8 January 2007

WIPO – CEHA SEMINAR

Presentation by

Manoj Pillai,
Partner , LEX ORBIS IP PRACTICE

Acknowledgement:-
This presentation contains textual and graphical matter from a WIPO Presentation on Trade Secrets.
This is intended to be a fair academic use of the contents from the earlier presentation.
What are trade secrets?
By keeping valuable
information secret, you can
prevent competitors from
learning about and using it and
thereby enjoy a competitive
advantage in the marketplace.
 General principles:

• Information that has commercial value

and that has been diligently kept
confidential will be considered a trade
secret (TS).

• Owner will be entitled to legal

remedies against those who use it
without authorization, steals it, or
divulges it.
 Contents of this Presentation
1. What qualifies as TS?
2. What makes something a TS?
3. When can you seek legal remedies?
4. How are TS lost or stolen?
5. How to protect your TS?
6. May TS be sold?
7. How is TS protection enforced?
8. If you have the choice: TS or patent?
9. What to bear in mind if you sign CA?
 Question 1

WHAT KIND OF INFORMATION

QUALIFIES AS A TRADE
SECRET ?
 TRADE SECRET

• Provides
competitive Kept
advantage confidential
• Potential to
make money
 Technical &
Financial
scientific
information
information

TRADE
SECRET

Commercial Negative
information information
 Typical examples of TS
– Hardware design
– Software
– Technical data about product performance
– Pending patent applications
– Business plans & strategies
– New product names
– Financial projections
– Marketing plans, unpublished promotional material
– Cost & pricing information
– Sales data
– Customer lists
– Info re: new business opportunities
– Personnel performance
 Question 2

WHAT MAKES SOMETHING A

TRADE SECRET ?

When do you have

legal protection?
Three essential legal requirements:

1. The information must be secret

2. It must have commercial value because it’s

secret

3. Owner must have taken reasonable steps

to keep it secret
 1. Secret

• “not generally known among or easily accessible to

persons within the circles that normally deal with this
kind of information”

• What is ‘generally known’ in the industry?

– matters of common knowledge
– information you find at library, online database, trade journals,
patent information, etc
– price list on website
– Hardware design, software application
 1. Secret

• Not required that be known only by one person

– e.g. based on supplier relationship, joint development agreement,
due diligence investigation, etc.
 2. Commercial value
• Must confer some economic benefit on the holder

• This benefit must derive specifically from the fact that

it is not generally known (not just from the value of
the information itself)

• How to demonstrate:
– benefits derived from use
– costs of developing the TS
– licensing offers; etc.
– actual or potential
 3. Reasonable
steps
• Under most TS regimes, you cannot have a TS unless
you have taken reasonable precautions to keep the
information confidential

• ‘Reasonable’  case by case

– reasonable security procedures
– Non-disclosure agreements (NDA)
– such that the information could be obtained
– by others only through improper means

• Importance of proper TS management program

 Caution: Who owns the TS?
• TS (e.g. new technology) developed by
employee …
• TS developed by external contractor

To avoid disputes:

WRITTEN AGREEMENT
+
ASSIGN
in advance all trade secrets developed
during employment or commission
 Question 3

When can you seek Legal

Remedy?
 Enforcing TS in India

No legislation governing Trade Secrets

Protection by way of Contracts

Recognition of legal rights in Trade

Secrets by courts of law invoking the
equitable jurisdiction – unclear as yet.

Past cases show attempts to combine

causes of action with violation of
statutory IPRs

Other statutes such as the IT Act is

relied on
 Trade Secrets Contracts

The Specific Relief Act and the

Code of Civil Procedure are
relevant in enforcing contractual
obligations under a trade
secrecy agreement.

Contract Act governs the validity

and enforceability of
agreements in general.

Arbitration is the preferred route

to resolve disputes.
 Reported Cases on Trade Secrets
21

Laws relied on
 Indian Cases
John Richard Brady And Ors v. Chemical Process Equipments P. Ltd. and Anr

[AIR 1987 Delhi 372]

Issues Considered

(a) Whether the defendants Fodder Production Unit is based on the plaintiffs’
drawings and the related know-how passed to them under the express condition
of confidentiality?

(b) Whether the technical drawings of the defendants are artistic works that
qualify for protection under the Copyright laws?

The Court took the position that, even in the absence of an express confidentiality
clause in the contract, confidentiality is implied and that the defendant is liable for
breach of the confidentiality obligations.
 Spring Board Doctrine
The Delhi HC relied on the Spring Board doctrine in this case.

The principle behind this doctrine is that an employee with knowledge of

a former employer’s trade secrets would “inevitably” disclose the same to
the new employer since the nature of the new job would lead to such
disclosures, given that the new and old employers were competitors.

Furthermore, given the inevitability of such disclosures, the former

employer was not limited to sitting around and waiting until there was an
actual or even threatened use of those trade secrets before the former
employer could seek legal redress.

Under this doctrine, that former employer could prevent the employee
from taking that job and prevent the new employer from hiring the
employee merely because the employee had such knowledge that would
“inevitably” be disclosed.
 The Swyamvar Case
Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]

The plaintiff conceived the idea of ‘Swayamvar’, a reality television show

concerning match making. The plaintiff shared a concept note on this with the
defendants. Later on the plaintiff came across a newspaper report informing that
the defendants were planning to come out with a big budget reality matchmaking
show using the plaintiff’s concept. The plaintiff sought injunction.

Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) Could there be a violation of copyright if the theme is the same as that which
existed in the public domain but is presented and treated differently?

Court held that the concept developed and evolved by the plaintiff was a the
result of the work done by the plaintiff upon the material which may be available in
the public domain. However, what made the concept confidential was the fact
that the plaintiff had used his brain and thus produced a unique result applying the
concept. The Court granted an injunction.
 English Precedents

Most cases dealing with trade secrecy in India refer to British

case law.

In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the “springboard doctrine”,

cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349

and relied on the ‘spring board’ doctrine.

 Not many cases on trade secrets – from a
property right perspective

Research revealed 21 reported cases relating to trade secrets

Of the 21 cases, 20 related to breach of confidentiality by employees

At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act

No reported case offers a definition of trade secrets

At least in 1 case, the Delhi High Court invoked a wider equitable jurisdiction
and awarded injunction even in the absence of a contract – John Richard
Brady
 Spring Board Doctrine
The Delhi HC relied on the Spring Board doctrine in this case.

The principle behind this doctrine is that an employee with knowledge of

a former employer’s trade secrets would “inevitably” disclose the same to
the new employer since the nature of the new job would lead to such
disclosures, given that the new and old employers were competitors.

Furthermore, given the inevitability of such disclosures, the former

employer was not limited to sitting around and waiting until there was an
actual or even threatened use of those trade secrets before the former
employer could seek legal redress.

Under this doctrine, that former employer could prevent the employee
from taking that job and prevent the new employer from hiring the
employee merely because the employee had such knowledge that would
“inevitably” be disclosed.
 The Swyamvar Case
Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]

The plaintiff conceived the idea of ‘Swayamvar’, a reality television show

concerning match making. The plaintiff shared a concept note on this with the
defendants. Later on the plaintiff came across a newspaper report informing that
the defendants were planning to come out with a big budget reality matchmaking
show using the plaintiff’s concept. The plaintiff sought injunction.

Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) Could there be a violation of copyright if the theme is the same as that which
existed in the public domain but is presented and treated differently?

Court held that the concept developed and evolved by the plaintiff was a the
result of the work done by the plaintiff upon the material which may be available in
the public domain. However, what made the concept confidential was the fact
that the plaintiff had used his brain and thus produced a unique result applying the
concept. The Court granted an injunction.
 English Precedents

Most cases dealing with trade secrecy in India refer to British

case law.

In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the “springboard doctrine”,

cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349

and relied on the ‘spring board’ doctrine.

 Not many cases on trade secrets – from a
property right perspective

Research revealed 21 reported cases relating to trade secrets

Of the 21 cases, 20 related to breach of confidentiality by employees

At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act

No reported case offers a definition of trade secrets

At least in 1 case, the Delhi High Court invoked a wider equitable jurisdiction
and awarded injunction even in the absence of a contract – John Richard
Brady
 What is lawful and Not?
1. Reverse engineering is lawful.
2. Discovery of the secret by fair and
honest means is lawful

3. Breach of obligations; breach of trust are

unlawful
4. Breach of Confidentiality agreement or
NDA is unlawful
5. Industrial espionage, theft, bribery, hacking
are illegal
 Question 4

HOW ARE TRADE SECRETS

LOST OR STOLEN ?
 A Growing Problem.
Why Does It Occur?
– Way we do business today (increased use of
contractors, temporary workers, out-
sourcing)
– Declining employee loyalty: more job changes
– Organized crime : discovered the money to
be made in stealing high tech IP
– Storage facilities (DVD, external memories,
keys)
– Expanding use of wireless technology
 Examples

– Reverse engineering, independent discovery

– Improper licensing
– Burglaries by professional criminals targeting
specific technology
– Network attacks (hacking)
– Laptop computer theft
– Inducing employees to reveal TS
 • 80% of trade secret loss
< employees, contractors, trusted
insiders!

– departing or disgruntled employees

– intentional (malicious)
– inevitable (knowledge acquired)
– by ignorance
 Question 5

HOW TO PROTECT
YOUR TRADE
SECRETS?
 1. Identify trade secrets

• Accurate record keeping is

important.
• Document retention system and
Docketing Policy
• Factors to determine if information is a TS
– Is it known outside the company?
– Is it widely known by employees and others involved
within the company?
– Have measures been taken to guard its secrecy?
– What is the value of the information for your
company?
– What is the potential value for your competitors?
– How much effort/money spent in developing it?
– How difficult would it be for others to acquire, collect
of duplicate it?
2. Develop a protection policy

Advantages of a written policy:

– Clarity (how to identify and protect)

– How to reveal (in-house or to outsiders)

– Demonstrates commitment to protection 

important in litigation
– Educate and train:
• Clear communication and repetition

• Copy of policy, intranet, periodic training &

audit, etc.

• Make known that disclosure of a TS may result

in termination and/or legal action

– Monitor compliance, prosecute violators

3. Restrict access

to only those persons having a

need to know
the information

 computer system should limit each

employee’s access to data actually
utilized or needed for a transaction
4. Mark documents

– Help employees recognize TS

 prevents inadvertent disclosure

– Uniform system of marking

documents
• paper based
• electronic (e.g. ‘confidential’ button
on standard email screen)
5. Physically isolate and protect

– Separate locked depository

– Authorization
– Access control
• log of access: person, document reviewed
• biometric palm readers

– Surveillance of depository/company premises

• guards, surveillance cameras

– Shredding
– Oversight; audit trail
 6. Restrict public access
to facilities
– Log and visitor’s pass
– Accompany visitor
– Sometimes NDA/CA
– Visible to anyone walking through a
company’s premises
• type of machinery, layout, physical handling of work in
progress, etc

– Overheard conversations
– Documents left in plain view
– Unattended waste baskets
 7. Maintain computer secrecy

– Secure online transactions, intranet, website

– Password; access control
– Mark confidential or secret (legend pop, or
before and after sensitive information)
– Physically isolate and lock: computer tapes,
discs, other storage media
– No external drives and USB ports
– Monitor remote access to servers
– Firewalls; anti-virus software; encryption
8. Measures for employees

1. New employees
• Brief on protection expectations early
• Obligations towards former employer!
• Assign all rights to inventions developed in
the course of employment
• NDA/CA
• Non-compete provision
2. Current employees
• Prevent inadvertent disclosure (ignorance)
• Train and educate
• NDA for particular task

3. Departing employees
• further limit access to data
• exit interview
• letter to new employer
• treat fairly & compensate reasonably
for patent work
9. Measures for third parties

– Sharing for exploitation

– Consultants, financial advisors,

computer programmers, website host,
designers, subcontractors, joint
ventures, etc.

– Confidentiality agreement, NDA

– Limit access on need-to-know
basis
 Question 6

MAY TRADE SECRETS BE

SOLD OR LICENSED?
• SALE
– Most TS sales occur as part of the sale of the business

• LICENSE
– e.g. in combination with patent license
– e.g. software license for highly specialized program
– Advantage: additional revenues
– Disadvantage: risk of disclosure (potential loss)
– In some countries, restrictions
 TS Licensing
• Definition of the secret subject matter
– what is to be kept confidential?
– marked as such or broad clause?
• Permitted use
– disclosure to employees, professional advisors?
– modification of technology?
• Precautions to be taken
• Exclusions
 TS Licensing
• Duration of secrecy obligations
• Royalties
• Sanctions

• Should not be subject to alternative dispute

resolution
 Question 7

HOW IS TRADE SECRET

PROTECTION
ENFORCED?

What can you do if

someone steals or
improperly discloses
your TS?
 TS protection may be based on...
1. Contract law
• When there is an agreement to protect the TS
– NDA/CA
– anti-reverse engineering clause
• Where a confidential relationship exists
– attorney, employee, independent contractors

2. Principle of tort / unfair competition

• Misappropriation by competitors who have no
contractual relationship
– theft, espionage, subversion of employees
3. Criminal laws
• e.g. for an employee to steal trade secrets from a
company
• e.g. unauthorized access to computers
• theft, electronic espionage, invasion of privacy, etc.
• circumvention of technical protection systems

4. Specific trade secret laws

• US: Uniform Trade Secrets Act; Economic
Espionage Act
3. Information Technology Laws
 Remedies
1. Injunction – Temporary or Perpetual

2. Damages

3. Search & Seizure order

4. Precautionary impoundment
 Question 8

PROTECTING INVENTIONS:

TRADE SECRETS OR PATENTS?

 Trade Secrets Patents

no registration registration
- less costs (but: costs to keep secret) - fees (registration + m ain tenance)
- im mediately available - takes tim e to get patent

can last longer limited in time

- but: lim it ed to economic life - generally: m ax 20y
- uncertain lifespan: leak out is irrem ediable - but: can be invalided

no public disclosure public disclosure

- but: practical need to disclose - publication 18m after filing
- if leak out: TS lost - if P not allowed: no TS
 Trade Secrets Patents

Large subject m atter Subject m atter lim ited:

P rotection of virtually anything - Requirem ents: new, non obvious, useful
m aintained in secret by a business - S cope: patent claim
that gives com petitive advantage

Only protection against Exclusive rights

im proper acquirem ent/use m onopoly to exploit
the invention

More difficult to enforce "Pow er tool"

- som e countries: no laws
- ability to safeguard TS during litigation
 Things to bear in mind

1. ANY innovative idea should be kept as a

secret in the beginning
– to preserve option of patenting (or industrial
design) at later stage
 INNOVATIVE IDEA

Initially Later stage

Not patentable patentable

Secret !
Strategic
TS business
decision
patent
TS
©
TS
•Part f the idea
 Things to bear in mind

2. Choice between patent or TS must

be made both from legal and
business perspectives

(if patentable)
 Things to bear in mind
3. If you apply for a patent, only give up
what is necessary
– The decision to apply for a patent does not necessarily
require giving up all of one’s TS!

– However, patent application must contain :

• enough to enable skilled person to practice the
invention
• the best mode known to the applicant for
practicing the invention
 Things to bear in mind
• 4. If you apply for a patent, your TS
may still be protected for a while
– In most countries: only publication after
18m. You may withdraw application any time
< publication

– In USA: possible to request non-publication

of the patent application until the patent is
issued
 Things to bear in mind
5. Once patent published  TS lost in
ALL COUNTRIES
– patent documents “easily accessible” to
public
– if patent application published and later
rejected  you lose both patent and TS
rights
 Question 9

WHAT TO BEAR IN MIND IF

YOU SIGN A CONFIDENTIALITY
AGREEMENT FOR A CLIENT ?
• reasonable in scope
• - defines precisely what information you
must keep confidential
• - limited in time (max. 5 years)
• - exceptions
 The Art of Handling It!
‘Well-drafted’ contracts are the principal (if not the only) way to protect
trade secrets in India.

Be mindful provisions such as Sec. 27 of the Contract Act, Sec. 3 of the

Competition Act);

Ensure maximum back-to-back obligations with Independent

Contractors and Employees;

Avoid Litigating: Choose for arbitration to resolve disputes – ensure the

contract qualifies for International Commercial Arbitration – Choose
carefully the venue, the Rules of Arbitration, the Law governing the
enforcement of the arbitral award

In the event of a litigation – focus on getting a favorable injunctive relief

at the interim stage itself.

“Forum shopping”. Choose the jurisdiction of courts in a city (like Delhi)

– where the Judges know the nuances of IP laws
Thank you