I cook a delicious Biryani; following a secret recipe. Does the recipe of my biryani is a trade secret? We all have secrets of how to perform tasks, some are good at art others at cooking, but do all of these qualify as trade secrets?
What is a Trade Secret?
Trade Secret is a term which is very wide in its ambit and there cannot be a single exhaustive definition for this term. A Trade Secret can be a process, information, technical know-how, customer lists, details of suppliers, pricing, manufacturing policies, a product launch time-schedule or a method of business that is kept confidential by an entity to gain a competitive advantage over its competitor. There is no specific law which governs Trade Secret in India and hence a Trade Secret in the Indian Jurisdiction has been a subject matter which has evolved with precedents and judicial interpretations.
Popular Examples of Trade Secret
1. Coca Cola Formula
2. KFC Secret Spice –Mix
3. McDonald’s Big Mac sauce
4. Google search algorithm
5. New York Times bestseller list
6. Listerine
7. WD-40
8. Krispy Kreme Doughnut Recipe
What are the essentials of a Trade Secret?
In absence of any statutory definition, trade secrets in India are generally governed by Article 39 of the TRIPS1 Agreement which lays down 3 essential conditions.
1. Secret
The information must be secret which is not generally known amongst, or readily accessible to, circles that normally deal with the kind of information in question. The Biryani that I cook is a secret.
2. Commercial Value
This information must have some commercial value attached to it. Since I don’t sell the Biryani cooked by me, it does not have commercial value attached to it. However, if I open up a restaurant someday it will have commercial value attached to it.
3. Reasonable efforts by the rightful holder to keep its secrecy
The rightful holder of the trade secret should have taken reasonable efforts to keep it secret. I font share my recipe with anyone.
All three conditions have to be fulfilled to convert “information” into a trade secret. So till the time I actually start selling my biryani it would not constitute a trade secret per se.
Foundations of Trade Secret Protection
Common Law
A Trade Secret in the Indian Jurisdiction is majorly adjudicated on the basis of Common Law principles. The Hon’ble Delhi High Court has defined trade secret in the case of American Express Bank Ltd. v. Priya Puri2 - as “formulae, technical know-how or a method of business adopted by an employer which is unknown to others and such information has reasonable impact on organizational expansion and economic interests” and hence the Hon’ble Court was guided by the Common Law principle that if it gets leaked or misappropriated, detriment would be caused to the employer entity. The employee is free to carry on his/her profession, utilize the skills and information it has mentally retained and he/she is only being restrained from using the material that has been copied from the employer in which the employer alone has a right.
Equity
Principles of Equity also play an important role in adjudication of a Trade Secret. The Delhi High Court in another landmark judgment of John Richard Brady and Ors V. Chemical Process Equipments Pvt. Ltd. and Anr3 restrained the defendant from manufacturing and selling machines which were amounting to substantial imitation and reproduction of the drawings of the rightful owner or from using in any other manner whatsoever the know-how, specifications, drawings and other technical information about an improved Fodder Production Unit disclosed to them by Brady. It was held that independent of a governing contract or in the absence of it, a person who has received information in confidence cannot be allowed to take unfair advantage. The guiding principle of equity does not allow undue enrichment at the expense of another. Principles of equity are not dependent on contractual obligations.
Breach of Confidence
In Diljeet Titus v. Alfred Adevare & Ors, the Hon’ble Delhi High Court has held that the Court must step in to restrain a breach of confidence even when obligation is only implied and not necessarily expressed. It is independent of any right under law. Similarly in John Richard Brady4 case there was no contractual arrangement, plaintiff in this case shared details of an invention for which patent was pending to the defendants under confidence while they were at the negotiation for a contract for manufacturing the product. Consequently, the negotiations failed and the contract was never entered upon. However when Defendant started manufacturing similar product, Plaintiff sued the defendant for breach of confidence and infringement of its copyright, the Hon’ble court granted injunction in view of the English court ruling in Saltman Engineering5 which made it clear that breach of confidence is a distinct cause of action and liability arising from it exists quite separately from any other legal action.
Patrick Hearn in his book titled “The Business of Industrial Licensing” has summarised the Saltman Engineering case which has also been relied upon in John Brady case (Supra). The Extract reads as under
“Secrecy- The maintenance of secrecy which plays such an important part in securing to the owner of an invention the-uninterrupted proprietorship of marketable know-how, which thus remains at least a form of property, is enforceable at law. That statement may now be examined in the light of established. rules making up the law of trade secrets. These rules may, according to the circumstances in any given case, either rest on the principles of equity, that is to say the application by the Court of the need for conscientiousness in the course of conduct, or by the common-law action for breach of: confidence which is in effect a breach of contract.
In considering these alternatives there are three sets of circumstances out of which proceedings, may arise:
(a) where an employee comes into possession of secret and confidential information in the normal course of his work, and either carelessly or deliberately passes that information to an unauthorised person;
(b) where an unauthorised person (such as a new employer) incites such an employee to provide him with such information as has been mentioned above; and
(c) where, under a license for the use of know-how, a licensee is in breach of a condition, either expressed in an agreement or implied from conduct, to maintain secrecy in respect of such know-how and fails to do so.”
Contractual Obligations (Negative Covenants)
The Apex Court’s ruling in Niranjan Shankar Golikari case is the law of the land as far as Negative Covenants in course of employment are concerned. The Hon’ble Supreme Court has held that a former employee cannot be allowed to take unfair advantage of the trade secret of his employer, hence, negative covenants such as non-disclosure agreements with respect to confidential information and trade secrets during course of employment and even post service for a limited period do not fall in the ambit of restraint of trade and are permissible under the Contracts Act.
How Trade Secret Came to India
Trade Secret first came into the Indian legal framework in 1977 when the then government demanded Coke to hand over their secret formula, in response of which Coke withdrew themselves from Indian market and entered 10 years later when another government came into power.
Subsequently in 1991 India got its liberalisation policy expanding the role of private and foreign investment. India also became a member of the World Trade Organisation (WTO) and signed the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 1994. Before this India in the Multilateral Trade Negotiations at the Uruguay Round suggested “it is only the restrictive and anti-competitive practices of the owners of intellectual property rights that can be considered to be trade-related because they alone distort or impede international trade” and that “Trade Secrets cannot be considered to be intellectual property rights. The fundamental basis of an intellectual property right is its disclosure publication and registration, while the fundamental basis of a trade secret is its secrecy and confidentiality. The laws of many developing countries clearly stipulate that the term "licensor" and "licensee" should not be applied to a transaction involving the supply of confidential know-how, and only expression such as "supplier" and the "recipient" should be used because such know-how cannot be regarded as a licensable right. The observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate Civil Law and not by intellectual property law. Since trade secret cannot be regarded as an intellectual property, it is beyond the mandate of the Negotiating Group to consider this matter.”
However irrespective of India’s objection as stated above, “Trade Secret” made it to the final text of TRIPS Agreement and hence it was an obligatory on the part of member states to protect Trade Secret in line with Article 39 of TRIPS Agreement. India then enacted new laws to comply with the provisions of TRIPS Agreement but it did not enact any specific law in respect of Trade Secret as it felt that its existing laws are capable enough for compliances related to Article 39 (Trade Secrets)
Subsequently with an increasing number of “Trade Secrecy” cases coming up before Indian courts, India came up with National Innovation Bill, 2008 which amongst other things also had certain specific provisions related to Trade Secrecy. This can more or less be marked as India’s first attempt to bring in a Trade Secret specific legislation. This Bill defined terms like “confidential information”, “misappropriation”, “misappropriator”. It also had specific provisions like Obligations of Confidentiality, Confidentiality arising from non-contractual relationships, Remedies to protect and preserve confidentiality and orders to prevent threatened or apprehended misappropriation thereof and many others. However this bill never made it to the Parliament and disappeared.
India was silent on Trade Secret for around 8 years and it was only in 2016 when the then Minister of Commerce and Industry of India Ms. Nirmala Sitharaman and U.S. Trade Representative (USTR) Ambassador Michael Froman met for the tenth ministerial-level meeting of the India and United States Trade Policy Forum (TPF). After this meeting, USTR put up a press release quoting both the governments are committed “to strong protection of trade secrets in their respective countries and to continue engagement on effective trade secret protection mechanisms. A toolkit would be prepared for industry, especially SMEs, to highlight applicable laws and policies that may enable them to protect their trade secrets in India. A training module for judicial academies on trade secrets may also be considered.” The press release also mentioned that India has issued a National Intellectual Property Policy and has liberalized foreign direct investment (FDI) in various sectors.
However the National Intellectual Property Policy, 2016 only made a brief mention of the phrase ‘Protection of Trade Secrets’ in the section dealing with the future legislative agenda without any elaboration.
Recent Judgement of Steer Engineering vs. GlaxoSmithKline6
Steer engineering filed a commercial appeal against the order of the trial court wherein interim application for grant of an injunction filed by it was rejected.
Facts
Steer Engineering (‘SE’) operates in food and pharmaceutical manufacturing process and provides solutions in the product development and drug delivery systems. It developed a unique process of extrusion for GlaxoSmithKline (GSK) which was supposed to be used in manufacture of GSK’s widely known product Horlicks. SE argued that the use of extrusion technology for the manufacture of nutritional beverages was not known before the pioneering work made by it. SE argued that it developed technologies in their premises that enable controlled gelatinization of starch in an extruder even before it was approached by Smith Kline Beecham Limited (SKB) and the same has been admitted by SKB in the task order dated 14th August, 2013
When GSK’s subsidiary approached SE, SE developed technologies in-house that enable controlled gelatinization of starch in an extruder without the pre-conditioner (or batch mixer). This process was unknown to GSK before this.
SE’s Allegations
The case of SE is that it provided some of the information in relation to this extrusion process to GSK on “Need to Know” basis only and its test results and data bases are otherwise protected under Section 2(o) of the Copyright Act, 1957. GSK infringed this when it filed patent application for the extrusion process (experiments conducted in SE’s premises). Therefore, the filing of patent application amounted to infringement of SE’s rights in ‘its proprietary information and intellectual property’.
SE further alleged that filing of international patent application by GSK itself shows that it admits that gelatinization of starches in an extruder at high speeds and using high shear was not known. GSK has also admitted that the prior art in fact taught that higher amounts of water and enzyme are required for higher conversion of starches and the present experiments conducted at SE’s premises where gelatinization of starches was done in an extruder at high speed using lower amounts of enzyme and water.
GSK’s Contentions
Amongst various other contentions objecting Jurisdiction and mis-joinder of parties which are not subject matter of the present article, the main objection put forth by GSK was that the confidential information and intellectual property in question does not belong to SE but to GSK. GSK relied on clauses contained in the Master Services Agreement between SKB and SE and the subsequent Service Development Agreement which clearly recorded that “all project intellectual property rights shall belongs to and vest in GSK”. Since the agreement included all intellectual property rights relating to “any outputs” therefore, GSK contended that test results and test databases relating to the project fall within the meaning of outputs. GSK further contended that the Development Services Agreement clearly recorded that SKB had transferred its rights and interest over the Master Services Agreement to GSK. It was contended that the SKB had developed the “GSK two twin extrusion” process before engaging SE including with other third parties and its running process without using a pre- conditioner.
It was contended that the SKB had knowledge of using the extrusion process for making Horlicks without a pre-conditioner prior to any of the engagement with the appellant and that the confidential information of intellectual property in question does not belonging to the appellant. It was submitted that the elimination of the pre-conditioner cannot be confidential information belonging to SE.
Decision of the Trial Court
The Trial court held that the information relating to the project, intellectual property rights or outputs under the Master Services Agreement entered between the parties were confidential information of GSK and not of the supplier. This decision was upheld by the Hon’ble Karnataka High Court in appeal.
Springboard Doctrine
In Saltman v. Campbell (supra) Lord Greene observed that “the defendants were in possession of manufacturing information which had not become available to the public, and which in fact gave them a spring-board compared with their competitors”
“As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information In confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public, The brochures are certainly not equivalent to the publication of the plans, specifications, other technical information and know-how. The dismantling of a unit might enable a person to proceed without plans or specifications or other technical information, but not, I think, without some of the know-how, and certainly not without taking the trouble to dismantle. I think it is broadly true to say that a member of the public to whom the confidential information had not been imparted would still have to prepare plans and specifications. He would probably have to construct a prototype, and he would certainly have to conduct tests. Therefore, the possessor of the confidential information still has a long start over any member of the public.”
In UBS Wealth Management Case7 Justice Openshaw has explained the scope of Springboard Theory
“In my judgment, springboard relief is not confined to cases where former employees threaten to abuse confidential information acquired during the currency of their employment. It is available to prevent any future or further serious economic loss to a previous employer caused by former staff members taking an unfair advantage, an “unfair start”, of any serious breaches of their contract of employment (or if they are acting in concert with others, of any breach by any of those others). That unfair advantage must still exist at the time that the injunction is sought, and it must be shown that it would continue unless restrained. I accept that injunctions are to protect against and to prevent future and further losses and must not be used merely to punish past breaches of contract.”
In Zee Telefilms Ltd. vs. Sundial Communications8 the Hon’ble Bombay High Court has explained the importance of Confidential Information/ Trade Secret and has held:
“In our opinion, the plaintiffs' business prospect and their goodwill would seriously suffer if the confidential information of this kind was allowed to be used against them in competition with them by the defendants and as observed by Lord Evershed (M.R.) it is not merely a matter of compensation in pounds, shillings or pense. Therefore, we feel that the plaintiffs would certainly be entitled to have injunction for breaching confidentiality.”
Mixed Views
Researchers and academicians have mixed views as far as need for a Trade Secret specific legislation in India is concerned. The ones who believe that Trade Secret should not be considered as an Intellectual Property right argue that the principles of common law, equity, breach of confidence and negative covenants are sufficient and are in fact well suited for protection of Trade Secrets in the Indian jurisdiction. Adjudication can happen on a case to case basis, by understanding the intricacies of the matter. They also contend that the concept of Trade Secret is against the prerequisites of grant of an Intellectual Property Right as it needs disclosure publication and registration, Trade secret on the other hand finds its basis in secrecy and confidentiality Hence there is no need for India to bring in a Trade Secret specific legislation.
On the other side are those who believe that it is high time that India should come up with a specific legislation on Trade Secrets. In the absence of any specific law governing trade secret, there is always the problem in getting proper justice.
Over and above this, India being a developing country has to address the needs of multinational corporations as well. In other jurisdictions trade secrets have statutory protection, with meaningful civil and criminal remedies to counter the misappropriation of trade secrets, have provisions for compensatory and punitive damages and injunctive relief. However, this is not the case in India where parties have to majorly rely upon contracts for protection of Trade Secrets. Although India recognises Breach of Confidence in absence of a contract, but its scope is very limited. It applies only to fiduciary relationships. Therefore for providing an edge for local players as well as to attract foreign companies India should come up with specific trade secret legislation.
1Trade-related Aspects of Intellectual Property Rights. India is a signatory to the TRIPS Agreement
2(2006)III LLJ 540(Del)
3AIR 1987 Delhi 372
4AIR 1987 Delhi 372.
5(1948) 65 RPC 203
6Karnataka High Court Comm A No.5 OF 2019
7[2008] EWHC 1974 (QB)
82003(5)BomC R404,
