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What are trade secrets?
Merriam-Webster’s dictionary defines trade secrets as “a formula, process, device, or item of information used by a business that has economic value because it is not generally known or easily discovered by observation or examination and for which reasonable efforts to maintain secrecy have been made.”
The international view on trade secrets can be identified through a perusal of the Agreement on trade-related aspects of Intellectual Property Rights. Both India and UAE are members and have given acceptance to the TRIPS agreement. The TRIPS agreement does not explicitly define trade secrets, however section 7 of the agreement deals with protection of undisclosed information. Article 39 (2) is covered under section 7. It provides that natural and legal persons have the responsibility of lawfully preventing confidential information from being accessed, obtained or used by others without their consent in a manner contrary to honest commercial practices. The information should be secret, that is, not accessible to or known by others. The information should have a commercial value due to the confidentiality and reasonable steps should be taken by the person lawfully in control of the information to keep it a secret.
Another definition of trade secrets on the international front is provided in the Uniform Trade Secrets Act, which defines a trade secret as an “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”
Trade secret laws in India
In India, The National Innovation Act of 2008 in Chapter VI deals with Confidentiality and Confidential Information and Remedies and Offence from section 8 to section 14.
Section 8 gives the parties the liberty to contractually set out the terms and conditions, rights etc. relating to confidential information, in order to maintain confidentiality and prevent misappropriation.
As per section 11 misappropriation does not occur in three circumstances first that the information was available in public domain, second that it was independently obtained by the misappropriator or a third party from whom he received the information and third when a court of law declares its disclosure necessary in public interest.
In the case of non-contractual relationships as per section 9 the parties have an obligation of preserving confidentiality and preventing disclosure or release of confidential information into the public domain by any third party who has received such information without the consent of a complainant.
Section 10, Section 12 and Section 13 lay down the measures which can be taken by the court to preserve the secrecy of the confidential information like granting mandatory protective orders, holding in-camera hearings, sealing the confidential information like confidential filings or records, and ordering any person impleaded in an action not to disclose the confidential information referred to in the claim without prior orders of the court. Injunctions, including interim, ad interim or final injunctions, may be granted by the court to restrain actual, threatened or apprehended misappropriation of confidential information. Sub-section 3 of section 12 states that in case a complainant secures an interim injunction against an alleged or apprehended misappropriation and is later found not to have been entitled to such relief then such complainant shall be liable to compensate the defendant for actual losses arising as a direct result of the interim relief sought earlier. The court may grant mandatory damages not exceeding the limit as notified by the appropriate government from time to time or damages agreed upon by contract between the parties or actual damages including consequential losses. If a misappropriator has acted with malicious intent, the complainant shall be entitled to not more than three times the mandatory damages and costs including attorney fees. In addition to that the court may require a misappropriator to deposit upto 10 percent of the damages claimed by the complainant as a pre-condition to have a continued right to defend the suit.
Despite the fact that India does not have an exclusive law dealing with trade secrets a plethora of judgements recognise and safeguard the same.
In a Supreme Court case of Ambiance India Pvt. Ltd. v. Naveen Jain (2005), a trade secret was defined as some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However, routine day-to-day affairs of employer which are in the knowledge of many and are commonly known to others are not trade secrets. A trade secret can be a formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.
The dicta in a case before the Hon’ble Delhi High Court, American Express Bank, Ltd. v. Priya Puri (2006), was that trade secret is the information acquired by an employee during the course of their employment which is capable of giving the business entity a competitive or economic advantage over its competitors. This information is confidential in nature and cannot be disclosed to others inside or outside the company for one’s own benefit or the benefit of others. The Hon’ble High Court categorically held that the defendant employee could not divulge this confidential information even after the termination of his employment with the plaintiff company. The Hon’ble High Court further asserted that a trade secret could only be divulged to other employees who require the knowledge of it in order to carry out their duties. The passing of the confidential information should be done in places where there is no chance of the conversation being overheard; use of non-secure methods should be avoided.
In a ratio decidendi given by the Hon’ble Bombay High Court in the case of Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh (2010), while deliberating a United States judgement the factors required to identify a trade secret were cited. They are as follows:
- How widely the information is known outside of the company.
- How well-known it is among those working for the company, i.e., the employees.
- The measures taken by the owner of the trade secret to protect the information’s secrecy.
- The cost savings and the holder’s benefit from having the information compared to rivals.
- The time and cost required for obtaining and developing the information
- The amount of effort or money required to gather and replicate the information.
Due to lack of separate legislations related to trade secrets companies usually make their employees sign Non-Disclosure Agreements (NDA) and Confidentiality agreements. By signing these agreements the parties are bound by the contract laws that is The Indian Contract Act,1872 and other laws. These agreements categorically mention the do’s and don’t’s for both the disclosing party as well as the recipient party. In case of misappropriation of confidential information, injunctive relief can be sought. Compensation can also be sought in the form of recovery of cost imposed by the court, litigation expenses etc. incurred by the prevailing party.
Trade secret laws in the UAE
The UAE also has a similar situation of lack of separate laws dealing exclusively with trade secrets.
The UAE Federal Law No. 44 of 1992 for the Organization and Protection of Industrial Property for Patents, Designs and Industrial Models lays down that employees of the Directorate of Industrial Property shall be under the obligation, during employment and after termination of their employment, to refrain from revealing, communicating, disclosing or using professional secrets and information obtained or acquired by them in their capacity as employees of the Directorate, either in their own interest or in the interest of third parties. They will not be allowed to keep any original document or it’s copy in their personal possession. They may not practise the profession of agents before the Directorate while employed or for three years after the termination of their employment.
Federal Law No. 17/2002 on the Regulation and Protection of Industrial Property of Patents, Designs and Industrial Patterns (as amended by Federal Law No. 31/2006) recognises the right of confidentiality in relation to know-how and requires that steps be taken to preserve the secrecy of the confidential information in accordance with the implementing regulations. To qualify as know-how under the law, information must be technical in nature but capable of practical application, having resulted from the practice of a profession or trade.
- The party asserting confidentiality must demonstrate that positive steps have been taken to keep the information confidential and that the nature of the information as such was communicated.
- The implementing regulations contain detailed requirements in relation to how the material that constitutes the know-how should be managed and provide for registration of know-how contracts with the IPPD.
Unauthorised use, disclosure or publication of confidential information, including trade secrets, may be grounds for civil or criminal action in circumstances where the defendant knew of the confidential nature of the information or is unable to deny knowledge.
Remedies include an order preventing use of the confidential information and damages. If unauthorised use of the confidential information has resulted from criminal acts, a criminal prosecution is likely with punishments including imprisonment and/or a fine.
In the UAE article 369 of the Federal Law No. (2) of 2015 AD On Commercial Companies titled disclosure of company’s secrets states that any person who uses data or information which he has obtained from the constituent committee at any stage of company’s constitution whether from financial or legal consultants, subscription manager, coverage contractor, or stakeholders or their representatives; the company’s president, chairman or employee who uses or discloses any of the company’s secrets or tried to cause damage to its business intentionally, shall be punishable with an imprisonment for a period no more than six months, with a fine of no less than fifty thousand Dirhams and no more than five hundred thousand Dirhams, or by one of these two punishment
Article 905 (5) of The Civil Code of UAE requires an employer to keep the industrial or trade secrets of the employer, including after the termination of the contract, as required by the agreement or by custom.
Article 120 of the UAE labour law empowers an employer to dismiss an employee without any prior notice if they divulge any confidential information.
Both India and the UAE do not have separate legislations for the protection of trade secrets. This creates uncertainty as to how well protected and secure the confidential information will be if protected as a trade secret. An alternative to combat this uncertainty is filing for patents. Patent laws are well-defined in both the countries. A patent unlike trade secret is obtained through public disclosure. It is granted for a period of 20 years as per the laws of both India and the UAE an exclusive right is bestowed upon the patent holder. A trade secret theoretically is protected indefinitely, however pragmatically it can easily be divulged and the reliefs like injunctions or compensation do not justify the gravitas of disclosure of the confidential information. Another aspect is that patent protection bars any independent innovation of same nature and character but trade secret protection does not restrain others from coming up with a similar innovation independently using different permutations and combinations.