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India – Treasuring The Secret: Need For IP Based Protection To Trade Secrets.

13 November, 2014

 

Legal News & Analysis – Asia Pacific  India – Intellectual Property

 

Protection of trade secret has hitherto been a neglected area in the field of intellectual property. Notwithstanding the TRIPS mandate to protect undisclosed information; jurisdictions across the world have been reluctant in according Intellectual Property (IP) based protection to trade secrets. Many countries however punish serious violation of trade secrets under their criminal laws.1 In India, trade secret protection has mostly been enforced on the basis of contractual relationship between the parties and has evolved through judicial pronouncements in the absence of specific statutory protection. However in a highly competitive digitized era there is an immediate need for providing adequate protection to trade secrets with clear cut statutory guidelines not only to facilitate effective conduct of the business but also to regulate employer-employee relations. Also an effective trade secret regime with flexible procedural formalities and less rigorous standards of substantive requirements will be effective in case of innovations where a patent or trademark protection is neither viable nor feasible.

 

Current Status Of Trade Secret Protection In India

 

In India, unlike other types of IP right, trade secrets are not governed by specific legislation and protection is mostly dependent on judicial pronouncements. Courts have recognised their importance and remedied their breach by taking recourse to the contractual obligations of the concerned parties. Legality and enforcements of these contracts however depend on Section 27 of the Indian Contract Act, 1872 which lays down that the agreements in the restraint of trade are void. Courts sometimes even invoke Section 405 of Indian Penal Code which deals with criminal breach of trust in case of serious trade secret violations by the employees of the company in breach of their service contracts.2

 

Necessity Of IP Based Protection

 

Limiting the protection of trade secrets to contractual obligations, however, is inherently flawed as it fails to cover an important class of cases when trade secret may be breached by stranger having no contract with the organization. Further, even in cases where contractual relationship exists it may or may not be enforceable subject to the extent the impugned contract interferes with the individual’s right to carry on an independent business. For instance, in Niranjan Shankar Golikari v. The Century Spinning And Mfg. Com.3,Supreme Court held that a negative covenant, that the employee would not engage himself in trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties, is not a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one-sided. However in Sandhya Organic Chemicals Pvt. Ltd. v. United Phosphorous Ltd.4, it was held that an employee cannot be restrained at all times from using the information and skill learnt in the course of the employment especially once the employment is terminated. This raises question marks over the protection of trade secrets till they are recognised as intellectual property. In fact in Sandhya Organic Chemicals, Gujarat High Court went on to observe that even if the process was invented by the plaintiff, he would get the proprietary right only if it was patented. Similarly in Tractors and Farm Equipments v. Greenfield5, Madras High Court observed that the court shall entertain an injunction only if the intellectual property is protected either through Copyright or Designs along with a non-disclosure agreement. Even in Burlington Home v. Rajneesh Chibber6, the protection was granted for the breach of confidential information in a compilation consisting of mailing addresses of customers only as the information also merited copyright protection.

 

These decisions reflect that even though trade secrets have been protected by Indian courts the protection does not recognise the intellectual property inherent in them rather uses other categories of intellectual property to enforce protection. Though in American Express Bank Ltd. v. Priya Puri7, Delhi High Court defined trade secret as formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others, thereby recognising the intellectual innovation inherent in trade secrets, the exact scope of protection afforded to trade secret as a distinct intellectual property remains unclear in absence of any legislative enactment. This not only jeopardizes their protection in absence of contractual relationship but also obligates the trade secret holder to seek protection under other categories of intellectual property which may not always be possible. Also if the information is merely protected as confidential then once it is breached and passed on to third parties, its abuse cannot be controlled further as it is no longer confidential. However if the confidential information is recognized as an intellectual property it would deserve protection by dint of labour involved in innovation whether or not there is a breach of confidential relationship. Moreover, even in cases where contractual relationship exists can organizations simply rely on a stable contract to protect secrets that not only add value to their business but are fundamental to their existence?

 

IP based protection to trade secrets, thus, is a much needed policy initiative to stimulate and encourage innovation in India. An attempt to give legislative protection to trade secrets was made by Department of Science and Technology (DST) by introducing Draft National Innovation Act in 2008 but it lost steam midway. Time has indeed come to revitalize the attempt.

 

End Notes:

 

1 Article 622-623 of Italian Penal Code, Article 162 of Swiss Penal code, Articles 272-273 of Dutch Penal Code.

 

2 Narayan Chandra Mukherjee v. State Of Bihar And Anr., 2001(1) BJLR 680

 

3 1967 AIR 1098, 1967 SCR (2) 378

 

4 AIR 1997 Guj.177

 

5 2006(32)PTC343(Mad.)

 

6 1995 iv AD( Delhi) 732

 

7 (2006) III LLJ 540 (Del.)

 

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