INTRODUCTION
With the increase in digitization, technological advancement, globalization and connectivity, there is also an increase in the weaknesses and challenges for protection of trade secrets. The thefts of trade secrets at an astounding pace clearly indicates that digitalization has created more opportunities for criminals to exploit the innocent masses and gain profits. These thefts are more likely, but not limited to occurring via cyberattacks or disclosure of crucial information by an employee.
Before the advent of digital age, all records were created directly on papers and were managed by a very few employees. Such records and documents were also stored in files or at a designated place which was usually secure, and only limited employees had access to such information.
However, in recent times, use of digital means and tools such as the Internet, digital gadgets, emails, voice mails, drives, etc., is vital for all businesses. Thereby making the procedure effortless for the employees to generate and circulate confidential business records in the form of digital documents at any time and from anywhere around the globe, which was not possible earlier.
In the world of digitization, information and knowledge has taken the place of money, time and power. They have become a very important economic input in the competitive world due to their free flow and easy access. Therefore, it creates an obligation for every organization and each individual to prevent the misuse of any information and knowledge which is essential for them to flourish.
MEANING AND IMPORTANCE OF TRADE SECRETS
Trade secrets are economically significant, confidential knowledge or information or data and know-how that businesses attempt to keep from being stolen. Generally, for information to qualify as a trade secret, it must be:
“i) commercially valuable because it is secret,
ii) be known only to a limited group of persons, and
iii) be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees”.
Trade secrets are in varied forms, including an industrial technique, product design or pattern, manufacturing processes, formulas, technique or practice, recipe or method that gives an edge to a company or business over its rivals or competitors, and is not known to others. They are fundamental part of any company’s intellectual property (IP) and are not known to the general public like the other forms of IP such as patent, trademark, copyright, etc.
It is pertinent to mention that the flexibility and extent of protection provided by trade secret legislation is one of the main reasons for its popularity. A wide range of subject matter that does not come under typical IP legislations can be protected under trade secret laws.
Thus, even though the trade secret legislation provides a weak level of protection, requiring continuous attention to maintain confidentiality and the danger of losing protection if the trade secret is revealed, it is less perilous in some aspects.
The instant availability of trade secret protection is tempting in industries with fast changing technology and short time for product development. Even in industries where technology changes gradually or where long-term protection is sought, the possibly limitless period of protection granted by trade secret may be preferable than the twenty years protection given by patents.
MEASURES TO SAFEGUARD TRADE SECRETS IN THE DIGITAL WORLD
The three categories in which trade secrets can be safeguarded are digital or network security, physical security and legal security. Firewalls, strong passwords and restrictions on employee access to certain networks or websites are examples of digital security measures.
A corporation may also choose to provide specialised mobile phones and portable computers for business usage to minimise the transmission of secret information, such as customer contact information, client information, etc.
Physical security measures include keeping sensitive data in a safe computer system and restricting access to only pre-approved persons. Many organisations safeguard their secrets by limiting access to certain areas of the office premises, employing key cards to monitor entry to specific rooms, and generally restricting access to all others apart from those who mandatorily require it.
Legal security include measures such as signing of confidentiality agreements, non-compete agreements and non-disclosure agreements by employees before joining a company or business to preserve the confidentiality of information. Additionally, companies should guarantee that all trade secrets are labelled “Confidential”.
Some of the steps that can be taken to safeguard trade secrets in the world of digitization are as follows:
a) Access to information should be controlled
Making an informed decision about who should have access to trade secrets is the first step in protecting them. While considering releasing trade secrets to other entities, such as suppliers or financial partners, the disclosing party should investigate the potential disclosee’s business reputation, as well as its own trade secret protection processes.
A corporation that is not careful with its own data cannot be trusted to keep a third party’s secrets safe. Internal trade secrets must be handled with the same caution. The amount to which information is communicated internally will be influenced by corporate culture and organisation.
A procurement officer, for example, is unlikely to require access to production formulae in many firms, but he/she may want access to a list of raw materials. Similarly, a salesman in many firms will not require access to manufacturing processes.
b) Decision on whether to digitize trade secret
Trade secret owners should try to keep their trade secret in more physical form than in digital form if possible. Also, they can use coded words instead of original words with real meanings while compiling their trade secrets.
c) Confidentiality and non-disclosure agreements with employees
All the employees and business partners of a company should be made to sign confidentiality and non-disclosure agreements before they are handed over any document relating to the business of the company. Further, serious legal consequences should be enforced on individuals who violate the terms of these agreements by divulging the confidential information or trade secrets, at any given point of time.
Companies should also design procedures to ensure that company policies are followed. Such policies might include requiring employees to return confidential information when they leave a firm, labelling papers and documents as secret and confidential, and not allowing any single employee or third party access to a whole process, formula, or other sensitive information.
d) Employees and vendors should be trained
Employees and third parties must both get training in order to understand what is expected of them while managing sensitive data. Some businesses have been denied legal protection due to failure to follow these basic measures, which might fall outside of general corporate training.
e) Regular upgradation
To maintain consistency and assure compliance, efforts to preserve trade secrets should be reviewed annually and processes should be revised often. Just as procedures and policies change as businesses develop, plans for protecting trade secrets should also change.
LAWS RELATING TO PROTECTION OF TRADE SECRETS IN INDIA
Currently, there is no statute or legislation that specifically governs trade secrets in India; thereby, making the Indian trade secrets law a law based on the principles of equity, interpretation by the Judiciary and on common law action of breach of confidence or contractual obligation.
The Calcutta High Court in Tata Motors Limited & Anr. v. State of Bengal [WP No. 1773 of 2008], has observed that:
“a trade secret is a formula, process, device or other business information that is kept confidential to maintain an advantage over competitors. The information includes a formula, pattern, compilation, programme, device, method, technique or process that derives independent economic value, actual or potential, from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use; and that is the subject of reasonable efforts, under the circumstances, to maintain its secrecy”.
In Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors., [(2002) DLT 257], the Delhi High Court has held that:
“the concept developed and evolved by the plaintiff was 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”.
Further, in Beyond Dreams Entertainment Pvt. Ltd. & Ors. v. Zee Entertainment Enterprises Ltd. & Anr., [(2016) 5 Bom CR 266], it was held that:
“to prove trade-secret misappropriation, the owner or rights holder of the same, must prove that:
i. the information was a secret and not known generally, or not readily accessible to persons who deal with such information;
ii. the individual or owner of such information took reasonable steps to ensure and maintain its secrecy, and the information was imparted in circumstances importing an obligation of confidence;
iii. and there has been unauthorised use of that information to the detriment of the party communicating it, or there was a threat to use it”.
Additionally, India is a signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) that provides for the protection of undisclosed information, as enumerated under Article 39(2) of TRIPs.
Though there have been numerous judicial precedents in respect of trade secret violations in India, due to the absence of any specific legislation, the scope of damages and procedural safeguards in trade secret cases still remains ambiguous and depends on case to case basis.
AMLEGALS REMARKS
In today’s digital era, the vulnerability of trade secret has become an evident fact. However, protection of trade secrets is vital for the booming of businesses and for the competitiveness of producers. Thus, the companies and business owners are required to be more vigilant and defensive of their trade secrets.
It might happen that employees, while moving to a new company, take with them the secret information of their previous company and share it with a third party or even use it to set up their own business.
Therefore, it is important for trade secret owners to take reasonable measures to secure their knowledge, such as entering into a non-disclosure agreement, restricting the exposure of trade secrets to business partners and restricting employee access, using software to trace downloads and training personnel on the fundamentals of protection of such information.
Unfortunately, trade secret theft is sometimes difficult to avoid even after ensuring all suitable protections. Hence, there is a need for an efficient legal mechanism which can assist the trade secret owners in responding quickly and minimising their damages after the theft.
-Team AMLEGALS assisted by Ms. Kopal Agarwal (Intern)
For any queries or feedback, please feel free to get in touch with chaitali.sadayet@amlegals.com or mridusha.guha@amlegals.com.
Leave a Reply