Journal of Intellectual Property Rights Vol 16, July 2011, pp 341-350 Intellection of Trade Secret and Innovation Laws in India Md Zafar Mahfooz Nomani† and Faizanur Rahman Department of Law, Aligarh Muslim University, Aligarh 202 002, Uttar Pradesh Received 14 February 2011, revised 16 June 2011 The uniqueness of trade secret law is that it fits into the extensive framework of contract, competition, innovation and intellectual property rights. The trade secret doctrines are closely linked to the domain of tort and criminal law although subject to different rationalizations. The remedial part of the law is inconsistent with the cause of action. The varied nature of trade secret calls for its holistic comprehension as a form of intellectual property. An incentive based approach in granting legal protection to trade secret harnesses the idea, inventions, and utility patent. This is best suited to varied categories of innovators and inventors in a post liberalized Indian economy and TRIPS compliance. The paper traces evolution and development of trade secret law in a comparative perspective and critically analyses the potential impact of innovation law on trade secret protection in the context of national innovation policy and laws of India. Keywords : Intellection of trade secrets, undisclosed information, reverse engineering , non-disclosure agreements, non-compete clauses, incremental innovation Origin of Trade Secrets North American Free Trade Agreement (NAFTA) and Intellectual property undertakes scientific and the Agreement on Trade-Related Aspects of technological research and provides legal protection Intellectual Property (TRIPS) ratified provision against competitors by way of sustaining confidence related to trade secrets during the Uruguay Round of and confidentiality. The legal exclusivity in using the General Agreement on Tariffs and Trade (GATT). ideas and information for commercial advantage Since then, there has been a positive trend toward requires sophistication and esoteric specialism. 1 adoption of domestic statutes specifically directed at In free-market economies, intangibility of property the increased protection of trade secrets. rights is becoming increasingly valuable in retention 2 of market shares. Trade secrets as an intellectual Concept of Trade Secrets property have potential to translate intangible value into economic growth. 3 Unfortunately, the Intellectual property (IP) laws are generally unfavourable treatment accorded to trade secrets has territorial in character but trade secret protection displaced it from the home of intellectual property varies according to jurisdiction. Trade secret law rights (IPR) law. An important reason for the same is protects technological and commercial information that IPR laws are tuned to bring transparency and not generally known in the trade and prevents probity in knowledge management whereas the trade unauthorized commercial use by others. The policy secrets are shrouded in secrecy and confidentiality. behind trade secret protection is to encourage research Trade secrets are accorded confidentiality under legal and development by providing protection to the protection allowing claims for injunctive relief for originator of business information, and maintain 5 unauthorized use and dissemination by way of proper standards of business ethics. A trade secret is recovery of damages. Further, the breach of commonly ‘any formula, pattern, device or confidentiality attracts criminal charges. The extent of compilation of information which is used in one's recognition of trade secrets the world-over can be business, and which gives human opportunity to gauged by the fact that a majority of working obtain an advantage over competitors.’ Broadly technologies worldwide are protected as trade secrets speaking, there are three factors common to all rather than by patents. 4 At the international level, the definitions of trade secret: (i) it is information not ____________ generally known to the public, (ii) it confers economic †Email: Corresponding author: [email protected] benefit by maintaining secrecy and confidentiality and 342 J INTELLEC PROP RIGHTS, JULY 2011 (iii) is the subject of reasonable efforts to maintain its Adequate Documentation secrecy. Trade secrets act as an incentive to Sufficient records of evidentiary value are incremental innovation in technology not meeting the maintained of the trade secret information. These are non-obviousness standard of patent law and subject to audit and update at regular intervals. copyrights. The inventions protected as utility model, trademarks, industrial designs, artistic or literary Security Systems Access to trade secrets and confidential information works are often maintained as trade secrets until used are restricted to select personnel under security or published during the process of registration or checks. In case of an electronic environment, the grant of the relevant IPR. A substantial part of businesses use adequate software programs, virus economically meaningful technology, particularly scans, firewalls and other security and authentication new and cutting edge technology are prone to reverse technologies to safeguard their trade secrets. engineering, such as biotechnology, computer It is important to bear in mind that a trade secret need program microchips, computer-aided designs and 9 6 neither be novel nor real; only a secret. hence preserved as trade secrets. Exclusivity of the protection allows the innovation, invention and Infringement of Trade Secrets and Remedies reproduction, by offering the owner an opportunity to A trade secret owner has the right to keep others discourage free riders and to recoup his investment. from misappropriating and using his trade secret. Trade secrets play pivotal role in protecting Although misappropriation is sometimes a result of innovations and establishing rights to use new industrial espionage, often trade secret cases involve technology. Trade secret protection extends to appropriation by former employees, use in new formula, patterns, plans, designs, physical devices, businesses or for new employers. Trade secret 7 processes, software and know-how. protection endures as long as the requirements for protection - generally, value to the owner and secrecy Mechanism and Modalities of Trade Secrets - continue to be met. The protection is lost if the The TRIPS Agreement recognizes trade secrets owner fails to take reasonable steps to keep the under ‘undisclosed information’, but remains silent on information secret. 10 Besides, disclosure of trade the mechanism and modalities. The nature and secrets is not actionable in all cases i.e., trade secrets methodology differ in state practices and range from owners have recourse only against misappropriation privacy laws to unfair competition and breach of 8 and there a number of defences to disclosure of trade contracts. The prominent modalities to protect trade secrets as follows: 11 secrets are outlined as under: General Knowledge Employment Agreement In common law, it is a well-established principle of Depending upon their needs, businesses include public policy that a former employee is free to utilize suitable confidentiality, non-disclosure agreement the general skill and knowledge acquired during his or (NDA) and non-compete clause (NCC) in agreements her employment. 12 Similarly, in USA, the Economic with employees. These may comprise the type of Espionage Act, 1996 (EE Act) does not apply to information that is likely to be disclosed, the manner individuals who seek to capitalize on their lawfully in which it should be used and restrictions on developed knowledge, skill or abilities. Although the disclosure post-termination. EE Act, 1996 declares theft or misappropriation of Trade Secret Policy trade secret as a federal crime, exclusion applies not Trade secret policies rely on business secrets based only to the exploitation of the information for the on their value and sensitivity and accordingly employee’s own benefit, but also to the employee’s 13 employees are forewarned of breach. use of it for other employers. Non-Disclosure Agreements (NDAs) Parallel Development Businesses enter into NDAs with third parties while The owner of a trade secret does not possess a discussing any business prospects and ventures. In monopoly on the data that comprises the trade secret. this way, third parties can be precluded from Other companies and individuals have the right to divulging any trade secrets. discover the elements of trade secret through their NOMANI & RAHMAN: INTELLECTION OF TRADE SECRET AND INNOVATION LAWS IN INDIA 343 own research and hard work. 14 Thus, it is a defence if information is disclosed pursuant to a court order, or the defendant demonstrates that he has independently otherwise for the purpose of legal proceedings, it developed the trade secret. comes within the exemption. Similarly, the use or disclosure in the interests of national security or for Reverse Engineering the prevention, investigation or prosecution of crime Discovery by reverse engineering, namely, starting is permissible. However, the disclosure must be to with the known product and working backward to someone who has a ‘proper interest’ in receiving the find the method by which it was developed, is information in question. 18 considered proper means. Therefore, to avoid a successful claim by the defendant that he discovered International Legal Framework the trade secret by reverse engineering, prosecutors It is appropriate