TRENDS OF TRADE SECRETS

By- Ashmita Jain

When we talk about trade secrets, the first thing that comes to our mind is profits over the competition. In order to gain more profits and survive better in this competitive business world, businesses need to keep pace with new technology and potential requirements of customers with meliorated products and sometimes there is a secret that a company uses to meliorate its goods and services.

Such information which is only known to, in most cases, the owner of a company or small group of that company which to have economic value because of its confidentiality and with all efforts kept a secret from other players in the market, is known as Trade Secret”.

A trade secret is a great asset to the company and that is why it needs higher protection from competitors.

A trade secret is an intellectual property like trademarks and patent but unlike other intellectual properties neither trade secret can be registered nor is there any legislation to protect it. Nonetheless, it is still protected by the Indian Judiciary on the bases of Breach of contract, breach of confidence, and on the principles of equity.

Since there is no legislation for trade secrets; it is not defined by law per se. Nevertheless, there are three essentials to qualify information to be termed a trade secret:

  1. The information should have economic value per se because of its confidentiality.
  2. The information is only known to small group or owner of business.
  3. Reasonable step has been taken to keep the information a secret.

If these three essentials are taken care of then anything can be a trade secret like a piece of information regarding a formula, a pattern, a manufacturing process, any technical information also it can be a business man’s strategies, his customer list, a business plan, a formula or a recipe, it can be anything.  

Trade secret can be revealed too. The question is by what mean? If it is revealed by fair means that can be by developing or discovering through honest means like inventing it, creating it, by brainstorming or by reverse engineering.

In this situation no legal protection is granted to the original owner of trade secret and the other person will be rightfully entitled to use it.

On the other hand, if the trade secret is being taken through unfair means like theft, hacking, coercion, fraud, breach of trust, breach of contract, or any other illegal means, such unauthorized acquisition and or disclosing of such information is trade secret misappropriation. The rightful owner can take legal action against it.

Now, in order to establish that there is a violation of trade secret, the first condition is to establish that information wrongfully acquired, was confidential (not known outside the company) and the owner took reasonable steps to conceal the information. The second condition is to establish that there is misuse or monetary advantage by competitors or by the person who misappropriated trade secrets.

The most common cause of trade secret misappropriation is by hiring an employee who has previously worked for a competitor firm and getting information out of him either by offering him monetary benefits or by higher position in firm. There can also be a case where a professional is hired to work as an employee in a competitor’s firm and derive information. Other ways could be by hacking hard disk or computer theft.

In order to avoid such a situation, the owner of a trade secret must take reasonable steps to protect it which suggestively could be:

  • A trade secret policy – tells about when, how and under what circumstances a trade secret can be revealed. Who can access such information? Other terms and conditions regarding its protection.
  • Not to disclose such information to new employee.
  • A confidentiality and non-disclosure contract to be signed by employees.
  • Reminding employee about non-disclosure clause when firing them.
  • Do not discuss about such information over a phone call, mail or through letters.
  • Try not to make copies about trade secret.
  • If there is such copy and it is being disposed of, destroy the copy and only then dispose.
  • Protect information with a strong password, which gets changed frequently.

Since India does not have trade secret legislation per se, violation of the same can be filed on breach of contract if the internal person discloses the information despite a non-disclosure agreement or confidentiality contract in civil court, and in absence of such a contract, legal action can be taken on bases of the principle of equity and under torts.

In case of trade secret misappropriation like theft, fraud, etc by an external person, in most cases, the action can be taken in criminal court.

Remedies provided by the court to the owner of the trade secret, in case of violation are infringement, prohibiting the offender from using the trade secret any further; compensation, money earned from the competitive advantage of trade secret and loss caused to the owner because of stolen information; to return the information stolen and not keep any copy of it or from disclosing it to anyone.

Although trade secret is not registered nor have any legislation per se, it can still be better than patent law. Patent and trade secret are two different IP laws to protect the information.

Now the question comes why trade secret? Firstly, any information can be a trade secret where there are lots of conditions in order to get information patented.

Secondly, there are no registration fees or any formality as such. Thirdly, patent is for a fixed period, 20 years generally, after which information goes to public domain whereas trade secret is not time bound.

Fourthly, it can take years to get an invention patented but in the case of a trade secret, there is no wait, i.e. immediate effect. Fifthly, a trade secret is cost-effective especially for small businesses that cannot afford patent.

Lastly, getting an injunction is much easier in case of a trade secret than a patent where you have to fulfill four essential conditions.

Even though it is beneficial for small firms who cannot afford the patent cost, there are some multinationals that chose trade secret over other intellectual property rights like Coca-Cola’s secret recipe of its drink, Google’s search algorithm, Mc Donald’s special sauce for big Mac and KFC’s secret of eleven herbs and spices. That’s the benefit of a trade secret, when no other IP law protects information, trade secret does. It is up to the owner how good he is to keep it confidential.


References

  1. https://www.justia.com/intellectual-property/trade-secrets/
  2. https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_4_learning_points.pdf
  3. https://www.mondaq.com/india/trade-secrets/783558/what-to-choose-between-trade-secrets-and-patents
  4. https://www.investopedia.com/terms/t/trade-secret.asp#:~:text=A%20trade%20secret%20is%20any,of%20internal%20research%20and%20development.
  5. https://www.wipo.int/tradesecrets/en/
  6. https://www.mondaq.com/india/trade-secrets/204598/trade-secrets-in-indian-courts?signup=true

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