Trade Secret: Meaning and Criteria for Protection

By | January 12, 2020
Trade Secret: Meaning and Criteria for Protection

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Trade Secret: Meaning and Criteria for Protection | Overview

In this article ‘Trade Secret: Meaning and Criteria for Protection’ the point of focus is the IP instrument of Trade Secrets. The Concept of Trade Secrets its meaning and definition is provided along with a brief history of its evolution. Further, a brief description of the current legal scenario in existence with regards to Trade Secrets is also delineated together with their criteria of protection available as per the current situation.

Introduction

Commerce thrives on competence. In the interconnected web of today’s world where a large multitude of corporations compete against each other for market domination literally on a war footing. The winning mantra everywhere seems to be efficiency, quality and uniqueness.

The first of this triad could be equated to that delicate act of balancing business expansion and loss prevention the second of which is invariably about customer satisfaction and the third one is the clinching feet of a commercial victory.

Uniqueness is the through currency with which a business enterprise earns it most prized crown in its triumph which is none other than customer loyalty, on which is anchored the core of their survival. Such concept of uniqueness may mean different things depending on the nature of product the enterprise offers. And there are many ways by which a producer protects this uniqueness which makes their product ‘special’.

The tools or instruments by which this uniqueness is guarded is given a common name in the books of law and they called IPR (Intellectual Property Rights). And some of these tools available for protecting business secrets include; copyright, trademarks, patents, industrial design rights, trade dress and trade secrets.

I. Trade Secret; Meaning and Definition

World Intellectual Property Organization gives a broad definition for the term Trade Secret and it is as follows. “Any confidential business information which provides an enterprise with a competitive edge may be considered as a trade secret. When we use the term trade secret it can either mean Industrial secrets or commercial secrets.

When such information held confidential by a business group is accorded legal recognition it becomes a trade secret. And the unauthorized use of the same invites penal actions…In various legal systems existing in a different part of the world the legal format and conception of term secret and the sense with which it is applied in this context vary, ranging from a general or blanket term regarding business information in the casual sense to a specific IPR instrument employed for ensuring protection of the said information.

Trade secret ‘s broad purview includes sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients and the manufacturing processes involved in the making.

The term trade secret and its actual legal application need to be properly monitored as if unregulated it may lead to unfair trade practices such as industrial or commercial espionage, breach of contract and breach of confidence.

There are generally two categories of trade secrets. Some trade secrets are employed for protecting the manufacturing process of the product. These categories of trade secrets usually do not come under the protection of a patent. This is because things such as customer’s list or manufacturing process are nit essentially inventive in nature. Innovation is, therefore, the defining criteria for acquiring a patent.

The next category of trade secrets is those which fulfil this innovative requirement of the patents and are therefore eligible for both patents and trade secrets.

II. How Trade Secrets differ from other IPs

The most significant difference which scholars have identified with regards to Trade Secrets is related to public disclosure. While in copyright law and patent law creativity and innovation is governed by the concepts of creativity and innovation.

Further, they encourage freedom for all to use subject matter that does not come under its immediate protection. But in the case of Trade secrets, Neither creativity nor information is not necessary and the license for the confidential treatment of the information is for an unlimited period. This is a considerably wide discretion and has therefore been subjected to many criticisms.

The major of which is the absence of originality as a criteria leads to little or no incentives for innovation and progress while the lack of public sharing is the second drawback. This two combined to give a nullifying effect to the actual objectives of any IP law rendering it obsolete.

Some of the major differences that trade secrets have with respect to other IPs are as follows:

  • As has already cited, unlike a patent a trade secret information need not be unique, innovative or creative or even original.
  • In case of a trademark of or patent, homonymous information is not a valid ground on which a Trade Secret application could be denied. Which means if two individual parties file for identical information they both can simultaneously own it.
  • Unlike other forms of IPs except for a copyright, a Trade Secret claim is excluded when the information to granting the tag is found to be obtained through unfair means.
  • However, copyright does differ from Trade Secrets in the criteria for exclusion as for the former mere act of copying act as the disqualifier while for the latter it must be accompanied by other improper means.
  • The criteria required prove the usefulness of Trade Secret is akin to that of the requirements for a patent and the actual use requirement of a trademark. However in the case of the trademark, the requirement mandates demonstration of actual use in commerce; their actual value, trade secrets only has to demonstrate their potential value.
  • When it comes to registration, Trade Secrets show more similarity to unregistered common law trademarks and unregistered copyrights.
  • Unlike copyrights trade secrets does not require any prior registration for filing a suit and unlike patents or trademarks, there is no examination.

III. Historical background to the Development of Trade Secret Law

The crudest form of this IP instrument could be traced back to the Roman Period. In which we come across instances where the law offered a remedy for a case in which a person induced a slave into divulging commercial secrets of his master. The practise seems to have carried forward into the middle ages where elaborate rules where applied for the zealous protection trade secrets of guilds and other such commercial groupings.

The emergence of the Trade secrets in its modern recognizable form can be identified as a direct fall out of the industrial revolution which led to the accumulation of technical innovations patented by different individuals and business entrepreneurs. Thus its origin inevitably was in the hotbed of the industrial revolution; England.

IV. The Concept as elucidated by law

Trade Secret is not defined by any enactment in Indian jurisdiction. Although there are some faint references regarding the same could be found in Section 16 of the Copyright Act,1957.

Section 16 enunciates that;

“ No person shall be entitled to copyright or any similar right in any work, where published or unpublished, otherwise than under accordance with the provisions of this act or of any law for the time being in force, but nothing in this sections shall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence”(1).

Similarly, the Indian Penal Code talks about the offence of criminal breach of trust. Which follows this

Section 405 criminal breach of trust”

“Whoever being in any manner entrusted with a property or with any dominion over property dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or any legal contracts or express or implied which has made touching the discharge of such trust, or willfully suffers any other so to do, commits “criminal breach of trust(2)”.

The trust here mentioned is in relation to the property. But there does not exist a proper well-defined explanation of property, besides though the IPC recognizes both movable and immovable properties it is altogether silent when it comes to intangible property and hence we cannot depend upon it in the case of IP which is obviously an intangible property.

Earlier the Indian Penal Code contained provisions dealing with “property marks” having references to trademarks which have been repealed. However, what indeed is notable is that the factors that are listed as important to be proved by a plaintiff pleading the case of “breach of confidential information” is perfect matches with the definition of Trade Secrets envisaged under the TRIPS Agreement.

To piece together the points scattered in all the above legal documents we may define Trade secret “as a practice, process, design instrument or compilation of data or information relating to business which is not disclosed to the public and which the owner rationally attempts to keep secret and confidential. Such data or information may also involve an economic interest of the owner in obtaining the economic advantage over competitors”(3).

Thus the defining feature which is distinctive about Trade Secret is that as the name denotes it is a secret of the business kept confidential by zealously guarding it against being disclosed to the public with a definitive economic motive which is to gain a competitive edge over others.

V. Criteria for Protection

Contrary to patents the protection of trade secrets does not involve registration as it goes trade secrets are protected without any official procedures which are well defined. The duration of Trade Secrets is nowhere definitively fixed therefore in effect they are valid for an unlimited time period. However, there are some conditions with regard to Trade Secrets which apply throughout the world with minor variations;

  • The Information must be a secret which means it is not commonly known or available in the public domain; this criterion may work loosely to protect the collective and heritage information being misappropriated by corporations.
  • It must have commercial value whether presently or potentially.
  • The owner of the information must take proactive steps to keep it a secret.

Protection of Trade Secrets in India

India, as has been already stated, does not have specific legislation dealing with Trade Secrets. Nevertheless, Indian courts have upheld trade secret protection offered under various statutes such as the contract law, copyright law, the principles of equity and sometimes the common law action of breach of confidence. Presently the options for the protection for Trade Secrets are limited to ;

  • An injunction preventing a licensee, employee, vendor or other parties from disclosing a secret.
  • The return of confidential and proprietary information
  • Lastly compensation for any losses suffered due to the disclosures of trade secrets.

According to contract law, a person can be contractually bound not to disclose information which is a fairly working measure for the said protection. In some other cases, courts have recognized customer information as stored in databases as material eligible for copyright. As Section 2 (o) of the Copy Right Act of 1957  has categorized compilations including customer information databases as “literary works”.

Conclusion

As is fairly evident from the above description India lacks solid legislation dealing exclusively with the IP protection tool of Trade secrets. And what is available is a host various judicial interpretations in various cases which have over time evolved into a fairly competent body of regulations with respect to trade secrets. These are centred on the legal concepts such as ‘breach of contracts’, copyright assurances etc.

Recently the government has taken positive steps to formulate a national IP rights policy which may have the potential to govern over Trade secrets as well. Indeed the enactment of a Law to govern over this IP domain was one of the declared objectives if it does move forward it may prove beneficial in much clarification and clearing of doubts in the present scenario with respect to Trade Secrets.


References

  1. Research paper titled ‘Secrets of Trade Secretes’ by Niharika Swaroop, IIT Kharagpur.
  2. www.wipo.org
  3. Indian Copyright Act,1957
  4. Indian Penal Code,1860

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