Aligarh Muslim University

Malappuram center Kerela

. INTELLECTUAL PROPERTY RIGHT

Tutorial work
Topic- concept of Trade Secrets and the Laws
related to it

SUBMITTED To SUBMITTED BY
Dr.Azmat Ali Kunjali singh
Assistant Professor GK7931
Department of law 18BALLB34
 

TABLE OF CONTENTS

1.WHAT ARE TRADE SECRETS?

2.IMPORTANCE OF TRADE SECRETS
3.LAW FOR PROTECTION OF TRADE
SECRETS
4.TRADE SECRET MISAPPROPRIATION
5.OBLIGATION OF CONFIDENCE
6.LICENSING OF TRADE SECRETS
7.JUDICIAL POLICY FOR TRADE
SECRETS IN INDIA
8.TRADE SECRETS LEGAL SUITS
9.CONCLUSION
10. REFERENCE
WHAT IS A TRADE SECRET

Trade secrets is one of the most elusive difficult concepts in the law to define US Court Of
Appeals for the Fifth Circuit A Trade secret is a formula, practice, process, design, instrument,
pattern, or compilation of information which is not generally known or reasonably ascertainable,
by which a business can obtain an economic advantage over competitors or customers . Trade
secrets are referred to as confidential information, proprietary information, undisclosed
information etc. in the various jurisdiction laws.

When a competitor of a company or any entity acquires the trade secret of the company by
espionage or illegal means then a trade secret misappropriation suit is filed. But others can
develop the trade secret independently and derive economic benefit from it.

According to TRIPs the following are the conditions for some information to be considered a
trade secret and thus eligible to receive protection from judiciary :

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; and Has been subject to reasonable steps under the circumstances, by the person lawfully
in control of the information, to keep it secret.

There are some types of Information which cannot be classified as trade secrets.

 Trivial Information – Information of a company that does not have any economic value
or is not commercially exploitable. The scope of this exception is restricted because it is
not easy for courts to label any information as trivial.

 Immoral information – No immoral information will be given confidentiality protection

by court.

 Information that is vague – Vague (Not simple ideas) will not be protected by law. For
receiving protection idea should be sufficiently developed to be capable of being
realized.

 Trade secrets are among the most difficult assets of the company to quantify, or
even to identify because of the intangible nature of knowledge. Its takes lot of money
and time for companies to make intellectual property audit and ascertain what is a trade
 secret and its value. Many companies usually avoid these pains to their own economic
determinant.

TYPES OF TRADE SECRETS

a. Technical information – R&D reports , experimental data, prototype , processes, design

data, design manuals , formulas, diagrams, drawings, vendor supplier information,
components, experiments, operation manuals

b. Production information – This kind of know how relates to the processes used like
machinery used, technology used, prices of the product etc.

c. Sales and marketing information – marketing plans , marketing budget, sales leads,
customer leads, customer related information , sales call reports and promotion plans

d. Internal financial information – budgets, profit and loss statements, product margins,
operating reports, forecasting,

e. Quality information- methods, manual and reports, quality control procedures,

f. Procurement and materials- Cost, price data, inventory data and records, vendor and
suppliers information,

g. HR & Personnel- training programs , HR policies, incentives schemes, employee

records, recruitment tests, salary structure

h. Administrative information – organization structure, strategic business plans, softwares

used, decision makers.

Comparison of Trade Secrets with Patents

A Trade secret need not be novel unlike patents.

Even a customer list – a compilation of otherwise publicly available information- can be a trade
secret if the overall compilation is not readily ascertainable by competitors is a trade secret. Even
thoughindividual components the list could be obtained from publicly available sources, it does
not prevent protection.

Patent or copyrights one usually has to make some disclosure or publication of the
informationwhereas in Trade secrets there is no need. As long as the holder is successful in
maintaining the secrecy of the information the protection exists. Patent or copyright
protection is more appropriate where commercial exploitation of the information will result in its
disclosure. Trade secret protection is better if it is possible to keep the information secret such as
chemical components used in manufacture are preferred. In such cases due to the difficulty in
identifying infringements patentingis less effective

Trade secret laws unlike patents do not grant exclusive right to exploit the secret information.
Others may develop the information independently. They may even derive it by reverse
engineering the trade secret owner’s product.

For patents Temporary protection is provided for a period of years, after which the information
becomes freely available to the public. A trade secret can receive protection for an unlimited
period of time.

Unlike patents, trade secrets are protected without registration, that is, trade secrets are protected
without any procedural formalities.

IMPORTANCE OF TRADE SECRETS

The existing other intellectual tools may not be to protect some intellectual knowledge. Patents,
for example, are available only for inventions in the field of technology and that too for only
limited period. Patent is not suitable to protect other business secrets in conducting the day to
day activities of business. Again, in case of scientific invention, which is protected by patent-a
time period is necessary to get patent protection. This time period commences from the moment
of submission of patent application to the moment of granting of patent. During the pendency of
the patent application the subject matter of patent, i.e. the invention is not protected. During this
period, Trade Secret can be effectively used for the protection of scientific invention. It will give
protection to the owner of invention against any wrongful disclosure of the invention by the
others, irrespective of the fact whether patent will be granted or not.Trade Secrets are the
intellectual property of the new millennium and can no longer be neglected. Trade secret
misappropriation costs Walt Disney 240 million dollar and Cargill 300 million dollar. Trade
Secret covers over 90% of new technology. Patents are tips of icebergs in an ocean of Trade
Secrets. Trade Secrets precede, accompany and follow patents. Trade Secrets can be virtually
any kind of business information. These are important to industry and the economy because they
protect and encourage innovation.

A Trade Secret has the advantage of protecting information that possibly could not be protected
by a patent, a copyright, or the law on industrial designs. Indeed, getting a patent for a product
requires that it be innovative. Exactly in the same way, copyright only applies to an original
work. But, an innovation in case of patent and originality in case of copyright is not required in
case of Trade Secret protection. Like other Intellectual Property Instruments, no fixed time limit
of validity is necessary for trade secret. An inventor need not disclose a Trade Secret for its
registration like patent. So long as the Trade Secret remains undisclosed, protection is available
for an indefinite period of time. We are living in an era of Globalization.
 There are fierce competitions in the market and goods are circulated freely throughout the
world. At this juncture, the proper protection and use of Trade Secret is the sine qua non.
Confidential information or Trade Secret is no doubt an important intellectual property tools to
protect the secret knowledge. However, in comparison with other IP tools e.g. patent, Trade
Mark, Design, Copyright etc. it has some advantages. In case of Patent, Trade Mark, Industrial
Design etc., some registration fees are necessary for the registration. Patent protection is not
available for indefinite period of time. After some specified period of time, the invention must be
disclosed in the public domain. But in case of Trade Secret, no registration fees are necessary
and no limited and defined protection is applicable here. There is no compulsion of disclosure of
trade secret.

All research and development data, including data relating to better modes, developed after
patent filing, whether or not invention, can also be protected by trade secret. Trade Secret
protection operates very quickly without delay. Trade Secrets encompass near about 80% of the
assets of some companies and before obtaining patent protection, virtually all inventions are
protected by trade secret. So, importance of Trade Secret cannot be denied.

LAWS FOR PROTECTION OF TRADE SECRETS

TRIPS -The Agreement on Trade Related Aspects of Intellectual Property Rights – is an

international agreement that sets down minimum standards for protection of many forms of
intellectual rights, including trade secrets. All WTO members are obliged to respect TRIPs
agreement. Article 39 of TRIPs covers Trade secrets. This article has been incorporated in 1994
after hectic lobbying by American and European countries and was one of the most important
events in protection of trade secrets.

The Section 7: protection of undisclosed information, Article 39 states that:

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 3.
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 practices (Note.1) 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; and 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 utilize 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.

Note 1. For the purpose of this provision, “a manner contrary to honest commercial practices”
shall mean at least practices such as breach of contract, breach of confidence and inducement to
breach, and includes the acquisition of undisclosed information by third parties who knew, or
were grossly negligent in failing to know, that such practices were involved in the acquisition

Trade secret protection India ,

In India protection of trade secret is common law based. Section 27 of Indian contract act bars
any person form disclosing any information which he acquires as a part of contract. India has
been lagging behind in protection of trade secrets because since independence India has given
importance to socialist pattern of growth and attached less importance to private intellectual
rights.

Pressure is building in government to make statutory protection to trade laws due to TRIPs
agreement and growing competitive environment.

Proofs required strengthening a Trade secret law suit

Existence: The petitioner should be able to prove existence of the trade secret.

Ownership: It should have proof of ownership to the trade secret and all the rights related to its
usage.

Access: It should be proved that the defendant had access to the trade secrets under scan.

Notice: A proof that the defendant was well aware that the trade secret(s) was the property of the
petitioner.

Use: A proof that the trade secret information was used by the defendant.

Damages: A proof that a remedy exists within the power of the court to apply

CONCLUSION
Trade secrets are important to industry and provide protection for the results of
investment of time and money and research and development that are difficult to protect by other
means. Their importance in industry seems to be growing.

Trade secret, as a form of intellectual property law mechanism, is the creation of the
common law courts in England. This is a new element of intellectual property outside the
various classical forms of intellectual property like, patents, copyrights, industrial design etc.
There are no procedural complications for the protection by Trade Secret like other IP
instruments. Protection under Trade Secret is very easy and less costly in comparison with patent
and other IP instruments. But most of the companies and business establishments do not provide
a comprehensive framework for safeguarding trade secrets. Instead of that, they often impose the
responsibility upon collective heads i.e. upon various persons. This collective and divided
responsibility may pose a serious threat to the security of Trade Secret. Ultimately, this divided
responsibility may turn into no one’s responsibility. A single or maximum two responsible
persons must be given the responsibility to keep the trade secret in secret. Theft and reverse
engineering may pose a threat to the protection of trade secret.

.The danger may also come from outside the business. Generally, other market competitors will
always try to discover and use for themselves the important intellectual property- Trade Secret.
The moment they will be successful, the trade secret will lose its value and protection would not
be available anymore. To prevent this risk the company and business house must act in a diligent
and intelligent manner. They should first identify the trade secrets then they should use them
strategically for the sake of protection of trade secret. Technology is changing so rapidly that
trade secret protection is, in some cases, has become the most attractive, effective and easily
available intellectual property right. Just like other intellectual properties, trade secrets can be
very valuable to a company’s growth, development and sometimes even to its survival.

Government of India should consider the enactment of a law like The Uniform Trade
Secret Act (UTSA) of U.S.A. for extending better protection to the trade secret owners. India’s
trade and commerce is widening very rapidly day by day. To keep pace with this rapid
development legal mechanism should also be framed accordingly so that intellectual properties
are properly protected and respected and also enterprises and new creators are encouraged to
create new inventions. Otherwise, they will lose interests in new inventions and new creations
which may be suicidal to the entire development of the country in the days ahead.

The law in relation to trade secrets in the world varies widely in some countries the protection is
effective; in others – sometimes because of the difficulty in enforcement – the law provides
inadequate protection. It would be advantageous if there were consistency as to the types of
information that can be protected. However, attempting to produce a both detailed and
comprehensive definition of “trade secret” is probably unnecessary. TRIPS simply uses the
expression “undisclosed information” and specifies criteria which must be met for such
information to be protectable.

The enforcement action should not depend upon there being an existing contractual
relationship with the defendant. Many cases of serious industrial espionage involve individuals
or companies with whom no such relationship exists. Although generally restrictions imposed by
the law during employment are similar from State to State, the position varies to some extent
post-employment. This is important because a large proportion of cases involve ex-employees.
This issue is entangled with employment law and public policy and some differences are,
perhaps, unsurprising. Member States attempt to reach a balance between the interests of the
employer and employee. The balance varies from State to State. In some countries there is no
protection post-employment or only in extreme circumstances. This limited, or lack of,
protection can cause problems. There are differences in approach to remedies available against
“innocent” recipients of trade secrets. In some countries it is possible to prevent third parties
making use of the information however innocent they are. In other cases it is necessary to show
bad faith on behalf of that party otherwise nothing can be done. Where no injunction is available
to prevent further use of the trade secret this may cause considerable damage to the owner.

There can be considerable difficulties in obtaining evidence of misuse and damage. If the
necessary evidence cannot be obtained the action may never get off the ground. Some courts will
not (or cannot) compel defendants to provide the relevant documents or information. To be
effective there is a need for:

a) Procedures to be available to compel defendants to provide information and/or

documents

b) Effective search orders to be granted on an ex parte application where there are serious
grounds to suspect the defendant is dishonest.

c) There is no clear correlation between the existence of statutory protection and the
effectiveness of protection.

d) law countries which do not have statutory provisions have good and effective protection
in the main, Complex technical trade secret cases may require specialist judges.

e) The methods used to calculate damages might also be reviewed to ensure plaintiffs are
properly compensated.

f) The courts need to have means to protect secret information during proceedings. This can
be achieved with confidential schedules to pleadings and restricting the disclosure of
information during trial and in the judgment itself. Public) and the protection of
information contained in court documents.

g) Amending the Customs Regulation to include trade secrets may be of some assistance in
controlling the flow of unlawfully manufactured goods, although, in practice, this may
not be effective in complex cases