Law

Intellectual Property
Trade Secrets: Conditions of Protection

Development Team
Role Name Affiliation

Principal Investigator Professor (Dr.) Ranbir Singh Vice Chancellor, National

Law University, Delhi
Paper Coordinator Mr. Yogesh Pai Assistant Professor of
Law, National Law
University, Delhi
Content Writer (CW) Ms. Lakshmi Kruttika Vijay Senior Associate, Anand
and Anand
Content Reviewer (CR) Professor Prabuddha Ganguli MHRD IPR Chair
Professor, Tezpur
University
 Module Detail
Subject name Law

Paper name Intellectual Property

Module name/ Title Trade Secrets: Conditions of Protection

Module Id Law/IP/#21

Pre- requisites A basic understanding of the TRIPS Requirements; types of IP

protection; Comprehensive knowledge of the intellectual
property laws; justifications, economics of IP

Objectives 1. To study the importance of protecting trade secrets

through the enforcement of law.
2. To examine critically the principles laid through in US &
UK case laws.
3. To relate and examine the similar principles in the
Indian context.
4. To analyze case laws and understand the principles.
Key words Trade secrets, IP laws, protection of trade secrets in India,
limited disclosures, confidentiality clubs.

2
Introduction

A trade secret “may consist of any formula, pattern, device or compilation of

information which is used in one's business, and which gives him an
opportunity to obtain an advantage over competitors who do not know or use
it. It may be a formula for a chemical compound, a process of manufacturing,
treating or preserving materials, a pattern for a machine or other device, or a
list of customers.”1 Thus, cost of devising the trade secret and the inherent
value of the trade secret are the underlying reasons that the law operates to
protect the holder of the secret. Therefore, trade secrets law seeks to protect
business information that an entity deems important enough to keep a secret
because of the advantage that it confers upon such entity in the market.

Learning Outcome:
1. To explain the principles and concepts of trade secrets law.
2. To examine cases and relevant principles from other common law
jurisdictions such as the United Kingdom and the United States of
America.
3. To critically examine the principles laid down in the UK & US in the
Indian context.

Background: Protection of Trade Secrets in India

Trade secrets law operates once a trade secret has been unlawfully
disclosed. This branch of the law fits uneasily within the intellectual property
framework. In general, a competitive advantage is only conferred upon the
holder of intellectual property in exchange for transparency and disclosure.

1
See, Restatement of Torts § 757, comment b (1939).

3
This is most clearly seen in the context of patent law. However, unlike other
forms of intellectual property rights, the law protects trade secrets only when
it remains, as the name suggests, a secret. Thus, a trade secret “is any
information that can be used in the operation of a business or other enterprise
and that is sufficiently valuable and secret to afford an actual or potential
economic advantage over others.”2

Unlike most other forms of intellectual property rights in India, trade

secrets law is not codified but is protected by the principles of common law.
As explained earlier, no statute codifies trade secrets law, or even the
elements of what constitutes a trade secret. Indian courts have therefore relied
on common law cases and principles in its own decisions on trade secrets. In
the United Kingdom, the seminal case that discusses the elements of a trade
secret is Coco v. A.N. Clark. In that case, the court held that to be considered a
trade secret:

 the information must have the necessary quality of confidence about it,
 it must have been imparted in circumstances imparting an obligation of
confidence, and,
 it must be an unauthorised use of that information to the detriment of the
party communicating it.3

This precedent and other relevant principles taken together form the basis
for the jurisprudence of trade secrets law in India. As trade secrets law is not
codified, the term of protection is indefinite—that is, until the secret is
disclosed.

An important exception that must be noted is the protection given to a

government secret. In such cases, the Official Secrets Act, 1923 may apply.

2
Restatement Third (Unfair Competition), §39 (1995).
3
Coco v. A.N. Clark (Engineers) Ltd, (1969) R.P.C. 41 at 47.

4
Element 1: Subject Matter Must Be Confidential

Generally, “[m]atters of general knowledge in an industry cannot be

appropriated by one as his secret.” 4 The most important prerequisite for
protection of information under the law of trade secrets is that information
must be, in fact, a secret—that is, confidential in nature. Since the information
is undisclosed and unknown to others, it has been often characterized as a
novelty requirement.5

In India, courts have interpreted that confidential information in a manner

similar to the interpretation in the United Kingdom. One such enunciation of
this standard was laid out by the U.K. court in Saltman Engineering Co. Ltd. v.
Campbell Engineering Co. Ltd.: “[For] information, to be confidential, [it] must
have the necessary quality of confidence about it, namely, it must not be
something which is public property and public knowledge.”6 In another case
from the United Kingdom, the court listed four requirements for information
to be considered a trade secret:

“First, … the information must be information the release of which the

owner believes would be injurious to him or of advantage to his rivals
or others. Second, … the owner must believe that the information is
confidential or secret, i.e. that it is not already in the public domain. It
may be that some or all of his rivals already have the information; but
as long as the owner believes it to be confidential … he is entitled to try
and protect it. Third, … the owner's belief under the two previous
heads must be reasonable. Fourth, … the information must be judged

4
Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278, 280 (1951); Zoecon Industries v. American
Stockman Tag Co., 713 F.2d 1174, 1179 (5th Cir.1983)
5
Anil Gupta v. KunalDasgupta, 2002 (97) DLT 257 (citing Talbot v. General Television Corp., 1981
RPC 1)
6
(1948) 65 RPC 203, 213. This standard has been approved by Indian courts. See, e.g., John Richard
Brady v. Chemical Process Equipments, AIR 1987 Del. 372; Zee Telefilms Ltd. v. Sundial
Communications Pvt. Ltd., 2003 (27) PTC 457 (Bom).

5
 in the light of the usage and practices of the particular industry or
trade concerned.”7

The standard for information to qualify as being trade secret by courts in

the United States is lower than its U.K. counterpart. In the United States, the
law does not require absolute secrecy. U.S. courts have held, “[r]easonable
precautions against predatory eyes we may require, but an impenetrable
fortress is an unreasonable requirement, and we are not disposed to burden
industrial inventors with such a duty in order to protect the fruits of their
efforts.”8 Thus, in the United States, the test is one of reasonableness—has the
plaintiff taken all the reasonable steps considering the nature of the information
sought to be protected as well as conduct of the parties? While Indian courts
have not yet adopted the lower U.S. standard for information to qualify as
being confidential, the case law in this area is relatively scant and standards
are still evolving.

Where information has been condensed into a tangible form, it is much

easier to identify the subject matter sought to be protected as a trade secret.
However, where the information sought to be protected is an idea, proving
that the disclosure of such information carried an obligation of confidence
becomes more difficult. However, courts have held that protecting an idea
that is original is favoured under principles of equity. Great emphasis in this
respect has been laid by Indian courts on the form and degree of development of
the information or idea. In Anil Gupta v. Kunal Dasgupta, the Delhi High Court
observed that when “an idea/ concept or theme which is original, laws must
ensure that such like people are rewarded for their labour.” 9 Using this

7
Thomas Marshal (Exports) Ltd. v. Guinel, (1978) 3 All E.R. 193.
8
E.I. duPontdeNemours& Co. v. Christopher, 431 F.2d 1012, 1017 (5th Cir.1970), cert. denied, 400
U.S. 1024 (1971). See also, Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 813-814 (E.D. Pa.
1974); Allen Mfg. Co. v. Loika, 145 Conn. 509, 516 (1958); RTE Corp. v. Coatings, Inc., 84 Wis.2d
105, 115 (1978).
9
Anil Gupta v. KunalDasgupta, 2002 (97) DLT 257, at para 27.

6
rationale, the court in this case protected a concept for reality television show
as a trade secret.

Thus, the subject matter of a trade secret need not be in its final or even
tangible form to receive protection under trade secrets law.

Element 2: Existence of a Confidential Relationship

In an ideal situation, disclosure of a trade secret could be avoided

altogether if it was not known to anyone but the holder of the secret.
However, it is necessary to disclose information to some extent to employees,
business associates, affiliates, courts and regulatory bodies. Thus, a
confidential relationship must exist for the information to continue to be
regarded as a trade secret. In other words, common law jurisdictions have
held that information will remain a trade secret despite disclosure, if such
disclosure was made under limited and necessary circumstances. 10 Such
confidential relationship may be formed either expressly or impliedly.

5.1 Limited Disclosures and “Confidentiality Clubs”

This concept of limited disclosure was laid out by the U.S. court in the case
Metallurgical Industries v. Fourtek. In that case, the court cited the Restatement of
Torts to explain that there are certain circumstances under which information
can be conveyed to others while continue to remain a secret. 11 The court
specifically stated that disclosures may not be construed as destroying the
secrecy of information as long as the holder of such information can present
evidence such as the information was disclosed “to only … businesses with
whom it was dealing”, and not via a public announcement or “to further [the

10
Metallurgical Industries v. Fourtek, Inc., 790 F.2d 1195, 1201 (1986).
11
Restatement of Torts § 757, comment b (1939).

7
entity’s] economic interests”. 12 The court also stated that evidence of
“confidential relationships with these two companies” would help strengthen
the limited nature of the disclosure.13

Indian courts have recognized another form of such limited but permitted
disclosure in cases when courts have ordered documents to be placed under
seal, or designate certain specific persons as part of a “confidentiality club”.14
This enables not just the lawyers, but also the courts to function efficiently
and comprehensively adjudicate a case in which the underlying disputed
subject matter or incidental data disclosed is confidential.

5.2 Permissive Reliance

In certain situations, persons can use information deemed to be

confidential, even if there was no specific authorisation granted by the trade
secret holder for such use. This “permissive reliance” on confidential
information holds a special place in the realm of ‘data exclusivity’. “Data
exclusivity or exclusivity of registration data is the period of non-reliance or
non-disclosure that is provided to new chemical entities, pharmaceutical
compositions, and agrochemical registration data or test data.”15 Since India
does not have a statute that protects such data for a specified period of time,
inventors rely on common law principles under trade secret law. In the case
In Re Smith Kline & French Laboratories, the U.K. court held that confidential
test data regarding safety, efficacy and quality of the medicinal product for
the grant of the marketing license of the product can be used by the licensing

12
Metallurgical Industries v. Fourtek, Inc., 790 F.2d 1195, 1201 (1986).
13
Id.
14
See Order disposing of I.A. No.10268/2009 in CS (OS) No.599/2007, Mvf 3 Aps v. M. Sivasamy
(Aug. 31, 2008), available at http://lobis.nic.in/dhc/MAN/judgement/01-09-
2012/MAN31082012IA102682009.pdf.
15
Nomani, Md. Zafar Mahfoozand Rahman, Faizanur.“Intellection of Trade Secret and Innovation
Laws in India.” Journal of Intellectual Property Rights 16 (2011): 341-45.

8
authority in the discharge of its duties.16 The court held that the licensing
authority can use such confidential information as long as it is under the
authority of the statute and, foremost, it is in the interest of the public. Thus,
public interest would enable Indian courts and adjudicatory bodies to rely
upon the permissive reliance standard in carrying out their functions
comprehensively and efficiently.

5.3 Obligation of Confidence through Employment

A covenant not to compete or a nondisclosure clause in a contract of

employment, which are provisions routinely executed in the course of
business, are forms of agreements that may carry an obligation of confidence.
A nondisclosure clause during the course of employment has been upheld to
be valid. 17 However, after the employment concludes, the validity of a
nondisclosure clause or a covenant not to compete has been questioned before
Indian courts as a restraint of trade.

Under Section 27 of the Indian Contract Act, 1872, “[e]very agreement by

which any one is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void.” In 1958, recognizing that some
restraints of trade may restrict competition in the market, the Law
Commission of India recommended the addition of an exception recognizing
that reasonable restraints of trade in the interest of the parties and the public
ought to be held valid.18 While the Law Commission’s recommendation was
never implemented in the Contract Act, courts have—both before and after

16
In Re Smith Kline & French Laboratories Ltd., (1989) 1 ALL ER 578.
17
See, e.g., Gopal Paper Mills v. SurendraGanesha, AIR 1962 Cal 61.
18
See, “The Law Commission of India.” 13th Report at para 55. Ministry of Law and Justice (1958).

9
the recommendation—have taken the reasonableness of a restraint into
account in deciding cases before it.19

Interestingly, the Competition Commission of India (CCI) also had

occasion to examine the validity of non-compete clauses in contracts of
employment from the perspective of competition law. In Larry Lee Mccallister
v. M/s Pangea3 Legal Database Systems Pvt. Ltd., the CCI held that:

“Once he enters into contract of employment with the enterprise, he is

not a service provider to one and all, nor can his service be purchased
by other competitors of the enterprise, so long as he is in employment
of that enterprise. All consultants/experts who seek employment
negotiate the terms of employment in the very beginning. If an expert
is unique kind of expert and is much sought after, he is able to dictate
his terms at the time of employment and reverse is also possible where
the kind of employee the company is seeking is easily available and
there are lot many people seeking job, than the company is able to
dictate its terms. In such contracts, no issue of competition arises. A
clause in service contract restricting an employee from taking
employment with the competitors, after he leaves the employment, for
a particular period, raises no competition issue. The employee who
enters into such contract negotiates his salary/pay package
accordingly and takes into calculations even the period for which he
would not be able to provide his expertise to competitors.”20

Thus, courts as well as quasi-judicial authorities such as the CCI have

recognized that where the restraint is reasonably limited by time, geographic

19
See, Brahmaputra Tea Co. v. E Scarth, (1885) 11 Cal 545; NiranjanShankerGolikari v. Century
Spinning & Manufacturing, AIR 1967 SC 1098.
20
Order under Section 26(2) of the Competition Act, 2002 by the Competition Commission of
India,Mr. Larry Lee Mccallister v. M/s Pangea3 Legal Database Systems Pvt. Ltd. &Ors., Case No. 66
of 2013, available at http://www.cci.gov.in/May2011/OrderOfCommission/262/662013.pdf.

10
area and the like, the restraint may be held to be valid. Consequently, any
party bound by such valid restraint is obligated to not disclose any
confidential information that may be revealed to him for the period that such
restraint remains binding.

5.4 Protection of an Idea

Where information or an idea has been condensed into a tangible form, it

is much easier to protect such information as well as monitor its disclosure.
Proving that a confidential relationship exists where the underlying
information is an idea is more difficult. Great emphasis in this respect has
been laid by courts on the form and degree of development of the information or
idea.

Courts with a common law system when faced with the question of
whether an idea (when it is not concrete) ought to be protected have
examined the relationship between the parties as either an implied contract or
a quasi-contract. Under an implied contract, usually a person does not stop
the person with the idea from disclosing it to him.21 A quasi contract may
exist where the person using the idea is unduly enriched or the idea is thrust
on a person.22Indian courts have ruled that it is necessary to examine the
concreteness and novelty of the idea to determine the existence of a
confidential relationship.23

21
See, Nadel v. Play-By-Play Toys & Novelties, Inc., 208 F.3d 368 (2d Cir. 2000); Lueddecke v.
Chevrolet Motor Co., 70 F.2d 345 (8th Cir. 1934).
22
See, Matarese v. Moore-McCormack Lines, 158 F.2d 631 (2d Cir. 1946).
23
See, e.g., John Richard Brady v. Chemical Process Equipments P. Ltd., AIR 1987 Delhi 372;
UrmiJuvekar Chiang v. Global Broadcast News Limited, 2008 (36) PTC 377 (Bom); Anil Gupta v.
KunalDasgupta, 2002 (97) DLT 257; Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd., 2003
(27) PTC 457 (Bom).

11
Element 3: Unauthorized Use of Confidential Information

“If a defendant is proved to have used confidential information, directly

or indirectly obtained from a plaintiff, without the consent, express or implied
of the plaintiff, he will be guilty of an infringement of the plaintiff’s rights.”24
Thus, the infringement of a trade secret can have two specific forms—(1) a
misappropriation of a trade secret and its variants, and (2) a breach of
confidence.

6.1 Misappropriation of a Trade Secret

The misappropriation of a trade secret is where the trade secret has been
wrongfully acquired by a third party. One example of trade secret
misappropriation is the famous case of EI Dupont De Nemours v. Christopher.
In this case, DuPont alleged that the defendants misappropriated its secret
process for making methanol by flying over its factories and taking
photographs that would enable a skilled person to deduce the process. 25While
holding that the defendants had misappropriated Dupont’s trade secrets and
indulged in industry espionage, the U.S. court observed that its ruling was
not meant to curtail competition in the market.26The court also held that a
trade secret holder is not required to take “unreasonable precautions” to
protect its secret from its competitors. Thus, the standard for
misappropriation of a trade secret is a third party’s unlawful taking of a trade
secret without expending any effort by techniques such as reverse
engineering or independent research.27

24
Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd.,(1948) 65 RPC 203, 213.
25
EI DupontDeNemours v. Christopher, (1970) 431 F.2d 1012.
26
Id. at 1016 (“A competitor can and must shop his competition for pricing and examine his products
for quality, components, and methods of manufacture.”).
27
Id. at 1017 (“Reasonable precautions against predatory eyes we may require, but an impenetrable
fortress is an unreasonable requirement, and we are not disposed to burden industrial inventors with
such a duty in order to protect the fruits of their efforts.”).

12
6.2 Breach of Confidence
In relation to breach of confidence, the trade secret holder is required to
have, either expressly or impliedly, disclosed the trade secret to a third party.
Where the use of the trade secret by the third party is beyond the scope of the
authorisation granted, such act by third party is also considered a breach of
confidence.

Cases of trade secret misappropriation, however, are far and few between.
It is more common to encounter infringement of trade secret in the form of a
breach of confidence. The rationale behind intervening when confidence is as
follows:

“The ground of equitable intervention [when a breach for confidence

claim arises] is that it is unconscionable for a person who has received
information on the basis that it is confidential subsequently to reveal
that information. Acceptance of information on the basis that it will be
kept secret affects the conscience of the recipient of the information. In
general it is in the public interest that confidences should be respected,
even where the confider can point to no specific financial detriment to
himself. If a defendant is proved to have used confidential information,
directly or indirectly obtained from a plaintiff, without his consent,
express or implied, he will be guilty of an infringement of the plaintiff's
rights.”28

A breach of confidence claim may arise from either an express or an implied

relationship of confidence between the parties.

28
See,Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd., 2003 (27) PTC 457, at para 9 (Bom)
(citing Copingerand Skone-James on Copyright. p. 720–21).

13
Remedies

The sort of remedies available to trade secret holder depends on the nature
of the infringement. Where the infringement is in the nature of
misappropriation, the trade secret holder can seek both civil and criminal
remedies. Where the infringement is in the nature of a breach of confidence,
only civil remedies are available to the trade secret holder.

The crimes under which the trade secret holder may file a case of
misappropriation of a trade secret include theft, trespass and cheating.

A person pursuing civil remedies for the unlawful use of a trade secret for
either misappropriation of a trade secret or breach of confidence can seek:

(1) A permanent injunction restraining the infringer and any other

unauthorised beneficiaries from using the trade secret, and a
temporary injunction as interim relief;
(2) A direction from the court for delivery-up of all the confidential
information, where possible; and/or
(3) Compensation or damages for losses suffered due to disclosure of
trade secrets.

Conclusion

This chapter aimed to provide an overview of the basic principles of trade

secrets law and the application of those principles. The situation may change
if and when India decides to enact the National Innovation Bill, which
codifies standards for the disclosure and protection of a trade secret. Until
then information is protected as a trade secret between parties in line with
principles of common law and precedents.

14
 Points to Remember

1. Trade secrets law operates once a trade secret has been unlawfully
disclosed.
2. A competitive advantage is only conferred upon the holder of intellectual
property in exchange for transparency and disclosure.
3. To be considered a trade secret the information must have the necessary
quality of confidence about it, it must have been imparted in
circumstances imparting an obligation of confidence, and it must be an
unauthorized use of that information to the detriment of the party
communicating it.
4. Common law jurisdictions have held that information will remain a trade
secret despite disclosure, if such disclosure was made under limited and
necessary circumstances.
5. This concept of limited disclosure was laid out by the U.S. court in the
case Metallurgical Industries v. Fourtek.
6. In Re Smith Kline & French Laboratories, the U.K. court held that
confidential test data regarding safety, efficacy and quality of the
medicinal product for the grant of the marketing license of the product
can be used by the licensing authority in the discharge of its duties.
7. A covenant not to compete or a nondisclosure clause in a contract of
employment, which are provisions routinely executed in the course of
business, are forms of agreements that may carry an obligation of
confidence.
8. “If a defendant is proved to have used confidential information, directly
or indirectly obtained from a plaintiff, without the consent, express or
implied of the plaintiff, he will be guilty of an infringement of the
plaintiff’s rights.” Thus, the infringement of a trade secret can have two
specific forms—(1) a misappropriation of a trade secret and its variants,
and (2) a breach of confidence.
9. The sort of remedies available to trade secret holder depends on the
nature of the infringement. Where the infringement is in the nature of
misappropriation, the trade secret holder can seek both civil and criminal
remedies. Where the infringement is in the nature of a breach of
confidence, only civil remedies are available to the trade secret holder.

15
Self-check Exercises

 Explain the concept of limited disclosures laid out by the U.S. court in the case
Metallurgical Industries v. Fourtek.

 A competitive advantage is only conferred upon the holder of intellectual

property in exchange for transparency and disclosure. Elucidate.

 Explain the concept of limites disclosure.

 What are remedies available for infringement of trade secrets?

16