Protecting Your Trade Secrets

Aashit Shah

B.L.S. LL.B

Mumbai, INDIA

With the increase in cutthroat competition in every field, businesses must ensure that they adequately protect their business processes, technical know-how and confidential information from competitors. Whilst all businesses have some information that is valuable and which they endeavour to keep secret, they are unaware of how to legally protect such information. Just as other intellectual property rights, trade secrets can be extremely valuable to a company’s growth and sometimes even critical for its survival. In fact, it is only when some rival contender improperly obtains the trade secrets, do companies realise their significance.

What is a Trade Secret?

A trade secret refers to data or information relating to the business which is not generally known to the public and which the owner reasonably attempts to keep secret and confidential. Trade secrets generally give the business a competitive edge over their rivals. Almost any type of data, processes or information can be referred to as trade secrets so long as it is intended to be and kept a secret, and involves an economic interest of the owner. For example, a business may have certain internal business processes that it follows for its day-to-day operations that give it an edge over its competitors. This could be regarded as a trade secret.

The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) under the auspices of the World Trade Organisation lays down the following three criteria for regarding any information as undisclosed information (or trade secrets):

· It must not be generally known or readily accessible by people who normally deal with such type of information

· It must have commercial value as a secret

· The lawful owner must take reasonable steps to keep it secret.

Customer lists, business information, employee details, financial records, data compilations, business plans and strategies, formulae, designs, drawings, algorithms et al, could all amount to trade secrets.

It is important to bear in mind that a trade secret need not be something that is novel nor should it have any real or intrinsic value to be protected. The only important requirement is that it must be a secret.

Tools to Protect Trade Secrets

Businesses must ensure that they protect their trade secrets from being misappropriated, sabotaged, lost or stolen. Some tools that they can adopt are outlined hereinbelow:

· Employment agreement: Depending upon their needs, businesses should include suitable confidentiality, non-disclosure and non-compete clauses in agreements with employees. These may include the type of information that is likely to be disclosed, the manner in which it should be used and restrictions on disclosure post-termination.

· Trade Secret Policy: Such a policy is a must for businesses that heavily rely on their trade secrets. A basic step to develop such a policy is to identify and prioritize the business secrets based on their value and sensitivity. Employees must be informed about the policy and consequences of its breach before they agree to abide by the policy and sign an acknowledgement to that effect.

· Non-disclosure Agreements (NDAs): Businesses can also enter into NDAs with third parties while discussing any business prospects and ventures. In this way, the third parties can be precluded from divulging any trade secrets.

· Adequate Documentation: It is important for businesses to keep a track of the trade secrets that are developed and have sufficient records to show that the trade secret was developed by them and belongs to them. These records would be of evidentiary value in case of a dispute. It would also be useful for such businesses to conduct a trade secret audit at regular intervals to and keep up to date with any changes.

· Security Systems: Access to trade secrets and confidential information may also be restricted to only select personnel who have to undergo proper security checks. In case of an electronic environment, the businesses should use adequate software programs, virus scans, firewalls and other security and authentication technologies to safeguard their trade secrets.

Legal Framework in India

There is no specific law in India that protects trade secrets and confidential information. Nevertheless, Indian courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation.

In India it is possible to contractually bind a person not to disclose any information that is revealed to him/her in confidence. In one case, the Delhi High Court has also upheld that a claim that disclosure of information would amount to breach of confidence is not defeated by the fact that other people in the world already knew the information. The Supreme Court of India (i.e. the apex court) has also upheld a restrictive clause in an employment contract, which imposed constraints on the employee to not reveal or misuse any trade secrets that he or she has learnt whilst in employment.

The remedies available to the owner of trade secrets would be to obtain an injunction preventing a third party from disclosing the trade secrets, return of all confidential and proprietary information, and compensation for any losses suffered due to disclosure of trade secrets.

Conclusion: Prevention is better than cure

As businesses are growing out of their parochial moulds and going global, effective trade secret protection is becoming a necessity. Though there is no enactment in India that affords protection to trade secrets, businesses can use the tools mentioned above to safeguard these trade secrets. Businesses must remember that adequate and effective creation, protection, use and management of trade secrets are crucial factors in determining their success.

© Aashit Shah 2002. This article has been written for informational purposes only. Readers must not construe this article or any ideas and opinions expressed in this article as legal advice, nor should they act based upon any statement made in this article without soliciting professional advice. The author disclaims all liability that may arise due to any loss or damage caused to any reader based upon the reliance of this article.