By Vikram Kumar*
What are Trade Secrets?
A Trade Secret is generally the information recognised to be valuable to competitors, not generally known in the trade, acquired at some expense or effort by its owner who makes reasonable efforts to keep it secret. Matters of general knowledge or information already published or disclosed can’t usually be covered by Trade Secrets. Any information that is readily ascertainable by proper means does not constitute Trade Secret.
The protection of Trade Secrets has been considered to be a part of the subject of unfair competition. Acts of competition contrary to honest industrial or commercial practices are considered to be acts of unfair competition. These acts would include passing off some other enterprise’s goods or services as one’s own or misappropriation of a competitor’s industrial or business secrets by unfair means. Protection against such acts of unfair competition is the part of business law in most countries. It has also long been linked to the protection of Intellectual Property under the segment of Industrial Property. The Paris Convention for the Protection of Industrial Property introduced provisions on unfair competition in the year of 1900. Further TRIPS extend these concepts specifically to Trade Secrets.
For non disclosure of Trade Secrets to public at large the owner makes reasonable efforts to preserve its secrecy. The employees, licensees, customers or clients to whom the secret is revealed must be told of its secret nature and can be made to sign confidentiality agreements. Physical security measures, such as cordoning off an area at manufacturing facilities can be taken.
TRIPS & Trade Secrets:
Under TRIPS, Trade Secrets are defined as information that (a) is secret in the sense that is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c)has been subject to reasonable steps under the circumstances, by the person lawfully in the control of the information, to keep it secret. This definition is quite substantially based on the Uniform Trade Secrets Act of the U.S. and the case laws in that country.
Legislative Response:
For protection of Trade Secrets, many Commonwealth countries seems to feel that no amendment to the law is necessary as this obligation can be met by contract law and by common law with respect to breach of confidence. However, it is unclear how the obligation against third parties can be implemented without specific legislation. In many civil law countries and in most states of the U.S., such legislation already exists. Certainly, even in the absence of such extension to cover third parties, there is no complaint that protection of Trade Secrets is inadequate in these countries. This would imply that common law developing countries can continue to follow standards derived from the English law and need not have a specific legislation on the subject.
Judicial Response:
The responses of judiciary towards the protection of Trade Secrets are reflected under the heads of – (a) Contract not to divulge Trade Secrets; (b) Implied Contract; (c) Equity of Confidence; and (d) Third Party Liability.
Where there is a contract not to divulge confidential information, the question would depend upon the construction of the contract. An employee has the right to the personal skill he may have acquired when in employment and on leaving the service, he cannot be restrained from using the knowledge so acquired either in the employment of another person or in setting up a rival business, but he cannot make use of particular knowledge imparted to him in confidence. He may have been expressly informed that on certain matters, he must be deemed to have realised that they were, Trade Secrets and he cannot use those, once he has left the service.
There may be an implied agreement that Trade Secrets will not be used for any purpose beyond the permitted use and will not be disclosed to third parties. By two ways a term may be implied, one by implication from the circumstances and the other by implication from the construction of the contract.
The protection to Trade Secrets is also given by the broad principle of equity that “he who has received information in confidence shall not take unfair advantage of it….” Three elements are required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself must have the necessary quality of confidence about it. Secondly, the information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorized use of that information to the detriment of the party communicating it. Equity, however, does not help the parties whose Trade Secrets are illegal.
Where a third party either induces an employee of another business to part with confidential information, or knowing that the information is confidential accepts it from such employee, he will be restrained from its use by an Injunction and will liable to pay Damages. On the other hand, where the third party has the innocence as to confidential information not knowing it to be confidential, he will not be liable either for an Injunction or for Damages.
Although damages or injunction cannot be decreed against an innocent third party who has obtained the information for value, it may be granted against the third party who has acquired or may have acquired information to which he was not entitled without notice of any breach of duty on part of the man who imparted the information to him but who cannot claim to be a purchaser for value.
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* The author has completed his LL.B. (Gold Medal) & LL.M. from B.H.U. Presently, he is working with Legal Department of Sahara India at Lucknow.
The protection of Trade Secrets has been considered to be a part of the subject of unfair competition. Acts of competition contrary to honest industrial or commercial practices are considered to be acts of unfair competition. These acts would include passing off some other enterprise’s goods or services as one’s own or misappropriation of a competitor’s industrial or business secrets by unfair means. Protection against such acts of unfair competition is the part of business law in most countries. It has also long been linked to the protection of Intellectual Property under the segment of Industrial Property. The Paris Convention for the Protection of Industrial Property introduced provisions on unfair competition in the year of 1900. Further TRIPS extend these concepts specifically to Trade Secrets.
For non disclosure of Trade Secrets to public at large the owner makes reasonable efforts to preserve its secrecy. The employees, licensees, customers or clients to whom the secret is revealed must be told of its secret nature and can be made to sign confidentiality agreements. Physical security measures, such as cordoning off an area at manufacturing facilities can be taken.
TRIPS & Trade Secrets:
Under TRIPS, Trade Secrets are defined as information that (a) is secret in the sense that is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c)has been subject to reasonable steps under the circumstances, by the person lawfully in the control of the information, to keep it secret. This definition is quite substantially based on the Uniform Trade Secrets Act of the U.S. and the case laws in that country.
Legislative Response:
For protection of Trade Secrets, many Commonwealth countries seems to feel that no amendment to the law is necessary as this obligation can be met by contract law and by common law with respect to breach of confidence. However, it is unclear how the obligation against third parties can be implemented without specific legislation. In many civil law countries and in most states of the U.S., such legislation already exists. Certainly, even in the absence of such extension to cover third parties, there is no complaint that protection of Trade Secrets is inadequate in these countries. This would imply that common law developing countries can continue to follow standards derived from the English law and need not have a specific legislation on the subject.
Judicial Response:
The responses of judiciary towards the protection of Trade Secrets are reflected under the heads of – (a) Contract not to divulge Trade Secrets; (b) Implied Contract; (c) Equity of Confidence; and (d) Third Party Liability.
Where there is a contract not to divulge confidential information, the question would depend upon the construction of the contract. An employee has the right to the personal skill he may have acquired when in employment and on leaving the service, he cannot be restrained from using the knowledge so acquired either in the employment of another person or in setting up a rival business, but he cannot make use of particular knowledge imparted to him in confidence. He may have been expressly informed that on certain matters, he must be deemed to have realised that they were, Trade Secrets and he cannot use those, once he has left the service.
There may be an implied agreement that Trade Secrets will not be used for any purpose beyond the permitted use and will not be disclosed to third parties. By two ways a term may be implied, one by implication from the circumstances and the other by implication from the construction of the contract.
The protection to Trade Secrets is also given by the broad principle of equity that “he who has received information in confidence shall not take unfair advantage of it….” Three elements are required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself must have the necessary quality of confidence about it. Secondly, the information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorized use of that information to the detriment of the party communicating it. Equity, however, does not help the parties whose Trade Secrets are illegal.
Where a third party either induces an employee of another business to part with confidential information, or knowing that the information is confidential accepts it from such employee, he will be restrained from its use by an Injunction and will liable to pay Damages. On the other hand, where the third party has the innocence as to confidential information not knowing it to be confidential, he will not be liable either for an Injunction or for Damages.
Although damages or injunction cannot be decreed against an innocent third party who has obtained the information for value, it may be granted against the third party who has acquired or may have acquired information to which he was not entitled without notice of any breach of duty on part of the man who imparted the information to him but who cannot claim to be a purchaser for value.
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* The author has completed his LL.B. (Gold Medal) & LL.M. from B.H.U. Presently, he is working with Legal Department of Sahara India at Lucknow.
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