENTS

I would like to extend special thanks and gratitude to my teacher, Dr. Shakuntla Sangam
Ma’am, and Dr. Amandeep Singh Sir who gave me this golden opportunity to work on the
Project Topic “Protection of trade Secrets in Cyber-space”

 Throughout the research period I have been time and again guided by my teacher.

I’d also like to convey my regards to Library Staff of my university for helping me out and
getting relevant material for me.

I would like to thank my university Dr. Ram Manohar Lohiya National Law ,for giving me
the chance to be a part of an unique research oriented curriculum which indeed boosts the
understanding of the subject.

I would also like to thank my parents, mentors and well-wishers who have been a constant
support and have time and again reviewed my work and have provided their insights on the
matter.

Vasudev Singh
Sem- VIIth
EnRoll no. – 166
B.A.LLB (Hons.)
Dr. RMLNLU, Lucknow

2|Page
TABLE OF CONTENTS

INTRODUCTION.....................................................................................................................................4
MEANING OF TRADE SECRET AND CONFIDENTIAL INFORMATION........................................................5
WHAT IS TRADE SECRET?.......................................................................................................................5
SIGNIFICANCE OF TRADE SECRETS.........................................................................................................6
CONFIDENTIAL INFORMATION VS TRADE SECRET.................................................................................7
POSITION IN INDIA.................................................................................................................................8
PROTECTION OF CONFIDENTIAL INFORMATION/TRADE SECRET IN THE HAND OF EMPLOYEES...........9
Non-disclosure Agreements:.............................................................................................................9
Internal Processes:..........................................................................................................................10
An Exit-Interview:............................................................................................................................10
CONFIDENTIAL INFORMATION............................................................................................................11
THE OBLIGATION OF CONFIDENCE......................................................................................................12
MISAPPROPRIATION OF TRADE SECRETS: LIABILITY OF THIRD PARTIES..............................................12
CONCLUSION.......................................................................................................................................14
BIBLIOGRAPHY.....................................................................................................................................15

3|Page
INTRODUCTION

In today’s globalised economy, the organization are protecting its intellectual property by
adopting the available measures in form of patents, copyright, trademark etc. but besides
these popular IP rights there are other IP rights not so popular but which are recently drawing
attentions all over the world- Confidential Information and Trade Secret1.

Confidential information and trade secrets are protected under the common law and there are
no statutes that specifically govern the protection of the same. In order to protect trade secrets
and confidential information, watertight agreements should be agreed upon, and they should
be supported by sound policies and procedures. Protection of Confidential Information in the
Hands of Employees In this information age, it’s imperative that a business protects its new
formula, product, technology, customer lists, or future business plans. In the global
marketplace, Indian corporations are often required to comply with foreign laws and are
likely to be exposed to liabilities for violation of confidential information or trade secrets of
their business partners or third parties. For example, the U.S. Economic Espionage Act, 1996
imposes criminal liability (including fines and prison sentences) on any person who
intentionally or knowingly steals a trade secret, knowingly receives, or purchases a
wrongfully obtained trade secret.2 The standards for protection have to be tailored to address
the risks associated with rapid advancement in technology and communications. The
standards accepted today may become inadequate tomorrow. However, one constant factor is
the presence of a corporate culture imbued with information protection values. The
employees of an organization are privy to confidential information and trade secrets on a
daily basis. In the absence of any specific Indian statute conferring protection on such
information in the hands of employees, recourse has to be taken to common law rights and
contractual obligations.

1
https://www.itu.int/en/ITU-T/ipr/Pages/default.aspx
2
https://www.uspto.gov/ip-policy/trade-secret-policy

4|Page
MEANING OF TRADE SECRET AND CONFIDENTIAL

INFORMATION

There is no legislation in India defining term trade secret and confidential information.
However the concept has been discussed widely around the world and we can sum up under
these headings.

WHAT IS TRADE SECRET?

A trade secret refers to 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.
Trade secrets generally give the business a competitive edge over their rivals. Almost any
type of data, processes or information can be referred to as trade secrets so long as it is
intended to be and kept a secret, and involves an economic interest of the owner 3. For
example, a business may have certain internal business processes that it follows for its day-
to-day operations that give it an edge over its competitors. This could be regarded as a trade
secret4.

The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) under the
auspices of the World Trade Organization lays down the following three criteria for regarding
any information as undisclosed information (or trade secrets):

• 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 take reasonable steps to keep it secret.

North American Free Trade Agreement (NAFTA) defines a trade secret as “information
having commercial value, which is not in the public domain, and for which reasonable steps
have been taken to maintain its secrecy.”5

3
Ibid
4
https://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm
5
Approaches to the protection of trade secrets, enquiries into intellectual property's economic impact, OECD,
2015

5|Page
The Uniform Trades Secrets Act, 1970 also provides for the definition of trade secrets, which
is as follows:-

“Information, including a formula, pattern, compilation, program device, method, technique,

or process, that: (i) derives independent economic value, actual or potential, from no being
generally known 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 subject of efforts that
are reasonable under the circumstances to maintain its secrecy”6

Section 2(3) of Indian Innovation Bill defines Confidential Information as “Confidential

Information means information, including a formula, pattern, compilation, program device,
method, technique or process, that: (a) is secret, in that it is not, as a body or in the precise
configuration and assembly of its components, generally known among or readily accessible
to persons within circles that normally deal with the kind of information in question; (b) has
commercial value because it is secret and (c) has been subject to responsible steps under the
circumstances by the person lawfully in control of the information, to keep is secret.

However, the definition in the Innovation Bill also appears to be based (more than the US
model law) on Article 39.2 of the TRIPs agreement.

SIGNIFICANCE OF TRADE SECRETS

Trade secrets in the industrial economy have increased greatly in the past few years, for a
number of reasons. There are mainly two reasons for that, one among them is that other forms
of intellectual property like Patent, Trademark and Copyright have an element of uncertainty
as compared to Trade Secret. Secondly, trade secrets have gained importance because, in
many fields, the technology is changing so rapidly that it has surpassed the existing laws
intended to encourage and protect inventions and innovations7.

Another significant factor which has enhanced the value of trade secrets is the relative ease of
creating and controlling trade secret rights. There are no bureaucratic delays and no multiyear
waits for government grants, such as those for patents. Trade secret rights, in contrast, can be

6
Ibid
7
Maloney, Marilyn C. “Intellectual Property in Cyberspace.” The Business Lawyer, vol. 53, no. 1, 1997, pp.
225–249. JSTOR, www.jstor.org/stable/40687783.

6|Page
established by the explicit conduct or agreement of the interested parties. A trade secret right
starts upon the creation of the idea in some concrete form, and continues as long as secrecy is
maintained. Protection of information such as ideas or information which does not qualify to
be protected as intellectual property within the legal framework Intellectual Property Laws of
the land can be protected by Trade Secrets. They also have the advantage of being lasting
forever, again, as long as secrecy is maintained.

Of course, trade secrets have negative aspects. They are a volatile form of property, and they
terminate when secrecy is lost. Also, they require constant vigilance to protect them.
Nevertheless, trade secrets play a major role in protecting innovations and establishing rights
to use new technology8. It is thus important for the intellectual property practitioner to be
alert to the intricacies of this large body of trade secret law.

CONFIDENTIAL INFORMATION VS TRADE SECRET

A Trade Secret is some information or “secret” that is important to the business and is not
known to the public. It is a term commonly used to cover information that has commercial
value. The law on “trade secrets” is really about the protection of Confidential Information.
Though there is no clear distinction between the both. At times both the concepts are so
intermingled and overlapped that it’s become difficult to draw line. The terms “trade secrets”
and “confidential information” have been used somewhat interchangeably by the courts.
“Trade secrets” generally refers to information relating to more technical matters such as
secret processes or formulas; and “confidential information” relates to non-technical matters
such as business plans or pricing information. Although many concepts and ideas may be
public knowledge, courts have upheld confidential/trade secret information protection for (i)
specific ways to implement ideas and, (ii) combinations of known concepts and ideas.
Novelty and invention are not required.9

Though case law does not always define clearly whether trade secrets are synonymous with
confidential information or proprietary information. Nevertheless, the case law does suggest
that trade secrets and confidential information are essentially identical concepts.”

8
Supra 5
9
Supra 7

7|Page
POSITION IN INDIA

The intellectual property laws in India have had an almost docile and stagnant existence ever
since they were framed. Being a signatory of the TRIPs Agreement India is under an
obligation to bring its intellectual property laws in conformity with international standards.
India has achieved this to a large extent by enacting new and amending existing legislations
on intellectual property laws. However, unlike the US and other developed countries India
has no legislation dealing with trade secrets.

In India protection of trade secrets is Common Law based. However, section 27 of the Indian
Contract Act provides some sort of limited remedy, it bars any person from disclosing any
information which he acquires as a result of a contract. There are scores of reasons for the
absence of any statute dealing with trade secrets. India has since its independence followed a
socialist pattern because of which the Indian legal system has always strived for social benefit
and public rights as a result of which private rights like intellectual property rights have not
been given any importance. Another reason for absence of any trade secret laws is the
10
dependence of Indian economy on agriculture. Also, with the absence of big private
corporate houses in India until recently there has hardly been any pressure on the government
for granting statutory protection to trade secrets. Protection of trade secrets is a very
important and one of the most challenging tasks for the Indian government as this will
enhance the foreign investment in India giving a boost to the Indian economy. Foreign
investors have to be assured of the protection of their trade secrets, so that they can do
business with our country. A proper policy for trade secret protection will further enhance the
security in our own industry. Almost all the countries in the world have a policy for the
protection of trade secrets and India also being a signatory to the TRIPS is under an
obligation to amend its laws or create a new law in order to safeguard the trade secrets of
various businesses. 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.11

10
http://www.legalindia.com/protection-of-trade-secret-and-confidential-information-india-perspective/ ,last
accessed – 30/10/2019
11
http://www.lawctopus.com/academike/cyber-crimes-other-liabilities/

8|Page
As mentioned above, in India, no substantive authoritative text or case laws are available to
determine the nature or ambit of trade secrets. 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, Trade
Secret law has gained importance in India only recently with the intensification of
competition. Coca cola’s formula has been protected for over a century under Trade Secret
law.

PROTECTION OF CONFIDENTIAL INFORMATION/TRADE SECRET

IN THE HAND OF EMPLOYEES

As businesses are growing out of their parochial moulds and going global, effective trade
secret protection is becoming a necessity. Though there is no enactment in India that affords
protection to trade secret, businesses can use the tools mentioned below to safeguard these
trade secrets:

Non-disclosure Agreements:
Sound and concise company policies and non-disclosure agreements with the employees
protecting confidential information and trade secrets are recommended so as to provide
contractual remedy in addition to the one under the common law. Such agreements should
define “confidential information” and the exceptions to confidentiality. Agreements should
have clauses negating a grant of an implied license, restrictions on disclosure, use and copy;
restriction on use of confidential information upon termination of the employment, return of
information upon termination and right to withhold salary and emoluments till such return.

Non-compete clauses, depending upon their applicability in the Indian context, read with the
confidentiality clauses would afford an organization added protection with respect to its
confidential information. Such provisions must have a clear purpose, which is to restrict the
use of confidential information and trade secrets obtained during employment and ensure that
employees do not compete unfairly12. However, non-compete provisions would need to be
reasonable, and the Indian courts may treat a tough non-compete provision as unenforceable.
12
Supra 7

9|Page
In order to ensure that the rights of third parties are not violated, the non-
disclosure/employment agreement should clearly impose an obligation on the employee not
to integrate into the organization’s data or intellectual property, any confidential information
of a third party. Employees should be required to indemnify the organization in case of
violation of this clause. If the organization has not executed such agreements at the time of
employment, subsequently executed agreements should expressly cover the confidential
information obtained by the employee from the date of his employment.

Internal Processes:
Strong internal controls and processes to protect confidential information should be in place.
Employees should be educated to identify information that is confidential or in the nature of a
trade secret, to enable them to make an informed decision. They should have a clear
understanding of their responsibilities to protect confidential matter and treat this as an on-
going process that is integral to their work. Data that is confidential should be clearly
indicated as such in all communications. Appropriate security procedures must be established
and followed by the company and access to specific sensitive areas of workplace restricted or
limited to certain senior employees only. Third-party interaction and disclosures should be
channeled only through specified personnel. Wherever feasible, confidential information
should only be shared with those employees who have a legitimate need to know such
information, thus enabling the employees to perform the assigned tasks13.

An Exit-Interview:14
During such an interview, an employee should be reminded of his obligations with respect to
the company’s confidential information and trade secrets and should be asked to sign a
document reaffirming his obligations. If an employment agreement was signed, the document
to be signed upon termination should be attached. A copy of the signed exit-interview form,
including the employment agreement, must be given to the employee. Such an interview not
only serves as a meaningful reminder but can also be valuable evidence of employee’s
knowledge of such obligations. Success of suits for protection of confidential information and
trade secrets depends upon production of satisfactory evidence to prove confidentiality of the
information, act of disclosure and the damages caused thereby, as well as the reasonability of
such restriction.
13
Supra 5
14
Ibid

10 | P a g e
CONFIDENTIAL INFORMATION

Initially, an objective test dependent on the expectations of reasonable men was adopted. A
subjective element was introduced by the decision in Thomas Marshall (Exports) Ltd. v.
Guinle15 where the plaintiff sought an injunction against the Managing Director who had set
up a competing business. The Court observed that information became confidential only
when the owner of the information has a reasonable belief that its release would be harmful to
him and that it was outside the public domain. This implies that the belief of the owner of the
information must be taken into account while determining whether information is
confidential.

These decisions were reviewed by the House of Lords in the famous Spycatcher case. A
British spy published a book containing confidential information he had learnt during his
career. Although the British Government sought an injunction, the action failed on the ground
that the information had lost its confidential character, as this book was available in other
countries. Hence, information must remain outside the public domain if it is to be protected.

However, the Court did not decide whether the above reasoning tantamount to allowing the
holder of confidential information to rid himself of the obligation of confidence by
disclosure. Lord Goff explained the “springboard principle” and held that disclosure by a
third party does not release the confidant from his obligations. This reluctance shown by the
courts to allow a confidant to benefit by breaching his confidence prevents an unequivocal
declaration that information, which is confidential, cannot be public. Nonetheless, where the
holder of the information himself discloses the information, no action for breach of
confidence will lie. A lapse of time may also result in breach of confidentiality16.

THE OBLIGATION OF CONFIDENCE

The obligation of confidence does not arise where the information is divulged in public or in
other circumstances that negate the duty of holding it confidential. This test, which is an

15
(1978) 3 All ER 193
16
(2004) 1 SCC (Jour) 22

11 | P a g e
objective one, focuses on the relationship between the parties. The types of relationships in
which such an obligation is said to arise can be divided into three broad categories17:

1. Fiduciary relationships: The essence of a fiduciary relationship is that equity imposes an

obligation on the trustee to act in the best interest of the beneficiary. For instance, directors
may owe an obligation to their company, professionals such as auditors and solicitors may
owe a duty to their clients and so on.

2. Contractual relationships: Parties to the contract are free to make such provision as they
deem fit for the use of confidential information. It is common to stipulate that information
would not be passed beyond the contract.

3. Employee-employer relationship

The basic duty of fidelity arises throughout the course of employment and continues to a
limited extent even after the employment terminates. Thus, any employee who discloses
confidential information is in breach of confidence.

The major drawbacks associated with an action for breach of confidence are that an adequate
remedy is unavailable against the person to whom the information is disclosed, as the holder
of the secret may be unable to prevent the continuing use of the confidential information by
such person(s). Although damages may be sought against the confidants, they generally do
not have the economic capacity to pay adequate damages. The question of liability of third
parties assumes importance in this connection.

MISAPPROPRIATION OF TRADE SECRETS: LIABILITY OF THIRD

PARTIES

American courts have developed the tort of misappropriation, which imposes liability on
third parties for the use of trade secrets. This tort is not committed by a person who uses or
publishes a trade secret unless that person has used some unlawful means or breached some
duty created by contract or implied by law resulting from some employment or similar
relationship. It is the use of improper means to procure the trade secret, rather than the mere
copying or use, which is the basis of liability.

17
Supra 4

12 | P a g e
UTSA contains definitions of “misappropriation” and “improper means”. The American
Restatement of Laws has modernized the definition of “improper means” to include “the
unauthorized interception of communications”. This implies that even computer hacking is
included in the definition of improper means. The Restatement is clear that “improper means”
that are “either wrongful in themselves or wrongful under the circumstances of the case”
come within the tort of misappropriation.

Though English courts have not framed the issue in terms of “improper means”, the rationale
for imposing liability on third parties seems to be the same in both English and American
law. Courts have held that even if there is no contractual nexus between the parties, liability
arises if the confidentiality of the information is obvious18. It must be emphasised that third
parties are liable only when the information is not only known, but also known to be
confidential in character.

The Law Commission has recommended that the duty should be broader and prevent, for
example, a company that has received information in confidence during the course of
licensing negotiations from turning that information to its own use, though without disclosing
it further. Thus, there is a need for reforming the law in this regard.

In India, the tort of misappropriation has not gained judicial recognition. However, Indian
courts can adopt the common law approach and grant relief.

18
Supra 7

13 | P a g e
CONCLUSION

The Innovation Bill of 2008 is considered to be a dynamic approach towards protection of

Trade secret but it has remained just a bill and couldn’t be passed by both the houses of the
parliament.

To conclude, Enactment of a strong statute for protection of confidential information and

trade secrets would certainly help the Indian industry. In any event, strategies for protection
of the organization’s confidential information and trade secrets have, in today’s economic
scenario, become a prerequisite to the organization’s survival. Even after having such laws it
is the need of the hour to understand that these legislations are not enough to protect the trade
secrets so it is required to legislate new and proper laws related to it. The penal laws should
also include provisions for criminal misappropriation in case the trade secrets are leaked, high
standards of secrecy should be maintained within an organisation and audit for the same must
be done on regular basis, employee should be well aware with the trade secrets policies also

14 | P a g e
BIBLIOGRAPHY

Websites Referred-

 https://www.uspto.gov
 https://www.itu.int/en
 https://mondaq.com
 http://www.lawctopus.com

Articles referred-

 Pai, Vandana. Seetharama, Ramya. Legal Protection of Trade Secrets, EBC Journal,
2004.

 Maloney, Marilyn C. “Intellectual Property in Cyberspace.” The Business Lawyer,

vol. 53, no. 1, 1997, pp. 225–249. JSTOR, www.jstor.org/stable/40687783.

Reports Referred-

 Enquiries into intellectual property's economic impact, OECD, 2015

15 | P a g e