With the emergence of the technological revolution, not only has the importance of the business sector increased exponentially, but also the way business’ function and run has changed significantly.
Businesses often gather and employ creative and original ideas that are unknown to their rivals in order to gain an advantage and preserve the uniqueness of their product or service. North American Free Trade Agreement (hereinafter referred to as “NAFTA”) defines a trade secret as “Information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy.”
Enforcing trade secret rights is crucial to the long-term existence of a firm. In this day and age, it is vital for businesses to guarantee that their trade secrets are effectively safeguarded from competitors in circumstances wherein there is a danger of exposure, particularly while hiring new employees for key developments or introducing new goods and services.
The concept of trade secrets is solely to preserve, maintain, and encourage ethical and fair dealing practises which foster creativity. Improper use of trade secrets by someone who is not the rightful owner of such a trade secret is an unfair practise and is often considered a breach of confidentiality and intellectual property agreements executed between the parties.
TRADE SECRET – A NOTION?
As discussed hereinabove, a trade secret is any information or knowledge about a company that is not available to the general public and reasonable safeguards to keep such information confidential are maintained.
Further, Trade-Related Aspects of Intellectual Property Rights (hereinafter referred to as “TRIPS”), lays down three essential conditions which are to be fulfilled by any information before it can be considered undisclosed information or a trade secret:
- Such information must be secret, i.e., not generally known or readily accessible to “persons within the circles that normally deal with the kinds of information in question”.
- The information must have commercial value because it is a trade secret and,
- The information must be the subject of reasonable steps taken by its owners to keep it secret.
Financial records, client lists, consumer details, as well as company plans and procedures, may also be deemed trade secrets, depending on the nature of the company and its business.
Threat from Employees
Employee loyalty cannot be compromised, and it remains the most critical hurdle that companies must overcome in order to preserve their intellectual property. In the event of any undue circumstances, employees are often seen compromising the company’s confidential and sensitive information.
It’s challenging to come up with new concepts for safeguarding trade secrets in an ever-changing and inventive world. Some businesses make devious attempts through employees to steal projects from competitors in order to acquire access to the confidential information of their competitors’ business secrets.
In essence, an employee’s capacity to use the talents and experience he obtained during his employment cannot be limited by contract after his employment is terminated. The employee is free to apply his newly acquired skills and knowledge for personal advantage or the benefit of others. However, on the other hand, an employee may expose or utilise such secret information received during his employment with malicious intent.
In any business, a “psychological contract” exists between an employer and an employee. A psychological contract, while not a formal legal contract, is essentially a set of expectations that both the employees and employers have from each other in terms of contribution and rewards.
In the light of the same, every employer expects the employees to safeguard the trade secrets of the company, not only during the term of the employment, but even after the termination of such employment relationship between the employer and the employee.
In the backdrop of the current competitive market, employers and organizations often put in place stringent formal contracts that outline the distinct liabilities that an employee has with regards to safeguarding the confidential information and trade secrets of the respective company.
FRAMEWORK FOR TRADE SECRET PROTECTION IN INDIA
In the current era of globalisation, when businesses expand to other nations for global reach, protecting corporate strategy and secrets is becoming increasingly challenging. For example, in the era of digitisation, businesses consider technology to be a trade secret rather than patentable information. This is mostly because market rivalry has reached a point where competitors innovate once knowledge is available. While this encourages healthy competition, it becomes increasingly difficult for small enterprises to compete or thrive if such information is available to business giants.
Countries today realise the need of such secrecy and are attempting to incorporate it into their legal structures. TRIPS, the General Agreement on Tariffs and Trade (hereinafter referred to as “GATT”), and the NAFTA, all contributed to the worldwide growth of trade secret protection.
In India, trade secrets have only been protected by conventional judicial judgements and laws including components of equitable law, contracts law, and torts. The lack of trade secret law has always left a grey area, but Court declarations have always attempted to create and safeguard trade secrets, as well as provide remedies for breaches of confidence.
In Daljeet Titus, Advocate v. M Alfred A Adebare and Ors., 130 (2006) DLT 330, the Delhi High Court observed that the Courts must act to prevent a breach of trust that is not caused by another party. Subsequently, the High Court issued an order prohibiting the Defendant therein from using the Plaintiff’s information that they had access to, in violation of confidentiality. The Defendant, who worked with the Plaintiff was forbidden from using the agreements, due diligence reports, consumer contact lists, and other personal information that the Defendant obtained as a result of their engagements.
In the absence of legislation, Indian Courts and Tribunals have made it very apparent that they will safeguard trade secrets through common law for the benefit of Indian companies.
In John Richard Brady and Ors v. Chemical Process Equipment P Ltd and Anr, AIR 1987 Delhi 372, the Delhi High Court observed that it would be in the interest of justice to prevent the Defendants from abusing the know-how, specifications, and technical information about the Plaintiff’s organization, endowed to them pursuant to the express condition of strict confidentiality.
TRADE SECRETS AND CONTRACT LAW
Contract law and trade secrets are practically indistinguishable subjects, and the overlap between the both is inescapable. The same is evident in the widespread usage of non-compete clauses in contracts. Non-compete clauses in employment contracts, which prohibit employees from competing with the company or working for a rival, have a major influence on the employee’s mobility and efficacy.
In the case of Bombay Dyeing & Manufacturing Co Ltd v. Mehar Karan Singh, Notice of Motion No.4248 of 2008 In Suit No.3313 of 2008, the Bombay High Court established specific safeguards to be taken by the holder of trade secrets as one of the grounds for the knowledge to be regarded as a trade secret.
The High Court further observed that the thumb rule is that organisations must employ confidentiality measures that are obvious to onlookers so that they consider it as such. If the possessor of a trade secret freely reveals the secret, the secret loses its trade secret status by definition. Owners of trade secrets, on the other hand, may avoid it by strategically employing contract law.
By executing a widely drafted non-disclosure agreement and giving plenty of leeway for different interpretations, the trade secret owner may be able to avoid the precautionary action while still freely sharing knowledge.
TRADE SECRETS AND INTELLECTUAL PROPERTY RIGHTS
In India, Intellectual Property Rights (hereinafter referred to as “IPR”) are territorial in nature, and the level of protection afforded to trade secrets varies by area. It is impossible to categorize as to what Indian Courts deem confidential or a trade secret.
Since the benefits of trade secrets have taken centre stage, they have increasingly aroused people’s interest and become the intellectual property of choice. However, there are certain issues with developing trade secret legislation in accordance with the IPR.
IPR encompasses copyrights, trademarks, patents, and, increasingly, trade secrets; nevertheless, there is no legislation in existence for trade secrets. Disclosure of trade secrets will injure the owner of the trade secret and destroy the idea and core of the trade secret, making it impossible to get protection in the same way that patents and trademarks or copyrights do.
REMEDIES FOR BREACH OF TRADE SECRETS
In the case of a violation, the remedy may include an injunction or monetary compensation. However, it is critical to develop a preliminary scenario that balances convenience with irreparable loss.
The award of an injunction was refused in numerous situations due to the weakness of the prima facie grounds. The Courts also determined that in order to secure equitable remedy, the applicant must honestly conceal the relevant information.
The law governing trade secrets is still in its inception and there is currently no trade secret legislation in place. In addition, there is a lack of detailed and effective legislation governing the transmission of sensitive information between companies.
Though the law of trade secrets fits within the current framework of tort law, contract law, and competition law, there are certain issues with its origins in the sphere of IPR. However, separate trade secret legislation would eliminate this difference as well.
As a developing country, India needs strong legislation to safeguard trade secrets. The TRIPS Agreement required its member states to amend existing laws and enact new legislation in order to satisfy their commitments under the TRIPS Agreement. In this arrangement, there is an urgent need for trade secrets legislation to add teeth to current regulations and open the road for development and innovation.
-Team AMLEGALS, assisted by Ms. Devanshi Jain (Intern)
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