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How to protect trade secrets in India

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What should Indian business owners do to protect their trade secrets? Rachna Bakhru of RNA Technology and IP Attorneys provides a guide by piecing together the various applicable statutes and principles

With the advancement of technology at jet speed, many businesses find it challenging to safeguard their crucial information. The ease with which data can be copied and transferred has given rise to conflicts between the employer/employee and third-party contractors, vendors, and competitors.

India does not have a sui generis trade secret law. However, the Indian courts have upheld trade secrets protection under various statutes, including those relating to contract law, copyright law, the principles of equity, and – at times – the common law action of breach of confidence (which amounts to a breach of contractual obligation). Section 72 of the Information Technology Act, 2000 also provides some protection, although this is limited to electronic records.

The remedies available to the owners of trade secrets are:

  • An injunction preventing a licensee, employee, vendor, or another party from disclosing a trade secret;

  • The return of all confidential and proprietary information; and

  • Compensation for any losses suffered due to the disclosure of trade secrets.

Contract law

In India, a person can be contractually bound not to disclose information that is revealed to them in confidence. The Indian courts have granted injunctive relief for breach of confidential information even in the absence of a formal contract (see Richard Brady v Chemical Process Equipments (AIR 1987 Delhi 372), recognising the importance of information that was meant to be confidential).

Contracts help to safeguard confidential information exchanged between the employer/employee, contract manufacturers, vendors, or any other party with whom such business information is shared.

Copyright law

In some cases, the courts have recognised client information stored in databases as copyrightable material.

During their operation, businesses regularly collect data that they arrange systematically or methodically and that can be accessed electronically; for example, to analyse business profitability or customer behaviour, or to maintain an inventory of goods. Thus, databases are essential for businesses, allowing them to run smoothly and plan their development.

Databases are protectable under copyright law. Section 2(O) of the Copyright Act, 1957 defines compilations, including computer databases, as “literary works”.

In Govindan v Gopalakrishna (AIR 1955 Madras 391), which concerned a compilation, the court held that although the amount of originality in a compilation is small, it is still protected by law. Hence, no party may steal or appropriate the result of another’s intelligence, skills, or labour, even in such works.

The present legal position mandates that every effort, industry, or expense of skill results in copyrightable work, but the only works that are protectable are those that:

  • Are somewhat different in character;

  • Involve some intellectual effort; and

  • Involve a minimum degree of creativity.

Proving confidentiality of information

In Ritika v Biba Apparels (DelHC DE 0784 2016), where a suit was filed for infringement of the plaintiff’s clothing designs, the court took the view that if an injunction order were sought with respect to trade secrets, the specific trade secrets would have to be mentioned, as well as how the plaintiff had ownership of them. Only then would the court consider granting an injunction order. A general order in respect of an unspecified trade secret could not be passed against the defendant.

In Emergent Genetics India v Shailendra Shivam and Ors (2011 (47) PTC 494), the court observed: “Pleadings of the nature and quality of information which is confidential are crucial and, in the absence thereof, there is no question of confidentiality.”

Thus, a trade secret suit should clearly make the subject information confidential. Apart from pleading that the information is confidential, the plaintiff must prove that reasonable efforts have been made to keep it confidential. If the owner of the information cannot prove as much, the information risks losing the quality of confidentiality.

Conclusion

At present, Indian trade secrets law is judiciary-made law based on the principle of equity and common law actions against breach of confidence, with the jurisprudence as a whole revolving around an employee’s obligations and duties towards the employer regarding confidential information gained during employment.

Indian jurisprudence regarding trade secrets is unclear on several important aspects, including:

  • The scope of damages in the case of a breach of confidential information;

  • The theft of trade secrets by business competitors; and

  • Procedural safeguards during court litigation.

Enacting a trade secrets law in the future will hopefully address the above concerns. Meanwhile, business owners need to take measures to protect their trade secrets by following the best practices outlined below.

  • Sensitising and educating employees on the importance of confidential/sensitive business information.

  • Drafting a trade secret policy for the workplace.

  • Due diligence and maintaining non-disclosure agreements.

  • Signing employment/confidentiality agreements with the employees and any third parties with which commercial business information is shared.

  • Conducting periodic trade secret audits to identify possible leakage.

  • Using a combination of technical and legal solutions to protect databases.

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