Your trade secret is safe with me

Trade secrets are perhaps the easiest to understand, and the most difficult to define and to protect. To reveal them in abuse proceedings is to risk their wider dissemination. The law surrounding them is unclear, with protections guaranteed through existing legal principles rather than any specific statute. The Law Commission of India (LCI) has recently proposed draft legislation on trade secrets, which will perhaps prompt an important and timely debate on the issue.

Trade secrets ordinarily refer to commercially valuable data, information or know-how relating to a business, which are not known to the public and have been subject to reasonable efforts by their owner to keep them secret. Under the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, to which India is a signatory, trade secrets must, under article 39, benefit from protection. However, despite being an integral part of commerce and industry, trade secrets remain largely unlegislated, and connected rights are usually enforced under contract law, principles of equity or through common law actions for breach of confidence.

The LCI issued its 289th Report in March, recommending specific legislation to protect trade secrets. Acknowledging that present legal provisions are fragmented and difficult to follow, the report argues that in the light of emerging technologies, cross-border technology transfer and industrial co-operation must be encouraged and protected. A clear and precise law on trade secrets is therefore needed. It includes a draft measure, the Protection of Trade Secrets Bill, 2024, that consolidates existing principles of common law, equity, confidence and contracts. It also adds new provisions addressing India’s special needs.

The report defines a trade secret broadly in line with article 39 of TRIPS, but cautions that unlike other forms of IP, it cannot be regarded as property. The LCI offers an open-ended definition to meet the needs of emerging industries. Under the draft law, a trade secret must meet four criteria to be classified as such. They are secrecy, commercial value, the owner taking reasonable steps to keep it secret and the likelihood that disclosure will cause harm to its holder.

The proposed law includes many exceptions, such as reverse engineering, independent discovery and creation and whistle-blower protection. With existing jurisprudence having been created mainly through issues of employee mobility and the portability of knowledge and skill, the draft allows an exception for such knowledge and the skill acquired in normal professional practice. The report is also clear that any new law must not undermine the current legal framework that prohibits negative covenants or post-employment restraints, nor must it encourage inevitable disclosure under which an employer can prevent a departing employee from joining a competitor. These would undermine the principles against the restraint of trade.

While the draft law proposes a standard package of remedies, such as injunctive relief, damages and disgorgement of profits, the report is clear that these should be restricted to civil remedies, and any criminal action should be under existing criminal legislation. The concept of confidentiality clubs is also borrowed from rules prescribed by high courts to protect the confidentiality of related judicial proceedings.

By venturing into previously unlegislated territory, the report and the draft legislation significantly expand the view that will be taken of trade secrets law and protection. However, there is always a long and tortuous process before a statute comes into force. At the very least, the government of the day has to be convinced that the statutory protection of trade secrets is necessary. This requires making a strong case for such a law, either by demonstrating the negative impact on the freedom to work or through adding commercial value. To set against its benefits, a new law must be costed, including determining whether the existing frameworks of civil and contractual protection are in fact inadequate.

Significantly, most major jurisdictions continue to protect trade secrets through conventional mechanisms of equitable rights and contractual law. They usually eschew specific legislation. Should India choose to enact a statute on trade secrets, it will certainly be a pioneer in this area.

Essenese Obhan is a managing partner and Sneha Gandhi and Charul Yadav are partners at Obhan & Associates.