Trade secrets

TRADE SECRET

1. Introduction 

A trade secret is a type of intellectual property that consists of confidential business information which provides a company with a competitive edge. Trade secrets can include formulas, practices, processes, designs, instruments, or patterns. Unlike patents, trade secrets are not publicly disclosed and do not require registration with a government body. The key aspect of a trade secret is that it must remain confidential to retain its value. For a piece of information to be considered a trade secret, it must meet three essential criteria: it must be secret, it must have commercial value because it is secret, and reasonable steps must have been taken to keep it secret. Companies often use non-disclosure agreements (NDAs), secure storage, and other measures to protect their trade secrets. Trade secrets are crucial in industries where innovations do not necessarily meet the requirements for patent protection or where the company prefers not to disclose the details publicly, which is necessary for patents. For instance, the formula for Coca-Cola and the algorithm behind Google’s search engine are famous examples of trade secrets. Trade secrets are of the utmost importance in today’s globalised economy. These are valuable commercial products; oftentimes, these are the most integral parts of some businesses, and the secrecy of these trade secrets is hence vital to the functioning of these trade businesses. Hence, secrecy in itself can confer a commercial advantage to the business. In today’s globalised world, companies and individuals are taking drastic measures to protect their trade secrets against accidental, inadvertent or wilful misappropriation, misuse, sabotage, loss or theft. The trade secrets, if disclosed through any of these forms, will be bereft of any competitive advantage. Trade secrets are not the most popular of intellectual property rights, yet they are the most lucrative and leveraged by corporations. 

2. Definition of trade secret and its interpretations

There are a plethora of definitions of what constitutes trade secrets, but, in general, the essentials of a trade secret are:

• The trade secret should be known by a limited number of people within the organisation.
• There should be concrete steps taken to prevent the trade secret from being leaked to the public.
• The trade secret should be of such nature that it is of commercial value to the business or individual.
• These are the very broad pointers as to what constitutes a trade secret; a more specific definition can be found in cases that have been settled by Indian courts on the matter of trade secrets. Codification and differentiation of trade secrets can be found in foreign nations where the law of trade secrets has evolved.

The U.S. is at the forefront of protecting trade secrets. They have separate laws on this subject known as the ‘Uniform Trade Secret Act (UTSA)’. This act explicitly sets down the scope and also defines what a trade secret is. The definition defines trade secrets as any information, including a formula, pattern, compilation, programme device, method, technique or process, that is of economic significance to the owner. Appropriate steps must be taken by the owner for protection against the disclosure into the public domain of these trade secrets. The U.S. even goes so far as to take steps to protect trade secrets when a dispute regarding breach of trade secrets or violation of any contract pertaining to sensitive information reaches the court by taking initiatives to maintain the secrecy of the proceedings so that the parties are not at a huge loss during the court hearings. According to Section 5 of the Uniform Trade Secrets Act, it is stipulated that the courts shall take reasonable steps in order to preserve the secrecy of a trade secret. The steps taken by the courts include granting protective orders, holding in-camera hearings or ordering individuals to abstain from using a trade secret without prior court approval. If confidential information is leaked to any foreign bodies, i.e., governments, individuals, etc., it is a criminal offence under the Economic Espionage Act of 1996.

In India, however, since no law exists to protect trade secrets, there is no exact definition, we can only infer the exact meaning from judgements. In the case of Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd. (1948), in the English court of appeal, Lord Greene stated that it was perfectly possible for an individual to be in possession of a confidential document, be it a formula, plan, sketch or otherwise. These could be materials that are be available for use by everybody. What makes trade secrets unique is the ingenuity of the owner who went into the secret while formulating it. In the initial parts of this excerpt from Lord Greene, we can see him making an attempt at differentiating confidential information from trade secrets. He then goes on to define trade secrets by giving due importance to the clandestine nature of trade secrets in conjunction with highlighting the difficulties of creating a trade secret.

One can reasonably infer from the above passages that any data that is confidential in nature and fulfils the criteria of a trade secret qualifies as such, but they would be wrong. Although the term trade secret is synonymous with confidential information, they are not the same. The principle of confidential information is based on the doctrines of the law of confidence and the equitable principle. Confidential information is information that is disclosed from one party to another during the course of business that is not meant for public release or disclosure with a third party unless explicitly intended by the first party. Justice Staughton, in the case of Lansing Linde Ltd v. Kerr (1991), differentiated trade secrets from confidential information by defining confidential information in the following way:

“. . . information which, if disclosed to a competitor, would be liable to cause real or significant harm to the owner of the secret. It must be information used in the trade or business, and … the owner must limit the dissemination of it or at least not encourage or permit widespread Publications.”

Even though no legislation exists in India on the topic, an attempt was made by the government to introduce legislation that would have inextricably protected trade secrets in India. This legislation was introduced through a bill called the National Innovation Bill (2008). This bill was unfortunately not passed by the Parliament of India. It is of significance here as it defines trade secrets in the Indian scenario. Under Section 2(3), trade secrets are defined as information, including a formula, pattern, compilation, program device, method, technique or process, that is not readily available to the public. This information also has commercial value, and necessary steps have been taken to protect it.

3. Origin and history of trade secrets in IPR

The history of trade secrets goes back as far as the Roman Empire. In the Roman Empire, trade secrets were protected. This concept spread rapidly throughout Europe and, subsequently, throughout the world. In the Renaissance, many European nation states had laws that protected businesses, which were primarily guild cartels, from those who exploited the secret business ideas of these cartels without prior consent. During the Industrial Revolution, it was the need of the hour to have a trade secret law, and thus these practices were translated and codified into law by the legislature and the courts, but at the time they were known as ‘industrial secrets’.The proposition of trade secrets was set forth in 1929 in a Columbia Law Review article called “Trade Secrets and the Roman Law”. Trade secret law in its present iteration, made its appearance in the English case of Newbery v. James (1817). The principle made landfall in the U.S. in Vickery v. Welch (1837).

The history of the codified evolution of trade secrets can usually be said to be traced back to Article 10bis of the International Convention for the Protection of Industrial Property (Paris Convention). This was later further codified into the TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights). Under Article 39 of the agreement, it is compelling upon the signatories to protect ‘undisclosed information’ and ‘data submitted to the government or governmental agencies’ by taking appropriate measures. This was a massive leap in the development of trade secrets, as it codified the IPR for the first time in an international agreement. This has to be read in conjunction with Article 10bis of the Paris Convention. Although India is a signatory to the TRIPS agreement (signed in 1994), India did not make independent laws for the protection of the same.

4. Necessity of trade secrets in IPR

Much like any other IPR, trade secrets are also of utmost importance to the company or individual to whom they yield economic dividends. In India today, because there isn’t any law for the protection of trade secrets, many international companies are hesitant to invest for the purpose of expansion or even the initiation of business activities. If India is able to bring about a favourable intellectual property regime that grants fervent protection to its IPR rights, it can witness an influx of foreign investment. Even if a multinational conglomerate begins operations in India, it is hesitant to expand its bases further in the fear of its valuable trade secrets being exposed to the public by dishonest individuals. Companies go to extreme lengths to protect their trade secrets. Let’s take the example of the Coca-Cola Company; this is a company that has displayed to the public that a trade secret, if properly kept, can last more than a century. The Coca-Cola Company keeps its recipe in a bunker in Atlanta, access to which is only granted to two employees at a time. In order to make sure this secret is well-kept, the Coca-Cola company does not allow both employees who have access to the recipe to travel together on the same flight. The formula was formulated by John. S. Pemberton in the year 1886, and he was a pharmacist by profession. Many rival companies have tried to replicate this formula to no avail.

The next example that we can use to further exemplify the practical importance of trade secrets is the recipe for KFC (Kentucky Fried Chicken). KFC’s original recipe was created by Colonel Harland Sanders. This recipe consists of the infamous 11 herbs and spices, which make the delicious signature fried chicken stand out even today. The recipe is more than seven decades old and was allegedly scribbled on the back of a wooden door. KFC has taken and continues to take drastic measures to protect its signature recipe from the public. KFC has built a hi-tech building for the housing of its original handwritten recipe, which is protected in a digital safe that weighs more than 770 pounds (350 kg). This safe is further encased in concrete with a 24-hour surveillance video, and it is also protected by a motion detection system.

Cutting-edge technological developments and scientific discoveries do not usually fall within the explicit ambit of other IPRs, and hence they seek the protection that is granted by trade secrets. Inventions that are yet to come under the public eye may require the protection granted to trade secrets. A substantial part of new and high technology is prone to reverse engineering, such as biotechnology, computer programmed chips, etc. These may require protection in the initial days of use or production, as they may not be patented for fear of losing the competitive edge. Promoting the creation of information and the development of new ideas is the rationale behind granting protection to trade secrets. The National Innovation Bill also aimed to foster the creation of new ideas and information; this is paramount as it is conducive to developing a strong R&D (research and development) sector in any nation. This innovation is fostered by trade secrets by granting certain exclusionary rights pertaining to third parties that increase the market value of the secret.

5. Trade secrets and other IPRs

Trade secrets are not the most well-known of the IPRs; this lack of popularity should not be misinterpreted as a lack of efficacy. Trade secrets have the widest ambit of all the IPR’s, and as such, they grant the most protections as compared to other IPR’s. A glossary comparison of trade secrets with other IPR’s would substantiate this point. A trademark refers to a product or service in commerce, and protection of the same only extends to protection of the printed word or image associated with it. An almost identical situation regarding the extent to which protection is granted exists with the IPR of copyright. Copyright protection is only given to the manner of expression; no protection is granted to the content of the protected work as such. Unlike other IPR’s, for trade secrets, the general test of patentability does not apply.

• Trade Secrets and Copyrights

The term ‘copyright’ has become somewhat ubiquitous in society, as we hear it almost on an everyday basis. The term we hear most, however, is ‘copyright violation’. This popularity can largely be attributed to the advent of social media and the subsequent struggle by content creators to have a copyright claim over their works. Copyright is undoubtedly the most well known of all the IPR’s. Protection for any legal entity under a trademark is for the creative work of the creator. Under the Copyright Act of 1957, the works that come under copyright are ‘music, paintings, sculptures, books, computer software, architectural drawings, and motion pictures’. These works are bound to get protection under the statutes prescribed by the legislation automatically; however, this protection is not absolute, and hence, to gain the full extent of the protection granted, copyrights have to be registered, and registering entails full disclosure of the creation to the general public. A trade secret, however, is confidential information that is safeguarded by the owner of the secret through sufficient steps, which would make it nearly impossible to be accessed by the public. Trade secrets need not be registered like copyright, and thus the protection granted is to a much greater extent than that of copyright.

• Trade Secrets and Trademarks

Trademarks are, in many ways, the exact opposite of trade secrets. A trade secret is characterised by its secretive nature and a cardinal principle for the constitution of a trade secret is the measures taken by the owner in order to protect the trade secrets. A trademark, however, is judged by its popularity and the efforts taken by the owner to capitalise on it. A trademark most commonly refers to a visual symbol that may be associated with goods or services that are publicly known and accepted. Trademarks are generally associated with a business or firm, and it is this association that is used to reap monetary benefits.

The only protection granted by a trademark to the trademark holder is protection against others using an identical mark. The protection extended ends there as there is no restriction imposed by the Trademark Act 1999, against manufacturing the same products or conducting an identical form of business.

One might reasonably infer that, in order for a trademark to be established, there should be a trade secret behind it. After all, people associate a trademark with a certain entity because they distinguish themselves from other businesses in some way and the general public associate this uniqueness with the trademark, e.g., KFC. Trade secrets have a much wider purview than trademarks. Trade secrets may encompass any information that the owner deems confidential and thus takes reasonable steps towards its protection; they may also involve business strategies that help the owner have an advantage over his competitors. Any information that is not encompassed in any other IP legislation is sought to be protected as trade secrets.

• Trade Secrets and Patents

Just like trade secrets and confidential information are treated as synonyms by jurists, there exists a nexus between trade secrets and patents. Trade secrets are often said to be overlapping with patent protection, as a glossary overlook of both, they serve almost the same purpose. But, upon closer inspection, it can be seen that these two are fundamentally different. Patent law is more than sufficient to protect a new invention from being stolen or misused by others, the same can be said for trade secret law. The differences arise right from the onset of what constitutes trade secrets and patents. For a new invention or information to come under the purview of a patent it has to undergo many patentability tests. If it satisfies the test it is permissible to be granted protection under the IP legislation of patents. The information guarded by patents and trade secrets is also fundamentally different. Patent protection is generally granted to technical innovations, and these have to pass the test of novelty, inventive step and utility or industrial application as per the Patent Act of 1970. One of the cardinal differences between trade secrets and patents is the disclosure of information. For anything to be protected under the patent law, information regarding the same has to be disclosed completely through a publication in the appropriate patent publication forum. After scrutiny and subsequent grant of the patent, no third party has the right to use the information during the term of protection. 

For trade secrets, no information needs to be disclosed. An immense advantage that trade secrets have over patents is the term of protection. After a patent is granted protection the period of protection is typically 20 years, after which the patent expires and it becomes free for the public to use. On the other hand, trade secrets have no such limitation for protection and this proves to be extremely beneficial in the long run as some information needs to be protected for more than 20 years e.g., Coca-Cola. Trade secrets can also protect a wider array of products or information, this includes technical as well as non-technical information; such as business plans, information, marketing strategy, etc.

6. Legal presence of trade secrets in IPR

Trade secrets are generally protected by the torts of unfair competition, and unjust enrichment. Among the Commonwealth countries, the law of tort is primarily judge-made and the primary basis for the protection of trade secrets is the law surrounding contracts and equity. Many Commonwealth countries have recognised that confidential information related to business such as customer lists, details of suppliers, pricing policies, product launch time schedules, management, marketing and advertising know-how is of paramount importance to the business as these yield commercial benefits for them and should be protected as trade secrets. The law also protects trade secrets that have been gained by ‘improper means’ and not through volitional acts of the owner. Improper means include fraudulent misrepresentation to prompt the disclosure of confidential information, theft, wiretapping, and other kinds of espionage. A major setback for trade secret law is that it does not protect against discovery through fair and honest methods. Reverse engineering, accidental disclosure and independent invention are examples of honest methods of acquiring another’s trade secret.

The case for the U.S. is a bit different as it has enacted independent legislation for the purpose of ensuring the absolute protection of its trade secrets. After the TRIPS agreement, a few countries had enacted independent legislation, but most chose to protect trade secrets through the law of contract or tort. To prove that the information leaked is of a confidential nature, the plaintiff has to prove that:

1. The information leaked is confidential,
2. The information was imparted on the occasion of absolute confidence,
3. The information so obtained was used in an unauthorised way to cause harm to the plaintiff, be it monetary loss or otherwise.
4. In India, there is no independent statute for the protection of trade secrets. However, there is a sea of judicial decisions, and protection is also granted under the Contract Act and other legislations.

1. The Indian Plight

As has been mentioned above, there is no independent legislation for the protection of trade secrets; it is protected by an amalgamation of judicial pronouncements and a concoction of legal statutes. Post-liberalisation a plethora of multinational companies entered India, and with them, they brought their trade practices and methods. These trade practices that were confidential would satisfy the classic definition of trade secrets. These companies had to share limited information with the indigenous companies in order to ensure smooth functioning. These companies sought protection of the information so shared, as disclosure of this information to the public would prove to be financially detrimental to the company. Due to the limited scope of intellectual property rights like copyright, patent and trademark, the protection so disclosed could not be safeguarded by them. It has been the need of the hour for a couple of decades now to constitute an independent trade secret law. The statutes that extend protection to trade secrets have been enunciated below.

2. The Contract Act, 1872

Trade secrets in India are mostly governed by the Indian Contracts Act. Section 27 is the primary source of protection that exists for trade secrets. This section primarily deals with agreements that are made regarding restrictions on trade, and it goes on to describe those agreements as void. The exception clause is in accordance with the Constitution by allowing freedom to exercise a lawful profession, trade or business. This exception clause is also what enshrines the principle of trade secrets. If an individual acquires any knowledge by virtue of his affiliation with a company, he cannot use the information gathered for the furtherance of any other cause other than the betterment of the company from which he imbibed the knowledge. This essentially means that an individual cannot use the information he learned in a company or business where he worked prior to starting another company or business that may prove detrimental to the earlier business. This section and the exception pave the way for the construction of non-disclosure agreements and non-compete clauses. To further illustrate the aforementioned aspect, a case might be given, the case being ‘KrishanMurugai v. Superintendence Co. of India Pvt. Ltd. (1980)’. In this case, Krishna Murugai, the plaintiff, had hired the defendant as the manager of his business after making the defendant agree to two clauses; firstly, that the defendant would not partake in or operate under his own command a competitive business for two years in the vicinity of employment provided by the plaintiff, and secondly, that the defendant would not reveal the trade secrets that he learns during the course of his employment to anybody. The defendant, not being fazed by any of the clauses, started his own identical business in the vicinity of the plaintiff’s business and employed the trade practices that he learned during his employment at the previous business. The plaintiff, aggrieved by the actions of the defendant, filed a suit against the defendant based on the terms of the employment contract. The plaintiff demanded an injunction on the activities of the defendant, as they were clearly in violation of the clauses entered into by the defendant. The defendant rebutted by claiming that the contract was void as it was in restraint of trade, and this was illegal by virtue of the provisions of Section 27 of the Contract Act.

The decision by the court was based on the jurisprudence established by earlier judgements on the topic of contract laws. The court held that through amendments, the provision of reasonable restriction was removed; now only one exception exists in the statute, namely, ‘the seller of goodwill of a business may agree to a reasonable restriction of his trade’. This decision further clarifies that a negative covenant or a restraint put on additional employment during the term of employment is valid, but any restrictions put on an employee against getting into a similar line of work are not permissible. This is the case that struck a difference between a contract of service and a contract for the sale of business and held that English law, inasmuch as it is not in agreement with the absolute terms of Section 27, is irrelevant. The court went on to analyse the validity of trade secrets in the said case and said that the defendant was not involved in any mechanical work and did not have any training; moreover, the customer’s list which was allegedly used by the defendant in his new company, could only be considered if the defendant had some kind of influence over them, which the plaintiff was not able to prove before the court. Both the High Court and the Supreme Court denied an injunction on the matter.

This case was also cited in a multitude of later cases. The case of Niranjan Shankar Golakariv v. Century Spinning and Manufacturing Co. Ltd, (1967) was cited while delivering the Krishna Murugai judgement. The court held that, “the injunction operating after the period of service was confined to the divulgence of trade secrets only. In the present case, no such trade secrets have been shown to be imparted to the defendant.”

3. Trade Secret and Indian Penal Code, 1860

Although no protection is granted directly, there are some provisions in the Indian Penal Code (IPC) for the indirect protection of trade secrets. Trade secrets are dealt with in the IPC through criminal breach of trust and cheating, which are dealt with in different provisions. Section 408 of the IPC lays down a provision that makes a criminal breach of trust by an employee, be it a clerk or a servant, a penal offence. Further, Section 415 discusses cheating, which is more relevant to trade secrets. If an individual uses technical know-how in contravention of the agreement of service, criminal liability can be attracted using this section. 

There is a case that fervently shows the protection granted to trade secrets through the IPC, the case being Pramod s\o Laxmikant Sisamkar and Uday NarayanraoKirpekar v Garware Plastics & Polyester Ltd. and Anr, (1986). In this case, it was argued that the actions of the defendants amounted to a criminal breach of trust. The petitioners in this case had been employed for a period of three years. After the completion of three years, their employment was extended for another three years, but they left their employment before the completion of the extended term. They were required to sign the common terms and conditions of service in the company at the time of employment. It was alleged that the petitioners used the technical know-how that they gained during their employment at the complainant’s company at a new company in furtherance of the economic prosperity of this new company. The respondents alleged that the knowledge they acquired amounted to property. The learned Chief Judicial Magistrate had registered offences of criminal breach of trust and cheating against the petitioners. The case was punishable under Section 405 & Section 420 of the IPC, and in this case, the courts were convinced that the satisfactory requirements for attracting criminal liability under the said provisions had not been fulfilled. For criminal liability to be attracted, there should be solid evidence and the case should be proven beyond reasonable doubt, and in this case, the plaintiffs failed to prove the dishonest intention on the part of the appellants. The courts refrained from providing an answer to the question of whether the information learned by the defendants qualified as property. They had, however, made the observation that if the petitioners had used the technical know-how in contravention of the agreement of service, then that would attract Sections 408 and 415 of the Indian Penal Code.

4. National Innovation Bill, 2008

There was a solid effort on the part of the Indian legislature to introduce a bill that would not only provide explicit protection to trade secrets but also foster a multitude of innovative schemes, which we shall enunciate after a perusal of the preamble: This bill, which was introduced by the Department of Science and Technology, was introduced with the primary motive of building a comprehensive framework for the furtherance of innovation in the country. This push for innovation was in line with the Science and Technology Policy 2003, which intended to create a comprehensive national system of innovation covering science and technology as well as legal, financial and other related aspects. The bill had a threefold objective, at first, it looked into motivating the public-private partnership for the purpose of developing an innovation support system, then to develop a National Integrated Science and Technology Plan, and lastly, to codify the law of confidentiality.

Under the Act, trade secrets and confidential information are explained in Chapter VI, titled “Confidential and Confidential Information and Remedies and Offences”. The draft Bill has the essence of the TRIPS agreement. In the Bill, in Chapter VI, the obligation to maintain confidentiality rests upon the contractual terms and conditions and government recommendations on any right arising in equity. The principle of protection to trade secrets arising out of common law and equity is also strictly followed in this bill, as confidentiality arising out of non-contractual relationships such as equitable considerations may also create rights to maintain and also obligations to preserve confidentiality and to prevent the information from being disclosed in the public domain. The remedy under the draft bill includes preventive or mandatory injunctions restraining the misappropriation of confidential information, which, if leaked, would inextricably lead to damage to the owner of the information. This should be done besides the mandatory damages that should be awarded for any damage caused to the disclosure of confidential information into the public domain.

In the aforementioned chapter, sections 8 to 14 deal with confidentiality and confidential information. In this, the initial chapters deal with an obligation on the party who received confidential information. Section 9 imposes a commitment of confidentiality even in the absence of any contractual obligation, this is on the end of the party that received the information. The party that received the confidential information should take necessary precautionary measures to prevent the information from being leaked into public domain without the consent of the owner of the confidential information. Just like the trade secret act in the U.S. (the UTSA), in the N.I. draft act, there were considerable measures to prevent the disclosure of information to the public during the trial by having the trial in-camera, sealing the confidential information; these included confidential filings or records of the course of action and the orders passed to any person. Section 10 of the Act lays down certain guidelines to preserve and protect confidential information from being misused or being disclosed unnecessarily to individuals of no concern to the case during court proceedings. These measures include:

• Grant of mandatory protective orders
• Holding proceedings in camera
• Filing or recording confidentiality of the information, and
• Ordering any person or class of persons impleaded in an action not to disclose the confidential information without prior orders of the court.

There is also an exception to this misappropriation of confidential information; it holds that information shall not have been misappropriated if the information was available in the public domain or if the information was held to be in the benefit of the public by a court of law.

7. Judicial pronouncements surrounding trade secrets in IPR

Since no independent legislation exists on the topic of trade secrets, the onus rests on the judiciary to protect them. A few cases that are of paramount importance to trade secrets concerning the protection granted to them by special legislation have been illustrated above. There are many more cases that discuss the nuances of dealing with confidential information, and these cases explicitly state the onus of confidentiality on either party in a confidential contract.

• Niranjan Shankar Golikari v. Century Spinning And Manufacturing Company Limited, 1967

The case centers on Mr. Niranjan Golankari, who was the shift supervisor at a company that produced tyre cord yarn. Mr. Niranjan was obligated to sign a terms of agreement contract before the initiation of his employment, and in this terms and conditions paper, it was stated that, during the course of his employment Mr.Niranjan was prohibited from working for any other company with similar capacity and would maintain utmost confidentiality with regard to technical matters that he came across or that were imbibed upon him during his work. Any and all nuances he learned during the course of employment were to be kept confidential at all times. Much like in many other circumstances, the employee (Mr. Niranjan) left his current employer for another employer that was in the same line of business, this was done for the purpose of receiving a higher remuneration. Upon this, his former employer filed a suit against the trial court claiming breach of contract. The trial court, after hearing the case, granted interim relief and restrained the employee from working for the new company. On appeal to the Supreme Court, the court held that the negative covenants in the contract were not in violation of Section 27 of the Contract Act,as the restrictive clauses were bound to the time the defendant had worked at the defendant’s company, and therefore the contract did not amount to restraint of trade as Mr. Niranjan had claimed. Mr. Niranjan, however was restrained from divulging trade secrets to the rival company that he was an employee of at present.

This case laid down important jurisprudence with regard to the exceptions of Section 27 of the Contract Act, and this case served as a precedent for the Krishna Murugai case which took place more than a decade later.

• Burlington Home Shopping v. Rajnish Chibber, 1987

One of the cardinal principles of what constitutes trade secrets was discussed in this case by the Delhi High Court. If we go back to the definition of trade secrets, it is clear that trade secrets may include any information that may be deemed important by the company, and reasonable steps have been taken for their protection. If such information were leaked, it would invariably lead to monetary loss to the owner of the trade secret. The facts and decision of the Burlington Home Shopping case are as follows: 

The plaintiff in this case was a mail-order service company. A major part of the plaintiff’s work included the creation/compilation of a customer database. This customer database was created in three years and was always in the gradual process of compilation. The defendant was an employee of the plaintiff’s company. The defendant left the plaintiff’s company and started a business similar to the plaintiff’s. While leaving the company, he was also able to get a copy of the database and started to utilise the same to further his own company. In this case, the court held that a compilation of phone numbers, addresses, names, etc, is a database that has been prepared by investing a lot of time and effort and as such it comes under the purview of literary work and has to be protected. The court further held that the database and the information therein are also trade secrets as if the information were released into the public domain, it would most certainly cause monetary loss to the owner.

• Diljeet Titus v. Alfred A Adebare, Ms. Seema Ahluwalia Jhingan & Others, 2006

The facts of the case are as follows: The plaintiff in this case (Mr. Diljeet) was the owner of a law firm that employed numerous lawyers. Some of his employees left his firm to start a new firm. Mr. Diljeet alleged that the ex-employees had taken with them confidential information such as a list of clients, legal advice and opinions that were offered to the clients at the firm. The defendant (Mr. Adebare) was alleged to have taken from Mr. Diljeet’s office, as much as 3,000 visiting cards. The argument raised by Mr. Diljeet was that the communication between a lawyer and client must at all times be confidential and privileged and the same cannot be divulged to anyone. The plaintiff is duty-bound to keep the information confidential at all times. In the current scenario the confidential information was pertaining to advice given to the plaintiff’s client on how they may strategise their entry into India. The court held the view: “There can be little doubt that the information between a client and his advocate has the necessary quality of confidence and when it is imparted there is an obligation of confidence. The defendants have not worked for the clients but for the plaintiff and thus when they take away the duplicate information, there is unauthorised use of information”. According to the court, when the employees took away the confidential information it constituted a breach of confidentiality. This breach of confidentiality was detrimental to two parties, firstly, the clients of the plaintiff and secondly, the plaintiff himself. The court further held, “If the defendants are permitted to do what they have done it would shake the very confidence of the relationship between the advocates and the trust imposed by clients in their advocates”.

• Hi Tech Systems v. Suprabhat Ray, 2015

The defendants were software engineers employed by the plaintiff (Hi-Tech Systems). The employees were obligated to keep the confidential information or trade secrets that they learned during the course of their three year employment a secret, during or after their three-year tenure by a code of conduct agreement. This was done to prevent misuse of confidential information of the plaintiff’s company and secondly, the covenant was time-bound and hence fulfilling the reasonability test laid down in Niranjan Golikari’s case. This was also the first case to emphasise the importance of human capital as an asset.

• Navigators Logistics Ltd v. Kashif Qureshi, 2018

This is a case that is in sharp contrast to the cases that have been mentioned above. Although the facts and jurisprudence that are to be followed in this case are fairly similar to the cases that have been mentioned above, the court did not find in favour of the plaintiff. The facts of the case are as follows: The plaintiff was the owner of a logistics and freight forwarding business and he alleged that one of his employees who left the plaintiff’s company had left with the customer list, their names and their phone numbers. It was also contended that this list was put together by the plaintiff at the expense of a lot of time and effort from his end, and hence it constituted a trade secret. The court found that the plaintiff had failed to provide the details of the list, and the plaintiff also failed to prove the author of the list. The plaintiff was unable to prove that he was the one who put the time and effort into creating this list or if it was his use of skill and judgement that created the list. The court held that merely mentioning such words in the suit, without the ability to prove the same, would not help sustain such a case of misappropriation of trade secrets. This goes to show the caution exercised by the courts in deciding disputes regarding the disclosure of confidential information.

• Dr. Sudipta Banerjee v. L.S. Davar & Company & Ors, 2021

Dr. Sudipta Banerjee was a well qualified patent specialist working at L.S. Davar and Company, a reputed intellectual property firm, from 1st June, 1994, until she resigned in the year 2020. After her resignation,along with two other employees, she joined another firm by the name of P.S. Davar and Company. L.S. Davar & Co. raised allegations that the former employees were divulging confidential information of their previous employer to the new firm. An injunction order was passed by the High Court of Calcutta against the appellants for disclosing trade secrets and confidential information. In this case, the appellants were prohibited from disclosing the confidential information they had learned during their employment till the injunction was disposed of on merit. The court further held that, the company being a professional firm, may not have any trade secrets, however, the persons in employment of the respondent would certainly be privy to privileged information and any sharing of information and communication would not only be purely unethical but would also be in clear violation of the confidentiality clause which may lead to serious harm for the plaintiff firm. The court also held that there was no specific legislation in India for the protection of trade secrets and confidential information. Despite this legislative shortcoming, Indian courts have upheld trade secret protection on the basis of principles of equity, and at times, upon a common law action of breach of confidence, which ultimately amounts to a breach of contractual obligation. The courts also defined the remedies available to the owner of a trade secret in case of misappropriation; these remedies included obtaining an injunction preventing an individual from disclosing a trade secret, the return of all confidential and proprietary information, and compensation for any losses suffered due to the disclosure of such trade secrets. 

This was a case in which the courts explicitly recognised the tacit shortcomings of the legislature with respect to trade secret law. This case also clarifies the limitations of Section 27 of the Indian Contract Act with regard to disclosure of confidential information after the expiration or termination of an employment contract.

Conclusion 

Trade secrets hold a vital place in the realm of Intellectual Property Rights (IPR), offering businesses a means to safeguard their confidential information from competitors. Unlike patents or trademarks, trade secrets do not require registration, making them a flexible and often cost-effective form of protection. Their primary advantage lies in their indefinite duration of protection, provided the secrecy is maintained. This intrinsic attribute allows businesses to sustain a competitive edge, as exemplified by famous trade secrets like the Coca-Cola formula.

However, the protection of trade secrets is not without its challenges. The inherent requirement to keep the information confidential means that businesses must implement robust security measures and policies. Failure to do so can lead to the loss of trade secret status and the associated competitive advantage. Moreover, legal remedies for trade secret misappropriation, while available, often involve complex and lengthy litigation processes, which can be burdensome for businesses. Internationally, the protection of trade secrets is gaining prominence. Agreements such as the TRIPS (Trade-Related Aspects of Intellectual Property Rights) provide a framework for member countries to protect trade secrets, reflecting a global recognition of their importance. Despite this, the extent and effectiveness of protection can vary significantly between jurisdictions, necessitating businesses to be well-versed in the legal landscape of each market they operate in.

In conclusion, trade secrets are a crucial component of IPR that enable businesses to protect their valuable and confidential information. While they offer significant benefits, maintaining their status requires diligent and ongoing efforts. As the global economy becomes increasingly knowledge-driven, the importance of trade secrets will continue to grow. Businesses must stay vigilant and proactive in their protection strategies to fully leverage the potential of trade secrets in safeguarding their competitive position.