Journal of Intellectual Property Rights

Vol 16, July 2011, pp 341-350

Intellection of Trade Secret and Innovation Laws in India

Md Zafar Mahfooz Nomani† and Faizanur Rahman
Department of Law, Aligarh Muslim University, Aligarh 202 002, Uttar Pradesh

Received 14 February 2011, revised 16 June 2011

The uniqueness of trade secret law is that it fits into the extensive framework of contract, competition, innovation and
intellectual property rights. The trade secret doctrines are closely linked to the domain of tort and criminal law although
subject to different rationalizations. The remedial part of the law is inconsistent with the cause of action. The varied nature
of trade secret calls for its holistic comprehension as a form of intellectual property. An incentive based approach in granting
legal protection to trade secret harnesses the idea, inventions, and utility patent. This is best suited to varied categories of
innovators and inventors in a post liberalized Indian economy and TRIPS compliance. The paper traces evolution and
development of trade secret law in a comparative perspective and critically analyses the potential impact of innovation law
on trade secret protection in the context of national innovation policy and laws of India.

Keywords: Intellection of trade secrets, undisclosed information, reverse engineering, non-disclosure agreements,
non-compete clauses, incremental innovation

Origin of Trade Secrets North American Free Trade Agreement (NAFTA) and
Intellectual property undertakes scientific and the Agreement on Trade-Related Aspects of
technological research and provides legal protection Intellectual Property (TRIPS) ratified provision
against competitors by way of sustaining confidence related to trade secrets during the Uruguay Round of
and confidentiality. The legal exclusivity in using the General Agreement on Tariffs and Trade (GATT).
ideas and information for commercial advantage Since then, there has been a positive trend toward
requires sophistication and esoteric specialism.1 adoption of domestic statutes specifically directed at
In free-market economies, intangibility of property the increased protection of trade secrets.
rights is becoming increasingly valuable in retention
of market shares.2 Trade secrets as an intellectual
property have potential to translate intangible Concept of Trade Secrets
value into economic growth.3 Unfortunately, the Intellectual property (IP) laws are generally
unfavourable treatment accorded to trade secrets has territorial in character but trade secret protection
displaced it from the home of intellectual property varies according to jurisdiction. Trade secret law
rights (IPR) law. An important reason for the same is protects technological and commercial information
that IPR laws are tuned to bring transparency and not generally known in the trade and prevents
probity in knowledge management whereas the trade unauthorized commercial use by others. The policy
secrets are shrouded in secrecy and confidentiality. behind trade secret protection is to encourage research
Trade secrets are accorded confidentiality under legal and development by providing protection to the
protection allowing claims for injunctive relief for originator of business information, and maintain
unauthorized use and dissemination by way of proper standards of business ethics.5 A trade secret is
recovery of damages. Further, the breach of commonly ‘any formula, pattern, device or
confidentiality attracts criminal charges. The extent of compilation of information which is used in one's
recognition of trade secrets the world-over can be business, and which gives human opportunity to
gauged by the fact that a majority of working obtain an advantage over competitors.’ Broadly
technologies worldwide are protected as trade secrets speaking, there are three factors common to all
rather than by patents.4 At the international level, the definitions of trade secret: (i) it is information not
____________ generally known to the public, (ii) it confers economic
†Email: Corresponding author: [email protected] benefit by maintaining secrecy and confidentiality and
342 J INTELLEC PROP RIGHTS, JULY 2011

(iii) is the subject of reasonable efforts to maintain its Adequate Documentation

secrecy. Trade secrets act as an incentive to Sufficient records of evidentiary value are
incremental innovation in technology not meeting the maintained of the trade secret information. These are
non-obviousness standard of patent law and subject to audit and update at regular intervals.
copyrights. The inventions protected as utility model,
Security Systems
trademarks, industrial designs, artistic or literary
Access to trade secrets and confidential information
works are often maintained as trade secrets until used
are restricted to select personnel under security
or published during the process of registration or
checks. In case of an electronic environment, the
grant of the relevant IPR. A substantial part of
businesses use adequate software programs, virus
economically meaningful technology, particularly
scans, firewalls and other security and authentication
new and cutting edge technology are prone to reverse technologies to safeguard their trade secrets.
engineering, such as biotechnology, computer It is important to bear in mind that a trade secret need
program microchips, computer-aided designs and neither be novel nor real; only a secret.9
hence preserved as trade secrets.6 Exclusivity of the
protection allows the innovation, invention and Infringement of Trade Secrets and Remedies
reproduction, by offering the owner an opportunity to A trade secret owner has the right to keep others
discourage free riders and to recoup his investment. from misappropriating and using his trade secret.
Trade secrets play pivotal role in protecting Although misappropriation is sometimes a result of
innovations and establishing rights to use new industrial espionage, often trade secret cases involve
technology. Trade secret protection extends to appropriation by former employees, use in new
formula, patterns, plans, designs, physical devices, businesses or for new employers. Trade secret
processes, software and know-how.7 protection endures as long as the requirements for
protection - generally, value to the owner and secrecy
Mechanism and Modalities of Trade Secrets - continue to be met. The protection is lost if the
The TRIPS Agreement recognizes trade secrets owner fails to take reasonable steps to keep the
under ‘undisclosed information’, but remains silent on information secret.10 Besides, disclosure of trade
the mechanism and modalities. The nature and secrets is not actionable in all cases i.e., trade secrets
methodology differ in state practices and range from owners have recourse only against misappropriation
privacy laws to unfair competition and breach of and there a number of defences to disclosure of trade
contracts.8 The prominent modalities to protect trade secrets as follows:11
secrets are outlined as under:
General Knowledge
Employment Agreement
In common law, it is a well-established principle of
Depending upon their needs, businesses include
public policy that a former employee is free to utilize
suitable confidentiality, non-disclosure agreement
the general skill and knowledge acquired during his or
(NDA) and non-compete clause (NCC) in agreements
her employment.12 Similarly, in USA, the Economic
with employees. These may comprise the type of
Espionage Act, 1996 (EE Act) does not apply to
information that is likely to be disclosed, the manner
individuals who seek to capitalize on their lawfully
in which it should be used and restrictions on
developed knowledge, skill or abilities. Although the
disclosure post-termination.
EE Act, 1996 declares theft or misappropriation of
Trade Secret Policy trade secret as a federal crime, exclusion applies not
Trade secret policies rely on business secrets based only to the exploitation of the information for the
on their value and sensitivity and accordingly employee’s own benefit, but also to the employee’s
employees are forewarned of breach. use of it for other employers.13

Non-Disclosure Agreements (NDAs) Parallel Development

Businesses enter into NDAs with third parties while The owner of a trade secret does not possess a
discussing any business prospects and ventures. In monopoly on the data that comprises the trade secret.
this way, third parties can be precluded from Other companies and individuals have the right to
divulging any trade secrets. discover the elements of trade secret through their
 NOMANI & RAHMAN: INTELLECTION OF TRADE SECRET AND INNOVATION LAWS IN INDIA 343

own research and hard work.14 Thus, it is a defence if information is disclosed pursuant to a court order, or
the defendant demonstrates that he has independently otherwise for the purpose of legal proceedings, it
developed the trade secret. comes within the exemption. Similarly, the use or
disclosure in the interests of national security or for
Reverse Engineering the prevention, investigation or prosecution of crime
Discovery by reverse engineering, namely, starting is permissible. However, the disclosure must be to
with the known product and working backward to someone who has a ‘proper interest’ in receiving the
find the method by which it was developed, is information in question.18
considered proper means. Therefore, to avoid a
successful claim by the defendant that he discovered International Legal Framework
the trade secret by reverse engineering, prosecutors It is appropriate at this juncture to look into the
should establish the means by which the defendant international and comparative norms governing trade
misappropriated the trade secret. If the prosecution secret laws. In this connection, it is necessary to
could show that the defendant unlawfully obtained understand the American law and precept in proper
access to the trade secret, it would refute his claim context because it represents one of the most
that he learnt the trade secret through reverse advanced forms of trade secret law in the world.
engineering. However, a defendant cannot defeat a Article 39(2) of the TRIPS lays down the essentials
prosecution by claiming that the trade secret could for undisclosed information but avoids using the
have been discovered by reverse engineering.15 nomenclature of trade secret. The US enactment on
trade secrets, Uniform Trades Secrets Act, 1970
Innocent Acquisition of Information provides the most comprehensive definition of trade
Where the defendant acquired the information secrets (Section1) found anywhere in any statute,
innocently, that is, without knowing that it was a trade as under:
secret belonging to a person who did not consent to
…Information, including a formula, pattern,
the defendant’s acquisition of it, he is not liable to
compilation, program device, method,
infringement of a trade secret under English law.16
technique, or process, that derives
However, under the US law, a person who learns of a
independent economic value, actual or
trade secret innocently, without notice, is liable after
potential, from not being generally known to,
receipt of notice unless he can prove that he has in
and not being readily ascertainable by proper
good faith paid value for the secret or has so changed
means, by other persons who can obtain
his position that to subject him to liability would be
economic value from its disclosure or use,
inequitable.17
and is the subject of efforts that are
Public Interest
reasonable under the circumstances to
It is well established that no liability is attached to maintain its secrecy.
the use of information, which was in public interest to Another significant development in US law is the
use or disclose. Thus, a defendant in proceedings for Economic Espionage Act, 1996 which deserves closer
breach of confidence shall not be liable to the plaintiff scrutiny in relation to the essentials of trade secret.
in respect of any disclosure or use of information by The EE Act, 1996 clarified what makes theft or
the defendant in breach of an obligation of confidence misappropriation of trade secrets a federal crime. This
if (a) the defendant raises the issue of public interest law contains two provisions criminalizing two sorts of
in relation to that disclosure or use; and (b) the activity. The first, provided for in 18 USC §1831(a)
plaintiff is unable to satisfy the court that the public criminalizes the misappropriation of trade secrets,
interest relied on by the defendant under that sub- including conspiracy to misappropriate trade
section is outweighed by the public interest involved secrets and the subsequent acquisition of such
in upholding the confidentiality of the information. misappropriated trade secrets, with the knowledge or
intent that the theft will benefit a foreign power.
Statutory Obligation Penalties for violation are fines of up to US$ 500,000
If the information is used or disclosed in per offence and imprisonment of up to 15 years for
accordance with a statutory obligation or power, the individuals, and fines of up to US$ 10 million for
defendant is not liable. For instance, if the organizations. The second, defined in 18 USC §1832,
344 J INTELLEC PROP RIGHTS, JULY 2011

criminalizes the misappropriation of trade secrets where necessary to protect the public, or
related to or included in a product that is produced for unless steps are taken to ensure that the data
or placed in interstate (including international) are protected against unfair commercial use.
commerce, with the knowledge or intent that the
misappropriation will injure the owner of the trade It should be noted that Article 39.3 contains three
secret. Penalties for violation of Section 1832 are limitations regarding effective protection of data
imprisonment of up to 10 years for individuals (no exclusivity under trade secret. First, it applies only to
fines) and fine of up to US$ 5 million for pharmaceutical products and chemical agricultural
organizations. A combined reading of EE Act, 1996 products; secondly, the protection is extended only
along with Sections 1831 and 1832 presents criminal against unfair competition uses; and thirdly, the
liability notions on theft, misappropriation and government authority is exempted from the
espionage of trade secret. This law provides a model requirement of confidentiality in public interest. Thus,
for fixing penal liability in case of trade secrets. it has been held that a government accrediting agency
may use the confidential test data of an applicant
Paris Convention and TRIPS Agreement when considering applications by other applicants in
For a detailed understanding, a perusal of Article respect of similar products.19
39.1 of the TRIPS Agreement becomes not only
important but imperative as it provides that ‘in course The protection of IP is one of the most significant
of ensuring effective protection against unfair tasks, as it encourages foreign investment in many
competition as provided in Article 10bis of the Paris fields. Any developing country in general and India in
Convention (1967), Members shall protect particular, should devise a proper law for protection
undisclosed information..’ as provided in paragraphs of trade secrets. The Indian law still depends on the
2 and 3 of the Article. Paragraph 2 describes the old traditional common law principles which have lost
general category of confidential information, which is their significance in the present scenario, for
protected in common law countries through judge- protection of trade secrets. There is a dire need for a
made law, rather than statute. Article 10bis contains proper policy framework to regulate protection of
no reference to the protection of confidential trade secrets. There are large numbers of companies,
information as an aspect of unfair competition. Article especially chemical companies who prefer trade
10bis (2) defines as unfair competition ‘any act of secrets as a form of protection for their IP. These
competition contrary to honest practices in industrial companies are reluctant to invest in India because
and commercial practices’. Article 10bis also lists India cannot offer appropriate protection for their
three particular practices which are to be prohibited. trade secrets. Thus, India is losing out on a lot of
The TRIPS Agreement negotiators were anxious to foreign direct investment.
preserve the confidentiality of test data submitted to
government approval agencies. Given the long Data Exclusivity
approval process, particulars for pharmaceutical Significance
products, the opportunity for wrongful appropriation The confidentiality of test data rakes up
of such data by competitors was self evident. These controversial issues for trade secret protection. To
concerns appear to be quite genuine therefore lend appropriate credence to subject, it is necessary to
Article 39.3 accommodated provision in this regard. It delineate conceptual dimensions of data exclusivity.
reads as under: The concept of protecting undisclosed data having
high commercial value has gained momentum in
Members, when requiring, as a condition of recent times. Conventionally, this data was protected
approving the marketing of pharmaceutical or as trade secrets under the common law. Data
of agricultural chemical products which exclusivity is a transitional concept of protection of
utilize new chemical entities, the submission exclusive test data in the form of publicly undisclosed
of undisclosed test or other data, the information. This emanates from the protection of the
origination of which involves a considerable data in the form of trade secrets based on the
effort, shall protect such data against unfair principles of equity and good faith. Data exclusivity
commercial use. In addition, Members shall also lies within the domain of patent protection which
protect such data against disclosure, except requires an invention to be new, having an inventive
 NOMANI & RAHMAN: INTELLECTION OF TRADE SECRET AND INNOVATION LAWS IN INDIA 345

step and capable of industrial application. It is a pursuing it relentlessly. The pioneering enactment in
known fact that with every new invention protected this regard is Hatch-Waxman Act, 1984 which
by patent, a need arises to evaluate the situation in provides a five year data exclusivity for New
developing countries where a generic drug Molecular Entities (NMEs). As TRIPS Agreement
manufacturer may develop the same drug at cheaper does not use the term ‘data exclusivity’, the pressure
prices by proving its bioequivalence with the drug of to enforce data exclusivity was highest on the US
the innovator company. It seems that the concept of agenda. Even during the final phase of the Uruguay
data exclusivity poses a conflict of interest between Round, the US proposal asking for a five year data
the innovator companies who have already availed of exclusivity was rejected. Instead, a consensus article
the protection under patent laws and public interest.20 limited only to ‘protection of data’ was accepted.
Data exclusivity or exclusivity of registration data USA, not satisfied with the move, now wants to go
is the period of non-reliance and non-disclosure that is beyond TRIPS and is putting pressure to get its
provided to new chemical entities, pharmaceutical demand on data exclusivity implemented by all
compositions, and agrochemical registration data or Member States and including it as a clause in bilateral
test data. It is for this limited period of time that the and regional Free Trade Agreements.22 The data
drug regulatory authorities do not allow the test data exclusivity period in European countries varies from 6
of the originator to be used to register the generic to 10 years. In Japan it is 6 years and China grants
version. Top multi-national pharmaceutical giants data exclusivity for 6 years. The evolution of data
spend time, money and huge investment in research exclusivity culminates a flurry of development at
and development to assess the efficacy, quality and global and national level.
safety of new products. This process, known as a
The Indian Government, due to immense pressure
clinical trial, is a very complex, expensive and time
of MNCs, initiated data exclusivity policy and laws
consuming process since the new drugs have to be
by appointing the Satwant Reddy Committee in
tested first on animals and then on human beings in
February 2004. The Committee took three years in
order to determine its efficacy and safety. There
examination of various dimensions of data exclusivity
should be reasonable or near certain conclusion that the
from regulatory stand point. Finally the Committee
new drug is safe for common public. After this,
submitted its report in 2007 recommending three
regulatory authorities in different countries analyse
years of data exclusivity in the case of agro-
such data in order to ensure that only medicines having
chemicals; and suggesting two alternative models to
safety, efficacy and quality enter into the market. Often
be followed in the case of pharmaceuticals. The
national regulatory authorities would ask the innovator
recommendations of Satwant Reddy Committee came
or originator drug companies to provide relevant
under severe flak and due to considerable opposition,
information and data to assess the safety, efficacy and
the Satwant Reddy Committee Report was put in
quality of the drugs. Such data are very crucial and
abeyance. The present position is that while India is
contain all details of clinical trials and it is this data that
willing to protect the data, there is no exclusivity
originator companies seek to protect. It seems unfair to
allowed in this matter. India took advantage of the
allow a third party to commercially exploit the data
Article 39.3 of the TRIPS Agreement which leaves
because of the extensive, long term effort and
considerable room for the Member countries to
investment put into clinical trials. In order to protect
implement the obligation to protect test data against
such data, originator companies have been demanding
unfair competition practices.
data exclusivity laws so that data submitted to
regulatory authorities are not exploited by generic drug Trade Secrets under Contract Law
manufacturers.21 The pressure from originator There are no specific laws in India to protect trade
companies was so formidable that data exclusivity is secrets and confidential information. Nevertheless,
now an independent protection and should not be Indian courts have upheld trade secret protection
confused with the protection provided by other rights on basis of principles of equity, and common law
including patents. action of breach of confidence and contractual
Law and Protection obligation. This is evident from Section 27 of the
The USA was the first country to afford legal Indian Contract Act, 1872 which is a provision
sanctity to data exclusivity in 1984 and has been since relating to restraint of trade.23
346 J INTELLEC PROP RIGHTS, JULY 2011

The section is general in its terms, and declares all a servant from competing with his employer after
agreements in restraint of trade void pro tanto, except termination of employment may not be allowed by the
as specified. Originally, this section was extremely courts.28 Thus, in Brahmaputra Tea Co v E Scarth29,
rigid in invalidating restraints, both general as well as where an attempt was made to restrain a servant from
partial ones. The section was enacted at a time when competing for five years after the period of service,
trade was yet undeveloped and the object underlying the Calcutta High Court observed:
the section was to protect the trade from restraints.
Contracts by which persons are restrained
But at a time when trade in India has developed, there
from competing, after the term of their
is no reason why a more liberal attitude should not be
agreement is over, with their former
adopted by acknowledging that some restraints as are
employers within reasonable limits, are well
reasonable. Taking into consideration the above, the known in English law, and the omission to
Law Commission of India in 1958 recommended the make any such contract an exception to the
addition of the following in the main section: general prohibition contained in Section 27
… except in so far as the restraint is indicates that it was not intended to give them
reasonable having regard to the interest of the legal effect in this country.
parties to the agreements and of the public.24
These principles have been approved by the
By implication, this recommendation allows a Supreme Court again in Niranjan Shanker Golikari v
space for reasonable restraint on the right to carry on Century Spinning & Manufacturing Co Ltd.30 Here, a
trade and promotion of trade secret law in India. It is company manufacturing type cord yarn was offered
pertinent to note that the Law Commission was collaboration by a foreign producer on the condition
beyond time in its recommendation in regard to trade that the company shall maintain secrecy of all the
secret protection.24 technical information and that should obtain
corresponding secrecy arrangements from its
Judicial Policy for Trade Secrets employees. The defendant was appointed for a period
The Indian courts on several occasion delineated of five years, the condition being that during this
the concept of trade secret. In this context, the Delhi period he shall not serve anywhere else even if he left
High Court decision in American Express Bank Ltd v the service earlier. Justice Shelat held the agreement
Priya Puri25 is significant. The Court defined trade to be valid. The defendant was accordingly restrained
secrets as ‘… formulae, technical know-how or a from serving anywhere else during the currency of the
peculiar mode or method of business adopted by an agreement. The observation of the Supreme Court
employer which is unknown to others.’ Such was as under:
information has a reasonable impact on the …The injunction issued against him is
organizational expansion and economic interests. restricted as to time, the nature of
Similarly, in the case of Anil Gupta v Kunal employment and as to area and cannot
Dasgupta26, the Delhi High Court further ruled that therefore be said to be too wide or
the concept developed and evolved by the plaintiff is unreasonable or unnecessary for the
the result of the work done by the plaintiff upon protection of the interest of the respondent
material which may be available for the use of any company.
body, but what makes it confidential is the fact that
the plaintiff has used his brain and thus produced a From the above two landmark decisions of
result in the shape of a concept. Moreover, in Supreme Court, it clear that although an employer is
Burlington Home Shopping Pvt Ltd v Rajnish not entitled to restrain his servant after the termination
Chibber27, the Delhi High Court held that the database of employment from offering competition, he is
compiled by the organization could be subject matter entitled to reasonable protection against exploitation
of copyright and its unpermitted use by other party of trade secrets.31 In line with this principle, the Delhi
amounted to infringement. Thus, the judicial policy High Court in Ambiance India Pvt Ltd v Naveen
for the trade secrets protection can be deduced from Jain32, was of the view that the agreement between
the Court’s interpretation of NDAs, NCC and restraint the parties prohibiting the employee for two years
of trade under Contract law. An agreement to restraint from taking employment with any present, past or
 NOMANI & RAHMAN: INTELLECTION OF TRADE SECRET AND INNOVATION LAWS IN INDIA 347

prospective customer of the employer is void and hit 2 Whether the terms of injunction are such that it is
by Section 27 of the Indian Contract Act, 1872. This extremely difficult for the defendants to know
stipulation was prima facie against public policy in what they may do and what they may not do,
India and an arm-twisting tactic adopted by the 3 Whether it is certain based upon the material
employer. The Court finally stated that the relief before the court that even if successful at the trial,
sought for an order of ad interim injunction till the plaintiff would obtain an injunction rather
disposal of the suit should not be granted on these than damages.37
grounds. Similarly, in Sandhya Organic Chemicals
By way of relief, the damages or compensation is
Pvt Ltd v United Phosphorous Ltd33, the Supreme
determined on the basis of the market value of the
Court was of the view that an employee cannot be
confidential information based on a notion of sale
restrained for all times to come from using his
between a willing seller and a willing purchaser.
knowledge and experience gained by him in the
This method may be more appropriate for
course of his employment especially when he was not
confidential information relating to industrial designs
in the service of the employer i.e., after termination of
or processes or business secrets. Trade secrets are
service. In the matter of Gopal Paper Mills Ltd v
protected forever, if kept confidential. If the
Surendra K Ganeshdas Malhotra34, the Calcutta High
confidentiality of the information is breached it is no
Court upheld the restrictive clause in an employment
more a trade secret.
contract, imposing constraints on the employee
preventing him from misusing or revealing the Trade Secrets and Innovation Law
confidential information and trade secrets acquired To protect the vast repository of ‘undisclosed
during the tenure of his employment. The legislation information’ and knowledge kept as trade secrets by
thus provided a remedy to organizations from third their practitioners, India should consider a pro-active
party disclosure of confidential information and trade sui generis legislation as provided under Article 10bis
secrets in the form of injunction against the employee. of the Paris Convention and Article 39(2) and 39(3) of
Indian Contract law besides bringing disclosure of TRIPS Agreement, 1995. Thus, a formal legislation
trade secrets under breach of contract, offers remedies on the lines of Uniform Trades Secrets Act, 1970
to encourage of creative and innovative abilities. (UTSA) needs to be implemented in India. Such
Protection afforded by law is based on the principle legislations will deter illegal transfer of trade secrets
that various facets of a product may be protected by by people who had access to them as part of their
different forms of IP.35 employment duties. These steps along with provisions
The remedies for breach of confidence include under breach of contract or NDAs and NCCs would
action for an account of earnings from the use of the go a long way in developing a culture of respect in
information; action for damages and an injunction for industrial circles towards trade secrets and
prevention of misuse. For an action to succeed it undisclosed information as proprietary assets of their
would be necessary to show that there was owners. In absence of legislation, it is perhaps the
information of confidential nature which was shared only area where India is lagging behind as far as IPR
under an obligation of confidence with the person is concerned.38 In this context, the Indian Government
proceeded against and that there was an actual or took a step forward by releasing a draft National
threatened use or disclosure of the information. If the Innovation (NI) Act, 2008 to boost research and
information has already become a part of public innovation.39 The draft Act proposed by the
knowledge, no action may lie.36 Since the information Department of Science and Technology, Government
alleged to be confidential may be of value to the of India has a three pronged approach. Firstly, it
plaintiff only for a certain period, interim injunction undertakes to encourage innovation through an
will ordinarily be granted only for a specified period innovation support system facilitated by public,
depending upon the circumstances and the nature of private or public-private partnership. The second
the confidential information. With regard to balance objective is evolving a National Integrated Science
of convenience the following factors are considered: and Technology Plan. The third objective is
codifying and consolidating a law of confidentiality in
1 Whether the effect of an injunction against aid of protecting confidential information, trade
potential disclosure be disastrous to defendants, secret and innovation.
348 J INTELLEC PROP RIGHTS, JULY 2011

The draft NI Act was widely speculated to be 2 The confidentiality arising from non-contractual
modeled on America’s Creating Opportunities to relationships such as equitable considerations
Meaningfully Promote Excellence in Technology, may also create rights to maintain and obligation
Education, and Science Act – popularly known as to preserve confidentiality and rights to prevent
COMPETES Act. The preamble of the COMPETES disclosure into public domain (Section 9).
Act states that the objective of the law is to invest in 3 The remedies to protect and preserve
innovation through research and development, and to confidentiality and misappropriation include
improve the competitiveness of the United States. granting mandatory protective orders in
The draft NI Act through codification and connection with discovery proceedings, holding
consolidation of the law of confidentiality in-camera hearings, sealing the confidential
demonstrates the significance of trade secrets and information including confidential filings or
confidential information within the realm of records of the action, etc. (Section 10).
innovation. Innovative ideas, products and business 4 The exception to misappropriation of confidential
practices help enterprises to maintain competitive information enumerates that confidential
superiority in the market besides furthering their information shall not have been misappropriated
economic interests.40 It is for this reason that there is a if available in the public domain and held to be in
need to prevent others from taking advantage of public interest by a court of law (Section 11).
another’s breakthrough ideas and knowledge or in 5 The remedy includes preventive or mandatory
ordinary parlance, the confidential information or injunction restraining misappropriation of
trade secrets. Section 2 (3) of the Indian Innovation confidential information (Section 12), besides the
Bill defines ‘confidential information’ as: mandatory damages (Section 13).
Confidential information means information, The draft Act has many salubrious provisions
including a formula, pattern, compilation, including the provision compelling the Ministry of
program device, method, technique or process, Science and Technology to present an Annual
that (a) is secret, in that it is not, as a body or in National Integrated Science and Technology Plan to
the precise configuration and assembly of its the government, tax and fiscal incentives for
components, generally known among or readily innovation and the creation of designated special
accessible to persons within circles that economic zones for innovation. The management of
normally deal with the kind of information in intellectual property in trade secrets under the NI Act
question; (b) has commercial value because it is is dubbed absurd by many IP practitioners. They are
secret; and (c) has been subject to responsible of the view that the disclosure of the confidential
steps under the circumstances by the person information can be held to be in public interest only
lawfully in control of the information, to keep it by a court of law. The ground for such criticism is the
secret. term ‘public interest’ which in the Act is too vague.
Under the draft NI Act, trade secret and confidential Moreover, Section 12(4) which says that an injunction
information are elucidated in Chapter VI titled as restraining uses of confidential information ‘may
‘Confidential information, remedies and offences’. The stipulate conditions for future use upon payment of a
obligation to maintain confidential information under reasonable royalty for no longer than the period of
the draft statute, rests on the contractual terms and time for which use could have been prohibited’ is also
conditions. The remedy in case of any right arising out controversial. The proposed exception constitutes
of inequity is preventive or mandatory damages, on infringement and tantamount to introduce a
proof of breach of confidentiality. The draft NI Act compulsory license in trade secrets. To buttress this
lays down the following scope regarding trade secrets point, one may say that these provisions would make it
and confidential informations: possible for someone to steal the recipe for making
Coca Cola and manufacture a drink using this recipe at
1 Section 8 of the draft NI Act casts an obligation a cheaper price, while paying a 10 per cent royalty fee.
of confidentiality to parties to contractually set On the positive side, the draft Act has suitably
out the terms and conditions governing rights and identified the performance metrics for building up an
obligations in respect of confidential information innovation- based competitive economy, although the
to prevent misappropriation. parameters and roadmap for their execution are yet to
 NOMANI & RAHMAN: INTELLECTION OF TRADE SECRET AND INNOVATION LAWS IN INDIA 349

be designed.41 The draft Act is open to public on trade secret in the current globalized economy,
suggestions and debate following which it shall with influx of multinational corporations and foreign
become a final legislative enactment. The final Act direct investment demands high priority.
should reflect the plans and measures to be
undertaken in furtherance of the broad goals, the
References
corpus to be set aside to realize them and should also 1 Krishna S B, The value of intellectual property, Manupatra
identify the various governments and authorities Intellectual Property Reports, 1 (2007) A-29-30.
responsible for clearances, infrastructural support, 2 Warnecke Michael O and Molano Michael A, Key issue in
participation and benefit sharing. It also needs to be trade secret protection, http://www.buildingipvalue.com/
equipped with sound provisions for different sectors 05_NA/128_130.htm (5 March 2009).
3 Jorda Karl F, Federalizing trade secret law: A cause whose
for execution of goals put down. The enforcement
time has come, http://law.unh.edu/assets/pdf/germeshausen-
mechanisms and the infrastructural set up to newsletter-08-sf-editor.pdf (11 February 2011).
effectuate the substantive provisions have to be stated 4 Magri Karen A, International aspects of trade secrets law,
clearly. There is a need to integrate planning with http://www.myersbigel.com/library/articles/InternationalAsp
building linkages across different sectors to spur ectsofTradeSecret.pdf (11 February 2011).
innovative activity. 5 United states trade secret law, http://www.mccormacklegal.com/
pdf/US_TradeSecretLaw.pdf (10 February 2009).
6 Verma S K, Legal protection of trade secrets and confidential
Conclusion information, Journal of the Indian Law Institutes, 44 (3)
Trade secret protection in India is still at a nascent (2002) 336-353.
stage as there is no special legislation codifying the 7 http://www.annauniv.edu/ipr/tradecatagories.php
(12 January 2009).
principles of trade secret law. This is contrary to the
8 Nair M D, Protection of trade secrets, undisclosed
global trend towards codification of common law information, www.hindu.com/thehindu/biz/2001/11/.../
principles for trade secret protection. The court’s 2001112200060100.htm (2 November 2001).
application and interpretation of common law 9 Shah Aashit, Protecting your trade secrets, www.indlegal.com/
approach to protect trade secrets had been found to be ProtectingYourTrade.htm (15 February 2009).
inconsistent in practice. Therefore, a statutory law on 10 Radcliffe M F et al., Patent, trademark and trade
secret, http://library.findlaw.com/1999/Jan/1/241479.html
trade secrets and confidentiality in the framework of (26 September 2008).
IPR is not only a good idea but a subject of utmost 11 Seetharaman R, Legal protection of trade secret, 1 Supreme
necessity. The propellers of industrial development in Court Cases (2004) 22
the information age protect trade secret under TRIPS 12 Mason v Provident Clothing and Supply Co Ltd (1913) AC
Agreement.42 The TRIPS Agreement has mandated its 724, 740-41; Herbert Morris Ltd v Saxelby (1916) 1 AC 688.
Member States to amend their laws or develop new 13 Faccenda Chicken Ltd v Fowler (1985) 1 All ER 724.
legislations in order to fulfill obligations under the 14 Kewanee Oil Co v Bicron Corporation, 416 US 470, 490-91:
40 L Ed 2d 315 (1974).
Agreement. It is high time that the Parliament
15 Telerate Systems Inc v Caro, 689 F Supp 221, 232 (SDNY
introduces supplementary provisions in Competition 1988), the Court held that the proper focus of inquiry is not
Act incorporating a separate chapter on use, whether an alleged trade secret can be deduced by reverse
misappropriation and regulation of confidential engineering but rather, whether improper means are required
information. The Indian Penal Code, 1860 may be to access it.
concurrently amended to contain provisions on the 16 Legislating the criminal code: Misuse of trade secrets, Law
Commission of England and Wales, Consultation Paper No
misappropriation of trade secret. The basic corporate 150 (Her Majesty’s Stationary Office, 1997).
enactment of Companies Act, 1956 should also 17 § 758(b), American Restatement of Tort Laws (1939).
include provisions on confidential information and 18 Initial Services v Putterill, (1968) 1 QB 396, 405: (1967) 3
trade secrets. Keeping in mind the above All ER 145.
considerations, it would be reasonable to opine that 19 Bhatnagar M P, in Intellectual Property Rights: A Global
India needs a statutory law on confidential Vision, edited by S K Verma and Raman Mittal (Indian Law
Institute, New Delhi), 2004, pp.518-521.
information, not just to protect it but also to regulate
20 Bhatnagar Jaya et al., India: Data exclusivity,
its use and transfer. The response of Indian www.mondaq.com (20 May 2011).
Government in promulgating draft National 21 Bhaskar Amit, Does India really need a data exclusivity law?
Innovation Act, 2008 to boost research and innovation www.legalserviceindia.com (12 November 2008).
is praise worthy but the need for a central legislation 22 http://www.idma-assn.org/patents.html (24 May 2011).
350 J INTELLEC PROP RIGHTS, JULY 2011

23 Pollock and Mulla, Indian Contract and Specific Relief Acts, its method of manufactured may be protected as a trade secret;
Vol 1, 12th edn, edited Nilima Bhadbade (Butterworths, New sales literature and software used to run the product, may be
Delhi), 2004, pp. 818-822. protected by copyright; its shape or configuration may be
24 The Law Commission of India, 13th Report, Ministry of Law protected by new design right; and its name by a trade mark,
and Justice (1958), para 55. Charlesworth J, Charlesworth’s Business Law, 5th edn
25 American Express Bank Ltd v Priya Puri (2006) III LLJ (Sweet & Maxwell, London), 1991, p. 637.
540 (Del). 36 Thomas Marshall v Gunile (1978) 3 All ER 193, 203.
26 Anil Gupta v Kunal Dasgupta, 97 (2002) DLT 257. 37 Narayanan P, Intellectual Property Law, 3rd edn (Eastern
27 Burlington Home Shopping Pvt Ltd v Rajnish Chibber, Law House, New Delhi), 2007, p. 323-331.
61 (1995) DLT 6. 38 Sreenivasulu N S et al., TRIPS complaint intellectual
28 Singh Avtar, Law of Contract and Specific Relief, 9th edn property regime in India: Implications of TRIPS in
(Eastern Book Company, Lucknow), 2005, pp. 260-261. modifying the cantors and canons of our system, Manupatra
29 Brahmaputra Tea Co v E Scarth (1885) 11 Cal 545. Intellectual Property Reports, 3 (2) (2007) A-79-80.
30 Niranjan Shanker Golikari v Century Spinning & 39 Srivastava Kamakhya, Indian Innovation Act: Trade secrets
Manufacturing Co Ltd (1967) 2 SCR 378:AIR 1967 and confidentiality, www.ipfrontline.com (8 October 2008).
SC 1098. 40 Lakshamikumaran Malathi et al., Utility models: Protection
31 Attwood v Lamont, (1920) 3 KB 571: (1920) All ER Rep 55. for small innovations, Journal of Indian Law Institute, 46 (2)
32 Ambiance India Pvt Ltd v Naveen Jain, 122 (2005) DLT 421. (2004) 322-332.
33 Sandhya Organic Chemicals Pvt Ltd v United Phosphorous 41 Sangal Tanushree, Unfurling the proposed National
Ltd, AIR 1997 Guj 177. Innovation Act, Manupatra Intellectual Property Reports,
34 Gopal Paper Mills Ltd v Surendra K Ganeshdas Malhotra, 3 (3) (2008) A-47.
AIR 1962 Cal 61. 42 Krishna S B, Enforcement of intellectual property
35 Intellectual property rights overlap, protecting different facets rights in India, Manupatra Intellectual Property Reports,
of a product, For example, the product itself may be patented, 3 (2) (2007) A-96.