Have you ever had KFC Chicken and thought, “Oh my god! This is delicious. I need the recipe to make it at home, but I can’t seem to find it?” This is because that recipe is the creativity of the owner, and he has kept it as his trade secret.
So, what exactly is a trade secret? How is it safeguarded? Are there different laws in the USA? What improvements could be made to the existing legal framework?
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A human mind is incredibly creative; its innovations are better kept as secrets because trading them gives you the short end of the bargain. In simple terms, trade secrets are a type of intellectual property that assists a manufacturer to differentiate his products from others by adding a distinct feature. Non-Disclosure Agreements are created to retain this unique piece of knowledge within the organization, this is the only major legislation that deals with this concept. However, the question is whether this is sufficient.
What exactly are trade secrets?
Article 39 of TRIPS (Trade-Related Aspects of the Treaty on Intellectual Property) specifies that for any information to be a trade secret, it must have some economic value and the proprietor must take reasonable precautions to preserve it. A trade secret, according to NAFTA (North American Free Trade Agreement) is generally, the knowledge that is not available in the public domain has commercial value, and adequate procedures have been taken to maintain the secrecy.
The Coca-Cola recipe is a basic example of a trade secret. Coca-Cola is infamous for keeping its recipe to itself, meaning that only a few people knew about it and that it was never written down. In simpler words, it was hidden in the vault of the minds of the few people who knew about it. Another well-known example is the Google Search algorithm. Thus, trade secrets help us to safeguard innovation and develop businesses by keeping information with only a few trusted people who are not permitted to use or disclose the information to other competitors.
Furthermore, the following factors are relevant in determining whether information constituted a trade secret: (a) the employee’s status and the nature of his work; (b) the nature of the information itself; (c) whether the employer instilled the confidentiality of the information in his employees; and (d) whether the information could easily be isolated from other information that the employee was free to use.
Trade Secrets – Protection in India
India’s trade secret protection policy is extremely lax. Section 27 of the Indian Contract Act deals with it indirectly. It stipulates that any agreement that restricts trade or commerce is null and void. The most important and the only legislation that deals with it directly is, NDA (Non-Disclosure Agreement), which is essentially a contract between two or more people agreeing not to release any confidential information to a third party that is essential for their business.
Furthermore, Section 41(e) of the Specific Relief Act states that no injunction can be granted for a breach of contract that cannot be specifically enforced. Thus, only if the proprietor can demonstrate irreparable loss as a result of the infringement of the trade secret would he be eligible for an injunction as a remedy.
However, neither of these regulations explicitly addresses the concept of Trade Secrets. Also, the laws that exist are inefficient and indirect, they only cover disclosure; what about misappropriation, theft, and unauthorized use? The Paris Convention’s Article 10 (b) and the TRIPS Agreement’s Articles 39(2) and 39(3) established the global standard for trade secret regulations. However, there is no equivalent Indian legislation to this and hence trade secrets in India remain at risk.
Legal Status of Trade Secrets in the United States
There are two relevant legislations in the United States of America for the protection of trade secrets: the UTSA (Uniform Trade Secrets Act) and the EEA, 1996 (Economic Espionage Act). According to the UTSA, a trade secret is a formula, pattern, or procedure that has economic worth, and anybody who receives it will derive that value from its disclosure or use. Section 5 of the UTSA states that a suit for the protection of trade secrets can be filed in the United States, and the court has the authority to hold in-camera proceedings, summon and ask witnesses to appear, require the production or discovery of documents, and issue an interim order prohibiting the third party from using the trade secret without the court’s permission.
In the United States, in addition to civil culpability, courts have the authority to decide criminal liability. Anyone who steals or uses a stolen trade secret that he knows was obtained illegally will be imprisoned in federal prison for up to ten years.
Trade secrets, unlike other intellectual properties such as patents and trademarks, have received insufficient attention. However, this is an equally vital IP as it inspires the creator to create without requiring the key knowledge of their innovation to be disclosed.
Courts have been using Common law provisions to safeguard trade secrets, which have proved to be insufficient. As a result, the Indian legislature must address Trade Secrets through statutory legislation. They must amend the various Acts so that they directly address the subject at hand. It is past time, for example, for Parliament to include supplementary provisions in the Competition Act, such as a distinct chapter on the use, misuse, and regulation of confidential information.
Thus, it is critical to understand that NDA is not enough for its protection and that India needs to develop a Sui Generis System for trade secret protection. The legal framework can be constructed based on the exemplary laws provided in the UTSA and EEA, 1996. Having uniform laws for its protection will reduce uncertainty and boost the proprietor’s confidence and this will help them invest more in new developments.
Written By: Gunjan S Jain
St. Joseph’s College of Law