Author: Jurivine

Introduction

The true power frequently resides in what you don’t share in the competitive corporate world of today. Some of the most valuable assets in the world, such as Google’s revolutionary algorithm and Coca-Cola’s iconic recipe, are protected as trade secrets rather than patents. These unsung heroes of invention are the unseen cogs in a business’s machine, providing a competitive advantage that neither copyright nor trademark can match. However, what precisely is a trade secret? How are they safeguarded, particularly in nations without specific laws like India? Let’s unravel this crucial but unseen aspect of intellectual property.

What is a Trade Secret ?

Trade secrets are intellectual property (IP) rights pertaining to secret information that can be licensed or sold.

Any business information that is kept secret from everyone but those who must know, including a procedure, method, formula, technique, or gadget, is considered a trade secret.

A company’s competitive edge over rivals is provided by information deemed a trade secret, which is frequently the result of internal research and development.

Origin of Trade Secrets in IPR 

Roman Law (Ancient Foundations)

While not codified, early Roman law acknowledged the concept of wrongful revelation of secrets, particularly in economic transactions.

Roman craftsmen protected methods of production and recipes (e.g., wine or weapon crafting) by secret.

English Common Law (Medieval to 18th Century)

The notion of breach of confidence evolved, particularly in master-servant relationships in which slaves or apprentices were barred from disclosing the master’s business practices.

In the 18th century, courts began to enforce non-disclosure and non-compete agreements.

Evolution in Indian Context

In India, trade secrets are not specifically protected by law, in contrast to patents, trademarks, and copyrights. However, India protects trade secrets using a combination of common law grounds, contractual responsibilities, and equitable doctrines.

Features of Trade Secret 

Not all information is a trade secret. It must have certain characteristics:

Secrecy refers to information that is not generally known or readily available to the public. It must be kept secret in order to be valuable.

Economic value: The knowledge provides a competitive advantage or other economic benefit to the business. This value may be derived from the distinctiveness of a product, service, or process.

Effort to maintain secrecy: The owner must make reasonable measures to keep the knowledge secret. This could be accomplished by nondisclosure agreements, internal controls, or encryption.

Longevity: Since trade secrets have no set period of protection, they can last for an unlimited amount of time as long as their confidentiality is preserved.

Importance of Trade Secret 

Trade secrets are crucial for fostering economic benefit, strategic positioning, and commercial competitiveness. This toolkit will assist you in recognizing trade secrets and comprehending appropriate trade secret protection.

One kind of IP is a trade secret. In contrast to other types of intellectual property, trade secrets are neither registered or applied for by the USPTO or any other government agency, nor are they guaranteed protection.

Types of Trade Secret 

Trade secrets can contain a wide range of expertise. Each of these can help a company gain a competitive advantage. For example –

Formula 

A formula is a private recipe or chemical composition that determines a product’s features. Because most businesses do not want their competitors to make the same product, they keep such formulations confidential. Coca-Cola’s secret recipe remains a trade secret to this day.

Processes

Processes are specialized processes or techniques used in manufacturing, software development, or other business operations to provide a company an advantage in competition. For example, a corporation may have a unique way of producing its product faster, cheaper, or more efficiently than competitors, which it will keep as a trade secret.

Customer List 

Customer lists are extremely detailed databases of customers, including their preferences and purchasing history. This information is extremely significant since it allows businesses to better understand and address their clients’ individual demands. A company can use its client list to tailor marketing or offer loyalty programs while keeping this information confidential in order to safeguard its market position.

Prototype

Prototypes are early iterations or designs of new items that are not yet market-ready. They let organizations to test and enhance ideas before launching them into the market. Keeping prototypes hidden prevents competitors from stealing new designs and allows businesses to patent or completely develop the product prior to disclosure.

What qualifies as a Trade Secret ?

In general, knowledge that is regarded a trade secret must be:

Commercially valuable due to the fact that it is confidential, only a small number of people are aware of it, and the legitimate owner of the information must take reasonable precautions to keep it that way, such as using confidentiality agreements for employees and business partners.

It is considered an unfair practice and a breach of trade secret protection when someone else obtains, uses, or discloses such confidential knowledge without authorization or in a way that goes against ethical business practices.

What kind of information is protected by Trade Secret ?

In most cases, any exclusive business knowledge that gives a company a competitive advantage and is kept secret from others may be protected as a trade secret.

Technical information like manufacturing process details, pharmaceutical test results, computer program designs and drawings, and commercial information like distribution strategies, supplier and customer lists, and advertising tactics are all considered trade secrets.

A combination of factors that, when taken separately, are in the public domain but, when kept secret, give a competitive advantage, can also constitute a trade secret.

How are trade secrets protected ?

Trade secrets are safeguarded by confidentiality. The owners must take reasonable measures to protect the privacy of the information. Typical procedures consist of the following:

Non-Disclosure Agreements (NDAs): These contracts prevent partners or employees from disclosing private information.

Restricted Access: This restricts who in the organization has access to private data.

Physical security includes things like safes, locks, and secure places to keep documents.

Digital security includes data protection through secure networks and file encryption.

Employee Education: Teaching staff members the importance of confidentiality.

A business risks losing its trade secrets if it does not safeguard them. If reasonable steps are not taken to protect the information, courts could not consider it a trade secret.

How is trade secret law governed in India ?

In India, common law primarily governs trade secret law, including:

Section 27 of the Contract Act is a law that requires parties to refrain from disclosing information that might violate the terms of their nondisclosure agreements.

Criminal breaches of trust are covered under Sections 405–409 of the Indian Penal Code, 1860.

In the case of “John Richard Brady & Ors. V. Chemical Process Equipment P. Ltd. & Anr1,” the plaintiff obtained confidential information regarding the concept of growing fresh green grass as a staple food for cattle in a small unit that could produce grass regardless of the weather outside and sought a permanent injunction to prevent the defendants from violating the plaintiff’s copyright.

The Hon’ble Madras High Court ruled in “M/s Lifecell International Private Limited v. Vinay Katrela”  that restrictions may only apply to trade secrets that are developed and appropriate for the company’s prospects and, as a result, cannot be disclosed.

Misappropriation of Trade Secret

Misappropriation is defined as the unauthorized acquisition or use of a trade secret. There are numerous ways to accomplish this, including:

Theft: Theft of files or records.

Espionage: Using hacking or espionage to steal secrets.

Violating NDAs or other agreements is a breach of contract.

Legally dissecting a product to uncover its secrets is known as “reverse engineering.”

Other methods of gaining trade secrets are prohibited, while reverse engineering is not. Businesses can seek an injunction or recoup damages if their secrets are stolen.

Example of Trade Secret 

Trade secrets were the foundation of the success of some well-known businesses. Among them are:

Coca-Cola: One of the greatest trade secrets in the world is the formula for Coca-Cola. Only a few chosen personnel are aware of the complete formula because the corporation takes great care to protect it.

Google’s Search Algorithm: The third most valuable trade secret is Google’s proprietary algorithm for ranking search results. Google may have to relinquish its position as the top search engine if rivals could simply copy it.

Conclusion

Stronger and more transparent trade secret protection is now necessary as India rapidly transforms into a worldwide center for innovation. The timing is right for India to enact a specific Trade Secrets Act that provides strong legal clarity and is in line with international best practices, even though common law and contractual remedies now cover the gap. For companies, this entails going above and beyond NDAs to create a culture of confidentiality supported by technology and policy. The value—and vulnerability—of trade secrets will increase in tandem with the growth of the digital economy. By taking proactive measures to protect them now, you may be able to secure the future of your business tomorrow.

Reference 

[1] https://www.uspto.gov/sites/default/files/documents/tradesecretsiptoolkit.pdf

[2] https://thelegalschool.in/blog/trade-secrets

[3] https://www.wipo.int/en/web/trade-secrets

[4] https://www.lexology.com/library/detail.aspx?g=4f23531b-10a4-4b69-a9fe-b7d3a10de67d