Trade Secrets Protection in India – A Legal Vacuum and the Imperative for Robust Legislation
Introduction:
As the world continues to globalise borders remain sheer depiction of sovereign powers and does not act as a hurdle to business and trade. Businesses are no longer prone to just domestic competition; they now compete with international competition as well. In such competitive atmosphere there are narrow margins separating businesses. In such cases there are some factors that essentially set the company apart, such factor has to be kept confidential and requires protection. Thus, the concept of trade secrets gains highlight and importance in the company’s business.
What is a Trade Secret?
There is no definite definition of trade secrets, it includes extensive range of information of commercial and technical nature. According to common knowledge, a trade secret is a secret of any trade or business that is known to a particular group of people and has a commercial value. The World Trade Organization defines undisclosed information or trade secret as “information that: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.” According to the World Intellectual Property Organization (WIPO), “trade secrets are intellectual property rights on confidential information which may be sold or licensed.”
Trade secrets is not a new concept it was been existing from ancient times, but it has just lately come under the purview of intellectual property rights because now they protected subject matter under TRIPS Agreement which went into effect in 1995. The concept of trade secrets came to limelight in India when Coca-Cola left their business in India to protect their trade secret, when they were ordered to reveal the information regarding the formula for their drink. Many prominent companies such as KFC, Coco-Cola, New York Times, Krispy Kreme Donuts have trade secrets and deal with threats to protect them. For example, KFC’s secret recipe was known only to one person; it was only later that it was written down and stored in a locked safe.
Legislations dealing with Trade Secrets in India:
Since adopting liberalization and globalization policies, India has engaged in removing trade barriers and signed the TRIPS Agreement, obligating it to protect undisclosed information as per Article 39. However, India lacks specific legislation for trade secrets, relying instead on common law principles and various provisions in the Indian Contract Act, Securities Exchange Board of India Regulations, Indian Penal Code, and Information Technology Act. Under Section 27 of the Contract Act[1], there are Non-Disclosure Agreements which says that law that bound the parties not to disclose information that is contrary to the terms of the contract between the parties. Under Section 405-409 of Indian Penal Code deals with Criminal Breach of Trust which is also used to protect trade secrets in India. The 22nd Law Commission of India, appointed by the Ministry of Law and Justice, recognised this gap and produced the 289th Law Commission Report on Trade Secrets and Economic Espionage which included the draft Protection of Trade Secrets Bill, 2024. All this has underscored the need for specialized legislation in India to resolve disputes and protect trade secrets effectively.
Legal Position of Trade Secrets in India:
Since there is no particular legislation for trade secrets, thus judicial precedents are essential for evolution of the legal position regarding trade secrets. The protection of trade secrets has largely relied on principles of equity and breach of confidence under common law. The Calcutta High Court in Fairfest Media Ltd vs Lte Group Plc and Ors[2], discussed regarding the legal status of protection of trade secrets in India. The court in this case stated that the main purpose of this field of law is that the person who obtained information in confidence should not be allowed to use it in a way affecting the of the person who communicated such confidential information. The Indian cases have tried to analyse what would constitute confidential information and grounds for protecting trade secrets and their scope. The Indian courts have largely relied on English laws and cases but recently they have been trying to develop their own ground of jurisprudence to protect trade secrets.
The case of Saltman Engineering Co. Vs Campbell Engineering Co Ltd[3], is a landmark judgement which has been immensely relied upon by Indian courts for deciding whether the information exchanges between the owner and the beneficiary in contention is confidential or not. The court held that confidential information must be information which is not in public domain or known to people in general. However, it can include a plan, sketch or any similar thing which may be known by anybody but there is use of special knowledge by the maker and result produced can only be done by person who went through the same process.
The Indian courts have regularly upheld the non-disclosure and confidentiality agreements but the focus majorly has been relied on the reasonableness of the restriction agreed in the contracts. The decisions have been given in consonance to examination of Section 27 of Indian Contract Act[4], which states that unreasonable restraint on trade and practice of lawful profession to be illegal.
When there is no contractual agreement or when there is theft of information by third party there are more complications in trade secret protection. In Escorts Construction Equipment Ltd Vs Action Construction Equipment P. Ltd[5] the court held it is essential that the information should be confidential it does not matter whether there is a formal contract relating to misappropriation and disclosure. The court relied on the three situations propounded by Lord Greene in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd[6]. One situation was that where there is exchange of confidential information and if the contract does not deal anything about it, then the other party would be obligated to keep information confidential. Another one is where the defendant has obtained information expressly or impliedly, directly or indirectly, without or with the consent of the plaintiff would be guilty of infringement. In another scenario a party receiving confidential information would be obligated to keep information confidential even when there was or there was no existing contract.
Another crucial concern emphasised by the Supreme Court is ensuring non-disclosure of trade secrets in court proceedings. Courts have explicitly denied disclosure of information that is confidential that would become public and whose confidentiality could be evaded. The report by Organisation for Economic Co-Operation and Development stated that in relation to such confidentiality of confidential information can be plead by the plaintiff in litigation.
Need for Specialised Legislation in India:
Historically, India opposed the incorporation of trade secrets within the scope of TRIPS Agreement and brush off the compulsion to make legislations for the same, however, the present economic situation and evolution of domestic industry is considerably different from when TRIPS Agreement was being agreed upon. In the current economic scenario, there are rapidly developing technologies and branches such as artificial intelligence and data-directed technologies that have gained prominence. There was requirement for transfer of technology and collaboration among industries across borders and explicit and accurate law for trade secrets which would allow such an ecosystem in India. Even when it comes to MSMEs and start-ups trade secrets of are a crucial resource and need a clear framework to protect the same.
As a developing country, with businesses flourishing and evolving, many countries emphasise on Indian laws being in consonance to TRIPS Agreement. Due to the lack of strong safeguards and legislations for development of various industries in India; many countries have been hesitant to establish trade agreements with Indian companies. India has a great workforce, skilled minds, abundance of natural resources and conducive investment opportunities. If Indian legal structure provides belief to ensure business confidentiality, foreign companies will form agreements with Indian companies which would induce foreign investment and aid Indian economy to thrive.
Conclusion:
Therefore, it is crucial to formulate and enact a specialised legislation for trade secrets in India. The framework should be inclusive all plausible views related to trade secrets and provide an extensive definition of trade secret. The legislation should also set up strong enforcement mechanisms, including both civil and criminal remedies, to effectively deter misappropriation and ensure adequate compensation for wronged parties. Additionally, there is need to ensure balance between ensuring strong protection of legitimate trade secrets and protecting legitimate competitive practices and public interest. This would not only allow provide means to protect intellectual property rights but also aid in propelling business and finance.
Author:– Radhika Korgaonkar, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
[1] Indian Contract Act, 1872, § 27, No. 9, Acts of Parliament, 1872 (India).
[2] Fairfest Media Ltd v. LTE Group Plc., (2015) (2) CHN (CAL) 704
[3] Saltman Engineering Co. v. Campbell Engineering Co. Limited, (1948) 65 RPC 203
[4] Indian Contract Act, 1872, § 27, No. 9, Acts of Parliament, 1872 (India).
[5] Escorts Construction Equipment Ltd. v. Action Construction Equipment P. Ltd (2016) SCC OnLine Del 6712
[6] Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203
