Trade Secret Worldwide

Trade secret is a confidential information which is not known to others. A trade secret refers to the information related to business not generally known to public and which the owner reasonably tends to keep the information secret and confidential. The information must derive economic value either actual or potential. The secret must hold a competitive edge. Trade secret also means information which has got certain commercial value and which provides commercial advantage to the owner. Under the TRIPS agreement, trade secret means “undisclosed information”.

Trade secrets can be either business or confidential technical information and broadly may include manufacturing processes, industrial designs, product formulas, sales and advertising strategies, distribution methods, customer lists, computer algorithms and the like. Most famous example of trade secret are Coca-cola formula. This formula is kept locked in a bank vault in Atlanta, and it can be opened only by resolution of company’s board and is known to only 2 employees at the same time. The public has no access to name of those employees and they are not allowed to fly on the same plane.

It is important to bear in mind that a trade secret need not be novel nor it should have any intrinsic or real value to be protected. The most important requirement for it, is that it should be a secret. Irrespective of its protection under legislative mechanism or common law, if the information fulfills certain criteria, it would be trade secret.

Business world is much concerned with keeping certain information secret or confidential for which investments and cumbersome efforts are made. The secrets in trade or business are protected against its unauthorized exploitative use. Law guarantees enforcement of trade secret for the purpose of remedying the loss or damage suffered by the owner due to the unauthorized exploitation of trade secrets.

Law of Trade Secret in various nations

USA

Many aspects of the doctrinal development of the law of trade secret in the United States came from England to protect commercial or industrial secret information. At first the trade secret law in US has been an area traditionally regulated by the individual states common law. USA protects trade secrets under a specific legislation named, US Trade Secret Law- ‘Uniform trade secret Act’. Following the US trade secret law, the North American Free Trade Agreement (NAFTA) was entered on 17 December, 1992 between the United States, Canada and Mexico. Member Countries have to protect trade secrets from unauthorized acquisition, disclosure or use. The UTSA allows the recovery of the plaintiff’s actual losses and the amount by which the defendant has unjustly benefited from the misappropriation. Damages may include lost profits and the costs associated with repairing one’s business. Exemplary damages can be recovered in exceptional cases. Injunctions are also available. The other act which makes the theft of the trade secret is a federal crime is Economic Espionage Act.

Japan

Japan enacted it own national trade secret protection law which is effective from June, 1991. Trade secret in Japan includes any “technical or business” information that has commercial value, is not in public domain, and which has been “administered” as a trade secret. The infringement of the trade secret occurs when a person procures a trade secret by theft, fraud or extortion. A person whose business interests are infringed by misappropriation of the trade secret is entitles to seek an injunction, a disposal of object created by the act of the misappropriation, and damages against the person who is infringing such business interest. The statute in the Japan has similarities with UTSA. There are no criminal sanctions under the statute operating the Japan related to trade secret and UTSA. There is a provision in both the statute that the owner of the information can claim for the infringement in 3 years after the discovery of trade secret violation.

United Kingdom

The UK has probably the most developed trade secret law, mainly due to the industrial revolution and its common law legal system. Under the UK statute search and Seizure orders may be issued to protect the trade secrets and preserve the evidences. The UK provides broad and effective protection for the trade secret. There exists the full display of the remedies for “a breach of confidence” including the injunctive relief, damages and the third party liability.

France

France also provides protection for the industrial and commercial secrets. France law recognizes three types of the trade secrets: Manufacturing secret, Know How and confidential business information, taken together are equivalent to Anglo American trade secret concept. In general the manufacturing secrets have their roots in the French penal code and are not subject to a particular law. These are secrets information regarding some sort of the industrial application capable of providing the commercial or market value. Regarding the commercial secrets there is no specific mention in the French legislation.

French law provides for the penal sanctions against the theft or misappropriation of the manufacturing trade secrets. Companies that are victims of manufacturing trade secret theft may also file complaint before the civil courts. The same applies when the wrongful acts have not been committed by an employee but the third party using fraudulent devices. In this case, complain is to be filed on the basis of unfair competition act. Injunctive relief, damages and third party liability are the available remedies to the plaintiff.

Italy

 Italy also provides strong protection for the trade secrets. The trade secret theft is a crime in Italy. The full panoply of the trade secret misappropriation are available. The new Italian code of intellectual property provides legal protection for the corporate secret information. The code provide that anyone who acquire or receive the corporate secret information shall be bound not to use or reveal the company information and the commercial or techno-industrial experience to third parties.

International treaties for protection of trade secret

There is an increasing recognition of the importance of trade secrets and trade secret protection in the United States and abroad. It has been estimated that the majority of working technologies worldwide is protected as a trade secret rather than by patent. Also the globalization of the commerce requires even small companies to protect their trade secret on international basis. If the companies fail to protect their trade secret internationally, then during business in abroad or foreign countries they have to sacrifice competitive advantage. Various treaty and the agreements are enacted to protect the intellectual property on global basis that also protect the trade secret. Both the North American Free Trade Agreement (NAFTA) and the Agreement on Trade Related Aspects of Intellectual Property (TRIPs) ratified during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) include specific provisions directed toward increasing the protection of trade secrets. There are no comprehensive international treaties pertaining to the trade secret. NAFTA and TRIPS provide only brief attention to the topic. Furthermore, in the past ten to fifteen years, there has been a trend toward the adoption of domestic statutes specifically directed at the increased protection of trade secrets, particularly among Asian nations. There is a little difference in the protection provided by the various international treaty and agreements.

Paris Convention

The Paris convention for the protection of industrial property (1883) was enacted, in part, to discourage the unfair competition. Article 10 of the Paris Convention (covering unfair competition) provided a potential source of support for the international standards of trade secret protection. The Paris convention prohibits unfair trade practices among its members, means “Any act of competition which is in conflict with the fair customs of the industry and trade is not acceptable”. The examples of the unfair competition provided by the Paris convention do not include trade secret infringement. Thus, it is not clear from the convention statement if economic espionage or other unfair means to appropriate a trade secret comprises unfair competition. But the article 1 (2) (scope of industrial property) of the Paris convention stipulates that the industrial property should be understood in its broadest sense. Therefore, legal consequences of interpreting the Paris convention in the field of trade secret is deemed to be unclear because the lack of enforcement provisions in the Paris Convention left the international community without a legal tool to achieve the protection level desired.

TRIPS agreement

The main aim of the TRIPS agreement (1994) is to provide internationally accepted standards of protection of intellectual property rights and it is implemented by the WTO. All the major industrialized countries are members of this agreement. GATT created the WTO which is responsible for the development and administration of agreements and programs for the improvement of world commerce. WTO established an administrative procedure for resolving the trade secret disputes.

It is a point to think whether trade secrets are form of intellectual property rights? The general opinion at the GATT negotiations was that unauthorized use of “confidential information”, belonging to others, is an unfair practice. The developed countries wanted to further protect their economic interests and one such way was to provide adequate protection to the capitalists, which could be achieved by protecting their creations. Various provisions of the TRIPS:

 Article 39 of the TRIPS, is a first multilateral acknowledgement of the essential role of the trade secret in the market place and this article stipulates that undisclosed information, often synonymous to trade secrets, can be protected as provided for in Article 10 of the Paris Convention.

 Article 39, clause 2 states that all members will protect undisclosed information from commercial exploitations.

 Article 39, clause 3 states that data or information submitted to Government for regulatory or other approvals have to be protected from leakage to or theft by third parties.

Article 39 of the TRIPS is certainly an international acknowledgement of the importance of the trade secret too worldwide trade. And is also a victory for the industrialized western nations in their search for a better legal framework to protect industrial property like trade secret. TRIPS include provisions for the protection of trade secrets, under the general term “undisclosed information”, but are silent on the modalities of achieving this and have left it to the member country as how much protection they provide. Member’s countries must follow standard requirement for what constitute trade secret, infringements and available remedies.

NAFTA (North American Free Trade Agreement)

The U.S., Mexico and Canada are the signatories to the North American Free Trade Agreement (NAFTA) in late 1992. NAFTA carries a provision directed to provide uniform minimum standards for protecting trade secret. NAFTA largely follows the principles of trade secrets law in the United States. A trade secret under NAFTA is defined as commercially valuable information, which is not publicly known and the owner of which takes reasonable steps to maintain the information’s secrecy. The article 1711 (1) of this agreement states the protection of the trade secret.

It states that each party shall provide the legal means for any person to prevent trade secret from being disclosed to, acquire by, or used by others without the consent of the person lawfully in control of the information in a manner contrary to honest commercial practices, in so far as: The information is secret, has actual or potential value and the person lawfully in control of the information has taken reasonable steps under the circumstances to keep it secret. The NAFTA members are responsible for protecting trade secrets and to prevent the unauthorized acquisition and use of materials that classify as trade secrets. Among the available remedies in each of these countries, injunctions as well as monetary remedies are required.

It seems clear from the above that NAFTA protection of trade secret is almost the same as that provided by the TRIPS to undisclosed information. However the protection provided by NAFTA is broader, to the extent that confidential information could have present or potential value. While the TRIPS does not recognize such a contradiction, it needs the protection must have potential value. Other contrast are that NAFTA allow its members to require some sort of the tangible evidences for the trade secret protection, also NAFTA prohibits the parties from limiting the duration of the protection. NAFTA discourages or obstructs the trade secret licensing process. TRIPS is completely silent as to the above element.

European Union

 the European Union does not have any specific legal provisions to protect the trade secrets or undisclosed information. One of the problem facing this common market and economic union is that “the exercise of the industrial or commercial property rights must unavoidably restrict the competition; indeed their very purpose is to give their owner some protection against competition by giving him monopoly rights for a certain period of time as a reward for his creative endeavor or acquired goodwill in his product”. From this follows that the possible perpetual trade secret protection is somewhat in doubt within the EU. It could be interpreted as an industrial property right abusive exercise infringing free flow of goods. The actual situation of the trade secret protection in the EU is not yet clear.

Trade secret protection in India

In India, we do not have any specific legislation for trade secrets but rely on certain provisions in certain acts. These provisions in some way do provide for the protection required but do not clearly elucidate out as to what are trade secrets and what are not, how is its monetary value assessed and how conflicts are resolved. 

Firstly, Section 8(1)(d) of the Right to Information Act, 2005 says that there is no obligation to provide any information to any citizen regarding commercial confidence, trade secrets or intellectual property unless there is a larger public interest involved. In this context, there is always a problem while balancing the citizen’s right to have access to any information and preserving a company’s interests. For instance, if a person has shares in a particular company, the only data available will be the one in public domain. However, the Company’s policies or the business tactics as to how does the Company generate profits is never revealed. Thus, any citizen may claim this information under his right to information but it cannot be revealed as certain things will fall under the category of trade secrets. The question remains how much a citizen is entitled to know before it falls under forbidden information.

Secondly, Section 27 of the Indian Contract Act, 1872 says that every agreement by which any person is restrained from carrying on any lawful occupation is void. Article 19(1)(g) of the Constitution also reaffirms the same. Section 27 has two aspects to it, namely non-compete and non-disclosure agreements in relation with trade secrets. A non-compete agreement is an agreement that denies access to the seller from conducting a similar business in the specified area for a certain period of time.

There was a bill proposed called the National Innovation Bill, 2008 in which chapter VI talked about the confidentiality of information. It broadly talks about three things. The first being confidentiality, the second being misappropriation and the third being damages and injunction. According to the bill, confidentiality can arise by contractual and non-contractual obligations. However, even under contractual obligations, information can be revealed if there are other obligations by way of equity. Under non-contractual obligations, information cannot be revealed by the third party unless consent of the same is acquired. In order to prevent misappropriation of information, trial can be taken in-camera, issuing orders to prevent people witnessing the trial to not reveal any information. Further, there are three exceptions laid down for misappropriation. There will be no misappropriation if the information is already in the public domain, if the third party has independently arrived at that particular result by his own efforts or if it is in public interest.

Injunctions shall be granted if there is any misappropriation unless it falls under the exceptions. Also, if there is a misjudgment in granting of injunction, the complainant will have to compensate the defendant to that extent. Damages will be awarded if the confidential information has been misused and unless there is a contract that states the amount, the Government is at the liberty to decide the requisite amount according to provision 15(c) of the Act. Also, if the intent is established of the person misappropriating, the damages will be thrice the amount prescribed in the Act. Lastly, there is immunity for any act done in good faith.

This Act remained a bill only and was not enforced into a law. However, this was the closest the Government came to laying down certain statutory provisions for protection of trade secrets. An analysis of this reveals that the definition of confidential information is directly copied from the TRIPS Agreement. Thus, on one hand, it is advantageous as it is on par with the international standard while on the other hand; its scope becomes restrictive and lacks originality. The definition of innovation also reveals that it talks about only ‘processes’ that can be protected and is thus restrictive. Trade secrets only form a part of the Act and talks about allied subjects like research, innovation and marketing and hence does not treat trade secret as appropriately as a separate statute would.

Rights and obligations of people related to confidential information are to be subjected to the Government. This will attract the provisions that it might be discriminatory, unjust and will place discretion which will go against Article 14. It does not even lay down the provisions as to on what basis and how this power is to be utilized by the Government. The only remedies provided are civil in nature, whereas there might be trade secrets whose damages will be huge in magnitude and no amount of damages could compensate it. A criminal remedy should also have been included within the ambit of the Act. This Act, however, remained the only effort to actually legislate the law of trade secrets and did pave the way for further legislations that might come along.

Conclusion

Protection of trade secret is really important and proper policy is need of the hour as it is the fundamental to innovative ideas or steps. Foreign companies who are eager to invest and ready to set up Research & Development facilities in India are having only apprehension of insufficient statute that specifically governs the protection of trade secret and this inadequate legal framework creates uncertainty over the circumstances under which trade secret can be protected and judicial relief would be available  in Indian courts. Foreign investors want to be assured of the protection of their trade secrets, so that they can do business in India. A proper effective law further enhance the security in our own industry.

 In the year of 2008, second term of UPA regime, the Department of Science and Technology, as the part of  the Ministry of Science and Technology, published draft legislation titled “The National Innovation Act of 2008” to facilitate public, private or public- private partnership initiatives for building an innovation support to encourage innovation and to codify and consolidate the law of confidentiality in aid of protecting Confidential information, trade secrets and Innovation. Trade secrets would have been regulated under Chapter VI, titled “Confidentiality and Confidential Information and Remedies and Offences.” the current status of this Act is still unclear.

What India needs is to enact a law similar type of law as in U.S. where The Uniform Trade Secret Act, 1979, and The Economic Espionage Act, 1996 enacted in an effort to provide proper legal framework to protect trade secrets.

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