TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI

ALIGARH MUSLIM UNIVERSITY

MURSHIDABAD CENTRE
SESSION: 2021-22

Project assignment

SUBJECT - INTELLECTUAL PROPERTY LAW

TOPIC = TRADE SECRETs PROTECTION IN INDIA

SUBMITTED TO SUBMITTED BY

Dr. Md. W. Siddiqui M. DANIYAL SIRAJ

(Asst. Professor) 18BALLB55
GL0749
4TH YEAR
7th SEMESTER
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
2

ACKNOWLEDGEMENT
The success and final outcome of this Project (Home Assignment) required a lot of
guidance and assistance from many people and I am extremely privileged to have
got this all along the completion of my Project (Home Assignment). All that I have
done is only due to such supervision and assistance and We would not forget to
thank them.

I respect and thank Dr. Md. W. Siddiqui, for providing me an opportunity to

do the Project (Home Assignment) work in “TRADE SECRETs PROTECTION
IN INDIA) ” and giving me all support and guidance which made me
complete the Project (Home Assignment) duly.I am extremely thankful to
him for providing such a nice support and guidance, although he had busy
schedule managing the academic affairs.

I owe my deep gratitude to our Project (Home Assignment) guide seniors, who
took keen interest on our Project (Home Assignment) work and guided me all
along, till the completion of my Project (Home Assignment)work by providing all
the necessary information for developing a good system.

THANK YOU.
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
3

TABLEOFCONTENT

1. INTRODUCTION………………………………………………………………04

2. TRADE PROTECTION UNDER VARIOUS LAWS IN INDIA……………..04

3. JUDICIAL RULINGS FOR THE PROTECTION OF TRADE SECRETS…05

4. REMEDIES FOR INFRINGEMENT OF TRADE SECRETS………………..06

5. TRADE SECRETS IN CONSONANCE TO IPR……………………………...07

6. DRAFTING A COMPREHENSIVE TRADE SECRET POLICY FOR

WORKPLACE…………………………………………………………………..07

7. DEFENCES……………………………………………………………………….08

8. CONCLUSION.......................................................................................................................10

9. BIBLIOGRAPHY...................................................................................................................11

INTRODUCTION
With recent advances in technology, as well as the ease of sharing, copying and storing
information in the digital world, one of the biggest challenges that businesses face is the
protection of their confidential business information. This information can include business
strategies, proposals, client databases and information, compilations, designs, programmes,
drawings, devices, formulae or compositions. Not all types of information qualify for protection
under the patent and copyright laws; further, certain data arises out of a company’s day-to-day
operations for which formal protection is not sought, but which remains valuable1.
Many businesses are finding it challenging to safeguard their crucial information, due to the
various online and physical tools available to ease the transfer of data. The threat they face is not
only external, but can also come from internal sources such as employees and contractors who
have access to important business information2.
1
MK Bhandari, “ Law Relating to Intellectual Property Rights”,Page No 210, Central Law Publication.
2
V K Ahuja, “ Law Relating to Intellectual Property Rights”, Page No 430, Lexis Nexis, 3 rd Edition, 2017.
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
4

Trade Protection under various laws

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 records3.
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 Richard Brady v Chemical Process Equipments P Ltd45the 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.
In Niranjan Shankar Golikari v. Century Spinning5, it has been held that restrictions in
employment agreements which prohibit disclosure of confidential information during the period
of employment and even subsequent to such employment, are generally not regarded as restraint
of trade and therefore such clauses are not covered under Section 27 of the Indian Contract Act,
1872. The rationale for this has been that a former employee should not be allowed to take unfair
advantage of the employer’s trade secrets which are vital for his business

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 law6.
Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as
“literary works”.

3
Dr. B.L. Wadehra, “ Law Relating to Intellectual Property Rights”, Page No 350, Universal Law Publication, Fifth
Edition, 2018.
4
(AIR 1987 Delhi 372)
5
AIR 1098
6
Supra Note 1, page 212. 7
(AIR 1955 Mad 391)
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
5

In Govindan v Gopalakrishna7 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 results in
copyrightable work, but only those works are protectable which:

• are somewhat different in character;

• involve some intellectual effort; and
• involved a minimum degree of creativity.

Judicial rulings for the protection of trade secrets

No specific law protects trade secrets and confidential information in India. However, Indian
courts and tribunals uphold trade secret protection, confidential information and business
knowhow. Action of misappropriation under common law can broadly protect trade secrets.
Breach of obligation of confidence as well as third party accessing confidential information in an
unauthorized manner can misappropriate trade secrets. This misappropriation can take place
either by misappropriating information shared in confidence or taken by cheating or theft7.

The Indian Courts have streamlines 3 sets of circumstances out of which proceedings may arise:

• When any employee comes into possession of a secret or any confidential information in
normal course of his work, and either carelessly or deliberately transfers that
information to any unauthorized person;
• When any unauthorized person (may be a new employer) incites such an employee to
provide him with such information as has been mentioned above; and

• When, under a license for the use of know-how, a licensee is in breach of a condition,
either expressed in any agreement or implied from conduct, to maintain secrecy in
respect of such know-how and fails to do so.

Indian courts and tribunals have made it immensely clear that in the absence of legislation, they
will be protecting trade secrets through common law for the betterment of businesses in India.

Remedies for infringement of Trade Secrets

The remedy in the case of infringement may be injunction or damages. The law of Specific
Reliefs Act, 1877 may apply in favor of the wronged as under the law of injunction in India. It
has been observed by the courts that in order to obtain injunctions there should be actual
concealment of material fact by the plaintiff to get equitable relief. As per Section 41 (e) of the
specific relief Act, injunction cannot be specifically enforced by the court should not be granted.

7
Supra Notes 2, page 458.
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
6

While drafting a suit for misappropriation of confidential information it has to be specifically

pleaded that:

1. the information/technique sought to be protected is unique or novel.

2. The three essentials i.e. secrecy, commercial value and reasonable steps to protect
information need to be specifically pleaded.
3. Despite taking all reasonable steps, such information has been
misappropriated/misused and wrongly obtained by the defendant.

In Emergent Genetics India Pvt Ltd v Shailendra Shiv8, the court observed that there has to be
specific pleadings with regards to nature and quality of information which is claimed to be
confidential. The court further held that there can be no question of confidentiality in absence of
such pleadings.

As regards, measure of damages, as per Section 43 of the Information Technology Act, 2000 the
offender is liable to pay damages by way of compensation not exceeding Rs 1 crore to the person
affected in cases of theft of information etc. However, such measure of damages is only
applicable to misappropriation of information falling within the ambit of the act. In other cases,
the calculation of damages is usually done on the basis of the market value of the confidential
information. This value is derived by means of a fictitious sale between a willing seller and a
willing purchaser. Furthermore, the plaintiff is required to furnish actual proof of damage while
claiming any compensation10.

Indian courts have generally leaned towards granting injunctions as against granting damages.
Injunctions may be interlocutory (interim relief) or permanent. The principles to determine
whether to award an interim or permanent injunction were summarized in the infamous case of
Gujarat Bottling Co. Ltd vs. Coca Cola11 as follows:

1. whether the plaintiff has a prima facie case,

2. whether the balance of convenience is in favour of the plaintiff, and
3. whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory
injunction is disallowed.

Trade Secrets in consonance to IPR

IPR laws in India have territorial nature and protection granted to trade secrets may vary from
one region to another. Providing an exhaustive list of what courts in India consider as
confidential or a trade secret isn’t possible. However, through judicial pronouncements, there are
a lot of pieces of information that the court has considered as Trade Secrets traditionally
throughout the years12.
8
I.A. Nos. 388/2004 10
IBID.
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
7

The most important part about trade secrets is their secrecy as opposed to its novelty13.

Employees as threats

People employed in businesses can be a threat to the intellectual property protection of a

business. Though remedies and protective mechanisms can be put into place for protection of
intellectual property, employee loyalty cannot be compromised with and remains the biggest
challenge that businesses have to face to protect their IPs. Coco-cola goes to the extent of letting
just two people in the business know about the ratios of ingredients in their drink to protect the
recipe as a trade secret. Due to the ever changing market and the fact that trade secrets are
independently discoverable by others, businesses are usually advised to keep transforming their
trade secrets and to keep innovating so that competition remains in place and they are able to
protect their trade secrets from getting known14.

For companies that operate and recruit employees in India, the threat that comes with employing
is unavoidable. Finding ideas to perpetually keep changing and innovating the trade secrets is a
challenge. Some enterprises also make efforts to unscrupulously steal employees from their
competitors to access their inventive abilities and their knowledge of the secrets of success of
their competitors.

National Innovation Act

11
1995 AIR 2372
12
ID at page 460.
13
88 Ohio St.3d 166, 174 (2000)
14
Coca-Cola journey, available at
https://www.cocacolacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2011/05/Coca Cola_125_years_bookl
et.pdf.
Article 10 (b) of the Paris Convention and Article 39(2) and 39(3) of the TRIPS Agreement, 1995
set the global standard for trade secret laws. However, no such unique Indian legislation exists
and hence undisclosed proprietary assets in India remain at risk. The draft National Innovation
Act implemented by the Department of Science and Technology was the first real effort in
protecting Confidential Information, trade secrets and innovation. It’s approached is based on
three pillars. It endeavors to encourage innovation through public-private partnerships. Further, it
hopes to evolve a National Report on addressing Trade Secret Provisions in India. Finally, it
works toward the codification and consolidation of a law of confidentiality in aid of protecting
trade secrets, information and innovation9.

9
R. Mark Halligan and David A. Haas, The Secret of Trade Secret Success, available at
https://www.forbes.com/2010/02/19/protecting -trade-secrets-leadership-managing-halligan-haas.html#77ea0d661372 (last
visited on 10th November 2020)
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
8

Drafting a comprehensive trade secret policy for workplace

A comprehensive trade secret policy should be drafted for employees and the staff making them
aware of the sensitivity of the issue as well as the nature of such confidential information along
with the potential consequences of breaching such trust10.

Drafting employment/confidentiality agreements that are enforceable in India

Confidential information like trade secrets can be fairly protected by enforcing contracts and
agreements that are enforceable in India. Such contract provisions should be prohibiting
wrongful disclosure and misappropriation of confidential information. These agreements should
focus on the type of information that is likely to be disclosed, the manner in which it should be
used and the restrictions on disclosure post-termination11.

Due diligence and maintaining non-disclosure agreements

Due diligence is of extreme importance to check the employee’s track record of keeping secrets
and maintaining confidentiality. Due diligence including scrutinizing documents as well as
agreements with the special emphasis with respect to non-disclosure obligations as thoroughly as
possible without leaving out a possibility of error12.

Conducting Trade secret audits

1. Identifying trade secrets that are of significance.

2. Verifying the company’s title to such trade secrets.
3. Verifying to make sure that confidentiality procedures are up to the mark and followed13.

Defenses

While defending a suit for misappropriation of trade secret, the following defences are available
to the defendant:

1. General Knowledge: It is a well-established principle of public policy that a former

employee is free to utilize the general skill and knowledge acquired during his or her
employment. Of course, there exists a thin line between what is general knowledge and
confidential information which can be determined on the basis of facts and
circumstances of each case. However, carrying on with the example of KFC, the
10
Hetvi Trivedi, Trade Secret-Intellectual Property Underdog available at
https://www.scconline.com/blog/post/2019/05/02/trade -secrets-intellectual-propertys-underdog/ (last Visited on
10th November 2020).
11
Supra Note 2, page 470.
12
Ayush Verma, Practical Insight into Trade Secret Protection in India available at
https://blog.ipleaders.in/practical-insight-trade-secret-protection-india/ (Last Visited on 10th Nocember 2020)
13
ID at Page 472
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
9

method of cooking an ordinary fried chicken is general knowledge whereas the exact
spice blend used in preparation of KFC chicken would be classified as a trade secret.
2. Parallel Development: The owner of a trade secret does not possess a monopoly on
the data that comprises the trade secret. If any other entity is able to discover or
develop the same information independently through its own research and hard work,
the same does not amount to misappropriation of trade secrets.
3. Reverse Engineering: Discovery by reverse engineering is considered proper means.
In lay man’s terms, reverse engineering means dismantling a product to find the
method of development and equipment used etc. Therefore, to refute the claim of the
defendant that he discovered the trade secret by reverse engineering, plaintiff should
establish the means by which the defendant misappropriated the trade secret.
4. Innocent Acquisition of Information: Where a person acquired the information
innocently, that is, without the knowledge that it was a trade secret whose holder did
not consent to such person’s acquisition of it, then such a person is not liable for
misappropriation of a trade secret.
5. Public Interest: It is well established that no liability is attached to the use of
information, which was acquired, utilized or disclosed in public interest. Thus, a person
shall not be liable to the holder in respect of any misappropriation or breach of an
obligation of confidence if (a) an issue of public interest in relation to disclosure or
usage is raised; and (b) if such issue is raised, the holder is unable to prove that the
public interest relied upon is outweighed by the public interest involved in upholding
the confidentiality of the information. Thus, a public interest argument pertaining to
disclosure can only be countered by another argument of public interest of protecting
commercial interest of an innovator.
6. Statutory Obligation: If the information is used or disclosed in accordance with a
statutory obligation or power, the defendant is not liable. For instance, if the
information is disclosed pursuant to a court order, or otherwise for the purpose of legal
proceedings, it comes within the exemption. Similarly, the use or disclosure in the
interests of national security or for the prevention, investigation or prosecution of
crime is permissible.

Conclusion

Though the law of trade secrets fits into the existing framework of law of torts, law of contracts
and competition law, there are certain problems with respect to its inception in the field of
intellectual property rights. However, a separate legislation for trade secrets would eliminate that
disparity as well. India, being a developing nation must have a robust law for protecting trade
secrets. Taking the above considerations into effect, it is reasonable to be of the opinion that
Trade Secret protection in India is in its nascent stage and it is essential for it to develop keeping
in mind that India as a developing country needs laws and legislations to be conducive to the
business environment so as to transform the country into a bed of opportunities for companies
off-shoring as well as entrepreneurs that are looking for competition conducive to their
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
10

businesses without the fear of misappropriation of their trade secrets and confidential business
information, the very basis that they thrive on14.

14
Nishant Mishra, “Trade Secret Protection in India: An Analysis”, Available at
https://lexlife.in/2020/08/24/tradesecret-protection-in-india-an-analysis/ (Accessed on 10th November 2020).
 TRADE SECRETs PROTECTION IN INDIA by SHIVA TIWARI
11

BIBLIOGRAPHY
 Bhandari MK, “ Law Relating to Intellectual Property Rights”,Page No 210, Central Law
Publication.
 Ahuja VK, “ Law Relating to Intellectual Property Rights”, Page No 430, Lexis Nexis, 3rd
Edition, 2017.
 Wadehra BL, “ Law Relating to Intellectual Property Rights”, Page No 350, Universal
Law Publication, Fifth Edition, 2018.

Website

 Coca-Cola journey, available at

https://www.cocacolacompany.com/content/dam/journey/us/en/private/fileassets/pdf/201
1/05/Coca-Cola_125_years_booklet.pdf.
 R. Mark Halligan and David A. Haas, The Secret of Trade Secret Success, available at
https://www.forbes.com/2010/02/19/protecting-trade-secrets-leadership-
managinghalligan-haas.html#77ea0d661372 (last visited on 10th November 2020)
 Nishant Mishra, “Trade Secret Protection in India: An Analysis”, Available at
https://lexlife.in/2020/08/24/trade-secret-protection-in-india-an-analysis/ (Accessed on
10th November 2020).
 Hetvi Trivedi, Trade Secret-Intellectual Property Underdog available at
https://www.scconline.com/blog/post/2019/05/02/trade-secrets-intellectual-
propertysunderdog/ (last Visited on 10th November 2020).
 Ayush Verma, Practical Insight into Trade Secret Protection in India available at
https://blog.ipleaders.in/practical-insight-trade-secret-protection-india/ (Last Visited on
10th Nocember 2020