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Trade Secrets Legislation - A Necessity

In the present era, the companies work in a highly competitive environment. The needs and wants of the consumers are dynamic and to meet their demands, the companies have to invest a lot on research and development. The research and development leads to a lot of data compilation which is a way of a company to gain more profits and is to be kept as a confidential information. The confidential information is to be kept securely and away from the access of competitors.

Many instances can be seen where the confidential information of a company is breached by its competitors either by theft or dumpster diving. The trade secrets law helps to keep this data a secret and out of the reach of competitors.

Definition of Trade Secret:
A trade secret may be interpreted as any particular information that is: not generally known to the competitive firms of a firm or to the public at large, it provides economic benefit to the owner, and reasonable efforts are made to maintain its secrecy.

An information continues to be a trade secret as long as the information is kept in a hole-and-corner.

The Trade Secret Law maintains and encourages caliber of Commercial ethics and fair dealing. It also provides an incentive for businesses to innovate by protecting their capital and time invested in making the innovative or a new invention.

The procedures and rules for protecting the formula of Coca-Cola is the best example of keeping a trade secret.

Subject Matter of a Trade Secret:
To all intent and purposes any type of information may qualify as a trade secret:
  1. A trade secret may comprise of information relating to a formula, pattern, device or other compilation of information
  2. Many a times a trade secret is technical information used in the manufacturing and processing of goods.
  3. A trade secret may relate to the strategies, or a method of accounting or other business management procedures, including software used for various business routines.
Other few examples of trade secrets may include technical, scientific or financial information, such as business plans, business processes, list of key customers, list of reliable or special suppliers, product specifications, product characteristics, purchase prices of key raw materials, test data, engineering specifications, proprietary recipes, formulas, content of laboratory note books, salary structure of a company, product pricing and advertising rates, source code, object code, databases and electronic data compilations etc.

Importance of Trade Secrets:
Trade secrets are an paramount, but a hidden component of a company�s intellectual property assets. They can add colossal capital to the business value, so they need to be managed in a proper way. A trade secret legislation is likely to stiffen in key jurisdictions at a time when patents seem to be enfeeble in some areas. Trade secrets can be a gem in an organisations intellectual property.

The other available intellectual tools may not be able to protect some intellectual knowledge. Patents, for example, are there only for inventions in the field of technology and that too for only limited period of 20 years. Patent is not suitable to give protection to business secrets in conducting the routine activities of business. In case of scientific or technological invention, which is protected by the patents, there is a time period to get a patent protection.

This time period starts from the submission of patent application to the time of grant of patent. During the dealing of the patent application by Patent office, the subject matter of patent application, i.e. the invention is not protected. During this awaiting period, Trade Secret can be used for the protection of scientific or technical invention. It will protect the invention against any disclosure of the invention, irrespective of the fact whether patent will be granted or not. Trade Secrets are the intellectual property of the new era and can no longer be neglected by the nations.

Trade secret misappropriation costed Walt Disney approz 240 million dollar and Cargill 300 million dollar. Patents are tips of icebergs in an ocean of Trade Secrets.

There is intensive competitions going on in the market and goods are circulated freely throughout the world. At this point, the proper protection of Trade Secret is the sine qua non.

In comparison with other Intellectual Property tools like Patents, Trade Mark, Design, Copyright etc. trade secrets is quite advantageous.

In case of Patent, Trade Mark, Industrial Design etc., some fee for their registration is necessary. Patent protection is available for definite period of time. After specific time, the invention comes in public domain. But in case of Trade Secret, no registration fees is necessary and no defined period protection. It is not necessary to disclose the information which is a trade secret.

Trade Secrets provides protection to near about 80% of the assets of companies and before obtaining patent protection, all inventions are protected by trade secret. So, importance of Trade Secret cannot be denied.

Characteristics of a Trade Secret:
  1. The information is a secret
    For an information to be regarded as a "secret," it must not be readily ascertainable to competitors. A trade secret loses all it�s importance if the competitor gain access of the information of the owner or public at get to know about it. For example the formula for Coca-Cola is not known to anyone except the secret keepers of the company, so it is secret. If the competitors of Coca-Cola Company's somehow get access to the formula, the formula would lose its "trade secret " status under the law and on the other hand, if an individual or small group of individuals gain knowledge of the formula, but the Coca-Cola Company cease them from communicating it to the company's competitors, then the formula would not lose its "trade secret" status.
  2. The information provides a competitive benefit to the owner
    The information which is a secret must give its owner an economic benefit over its competitors.
    For example Coca Cola formula confers a competitive benefit to the company. Most importantly, the industry recognises the Coke's formula so valuable that several firms tried selling it to PepsiCo for $1.5 million in 2006. In addition, the Coca-Cola Company made serious efforts to keep the information secret protecting the formula in a bank vault and allowing only two heads to know how to access to the formula at the same time.
  3. Reasonable efforts are to be made to keep information a secret
    The owner of a trade secret has to make reasonable efforts to keep the information secret.
    For example the Coca-Cola company certainly takes reasonable steps to keep the formula secret.

Trade Secret Laws of Various Nations:
  1. The United States of America
    USA has a federal legislation and as well as state legislation for the trade secrets. However they primarily get protection under the state laws. One can seek damages or for common law tort remedy under the Uniform Trade Secrets Act. The act provides for injunctive and monetary relief (punitive and compensatory damages) for any kind of misappropriation.
    The Federal law covers two acts namely The Trade Secrets Act and Economic Espionage Act,1996. The former one has narrow applicability as it forbidden federal employees from disclosure of confidential information. The latter one has a wider scope and it defines two criminal offences for trade secrets, that are:
    1. theft of a trade secret for benefit of a foreign entity (18 U.S.C Section 1831)
    2. theft done to provide benefits of the secret to another party (18 U.S.C 1831).
      The maximum penalties under the Economic Espionage Act are:
      • a fine of $5 million and imprisonment upto 15 years ( for an individual) and $10 million or 3 times the value of stolen trade secret (for corporates).
  2. China
    The Criminal Law provides for a fine and imprisonment upto three years to anyone who by his acts causes serious losses to a trade secret owner. Imprisonment penalty can be increased to 7 Years if the act is exceptionally serious.
    The acts include:
    • Acquiring the secret by theft, duress or illegal means
    • Disclosing or allowing to use trade secret by illegal means
    • Disclosure or allowing of use by breach of confidentiality agreement

      Article 10 of Anti unfair competition law gives a proper information about the trade secrets. Trade Secrets include any information which is unknown to public, provides economic benefits to owner, has practical utility.

      Compensatory damages and injunction are civil remedies provided by the Civil law of China.
      Other laws such as Contract law, Company Law, Labor and labor Contract law.
  3. Russia
    Russian Law considers two types of secrets : Trade secrets and Production Secrets. Such secrets are given protection from:
    • Insiders to whom information is entrusted
    • Outsiders who obtain information through improper means
    • Government agencies who might obtain it through espionage

      Unlawful access and Misappropriation of both the secrets lead to rise of a civil liability of payment of damages. Injunction can also be sought by the owner from being disclosed in public domain.
  4. India
    There is no legislation which regulates trade secrets in India. The courts provide protection to confidential information common law actions for breach of contract and breach of confidence.
    Generally Damages and injunctions are the remedies provided to the parties in case of misappropriation of an information that is a trade secrets.

In Emergent Genetics India Pvt Ltd vs Shailendra Shivam & ors Courts took the view point of England courts for the circumstances related to breach of confidence:
  1. Information must qualify to be confidential
  2. Information must have been imparted in circumstances of confidentiality
  3. Unauthorised use of information is necessary

It is the need of the hour to get a legislation which regulated trade secrets laws in India. The government is aiming to boost up the MSME sector and the MSME�S also suffer from a lot of competition in the market. Through trade secrets, the industries in MSME sector can gain a competitive advantage over other firms.

The TRIPS agreement also has a provision that member states should amend their laws or develop laws regarding Intellectual Property.

The COVID-19 pandemic has also made many foreign firms to shift their businesses from China to India. These firms might face the problem of reverse engineering, dumpster diving etc. To attract the foreign firms the legislation regarding trade secrets need to be passed as these foreign firms will help in boosting the economy.

The draft of National Innovations Act, 2008 promotes research and innovation is praisable but the need of a Central Act for trade secrets is necessary and government can also amend Indian Penal Code,1860 by adding sections related to misappropriation of trade secrets and other codes/acts as well.

  1. Article- Intellectual property protection for trade secrets and know hoe by Thomas Duston and Thomas Ross
  2. Handbook- Protection of Trade Secrets by The Law Library
  3. Article- Legal Protection of Trade Secrets and Confidential Information by SK Verma

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