Introduction
Trade secrets are a form of intellectual property (IP) that usually refers to some type of commercially valuable data, information or knowhow relating to a business, which is not known to the public and has been subject to reasonable efforts by its owner to keep it secret. Article 39 of the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement mandates every member state to protect trade secrets, but India, like most members of TRIPS, has not yet adopted any stringent measures to tackle the subject. In the absence of specific legislation, trade secrets are protected through contract, common, and criminal law principles, as well as principles of breach of confidence and equity.
Attempts have been made to formulate separate legislation for trade secrets in the past, like the 2008 National Innovation Bill, but never reached parliamentary consideration. Recently, the 22nd Law Commission, in its 289th report, recommended the need to adopt a separate legislation on the issue, and has proposed a draft Protection of Trade Secrets Bill, 2024 (the draft Bill). This article highlights some of the key features introduced by the draft Bill.
Highlights of the draft Bill on trade secrets
1) Meaning of Trade Secrets: The
draft Bill defines trade secret to mean information:
a) that is not widely known or readily accessible to the relevant
persons, i.e., persons who deal with the kind of information in
question;
b) that derives commercial value due to it being kept a
secret;
c) that is protected through reasonable steps by the holder of such
information; and
d) whose disclosure of which could cause likely damage to the
holder.
This is an intentionally open-ended definition, and allows room for judicial interpretation so that emerging aspects and industries may also fit within the framework of the law.
2) Exceptions to trade
secrets: Certain exemptions from the meaning of trade
secrets are carved out, for:
a) Experience and skills acquired by an employee in the course of
normal professional practice; and
b) Any information disclosing a violation of the law.
The draft Bill also provides for other exceptions such as, reverse engineering, independent discovery/ creation, whistle-blower protection, etc.
The exceptions to the definition acknowledge that the maximum volume of litigation relating to trade secrets arise in the context of employment, and especially around employee mobility, where the issue is the use of knowledge and skill gained during employment.
3) Rights of the trade secret holder: A holder of a trade secret shall have the right to use and disclose his trade secret, which includes licensing the trade secret. A holder of trade secret shall be entitled to institute proceedings to prevent misappropriation of trade secret. Any contract or agreement that the holder of trade secret enters regarding his trade secret, shall be subject to the provisions of the Indian Contract Act, 1872
4) Lawful acquisition, use, and disclosure of trade
secrets: The draft Bill lists an exhaustive number of
ways in which a trade secret can be obtained lawfully:
a) Information obtained by independent discovery or creation;
b) Information acquired by observation, study, reverse engineering,
disassembly, or testing of a product or object that has been made
public or information that is lawfully in the possession of the
acquirer who is not bound by any duty to limit such
acquisition;
c) Through any other practices that are in conformity with honest
commercial practices; or
d) In pursuance of a law, by a contract, or as permitted by
law.
5) Compulsory licensing: The draft Bill also provides for compulsory licensing, under which the central government can direct the disclosure of trade secrets to third parties or to the government in cases of national emergency, extreme urgency involving substantial public interest, including situations of health emergencies, national security, etc. This is similar to the provision contained in Section 100 of the Indian Patents Act, 1970.
6) Misappropriation of trade
secrets: Misappropriation includes the
following:
a) Acquiring trade secrets without consent of the holder by
unauthorized access, appropriation, or copying of material, or
conduct contradictory to honest commercial practices.
b) Use or disclosure of trade secrets without the holder's
authorization by acquiring them unlawfully, by way of a breach of
confidentiality agreement, a breach of contract, or any other
duty.
c) Acquisition, use, or disclosure of a trade secret by a person
who had or ought to have knowledge that the information was
acquired by disclosure made by another person unlawfully.
Exceptions to misappropriation are also listed, such as, disclosure of trade secrets to expose an unlawful act or professional misconduct, i.e., to protect whistleblowers or in good faith to protect public interests.
7) Legal remedies for misappropriation: A suit for misappropriation can be filed before commercial courts which have jurisdiction over such suits. Remedies vary, and may include injunctions, damages, or accounts of profits; an order for surrender and/or destruction of material consisting of trade secrets; an order for recall, withdrawal, permanent removal, destruction of goods or products that are based on misappropriated trade secrets; or a levying of costs. The draft Bill also obliges courts to maintain confidentiality in matters involving trade secrets.
8) Remedies for groundless threats: In cases of groundless threats, a person can seek an injunction against the continuance of such threats or recover such damages, if any have been sustained by the person.
Conclusion
An examination of the draft Bill shows that it has clearly taken into consideration the obligations imposed under TRIPS. For instance, the definition of trade secrets is in conformity with the triple criteria of secrecy, commercial value, and reasonable steps as laid down under TRIPS. Implementation challenges are likely too, for example, with the provision on compulsory licensing.
Nevertheless, the draft Bill could provide a more secure environment for traders and innovators in India and, overall, provide comprehensive protection to trade secrets, and help in keeping up with global standards in consonance with TRIPS. However, it must be noted that this draft Bill and the Law Commission's report are only recommendatory in nature, and it is for the government to decide whether to pursue this draft Bill and convert it into legislation or not. Only time will tell as to whether this will happen.
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.