Trade Secrets In India: A Legal Prespective
INTRODUCTION
India has established a knowledge-driven and innovation-based economy with intense competition in the business world. With rapid development in technology and artificial intelligence, this competition has reached unprecedented heights and continues to escalate. In such an economy, the protection of confidential business information becomes a vital ingredient in maintaining a competitive edge. To protect such information a crucial component of intellectual property law comes into the picture i.e., Trade Secrets. Despite its growing significance, the legal protection for trade secrets in India still stands largely uncodified. This legal vacuum raises crucial concerns, especially in a globalized economy marked by cross-border data flow and escalating digital vulnerability.
WHAT CONSTITUTES TO BE A TRADE SECRET
Trade Secret is an intellectual property right that lacks a precise definition but is generally referred to as confidential information ranging from production processes and formulas to client databases and strategic plans, enabling businesses to safeguard their commercially valuable knowledge. To clarify the scope of trade secrets, courts have provided a range of judicial precedents.
In Niranjan Shankar Golikari v. Century Spinning and Mfg[1], the Court recognised the significance of trade secrets and specified three criteria for identifying and enforcing trade secret rights. These include: (a) The information should be kept confidential; (b) There should be a commercial utility attached to such information; and (c) The owner should have taken specific steps to protect the information and maintain its confidentiality. This decision has been reiterated by courts in various further cases such as Bombay Dyeing v. Mehar Karan Singh[2], Beyond Dreams Entertainment v. Zee Entertainment Enterprises[3] and American Express Bank, Ltd. v. Priya Puri[4], wherein the Court referred the case of Lansing Linde Ltd v. Kerr[5].
In Neural Magic, Inc. v. Meta Platforms, Inc. and Aleksandar Zlateski[6], wherein a former employee disclosed information about Neural Magic’s algorithm to Meta Platforms, the Court, in this case, emphasised that such algorithms constitute trade secrets, acknowledging the importance of maintaining their confidentiality to preserve competitive advantage. The same has been mentioned in Compuware Corp v. International Business Machines[7].
INTERNATIONAL OBLIGATIONS
TRIPS Agreement – a comprehensive multilateral agreement on IPR was established by the World Trade Organisation (WTO) for the purpose of regulating the trade of IP in the global market. Its main objective is to set minimum standards for the protection and enforcement of IPR across borders. Article 39 of the TRIPS agreement[8] is related to the protection of undisclosed information while trading intellectual property across countries. Even though this Article does not specifically protect trade secrets, however, the use of a neutral term – “undisclosed information” makes its scope broad enough to include within its ambit the protection of general confidential information or commercial and technical information indirectly used to protect trade secrets.
It contains three paragraphs among which the first is related to the general principles that obligate members to protect undisclosed information against unfair commercial practices, the second sets out three essentials – information must be a secret, it should have commercial value due to it being secret, and it should be subject to reasonable steps to keep it confidential – these are required to be fulfilled for information to become protectable under this Article, and the third obligates members, their government or its agencies to protect data submitted to them for the mentioned purposes. The Article includes necessary exceptions as well.
Why is it relevant for India?
Currently, it has 164 countries as signatories (all of them are WTO members). India became a signatory on January 1, 1995, and is thus obligated to adhere to its provisions to maintain its global standing. Apart from this, its relevance in the Indian legal system extends to a limit where Paragraph 2 of the Article is used in Indian courts as a reference and guiding principle in cases relating to trade secrets.
OTHER MECHANISMS OF PROTECTION
While other jurisdictions around the world have enacted comprehensive legislation to safeguard trade secrets, India continues to rely on judicial precedents, international obligations, and contractual arrangements. In the absence of a specific statute dedicated to trade secrets, its protection primarily relies on common law principles of equity and confidentiality embedded in various existing laws, some of which are the Indian Contract Act (exerting contractual obligations), the Indian Penal Code (Section 408 – punishment for breach of confidence)/ Section 316 in Bharatiya Nyaya Sanhita, TRIPS agreement (as discussed above) and the Information Technology Act (protecting electronic records). None of these acts implicitly mention provisions for trade secrets, however, some of their provisions which are related to the protection of confidential information can be used for the protection of trade secrets if the information meets the necessary criteria as mentioned in the above precedents.
The most prominent provision used in relation to the protection of trade secrets is – Section 27 of the Indian Contract Act[9] which states that agreements in restraint of trade are void. Even though this provision doesn’t directly deal with trade secrets, its relevance on the topic lies in how courts interpret the exception clause of the provision which includes non-compete clauses, employment contracts, and confidentiality/non-disclosure agreements. In India, non-compete clauses are treated as restraint of trade and it is not allowed to be added to contracts, therefore someone cannot be restrained from working somewhere else after they leave the former but companies can stop the person from leaking their private information. Basically, the leaking of private information can be stopped, but not getting another job. Regarding non-disclosure agreements, they are often signed as a promise not to disclose secret information and if breached by someone then they can be sued.
CONCLUSION
The absence of a specific law for the protection of trade secrets in India leads to several prominent legal and practical issues such as inconsistency and uncertainty in the application of a law, difficulties in enforcement often leading to struggles to choose the appropriate remedy – civil (breach of contract) or criminal (breach of confidence). Such gaps not only slow down the judicial system but also hinder global competitiveness leading to lagging behind in the global market, especially when many other jurisdictions have already enacted specific laws for trade secrets. The present legal vacuum further leads to an increased burden on courts and leaves various small businesses vulnerable.
Recognizing these concerns, various judgments, debates, and committees including the 22nd Law Commission Report[10], have emphasized the need for separate and dedicated legislation for the protection of trade secrets. It has been highlighted that having specified legislation for the protection of trade secrets can help achieve clarity as to its meaning, and scope and can provide a proper procedure for implementing necessary restrictions and punishment in case of breaches. This will also be beneficial in supporting businesses (especially Medium, Small, or Micro Enterprises, and start-ups) that rely on intellectual capital.
Author:– Tashu Chauhan, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
[1] Niranjan Shankar Golikari v. Century Spinning and Mfg, AIR 1967 SC 1098.
[2] Bombay Dyeing v. Mehar Karan Singh, 2010 (112) BOM LR 375.
[3] Beyond Dreams Entertainment v. Zee Entertainment Enterprises, (2016) 5 BOM CR 266.
[4] American Express Bank, Ltd. v. Priya Puri, 2006 SCC OnLine Del 638.
[5] Lansing Linde Ltd v. Kerr [1991] 1 W.L.R. 251.
[6] Neural Magic, Inc. v. Meta Platforms, Inc. and Aleksandar Zlateski, 659 F. Supp. 3d 138 (2022).
[7] Compuware Corp v. International Business Machines, 259 F. Supp. 2d 597 (2002).
[8] TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994), Article 39.
[9] The Indian Contract Act, 1872, Act no. 9 of 1872, §27.
[10] Report No. 289, 22nd Law Commission Report on Trade Secrets and Economic Espionage, 2024, Government of India. https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2024/03/202403061982318841.pdf.
