Securing the Trade Secrets and Confidential Data in India
Introduction
Information serves as a valuable asset for businesses, but trade secrets hold a unique significance, often representing the very lifeblood of an enterprise. These trade secrets encompass a wide array of confidential information, such as strategies, designs, client databases, formulas, software programs, and other closely guarded data. The Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement, established in 1995, defines trade secrets as information that is deliberately maintained as confidential, possesses commercial value, and is safeguarded through reasonable measures by its owner. Given the pivotal role trade secrets play in a business’s success, it is imperative to ensure legal protection for such sensitive information.
Trade secret and confidential information
What constitutes Confidential Information?
Confidential Information refers to data shared between two parties during their business interactions, and it must remain private, not accessible to the general public. This notion of Confidential Information derives its foundation from the legal concept of the law of confidence and an equitable principle, stipulating that the recipient of such information is bound by a moral and legal obligation not to exploit it for personal gain to the detriment of the disclosing party, without obtaining their consent.
What is a Trade Secret?
A trade secret is the confidential core of a business’s operations, known only to a select few individuals, and possessing commercial worth. As defined by the World Intellectual Property Organization (WIPO), trade secrets are intellectual property rights covering classified information that can be bought or licensed. Unlike other forms of intellectual property rights, trade secrets do not demand formal registration.
Essential Components of a Trade Secret
- It holds economic value owing to its confidential nature.
- It is not in the public domain, with knowledge restricted to a select group of individuals connected to the enterprise.
- The owner has taken practical steps to maintain the information’s confidentiality.
It’s worth noting that a trade secret falls within the category of Confidential Information. While all trade secrets are regarded as Confidential Information, not all confidential information qualifies as trade secrets. Confidential Information denotes data holding valuable and sensitive details, and those who receive it are bound by a duty to neither reveal it nor employ it for any purpose beyond the intended disclosure. For example, this category encompasses sensitive data like company profits and revenues, client and customer lists, employee records, and more.
A trade secret, on the other hand, pertains to confidential information that bears commercial significance, and measures have been taken to safeguard its secrecy over an extended period. Examples of such trade secrets encompass technical data, software, datasets, formulas, and recipes, among others.
Inclusions in trade secrets encompass formulas, recipes, procedures, software code, client rosters, supply channels, financial data, and more. Some notable instances of trade secrets comprise Nestle’s Maggi Masala, KFC’s renowned chicken recipe, Listerine Mouthwash formula, Hershey’s Milk Chocolate formula, Google’s highly-guarded algorithm, Coca-Cola’s recipe, and numerous others.
The Status and Safeguarding of Trade Secrets in IndiaTop of Form
Trade secrets appear to receive limited attention within India, as there exists no specific legislation or policy framework for their protection. While this form of intellectual property is relatively new to the Indian landscape, it holds significant importance. Safeguarding trade secrets presents a formidable challenge for the Indian government, but it is a crucial endeavor with the potential to stimulate foreign investments, thereby bolstering the nation’s economy. Foreign investors must be assured of the protection of their trade secrets to facilitate business ventures in India. Establishing a comprehensive policy for trade secret protection would also fortify security within the domestic industry.
It’s notable that most countries worldwide have already implemented policies to protect trade secrets, and India, as a signatory to TRIPS (Trade-Related Aspects of Intellectual Property Rights), is obligated to amend its laws or create new ones to ensure the safeguarding of trade secrets belonging to various businesses. Consequently, a well-defined policy for trade secret protection in India has become imperative, serving to instill confidence among both foreign investors and local entrepreneurs regarding the security of their trade secrets. This, in turn, has the potential to contribute significantly to the growth of the Indian economy.
Regulation of Trade Secret Law
The legal framework governing the protection of trade secrets and confidential information in India involves multiple elements:
Common Law:
- Contract Act: In accordance with common law principles, the safeguarding of trade secrets and confidential information is upheld. Parties are obliged to uphold the confidentiality of such information, especially when bound by Non-Disclosure Agreements, as stipulated in Section 27 of the Contract Act.
- Copyright Law: Copyright legislation also extends protection to trade secrets contained within business data, providing legal cover for original and innovative works.
- Personal Data Protection Bill, 2019: This bill introduces specialized regulations to ensure the security and privacy of personal and non-personal data, regardless of its form, be it digital or non-digital, with an emphasis on privacy and protection.
- Information Technology Act, 2000: Section 72 of this act enforces penalties for breaches of confidentiality and privacy, serving as a legal deterrent against unauthorized disclosure or misuse of confidential information.
- Indian Penal Code, 1860: Sections 405 to 409 of the Indian Penal Code address scenarios involving the criminal breach of trust, providing a legal framework to address situations where confidential information is compromised or misused.
Confidentiality and Fiduciary Relationships
In situations where one party reveals information to another in a relationship of trust, akin to a trustee and beneficiary, the recipient is morally and legally bound by principles of confidence and trust, even in the absence of a formal non-disclosure agreement between them.Top of Form
Legal Precedents in the Indian Context
Within India, legal judgments and precedents play a pivotal role in safeguarding trade secrets and confidential information, given the absence of dedicated legislation for this purpose. Below are notable cases reflecting the application of judicial wisdom:
- Sudipta Banerjee Vs. L.S. Davar & Company & Ors. FMAT 735 of 2021: The Calcutta High Court issued an injunction against former employees of a law firm who had divulged trade secrets and confidential information acquired during their employment. The court emphasized the need to strike a balance between freedom of contract and trade, particularly in revisiting Section 27 of the Indian Contract Act. Sharing such information would not only be unethical but also a violation of the confidentiality clause in their service contracts, causing harm to the law firm.
- M/s Lifecell International Private Limited v. Vinay Katrela O.A. Nos. 599 and 600 of 2018: The Madras High Court held that in franchise agreements or similar contracts, there should not be an absolute restraint after termination of employment. Restriction should only apply to trade secrets relevant to the company’s prospects and development.
- Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber 61 (1995) DLT 6: In this case, a former employee of the plaintiff company used the company’s contacts database for a similar business venture. The Court ruled that the contacts database, developed through the plaintiff’s skill and labor, was protected under trade secret and confidential information laws.
- Saltman Engineering Company Limited v. Campbell Engineering Company Limited (1948) 65 RPC 203 or “Saltman Engineering Case”: In this landmark case, Saltman contested Campbell’s use of drawings for personal purposes. Campbell argued that, in the absence of a contract, he was not obliged to treat the drawings as confidential. The court, however, held that what mattered was Campbell’s awareness that the drawings belonged to Saltman and were confidential, as they were provided for a limited period. Hence, a breach of confidence on the part of the defendant was established.
- John Richard Brady & Ors v Chemical Process Equipment P Ltd & Anr (AIR 1987 Delhi 372): This case marked the first discussion of principles of confidentiality. The court ruled that the legal principles in such matters were not solely dependent on implied contracts but rather rooted in broad equity principles, preventing the unfair exploitation of information received in confidence.
Conclusion:
In the final analysis, it is incumbent upon every entity, corporation, and firm to meticulously implement protocols for the management of confidential information. This entails the establishment of robust agreements between employers and employees, including the diligent use of Non-Disclosure Agreements, alongside the adoption of all feasible measures aimed at preserving the sanctity of their trade secrets. Such a proactive approach serves as an indispensable shield in safeguarding proprietary knowledge and sustaining the competitive edge in the business landscape.
Anshita Argal
This article is formulated by Advocate Anshita Argal, a graduate from NIMT College, Greater Noida and an enthusiast of Intellectual Property Rights (IPR) who is currently working with VNC Corporate and Legal.
