India: Trade Secrets In India: Need For A Comprehensive Regulatory Review

Last Updated: 16 July 2015
Article by Zoya Nafis

Co-authored by Ms. P. Vennela, a student of 4th year B.A.LL.B, from Amity Law School, Delhi.

Increasing globalization riding on Information and Communication technology has been rapidly changing the canvas of financial system in the country. Ever increasing Innovations and the attendant business volumes in various fields have made the environment further more challenging necessitating a review and relook of the regulatory and administrative framework relating thereto. Intellectual Property Rights (IPRs) is one tool in the hands of innovators to value their contribution to wealth creation and to protect them from unscrupulous competition. While substantial focus of stakeholders has been there on IPRs like Patents, Copyrights, Trademarks, etc., Trade secret is one IPR which has not got the adequate attention from the policy makers in India in proportion to its potential.

A trade secret is a formulapracticeprocessdesigninstrumentpattern, commercial method, or compilation of information which is not generally known or reasonably ascertainable by others, and by which a business can obtain an economic advantage over competitors or customers.  

The TRIPS Agreement in its Article 39 enlists the following features of any trade secret information:

  1. it is not generally known to the public;
  2. it confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being publicly known, not just from the value of the information itself);
  3. it is the subject of reasonable efforts to maintain its secrecy.

To understand it broadly the difference between a patent and a trade secret, is that the latter does not require any registration and is protected without any expiration. Though trade secret protection and patent protection are compatible, the legal enforcement of trade secrets is very difficult as trade secrets can be acquired by a third party through a legal discovery. The biggest threat to the trade secrets is the revelation by the employees to and espionage by, the rival entities.

Addressing the need of the hour

India is one of the fast emerging financial global powers enjoying a huge demographic dividend to sustain the growth for sufficiently long period to come. In a stable political environment supported with policy initiatives like 'Make in India' and 'Digital India', the entrepreneurs have been encouraged to be more innovative to create wealth for them and for the nation. Hence, the time has come to support these innovations. With the emergence of innumerable tech start-ups, the need for the stronger laws to protect the confidential information is much more felt.

At present, the protection of trade secrets is taken care by the Indian Contracts Act, under Section 27 and the common law. In cases where there is no contract of confidentiality between the employer and the employee, the courts have protected the former through passing injunctions. However, it has been observed that the existing laws do not have adequate provisions to effectively address the evolving challenges. As per TRIPS Agreement, the member states are expected to update their laws and form legislation in tune with obligations envisaged under this agreement. India being a party to TRIPS by virtue of its WTO membership, there is little alternative but to be in sync with the International Community. Therefore, need is felt to have a comprehensive legislation.

There has been a clamour from the global industrial giants such as Microsoft and Intel for facilitating a congenial business environment and furthering investments in research and development activities which can be achieved by suitably strengthening the trade secret laws.

Of late, India has been under a diplomatic pressure from the U.S.A to have a separate legislation for trade secrets. Incidentally, 47 out of 50 states in the U.S.A have enacted the laws with respect to trade secrets.

What should be done?

Based on the feedback from the stakeholders, it appears that the time has become right for upgrading the existing legal protection of the trade secrets taking care of the following proposals:

  1. The proposed dispensation must contain all the possible provisions which are required to protect the entities from violation of their trade secrets;
  2. The laws made should be in consistence with the existing laws and must foster the business of the companies;
  3. The anti-competent factors must be taken care of;
  4. A criminal liability should be imposed for the theft and misappropriation of trade secrets;
  5. The laws made should protect the rights of the employers as well as the employees.

The top leadership of the country is also of the opinion that our national laws must align with the international standards in respect of Intellectual Property Rights. With this it is expected that the confidence of the international Community gets translated into investments in the business in India. This fertile legal environment will also encourage burgeoning young entrepreneurs to unleash their potential in rebuilding India and also to leave a stamp in the international arena. However, further consensus maybe built stimulating a debate so that the emerging law not only takes care of the present challenges but is capable of taking care of future challenges.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Zoya Nafis
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