Introduction
A trade secret is any secretive or confidential information relating to a business generally not known to the public. A trade secret could include a wide range of information such as a formula, practice, process, design, instrument, pattern or compilation of information used by a business to obtain an advantage over competitors or rivals.
Intellectual property (IP) is intangible in nature and requires registration for obtaining ownership. The owner has to completely disclose IP during the time of registration which requires protection. Trade secrets is a very unique form of IP that may lose its protection and value once it is disclosed and hence it is not registered. Therefore, the only way to protect it is to keep it confidential and not to disclose to anyone. Hence it becomes particularly important to take precautionary measures to protect all such IP.
Legal Framework for Trade Secrets in India
Trade secrets do not have a dedicated legislation in India that protects it. However, Indian courts have upheld trade secret protection on the basis of common law action, particularly to doctrines of equity and contract law.
In India, the most common method of protecting trade secrets is through contractual obligations. Non-disclosure agreements (NDAs), confidentiality agreements and clauses within employment contracts are frequently used to prevent the unauthorized disclosure or use of confidential information. These contracts legally bind the parties involved to maintain secrecy and can provide grounds for legal recourse in the event of a breach.
Indian courts have recognized the protection of trade secrets under the principles of equity, which are derived from the English common law system. The courts have ruled that if a trade secret is disclosed in confidence, the person receiving it is under an obligation not to misuse it. This is particularly relevant in cases where there is no explicit contractual obligation to protect the trade secret.
Trade secret misappropriation in conjunction with Information Technology may be sanctioned according to the Information Technology Act, 2000. It provides certain provisions that can be used to safeguard confidential information in the digital realm.
The solutions available to the owner of trade secrets are to obtain an injunction inhibiting a third party from disclosing the trade secrets, returning of all confidential information and compensating for any losses experienced due to disclosure of trade secrets.
Features of Trade Secret
All trade secrets are confidential in nature but all confidential information may or may not be trade secret. Trade secret is not disclosed like other forms of IP and it loses its value in the market once secret is disclosed and there is no way to retrieve it back.
Usually there may or may not be any defined legal framework to protect a trade secret but misappropriation may be an offence. In India there is no legal framework to protect trade secrets but it is protected under contract law or law of torts.
Trade secrets can be easily misappropriated because it represents nothing more than information, which can be memorized, scribbled down, mailed or copied onto some tangible medium and then quietly removed from company.
Life of a trade secret is as long as it is kept a secret. Once the secret is out, the value is lost forever. It is often overlooked as intellectual property asset and most of the times companies fail to identify and assess its value properly.
Challenges in Enforcing Trade Secrets in India
The lack of dedicated trade secret law in India makes it difficult to pursue legal action solely on the grounds of trade secret infringement and have to often rely on other legal provisions, which may not provide robust protection. In case of trade secret theft, the burden of proof lies with the plaintiff to demonstrate that the information was indeed a trade secret that was disclosed in confidence, and the defendant misused it. In an increasingly globalized economy, trade secrets are often shared across borders with international partners, vendors and subsidiaries. This can complicate enforcement, as different countries have varying levels of legal protection for trade secrets. With high employee turnover in certain industries, protecting trade secrets becomes even more challenging. Employees who leave a company may carry valuable and confidential information with them, intentionally or unintentionally. This risk is exacerbated by the lack of strong enforcement mechanisms.
Examples of Trade Secret
The Coca-Cola formula known by the name “Merchandise 7X” is The Coca-Cola Company's secret recipe for Coca-Cola. The formula dates back to 1886, and was invented by John Pemberton, a medicinal pharmacist. The company presents the formula as a closely held trade secret known only to a few employees, mostly executives on a piece of paper that resides in a vault at Atlanta Bank. Coca Cola has been taking stern measures to protect the secrecy of its formulation and it is believed that this formulation makes it the most popular soft drink in the world. Coca-Cola is not afraid to go to great lengths to keep the secrecy of the formula. In 1977 the Indian government demanded that the company reveal the recipe to sell the beverage in India. Coca-Cola decided it would rather leave the market altogether rather than give up its secret and you couldn't buy a Coca-Cola in India until the government relented in 1993.
The foundation of Kentucky Fried Chicken (KFC) Company’s popularity is its original recipe of 11 herbs and spices – a secret recipe that only certain select employees are privy to. Founder of KFC, Colonel Harland Sanders started as a single roadside restaurant in Kentucky in 1930. His fried chicken became distinctive for its recipe that consists of 11 herbs and spices as well as its unique frying technique. In 1940, Colonel Sanders described the exact recipe on a piece of paper which is still protected by the company to this day. It has enabled KFC to have an advantageous opportunity compared to its competitors.
Conclusions
Trade secrets are a crucial component of a company’s intellectual property portfolio. While the absence of specific legislation presents challenges, businesses can still protect their confidential information through well-drafted contracts, robust internal controls and proactive management practices. As India continues to evolve as a global economic powerhouse, the need for stronger trade secret protection will become increasingly evident, potentially leading to legislative reforms in the future. Until then, businesses must navigate the existing legal landscape with caution and strategic foresight.
References
- https://www.wipo.int/tradesecrets/en/documents/Overview_Country_Sheets_India_final.pdf
- https://www.mentalfloss.com/article/19571/whats-trade-secret-and-what-would-happen-if-you-stole-colonels/
- https://www.coursehero.com/file/221146498/IPR-Traditional-Food-PPTpptx/