In today’s globalized landscape, characterised by rapid developments in the area of Artificial Intelligence, extensive innovations in technology, and proliferation of startup businesses, the need for adequate strategies for the protection of Trade Secrets and the prevention of its misappropriation has become imperative.

Trade secrets can be defined as confidential information which (a) are not generally known among, or accessible to, the persons in the relevant business sector (b) have commercial value and give the business a competitive edge (c) is subject to reasonable steps taken by the rightful holder of the information to maintain it and prevent it from unauthorized misappropriation and (d) is likely to cause damage to the holder of such information in the event of any unauthorized disclosure [1].

As per Article 39 of the TRIPS Agreement read with Article 10bis (Unfair Competition) of the Paris Convention, all the member states including India are obligated to protect the Trade Secrets/ undisclosed information. However, no specific framework was mandated under the agreement, and certain guidelines on what information ought to be protected against prohibited practices were dealt with. India despite being a signatory, did not adopt specific laws or framework to protect Trade Secrets as prescribed under the agreement. Trade Secrets are more or less regulated by the principles of equity, common law and few legislations notably the Indian Contract Act, of 1872, and the Information Technology Act, of 2000.

The Indian Courts have also recognized the significance of trade secrets and have provided guidelines for their protection in various cases such as the Bombay Dyeing and Manufacturing Company Ltd. v. Mehar Karan Singh[2] wherein the Hon’ble Bombay High Court clarified that for “information to be considered as a confidential one, apart from the contract, the information must be accompanied by the necessary quality of confidence and must not be public property or of public knowledge”. The Hon’ble Bombay High Court in ‘Beyond Dreams Entertainment Pvt. Ltd. & Ors. vs. Zee Entertainment Enterprises[3] also laid down the following criteria that the owner or the holder of a right must establish to prove breach of confidence (i).  The information itself is of a confidential nature; (ii). The individual or owner of such information took reasonable steps to ensure and maintain its secrecy, and the information was imparted in circumstances importing an obligation of confidence; (iii). The information shared is actually used or threatened to be used unauthorizedly.

In view of these circumstances, the 22nd Law Commission of India introduced the draft “The Protection of Trade Secrets Bill, 2024” after conducting a thorough review of the necessity of a sui-generis legislation to protect trade secrets, as well as to comply with the applicable provisions of the TRIPS Agreement and India’s obligations under the same.

The key provisions of the proposed Bill are the following:

  1. Definition:-Trade secrets have been defined with precision as any information that is a secret and not generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; and that derives commercial value on account of being secret; and that has been subject to reasonable steps under the circumstances, by the holder of such info, to keep it secret and; the disclosure of which is likely to cause damage to the holder of such information.
  1. Rights of the Holder: – As per the Bill, the holder of a trade secret shall have the right to use and disclose his trade secret, which will also include licensing the trade secret. The holder may also enter into a contract or agreement to protect, restrict access to and prevent the disclosure of trade secrets.

 

  1. Lawful acquisition, use and disclosure: –A trade secret may be lawfully acquired by independent discovery or creation; observation, study, reverse engineering, disassembly or testing of a product or object that has been made available to the public or that is lawfully in the possession of the acquirer of the information; or any other practice which is in conformity with honest commercial practices.
  1. Certain acts of acquisition, use and disclosure of trade secrets not to be misappropriation of trade secrets. – When acquisition, use and disclosure of a trade secret is done to expose an unlawful act/ professional/other unethical conduct or is done in good faith to protect public interest, such acquisition, use and disclosure does not amount to misappropriation of Trade Secrets.
  1. Compulsory License-The holder of the Trade Secret may be required by the Central government, on being satisfied that there exist circumstances of national emergency or extreme urgency involving substantial public interest, including situations of public health emergency, national security etc., to issue compulsory license for use of his trade secret to third parties or to the Government.
  1. Suit for misappropriation: – A suit for misappropriation of trade secrets must be filed in a Commercial Court with jurisdiction to try the matter. The court shall, in any case involving the real or apprehended theft of a trade secret, safeguard and preserve the secrecy of the subject matter of the dispute claimed as a Trade Secret by taking reasonable precautions in such manner as may be prescribed.[4]
  1. Relief in a suit for misappropriation- A court may grant reliefs like injunction, either damages or an account of profits, order for surrender and/ or destruction of documents, objects, materials, substances, or electronic files that contain or embody the trade secret which is in the possession or ownership of the misappropriating party.

The introduction of the Bill represents a significant stride towards setting up a robust legal mechanism to safeguard trade secrets from unauthorized use, which in turn would encourage businesses to develop and invest in new technologies. However, there are rising concerns regarding inclusion of the flexibility of compulsory licensing in the Bill without clear guidelines on ‘exceptional’ circumstances when the provision can be invoked. As the underlying policy behind compulsory licensing rests on a fine balance between individual right over proprietary know-how and public right to access the same in certain circumstances, it remains to be seen how this legislation will attain its objectives and benefit companies in efficiently securing their trade secrets, while at the same time enable them to maintain competitive advantage.

[1] WIPO Guide to Trade Secrets and Innovation, Part III: Basics of trade secret protection; https://www.wipo.int/web-publications/wipo-guide-to-trade-secrets-and-innovation/en/part-iii-basics-of-trade-secret-protection.html

[2] 2010 (112) BOM LR 3759

[3] MANU/MH/0488/2015

[4] Page 198-203, Annexure 1; Law Commission India Report No. 289, https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2024/03/2024030694821779.pdf

Adv. Malavika K