Assignment - IPR

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“SPRING BOARD DOCTRINE” A Critical Study on Trade Secret Information. Research Paper Guided by: Mr. Apurva Aggarwal Prepared by: Suneeta Mohapatra 1 year LLM Roll No. 81003150006 NMIMS, School of Law, V.L.Mehta Road, Vile Parle(W), 1

Transcript of Assignment - IPR

“SPRING BOARD DOCTRINE”

A Critical Study on Trade Secret Information.

Research Paper

Guided by:

Mr. Apurva Aggarwal

Prepared by:

Suneeta Mohapatra

1 year LLM

Roll No. 81003150006

NMIMS, School of Law,

V.L.Mehta Road, Vile Parle(W),

Mumbai.

Total No. Of words – 7653

1

CONTENTS

Sl. No. TOPICS Pg. No.

1. Bibliography 4

2. List of Abbreviation 5

3. Chapter – I

- Introduction

- Basic concept of the topic.

- Definitions

- Objective of trade secret.

6 - 8

4. Chapter - II

- Importance of trade secret as a research

work.

- Research Methodology

9

5. Chapter – III

- Historical Development & ‘Springboard’

doctrine

- What is a springboard injunction?

- In what sort of cases will a springboard

injunction be granted?

- What must be established to obtain a

springboard injunction?

- Duration and Scope of Springboard Relief

- Other considerations

10 - 15

6. Chapter – IV

- Coca-Cola Case Study

- Trade Secret Protection in India with case

laws

- Trade secret protections in USA

- Main Reason for need of trade secret law

- Trade Secret Protection in other countries

- Finding Effects of enacting trade secret law

16 - 20

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7. Chapter – V

- The TRIPS agreement on undisclosed

information.

- Section 7, protection of undisclosed

information, Article 39.

- Selected Articles of the Paris Conventions

- Challenges and limitations of trade secret

protection

21 - 26

8. Chapter – VI

- Conclusion

27 - 28

3

BIBLIOGRAPHY

MODULE 04. Trade Secrets WIPO

https://www.linkedin.com/pulse/trade-secrets-protection-india-law-whose-time-has-

finally-kamat

Briefing Notes August 2014: Springboard Injunctions, by Gaby Hardwicke Solicitors.

Terrapin Ltd v Builders Supply Co (Hayes) Ltd and Others [1960] RPC128.

Subsequently approved by Lord Denning MR in Seager v Copydex Ltd (No 1) [1967]

WLR 923.

http://www.supremecourtcases.com Eastern Book Company Generated: Friday,

December 25, 2015

Approaches to the protection of trade secrets, OECD 2015

http://www.washingtonpost.com/wpdyn/content/article/2006/07/05/

AR2006070501717.html

http://www.inventionresource.com/index.php?

option=com_content&view=article&id=37

Law relating to Intellectual property by B.L.Wadehra, fifth edition, reprint 2016,

march 2011, pg no. 554-555

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LIST OF ABBREVIATION

UTSA - Uniform Trade Secrets Act

EEA - Economic Espionage Act

TRIPS - Trade-Related Aspects of Intellectual Property Rights

WTO – World Trade Organisation

FBI - Federal Bureau of Investigation 

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CHAPTER – I

INTRODUCTION 1

Trade Secret provides advantage to any organisation over their competitors who do not have

that information. In US, there is dedicated law on trade secret, UTSA (Uniform Trade Secrets

Act), in addition they also follow EEA (Economic Espionage Act). It has provisions to punish

with imprisonment, the provider and the receiver of unauthorised trade secret. There is no

specific law in India and other countries to protect the trade secret, Indian judicial courts

decide the matter according to common law action of breach of confidentially but in this case

people do not get proper justice. If India enacts a separate trade secret protection it will

remove confusion from the foreign investors and we could take advantage of business at

optimum level.

In the current scenario, the organisations are trying to protect its intellectual property by

using the various available measures in the form of patents, copyright, trademark, etc. but

these laws are not the sole substitute of trade secret because there are certain provisions

which could be addressed through trade secret only. For a developing nation like India trade

secret is very important as it gives an edge in competitive environment. In India trade secrets

are protected under the common law, there are various issues regarding this as whenever we

do not have any dedicated law governing for a specific issue there is always problem in

getting proper justice. In India trade secret act is very essential because of the fact that

multinational companies are doing business across the world so they have to follow the

respective rules. Sometimes what happens is that in the absence of such laws certain

companies refuse to do its business in that particular country so there is urge for a separate

Trade Secret Act in India.

Since there is no law in India regarding trade secret, therefore, one has to look into the

definition of what is Trade Secret. Trade secret is defined in Black Law Dictionary,

By Bryan A. Garner as under:

1 MODULE 04. Trade Secrets WIPO

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“A formula, process, device, or other business information that is kept confidential to

maintain an advantage over competitors; information including a formula, pattern,

compilation, program, device, method, technique, or process that

(1) derives independent economic value, actual or potential from not being generally known

or readily ascertainable by others who can obtain economic value from its disclosure or use

(2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy.”

This definition states the majority view, which is found in the Uniform Trade Secrets Act.

Trade is defined in the said dictionary as under: The business of buying and selling or

bartering goods or services; commerce.

Trade and commerce is defined in the said dictionary as under: Every business, occupation

carried on for subsistence or profit and involving the elements of bargain and sale, barter,

exchange, or traffic. Therefore, looking to the aforesaid definitions it is clear that trade secret

is important from the point of view of business community worldwide.

The trade secret helps the growth of business in the market. Though there are several laws in

India akin to trade secret, namely, the Trade and Merchandise Marks Act, 1958, the

Copyright Act, etc., but it pertains to specified period and time and regarding particular item.

In United States of America the first reported trade secret case relates back to 1837 against

the disclosing of the same by the commercial affairs servant. If there is no law on the trade

secret then it would cause great loss to the Business Company or individual, etc. Hence also,

a separate Trade Secret Act is required.

OBJECTIVES:

To understand the nature of trade secrets, the reasons for protecting them and the

practical challenges in identifying and protecting them.

To know how to develop an effective trade secret management program.

To understand what is meant by misappropriation of a trade secret and how to prevent

such misappropriation.

To know how to take various types of suitable actions to prevent violation of trade

secrets.

To understand why and how to conduct a trade secret audit.

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The reason for protecting trade secrets

Trade secret law seeks to maintain and promote standards of commercial ethics and

fair dealing.

A key objective of trade secret law is to provide an incentive for businesses to

innovate by safeguarding the substantial time and capital invested to develop

competitively advantageous innovations, both technical and commercial, and

especially those that are not patentable or do not merit the cost of patenting.

If not protected by trade secret law, then competitors could use these innovations

without having to shoulder the burden of costs or risks faced in developing the

innovations.

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CHAPTER - II

IMPORTANCE OF TRADE SECRET AS A RESEARCH WORK.

Today, the organization are protecting its intellectual property by adopting the available

measures in form of patents, copyright, trademark etc. but besides these popular IP rights

there are other IP rights not so popular but which are recently drawing attentions all over the

world- Confidential Information and Trade Secret.

Trade Secret is an interesting topic to do research as there is no codified law or statute to

protect the interests of the Corporate. Trade secrets, although a recognized form of IP, are not

specifically protected under any dedicated legislation in India and these continue to be

enforced contractually or under common law. Criminal prosecution is very cumbersome and

therefore also very rare, most often.

As there is no special Act, Statute or Codified law to use, it was very difficult on my part to

get some sources about it. As such there is no book to be followed but in India, for trade

secrets the court refers to the common law action for breach of confidence, which in effect

amounts a breach of contractual obligation. I have gone through various laws where trade

secret is used, they are – Contract Act, Copyright Act, IT Act etc.

“Intel, the world's largest manufacturer of computer chips, has recently called on the Indian

government to strengthen protection for trade secrets under the intellectual property rights

policy, raising concerns that the current regime is not strong enough. It has even asked for

criminal sanctions to discourage theft of corporate information.”

Research Methodology:

For carrying out the study for this report, internet search has been the major means. Several

websites have been referred to, the links of which have been mentioned under ‘Bibliography’.

I have also referred to the book titled “Law Relating to Intellectual Property” authored by Dr.

B.L. Wadehra. I have also followed several articles written by eminent authors as mentioned

under ‘Bibliography’.

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All of the above helped me in building an understanding over the subject and form opinion on

the same. The results of the studies have been discussed under the subsequent heads in this

report.

CHAPTER III

Historical Development & ‘Springboard’ doctrine:

A springboard injunction is a type of injunction that is particularly effective in business

protection cases. The principles and procedures applicable to injunctions generally still apply.

What is a springboard injunction? 2

A springboard injunction is a type of injunction designed to remove or limit the advantage or

head-start that an employee has gained through unlawful activities, typically through the

misuse of the employer’s confidential information. The individual is placed “under a special

disability” by the injunction in order to “ensure that he does not get an unfair start”.

A springboard injunction is unlike any other kind of injunction, because it is not targeted at

preventing future unlawful activity but rather its purpose is to restore a level playing field

between the parties.

In what sort of cases will a springboard injunction be granted?

All of the early cases under the springboard doctrine are related to the misuse of confidential

information. The classic case in the employment context is that of Roger Bullivant Ltd v

Ellis.

Mr Ellis, Bullivant’s Managing Director, left to set up a competing business, taking

confidential information with him including a card index with the contact details of

Bullivant’s contacts, which he used to contact those clients in direct competition. The High

Court granted an injunction prohibiting Ellis from entering into or fulfilling any contract

made with or through any of the contacts in the card index until judgment or further order.

Ellis appealed to the Court of Appeal, arguing that the injunction should not apply to any

customers that he was able to make contact with without using the card index. His appeal

failed on this point, the court concluding that “having made deliberate and unlawful use of 2 Briefing Notes August 2014: Springboard Injunctions, by Gaby Hardwicke Solicitor visited on

24/12/2015

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Bullivant’s property, he cannot complain if he finds that the eye of the law is unable to

distinguish between those whom, had he so chosen, he could have contacted lawfully and

those whom he could not”.

This kind of argument typically plays out these days in the context of employees who help

themselves to their employer’s customer database upon departure whilst trying to argue that

the information was publicly available via the internet. These arguments are usually given

just as short a shrift these days as they were in Bullivant’s time. Ellis was more successful in

his appeal in relation to the duration of the restraint.

It was initially thought that the springboard doctrine was limited to cases involving the

misuse of confidential information after Scott J declined to grant an injunction preventing an

employee from benefiting from earlier breaches of his duty of fidelity (in this case

encouraging the diversion of business during employment).

In UBS Wealth Management (UK) Ltd & Another v Vestro Wealth LLP & Others

Openshaw J concluded that springboard relief is not confined to cases involving the abuse of

confidential information but can operate to prevent “any future or further serious economic

loss to a previous employer caused by former staff members taking an unfair advantage of

any serious breaches of their contract of employment”. In this case, an injunction until trial

was granted preventing the defendants soliciting or dealing with any UBS client (save for

those who had already agreed to transfer their business) and from soliciting any UBS

employee who had not yet resigned.

An interim springboard injunction was also granted in the seminal team move case of Tullett

Prebon Plc & Others v BGC Brokers LP & Others, although there is some doubt as to

whether this was correctly described as a springboard injunction as the purpose of it was to

give Tullett Prebon the opportunity to consolidate its workforce by restraining BG Brokers

from any further recruitment of the Claimant’s employees, whether lawful or otherwise.

One of the clearest recent applications of the springboard doctrine came in QBE Management

Services (UK) Ltd v Dymoke & Others where 3 senior QBE employees had, during their

employment and garden leave, covertly planned the resignation of several more employees

with a view to moving them and their clients to a rival business, which had been incorporated

and financed for this very purpose. Following disclosure, it was established that the staff

concerned had used their seniority to poach colleagues, had enjoyed constant access to QBE’s

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confidential information, which they were able to use to secure finance for the new venture,

and had solicited customers. They had failed to disclose any of these activities to QBE or to

inform them of the potential threat to QBE’s business. The High Court concluded that there

could not be a clearer case for springboard relief and granted an injunction for 12 months

from the date of resignation to remedy the headstart the employees had unlawfully gained.

The Court also gave some useful guidance on the length of springboard relief.

What must be established to obtain a springboard injunction?

In addition to the general principles applicable to the granting of injunctions, an applicant

will need to satisfy a court of the following four matters before springboard relief will be

granted:-

That there has been unlawful behaviour on the part of the former employee/director –

typically misuse of confidential information but increasingly other breaches of duty.

That an unfair competitive advantage over the employer as a result of the unlawful

activity has been obtained.

That the nature and period of the competitive advantage is more than “ephemeral” or

“short-term”.

That the advantage still exists at the date the springboard injunction is sought and will

continue to have effect unless the relief is granted.

In the Sun Valley Foods case, Jonathan Parker J declined to grant springboard relief because

by the time the application was heard any unfair competitive advantage gained by copying a

confidential customer database which had been rarely used, had been extinguished.

It is a common error for Claimants to focus upon the gravity of the Defendant’s misconduct

rather than the effect of the breach and the extent of any illegitimate advantage obtained.

See, in particular, the comments of Flaux J when he stated that “Logically, the seriousness of

the breach and the egregiousness of the Defendant’s conduct cannot have any bearing on the

period for which the springboard injunction should be granted – what matters is the effect of

the breach of confidence upon the Claimant in the sense of the extent to which the Defendant

has gained an illegitimate competitive advantage”

In the context of misuse of confidential information, it is insufficient simply to establish

removal of confidential information. It is also necessary to establish use, as mere possession

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of confidential information will not create a head-start and can be addressed simply by an

order for delivery up and a normal confidential information injunction.

Finally, the American Cyanamid principles should not be overlooked. As Arnold J pointed

out, the remedy for past misuse of confidential information is a financial one and where

appropriate the Claimant can claim a restitutionary remedy, namely an account of profits,

which deprives the Defendant of the benefit of his wrongdoing. That said, it is likely to be

easier to argue for springboard relief at the interim stage, where the court’s role is to best

preserve the status quo pending trial, then it will be at trial itself. Given the nature of a

springboard injunction, it almost invariably follows “springboard does not last forever”.

Duration and Scope of Springboard Relief

The springboard injunction granted by the High Court in the Roger Bullivant case, until

judgment or further order, should, according to the Court of Appeal only have been granted

until trial or for a more limited period. According to Nourse LJ a springboard advantage

cannot last forever; the law does not restrain lawful competition and the doctrine seeks to

protect the injured and not punish the guilty. He concluded that it was not right for the terms

of the injunction to extend beyond the period for which the advantage may reasonably be

expected to continue. The Court of Appeal aligned the period of springboard relief with the

12 month non-competition clause in Mr Ellis’ contract on the basis that Bullivant must have

considered that that was the period of restraint necessary for its legitimate needs to be met.

A one-year period of springboard relief was also applied in Fisher-Karpark Industries Ltd v

Nicholls but this should not be regarded as a benchmark as springboard injunctions are often

and, arguably, usually, granted for much shorter periods.

Useful guidance was given in the QBE case by Haddon-Cave J. This was an unusual example

of a springboard injunction granted after trial of the main action. The High Court granted a

springboard injunction to continue for a further 3 months from judgment being 12 months

from the date of resignation of the Defendants. The Court applied the following principles:-

The appropriate measure for the length of springboard relief is the length of time it would

have taken the wrongdoer to achieve lawfully what he in fact achieved unlawfully, relative to

the Claimant. Any advantage must be measured relatively. Wrongful activities can have

both a positive and negative effect (benefiting the wrongdoer whilst simultaneously harming

the victim – this is particularly so in the case of poaching key staff who then have to be

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replaced). The period of time over which the unlawful activity took place is relevant but not

decisive as springboard relief is “kinetic” not “linear”. In a team move case, for example,

there is the advantage of being able to solicit junior employees over whom the Defendants

exercise influence whilst their employment is continuing compared with trying to recruit as a

former employee: there is the advantage of stealth and secrecy so that management are

unaware and do not take defensive measures but conversely the Defendants may have been

able to work more speedily by not having to be covert about their activities. The nature and

length of the springboard should be fair and just in all the circumstances.

It is incumbent upon the employer to identify the precise period and nature of the competitive

advantage and the failure to do so will result in a refusal to grant springboard relief. In

particular, the employer must provide evidence as to the length of time it would have taken

the Defendants to achieve lawfully what they had achieved unlawfully.

The fact that the departing employees have already entered into contracts with third parties is

not of itself a bar to the grant of springboard relief, although the Court of Appeal accepted

that courts should be wary of interfering with the contractual rights of innocent third parties.

The doctrine of springboard relief is not therefore confined solely to future contracts.

Other considerations

The dangers of asking and getting too much relief for too long are amply demonstrated by the

outcome in Universal Thermosensors Ltd v Hibben where departing employees unlawfully

remove customer lists and pricing matrices with a view to setting up a competing business.

They approached and obtained orders from several customers featured in the lists. The

Claimant, after retrieving the stolen documents by means of a search order obtained an

interim injunction, restraining the Defendants from soliciting or entering into or fulfilling any

contract with any person with whom the Defendant had had contact while the customer lists

were in their possession.

At trial, however, the court concluded that this order went beyond what was necessary for the

proper protection of the Claimant’s legitimate rights. The effect of the injunction was to put

the Claimant in a better position than it would have been if there had been no breach of

confidence in the first place as its effect was to close down the Defendant’s business

altogether. As the confidential information was no longer in the Defendant’s possession,

there was no ongoing advantage at the time the injunction was granted. Any advantage

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obtained prior to the grant of the injunction could adequately have been met through a claim

for damages or an account of profits. The court concluded that by the time the injunction was

granted, given the knowledge of Thermosensors’ customers and contacts, the former

employees would have been substantially in the same position as if they had not taken the

customer lists.

Consequently, Thermosensors were ordered to pay £20,000 to the Defendants under their

cross-undertaking in damages. Whilst it is arguable that this decision is unsatisfactory and

inconsistent with both the Roger Bullivant case and PSM International it emphasises the need

for caution in obtaining a springboard injunction in terms that may not be able to be

maintained at trial.

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CHAPTER IV

COCA-COLA CASE STUDY

Many inventors and entrepreneurs wonder about the substantive difference between patents

and trade secrets.  A brief look back at the inception of the Coca-Cola Company and its initial

marketing of its now world famous beverage will prove a useful starting point. In1880, upon

developing its secret recipe for the world’s first soft-drink, the Coca-Cola Company was

presented with a dilemma of sorts.  It needed desperately to protect what it had just

developed, yet patent protection would only provide security for 17 years (the statutory

period of protection for a US patent).  While the benefits of strong patent protection for 17

years seemed appealing, the down-side was that the secret recipe would be publicly

disclosed, and would be free for anyone to duplicate once the patent expired.  Coca-Cola’s

secret formula would have entered the public domain in 1897.

While such protection might have been sufficient for a typical product of average market life

span, the founding members of the Coca-Cola Company had the foresight to see that this was

no average product - this was a product that had a potentially infinite market life. 

Accordingly, it required the longest lasting protection available - protection that simply was

not afforded by a patent.

After kicking around various ideas, the executives at Coca-Cola determined that their needs

might be best served if they did not publicly disclose the recipe, and instead retained it as a

trade secret.  A trade secret is a plan, process, formula, or any other valuable information not

patented but which gives its possessor a competitive trade advantage as long as it is kept

secret.

A trade secret differs from a patent in several important ways.  First, trade secret protection

lasts for as long as the secret is kept confidential.  If the secret is never publicly disclosed, it

will never lose its protection.  If the secret is uncovered by means of industrial espionage,

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disloyal employees, theft or the like, the owner of the secret has legal recourse against those

who misappropriated the secret, or anyone who procured it through such impropriety.

Of course, trade secret protection has its negative aspects also.  Unlike a patent which

protects against intentional and unintentional copying a trade secret does not afford protection

in the event that someone else independently develops your formula, recipe, etc. 

In Coca-Cola’s case, this meant that while there was protection against the intentional

misappropriation of the secret recipe, there was no protection available in the event that

someone managed to successfully duplicate the recipe by legitimate means.

The executives at Coca-Cola weighed these factors, and determined that they had the means

to keep the recipe for Coca-Cola completely secret.  Thus they chose not to file a patent.  This

proved to be a brilliant move, as the Coca-Cola Company managed to keep the recipe a

complete secret until the mid 1980’s when they were forced by a Delaware court to disclose it

to their adversary during civil litigation.  Had Coca-Cola instead chosen to obtain patent

protection back in 1880, the recipe would have been disclosed a mere 17 years later, rather

than almost 100 years later.  The company’s huge success might very well have hinged on

that important decision made by a handful of risk taking executives back in 1880.

The FBI arrested three people in Atlanta on charges that they conspired to steal trade secrets

from Coca-Cola Co. and sell the information for more than $1.5 million to PepsiCo Inc.,

federal law enforcement officials said.

The defendants, including one Coca-Cola employee, who worked as an administrative

assistant in the company's Atlanta headquarters, contacted PepsiCo officials, who tipped off

Coca-Cola officials, were sentenced to jail.

Cases in India 3

John Richard Brady v. Chemical Process Equipments (P) Ltd.

Issues considered:

3 http://www.supremecourtcases.com Eastern Book Company Generated: Friday, visited on December 25, 2015

17

Whether the defendants Fodder Production Unit is based on the plaintiffs drawings

and the related know-how passed to them under the express condition of

confidentiality?

Whether the technical drawings of the defendants are artistic works that qualify for

protection under the Copyright laws?

The Court took the position that, even in the absence of an express confidentiality clause in

the contract, confidentiality is implied and that the defendant is liable for breach of the

confidentiality obligations.

The Delhi High Court relied on the Spring Board doctrine in this case. The principle behind

this doctrine is that an employee with the knowledge of former employer’s trade secrets

would inevitably disclose the same to the new employer since the nature of the new job

would lead to such disclosures, given that the new and old employers were competitors.

Furthermore, given the inevitability of such disclosures, the former employer was not limited

to sitting around and waiting until there was an actual or even threatened use of those trade

secrets before the former employer could seek legal redress. Under this doctrine, that former

employer could prevent the employee from taking that job and prevent the new employer

from hiring the employee merely because the employee had such knowledge that would

inevitably be disclosed.

Anil Gupta v. Kunal Dasgupta

The plaintiff conceived the idea of Swayamvara, a reality television show concerning

matchmaking. The plaintiff shared a concept note on this with the defendants. Later on the

plaintiff came across a newspaper report informing that the defendants were planning to

come out with a big budget reality match-making show using the plaintiffs concept. The

plaintiff sought injunction.

Issues considered:

Can there be a copyright in an idea, subject-matter, themes and plots which existed in

the public domain?

Could there be a violation of copyright if the theme is the same as that which existed

in the public domain but is presented and treated differently?

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The Court held that the concept developed and evolved by the plaintiff was the result of the

work done by the plaintiff upon the material which may be available in the public domain.

However, what made the concept confidential was the fact that the plaintiff had used his brain

and thus produced a unique result applying the concept. The Court granted an injunction. (B)

Trade secrets protection in US:

In US there is a law to protect the trade secret of a businessman or company, which is the

Uniform Trade Secret Act (UTSA). In addition, a federal law, the Economic Espionage Act,

1996 (EEA)8. The EEA has provision to punish with imprisonment to the provider and to the

receiver of unauthorised trade secrets.

Trade secrets protection in other countries 4

There is no specific law in many other countries to protect the trade secret. Except the United

States of America because they have established the separate law to protect the trade secret

but in the other countries judicial courts have to decide the matter according to common law

action of breach of confidence, which in effect amounts to a breach of contractual obligation.

Main reason for need of trade secret law

In the existence of treaty or conventions, namely, General Agreement on Tariffs and Trade

(GATT) and Trade-Related Aspects of Intellectual Property Rights (TRIPS), still there is no

separate law regarding trade secret in many countries including India.

Trade secrets protection in India

As seen earlier, there is no separate law on the trade secret in India. Since there is no

separate Trade Secret Act in India, if there is any infringement then it is governed by

common law action. The common law action includes breach of confidence or breach of

contractual obligations, etc. Since now several companies in India are also doing business

with foreign companies and since there is no separate Trade Secret Act, therefore, there are

4 Approaches to the protection of trade secrets, OECD 2015 visited on 24/12/2015

19

less chances of the foreign company who may agree to do business with the Indian

companies.

Now in this economic growth worldwide, it is necessary that the person doing the business

should be given full protection because good business is developed by hard work. The

company earns its name by hard work .

There is dire need to have separate law in India regarding trade secret. Business is also done

on the Internet by media through network also, hence there is need of Trade Secret Act.

Finding Effects of enacting trade secret law

The trade secret law will place responsibilities, accountability and obligation on all

businessmen and companies.

It will make answerable to all legal persons to Trade Secret officer or equivalent

officer. Trade Secret Law will update existing Trade Secret protection in various

statutes.

Trade Secret Law will declare that what does the Trade Secret cover and define kinds

of secret information.

Trade Secret Commissioner or equivalent will entertain complaints. If they are found

to be breaching the Trade Secret Law then legal action can be taken.

Effected person will get the right to sue for compensation and punishment for

wrongdoers.

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CHAPTER – V

The TRIPS Agreement on Undisclosed Information 5

Protection of undisclosed information is addressed in Article 39 of the Agreement on Trade-

Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization

(WTO). This agreement entered into force on 1 January 1995 and established an international

standard requiring WTO Members to protect undisclosed information including agricultural

and pharmaceutical test data.

Section 7: Protection of Undisclosed Information, Article 39

In the course of ensuring effective protection against unfair competition as provided

in Article 10b is of the Paris Convention (1967), Members shall protect undisclosed

information in accordance with paragraph 2 and data submitted to governments or

governmental agencies in accordance with paragraph 386.

Natural and legal persons shall have the possibility of preventing information lawfully

within their control from being disclosed to, acquired by, or used by others without

their consent in a manner contrary to honest commercial practices87 so long as such

information:

is secret in the sense that it is not, as a body or in the precise configuration and

assembly of its components, generally known among or readily accessible to persons

within the circles that normally deal with the kind of information in question;

has commercial value because it is secret;

5 Law relating to Intellectual property by B.L.Wadehra, fifth edition, reprint 2016, march 2011, pg no. 554-555

21

has been subject to reasonable steps under the circumstances, by the person lawfully

in control of the information, to keep it secret.

Members, when requiring, as a condition of approving the marketing of

pharmaceutical or of agricultural chemical products which utilise new chemical

entities, the submission of undisclosed test or other data, the origination of which

involves a considerable effort, shall protect such data against unfair commercial use.

In addition, Members shall protect such data against disclosure, except where

necessary to protect the public, or unless steps are taken to ensure that the data are

protected against unfair commercial use.

The similarities among countries in defining trade secrets correspond well with the three

requirements of Article 39 of TRIPS. In fact, on this matter, TRIPS reflected then-current

practice in many countries and it has shaped subsequent law-making. In practice, the TRIPS

requirements for trade secrets are now generally applied in law as follows:

• Secrecy. The information protected must actually be secret. Secrecy need not be absolute.

The trade secret owner may share the information with employees and business partners.

Secrecy requires instead that the information must not be readily publically accessible and

that it is revealed to others only under conditions that maintain secrecy with respect to the

broader public88.

• Commercial Value. The information must have economic value as a result of its being

secret. Trade secret law most typically protects commercial information; that information

must derive some utility from being kept secret.

• Reasonable Efforts to Maintain Secrecy. The information must be the subject of reasonable

efforts on the part of the rights holder to maintain its secrecy. By its nature, a trade secret

claim arises when measures to protect the secret have failed. Thus, the law does not require

one who claims a trade secret to be entirely successful at protecting it. However, the law does

require the owner to make some efforts to maintain secrecy. In national laws, the necessary

effort is often broadly described as “reasonable,” in keeping with Article 39 of TRIPS.

However, some countries impose more specific, additional obligations, which might be

characterised as a particular implementation of the broad reasonableness requirement. For

example, some common law countries require that the defendant have a contractual or

implied obligation to keep the information secret. Other countries require written agreements

with recipients and confidentiality notices.

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These three conditions define trade secrets in a manner covering a potentially very large

scope of economic activity. Still, the resulting definition has potentially important practical

implications as pointed out by Maskus (2000), who notes that trade secrets “are not protected

against learning by fair means, such as independent creation, reverse engineering or reading

public documents.” In other words, trade secrecy does not provide an exclusive right to use of

the information, so long as a second party obtains the information fairly or it enters the public

domain by fair means. Thus, unlike patented inventions or copyright protected content, trade

secrets are not protected for a statutory time limit and they can run out in the regular course

of competition. The range of subject matter covered by trade secrets may be open-ended,

though often trade secrets fall into one of two broad categories: technical information (e.g.

technical plans and formulae) and confidential business information (e.g. customer lists and

marketing strategies)

The TRIPS Agreement requires that WTO members put in place national systems to protect

trade secrets against acts of unfair competition. WTO members comply with this obligation in

a variety of ways. The fact that TRIPS Article 39 does not set forth a detailed regime for

protection is associated with substantial variation between countries in the means employed

to provide the TRIPS mandated protection. In some instances, countries have implemented

express legislation. In others, the obligation is met by laws that include misappropriation via

such means as breach of contract, inducement of others to breach contracts and acquisition by

third parties of information known to be disclosed dishonestly (or where it was negligent not

to know). This variation can affect the ways businesses and workers conduct their affairs and

thus there are reasons to believe that the legal protection of trade secrets may have important

economic effects.

Paris Convention for the Protection of Industrial Property, Articles 1 and 10bis.

In protecting Trade Secrets, the TRIPS Agreement references the protection provided in the

Paris Convention against unfair competition. Article 10bis of the Paris Convention highlights

the nature of protection against unfair competition. Article 1 of the Paris Convention is

included here to provide context concerning what is meant by “union” (see article 1.1).

Article 1 also defines the scope of industrial property originally covered, which the TRIPS

Agreement extends by explicitly providing for protection of undisclosed information.

Selected articles of the Paris Convention

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Article 1: Establishment of the Union; Scope of Industrial Property

(1) The countries to which this Convention applies constitute a Union for the protection of

industrial property.

(2) The protection of industrial property has as its object patents, utility models, industrial

designs, trademarks, service marks, trade names, indications of source or appellations of

origin, and the repression of unfair competition.

(3) Industrial property shall be understood in the broadest sense and shall apply not only to

industry and commerce proper, but likewise to agricultural and extractive industries and to all

manufactured or natural products, for example, wines, grain, tobacco leaf, fruit, cattle,

minerals, mineral waters, beer, flowers, and flour.

(4) Patents shall include the various kinds of industrial patents recognised by the laws of the

countries of the Union, such as patents of importation, patents of improvement, patents and

certificates of addition, etc.

Article 10bis: Unfair Competition

(1) The countries of the Union are bound to assure to nationals of such countries effective

protection against unfair competition.

(2) Any act of competition contrary to honest practices in industrial or commercial matters

constitutes an act of unfair competition.

(3) The following in particular shall be prohibited:

(i) all acts of such a nature as to create confusion by any means whatever with the

establishment, the goods, or the industrial or commercial activities, of a competitor;

(ii) false allegations in the course of trade of such a nature as to discredit the establishment,

the goods, or the industrial or commercial activities, of a competitor;

(iii) indications or allegations the use of which in the course of trade is liable to mislead the

public as to the nature, the manufacturing process, the characteristics, the suitability for their

purpose, or the quantity, of the goods.

Challenges and limitations of trade secret protection

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A trade secret cannot be protected against being discovered by fair and honest means, such

as by independent invention or reverse engineering.

If a person not having legal access to the trade secret information, deciphers the information

without taking recourse to any illegal means, such as by reverse engineering or as by

independent invention, then such a person cannot be stopped from using the information so

discovered. Under these types of circumstances, the owner of a trade secret cannot take any

legal action against the other person.

Advantages of trade secret protection

1. Trade secrets involve no registration costs;

2. Trade secret protection does not require disclosure or registration;

3. Trade secret protection is not limited in time;

4. Trade secrets have immediate effect.

In the case of inventions that may be patentable the disadvantages of protecting such

inventions as trade secrets.

1. The secret embodied in an innovative product may be discovered through “reverse

engineering” and be legitimately used.

2. Trade secret protection only protects you against improper acquisition, use or disclosure of

the confidential information.

3. A trade secret is difficult to enforce, as the level of protection is considerably weaker than

for patents.

4. Another person may patent someone’s trade secret if he has developed the same invention

by legitimate means.

Violation of trade secrets

How to establish violation of trade secrets

Main issues are:

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(1) Was the information indeed secret?

(2) Were reasonable steps taken to maintain the secrecy?

To establish violation of trade secret rights, the owner of a trade secret must be able to show

the following:

(1) Infringement by or competitive advantage gained by the person/company which

has misappropriated the trade secret.

(2) The owner had taken all reasonable steps to maintain it as a secret.

(3) There is misuse as the information obtained has been used or disclosed in violation

of the honest commercial practices.

The remedies

(1) A court order restraining the person from further benefiting from or misusing the

trade secret.

(2) A court order for monetary compensation in the form of damages, based on the

actual loss caused as a result of the misuse of trade secret. (For example, lost profits

or unjust enrichment)

(3) Seizure order by the court, based on a civil action, which may include a search of

the defendant’s premises in order to obtain evidence to establish the theft of trade

secrets at trial.

(4) Precautionary impoundment of articles that include misused trade secrets, or the

products resulting from its use or misuse.

(5) A court may order the destruction of the products made by the infringing act,

and/or destruction of the equipment used to carry out the infringing act.

(6) Some countries permit the imposition of punitive damages for willful

encouragement of trade secret theft.

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CHAPTER – VI

Conclusion

In the present scenario, trade secrets protection is fundamental to encourage innovative steps,

foreign investments and to promote healthy competition. Trade secret as a new form of

intellectual property is very significant and it is gathering wide importance because in the era

of globalisation, failure or success of any company depends on its secrets let them be policies

related secrets or information of their clients.

Trade secrets give the commerce an edge over the competitors and therefore, one must ensure

that he adequately protects his business related confidential information from his competitor.

Secrecy does not stop anyone else from inventing the same product or process independently

and exploiting it commercially. It doesn’t confer exclusive rights upon the owner and makes

him vulnerable when employees with this knowledge leave his firm. Trade secrets are

difficult to maintain over longer periods or when a large number of people are made privy to

the secret. Moreover, a contract between parties is a suitable way of protecting trade secrets

but at times it would be difficult to enforce such agreements as one has to be careful that it

does not restrict the employees’ right to earn a living.

Despite this, manufacturers or producers prefer trade secret protection as opposed to patent as

there is no fixed time period for which protection is granted and there are no cumbersome

official formalities and cost involved. Further, while patents and copyrights require an

individual to disclose one’s information in the application process (information that

eventually becomes public), trade secrets require the individual to actively keep the

information secret. In spite of its increasing importance, the remedies or protections that are

extended to trade secrets are highly inadequate and insufficient.

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The case of Coca Cola –Pepsi trade secrets is an example which elucidates the above

mentioned. If the Coca-Cola Company had used patent legislation to protect its secret

formula it might not have become the most popular soda in the world. Coca-Cola would have

had to make the formula known to the world when it filed the patent and would only have had

exclusive rights to the formula for as few as 20 years.  However, by following critical steps to

protect the formula as a trade secret, the company has kept it a secret for more than a century.

While Coca-Cola may have realized the value of its soda formula and thus took immediate

steps to protect the information, unfortunately, the value of technology, information or

processes often isn’t recognized until it is compromised—at which point the information is

no longer protectable as a trade secret.

It is beyond doubt that intellectual property comprises of inter alia copyright, trademark,

patent and trade secrets. India has enacted Copyright Act, which provides complete and

comprehensive copyright protection in India. The Patent Act extends protection to patents in

India. But, it is very evident that there is no specific law for protection of trade secrets in

India. As opposed to India, other contracting parties to TRIPS have enacted specific and

comprehensive laws with the sole objective of protection of trade secrets. But in India, trade

secrets is the most deserted field as there is no proper policy framework for the protection of

trade secrets and some indirect provisions from contract law, criminal law and copyright law

protect the trade secrets. These laws are not sufficient for adequate protection of trade secrets

in India.

A specific legislation acquires even more importance because of the ambiguity that exists in

foreign laws, judgments and decisions on the issue trade secrets. No consistent line of

principles has been laid down for setting them as persuasive precedent for Indian courts to

follow. Moreover, in keeping with the mandate of Article 39 of the TRIPS agreement, it is

imperative for India to enact a legislation dealing specifically with the issue of trade secrets.

In my opinion, the proposed legislation should incorporate provisions regarding the

following:

1. Definition of trade secrets, misappropriation, improper means

2. Protection to be extended in the absence of non-compete or non- disclosure

agreements.

3. Third party liability

4. Standard format for non-compete and non-disclosure agreements.

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5. Exceptions to be made in public interest.

6. Over riding effect of the act on other existing laws such as Indian Contract Act.

7. Civil and Criminal Remedies in the nature of damages and injunctive relief.

It is difficult to accept the fact that Indian law doesn’t place any sort of relevance upon the

growth of new and developing IPR laws in the world. New trade secret legislation is

therefore, the only way to ensure strong and effective IPR protection which would in turn

open up new and profitable possibilities for the business scenario in India to flourish.

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