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“SPRING BOARD DOCTRINE”
A Critical Study on Trade Secret Information.
Research Paper
Guided by:
Mr. Apurva Aggarwal
Prepared by:
Suneeta Mohapatra
1 year LLM
Roll No. 81003150006
NMIMS, School of Law,
V.L.Mehta Road, Vile Parle(W),
Mumbai.
Total No. Of words – 7653
1
CONTENTS
Sl. No. TOPICS Pg. No.
1. Bibliography 4
2. List of Abbreviation 5
3. Chapter – I
- Introduction
- Basic concept of the topic.
- Definitions
- Objective of trade secret.
6 - 8
4. Chapter - II
- Importance of trade secret as a research
work.
- Research Methodology
9
5. Chapter – III
- Historical Development & ‘Springboard’
doctrine
- What is a springboard injunction?
- In what sort of cases will a springboard
injunction be granted?
- What must be established to obtain a
springboard injunction?
- Duration and Scope of Springboard Relief
- Other considerations
10 - 15
6. Chapter – IV
- Coca-Cola Case Study
- Trade Secret Protection in India with case
laws
- Trade secret protections in USA
- Main Reason for need of trade secret law
- Trade Secret Protection in other countries
- Finding Effects of enacting trade secret law
16 - 20
2
7. Chapter – V
- The TRIPS agreement on undisclosed
information.
- Section 7, protection of undisclosed
information, Article 39.
- Selected Articles of the Paris Conventions
- Challenges and limitations of trade secret
protection
21 - 26
8. Chapter – VI
- Conclusion
27 - 28
3
BIBLIOGRAPHY
MODULE 04. Trade Secrets WIPO
https://www.linkedin.com/pulse/trade-secrets-protection-india-law-whose-time-has-
finally-kamat
Briefing Notes August 2014: Springboard Injunctions, by Gaby Hardwicke Solicitors.
Terrapin Ltd v Builders Supply Co (Hayes) Ltd and Others [1960] RPC128.
Subsequently approved by Lord Denning MR in Seager v Copydex Ltd (No 1) [1967]
WLR 923.
http://www.supremecourtcases.com Eastern Book Company Generated: Friday,
December 25, 2015
Approaches to the protection of trade secrets, OECD 2015
http://www.washingtonpost.com/wpdyn/content/article/2006/07/05/
AR2006070501717.html
http://www.inventionresource.com/index.php?
option=com_content&view=article&id=37
Law relating to Intellectual property by B.L.Wadehra, fifth edition, reprint 2016,
march 2011, pg no. 554-555
4
LIST OF ABBREVIATION
UTSA - Uniform Trade Secrets Act
EEA - Economic Espionage Act
TRIPS - Trade-Related Aspects of Intellectual Property Rights
WTO – World Trade Organisation
FBI - Federal Bureau of Investigation
5
CHAPTER – I
INTRODUCTION 1
Trade Secret provides advantage to any organisation over their competitors who do not have
that information. In US, there is dedicated law on trade secret, UTSA (Uniform Trade Secrets
Act), in addition they also follow EEA (Economic Espionage Act). It has provisions to punish
with imprisonment, the provider and the receiver of unauthorised trade secret. There is no
specific law in India and other countries to protect the trade secret, Indian judicial courts
decide the matter according to common law action of breach of confidentially but in this case
people do not get proper justice. If India enacts a separate trade secret protection it will
remove confusion from the foreign investors and we could take advantage of business at
optimum level.
In the current scenario, the organisations are trying to protect its intellectual property by
using the various available measures in the form of patents, copyright, trademark, etc. but
these laws are not the sole substitute of trade secret because there are certain provisions
which could be addressed through trade secret only. For a developing nation like India trade
secret is very important as it gives an edge in competitive environment. In India trade secrets
are protected under the common law, there are various issues regarding this as whenever we
do not have any dedicated law governing for a specific issue there is always problem in
getting proper justice. In India trade secret act is very essential because of the fact that
multinational companies are doing business across the world so they have to follow the
respective rules. Sometimes what happens is that in the absence of such laws certain
companies refuse to do its business in that particular country so there is urge for a separate
Trade Secret Act in India.
Since there is no law in India regarding trade secret, therefore, one has to look into the
definition of what is Trade Secret. Trade secret is defined in Black Law Dictionary,
By Bryan A. Garner as under:
1 MODULE 04. Trade Secrets WIPO
6
“A formula, process, device, or other business information that is kept confidential to
maintain an advantage over competitors; information including a formula, pattern,
compilation, program, device, method, technique, or process that
(1) derives independent economic value, actual or potential from not being generally known
or readily ascertainable by others who can obtain economic value from its disclosure or use
(2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy.”
This definition states the majority view, which is found in the Uniform Trade Secrets Act.
Trade is defined in the said dictionary as under: The business of buying and selling or
bartering goods or services; commerce.
Trade and commerce is defined in the said dictionary as under: Every business, occupation
carried on for subsistence or profit and involving the elements of bargain and sale, barter,
exchange, or traffic. Therefore, looking to the aforesaid definitions it is clear that trade secret
is important from the point of view of business community worldwide.
The trade secret helps the growth of business in the market. Though there are several laws in
India akin to trade secret, namely, the Trade and Merchandise Marks Act, 1958, the
Copyright Act, etc., but it pertains to specified period and time and regarding particular item.
In United States of America the first reported trade secret case relates back to 1837 against
the disclosing of the same by the commercial affairs servant. If there is no law on the trade
secret then it would cause great loss to the Business Company or individual, etc. Hence also,
a separate Trade Secret Act is required.
OBJECTIVES:
To understand the nature of trade secrets, the reasons for protecting them and the
practical challenges in identifying and protecting them.
To know how to develop an effective trade secret management program.
To understand what is meant by misappropriation of a trade secret and how to prevent
such misappropriation.
To know how to take various types of suitable actions to prevent violation of trade
secrets.
To understand why and how to conduct a trade secret audit.
7
The reason for protecting trade secrets
Trade secret law seeks to maintain and promote standards of commercial ethics and
fair dealing.
A key objective of trade secret law is to provide an incentive for businesses to
innovate by safeguarding the substantial time and capital invested to develop
competitively advantageous innovations, both technical and commercial, and
especially those that are not patentable or do not merit the cost of patenting.
If not protected by trade secret law, then competitors could use these innovations
without having to shoulder the burden of costs or risks faced in developing the
innovations.
8
CHAPTER - II
IMPORTANCE OF TRADE SECRET AS A RESEARCH WORK.
Today, the organization are protecting its intellectual property by adopting the available
measures in form of patents, copyright, trademark etc. but besides these popular IP rights
there are other IP rights not so popular but which are recently drawing attentions all over the
world- Confidential Information and Trade Secret.
Trade Secret is an interesting topic to do research as there is no codified law or statute to
protect the interests of the Corporate. Trade secrets, although a recognized form of IP, are not
specifically protected under any dedicated legislation in India and these continue to be
enforced contractually or under common law. Criminal prosecution is very cumbersome and
therefore also very rare, most often.
As there is no special Act, Statute or Codified law to use, it was very difficult on my part to
get some sources about it. As such there is no book to be followed but in India, for trade
secrets the court refers to the common law action for breach of confidence, which in effect
amounts a breach of contractual obligation. I have gone through various laws where trade
secret is used, they are – Contract Act, Copyright Act, IT Act etc.
“Intel, the world's largest manufacturer of computer chips, has recently called on the Indian
government to strengthen protection for trade secrets under the intellectual property rights
policy, raising concerns that the current regime is not strong enough. It has even asked for
criminal sanctions to discourage theft of corporate information.”
Research Methodology:
For carrying out the study for this report, internet search has been the major means. Several
websites have been referred to, the links of which have been mentioned under ‘Bibliography’.
I have also referred to the book titled “Law Relating to Intellectual Property” authored by Dr.
B.L. Wadehra. I have also followed several articles written by eminent authors as mentioned
under ‘Bibliography’.
9
All of the above helped me in building an understanding over the subject and form opinion on
the same. The results of the studies have been discussed under the subsequent heads in this
report.
CHAPTER III
Historical Development & ‘Springboard’ doctrine:
A springboard injunction is a type of injunction that is particularly effective in business
protection cases. The principles and procedures applicable to injunctions generally still apply.
What is a springboard injunction? 2
A springboard injunction is a type of injunction designed to remove or limit the advantage or
head-start that an employee has gained through unlawful activities, typically through the
misuse of the employer’s confidential information. The individual is placed “under a special
disability” by the injunction in order to “ensure that he does not get an unfair start”.
A springboard injunction is unlike any other kind of injunction, because it is not targeted at
preventing future unlawful activity but rather its purpose is to restore a level playing field
between the parties.
In what sort of cases will a springboard injunction be granted?
All of the early cases under the springboard doctrine are related to the misuse of confidential
information. The classic case in the employment context is that of Roger Bullivant Ltd v
Ellis.
Mr Ellis, Bullivant’s Managing Director, left to set up a competing business, taking
confidential information with him including a card index with the contact details of
Bullivant’s contacts, which he used to contact those clients in direct competition. The High
Court granted an injunction prohibiting Ellis from entering into or fulfilling any contract
made with or through any of the contacts in the card index until judgment or further order.
Ellis appealed to the Court of Appeal, arguing that the injunction should not apply to any
customers that he was able to make contact with without using the card index. His appeal
failed on this point, the court concluding that “having made deliberate and unlawful use of 2 Briefing Notes August 2014: Springboard Injunctions, by Gaby Hardwicke Solicitor visited on
24/12/2015
10
Bullivant’s property, he cannot complain if he finds that the eye of the law is unable to
distinguish between those whom, had he so chosen, he could have contacted lawfully and
those whom he could not”.
This kind of argument typically plays out these days in the context of employees who help
themselves to their employer’s customer database upon departure whilst trying to argue that
the information was publicly available via the internet. These arguments are usually given
just as short a shrift these days as they were in Bullivant’s time. Ellis was more successful in
his appeal in relation to the duration of the restraint.
It was initially thought that the springboard doctrine was limited to cases involving the
misuse of confidential information after Scott J declined to grant an injunction preventing an
employee from benefiting from earlier breaches of his duty of fidelity (in this case
encouraging the diversion of business during employment).
In UBS Wealth Management (UK) Ltd & Another v Vestro Wealth LLP & Others
Openshaw J concluded that springboard relief is not confined to cases involving the abuse of
confidential information but can operate to prevent “any future or further serious economic
loss to a previous employer caused by former staff members taking an unfair advantage of
any serious breaches of their contract of employment”. In this case, an injunction until trial
was granted preventing the defendants soliciting or dealing with any UBS client (save for
those who had already agreed to transfer their business) and from soliciting any UBS
employee who had not yet resigned.
An interim springboard injunction was also granted in the seminal team move case of Tullett
Prebon Plc & Others v BGC Brokers LP & Others, although there is some doubt as to
whether this was correctly described as a springboard injunction as the purpose of it was to
give Tullett Prebon the opportunity to consolidate its workforce by restraining BG Brokers
from any further recruitment of the Claimant’s employees, whether lawful or otherwise.
One of the clearest recent applications of the springboard doctrine came in QBE Management
Services (UK) Ltd v Dymoke & Others where 3 senior QBE employees had, during their
employment and garden leave, covertly planned the resignation of several more employees
with a view to moving them and their clients to a rival business, which had been incorporated
and financed for this very purpose. Following disclosure, it was established that the staff
concerned had used their seniority to poach colleagues, had enjoyed constant access to QBE’s
11
confidential information, which they were able to use to secure finance for the new venture,
and had solicited customers. They had failed to disclose any of these activities to QBE or to
inform them of the potential threat to QBE’s business. The High Court concluded that there
could not be a clearer case for springboard relief and granted an injunction for 12 months
from the date of resignation to remedy the headstart the employees had unlawfully gained.
The Court also gave some useful guidance on the length of springboard relief.
What must be established to obtain a springboard injunction?
In addition to the general principles applicable to the granting of injunctions, an applicant
will need to satisfy a court of the following four matters before springboard relief will be
granted:-
That there has been unlawful behaviour on the part of the former employee/director –
typically misuse of confidential information but increasingly other breaches of duty.
That an unfair competitive advantage over the employer as a result of the unlawful
activity has been obtained.
That the nature and period of the competitive advantage is more than “ephemeral” or
“short-term”.
That the advantage still exists at the date the springboard injunction is sought and will
continue to have effect unless the relief is granted.
In the Sun Valley Foods case, Jonathan Parker J declined to grant springboard relief because
by the time the application was heard any unfair competitive advantage gained by copying a
confidential customer database which had been rarely used, had been extinguished.
It is a common error for Claimants to focus upon the gravity of the Defendant’s misconduct
rather than the effect of the breach and the extent of any illegitimate advantage obtained.
See, in particular, the comments of Flaux J when he stated that “Logically, the seriousness of
the breach and the egregiousness of the Defendant’s conduct cannot have any bearing on the
period for which the springboard injunction should be granted – what matters is the effect of
the breach of confidence upon the Claimant in the sense of the extent to which the Defendant
has gained an illegitimate competitive advantage”
In the context of misuse of confidential information, it is insufficient simply to establish
removal of confidential information. It is also necessary to establish use, as mere possession
12
of confidential information will not create a head-start and can be addressed simply by an
order for delivery up and a normal confidential information injunction.
Finally, the American Cyanamid principles should not be overlooked. As Arnold J pointed
out, the remedy for past misuse of confidential information is a financial one and where
appropriate the Claimant can claim a restitutionary remedy, namely an account of profits,
which deprives the Defendant of the benefit of his wrongdoing. That said, it is likely to be
easier to argue for springboard relief at the interim stage, where the court’s role is to best
preserve the status quo pending trial, then it will be at trial itself. Given the nature of a
springboard injunction, it almost invariably follows “springboard does not last forever”.
Duration and Scope of Springboard Relief
The springboard injunction granted by the High Court in the Roger Bullivant case, until
judgment or further order, should, according to the Court of Appeal only have been granted
until trial or for a more limited period. According to Nourse LJ a springboard advantage
cannot last forever; the law does not restrain lawful competition and the doctrine seeks to
protect the injured and not punish the guilty. He concluded that it was not right for the terms
of the injunction to extend beyond the period for which the advantage may reasonably be
expected to continue. The Court of Appeal aligned the period of springboard relief with the
12 month non-competition clause in Mr Ellis’ contract on the basis that Bullivant must have
considered that that was the period of restraint necessary for its legitimate needs to be met.
A one-year period of springboard relief was also applied in Fisher-Karpark Industries Ltd v
Nicholls but this should not be regarded as a benchmark as springboard injunctions are often
and, arguably, usually, granted for much shorter periods.
Useful guidance was given in the QBE case by Haddon-Cave J. This was an unusual example
of a springboard injunction granted after trial of the main action. The High Court granted a
springboard injunction to continue for a further 3 months from judgment being 12 months
from the date of resignation of the Defendants. The Court applied the following principles:-
The appropriate measure for the length of springboard relief is the length of time it would
have taken the wrongdoer to achieve lawfully what he in fact achieved unlawfully, relative to
the Claimant. Any advantage must be measured relatively. Wrongful activities can have
both a positive and negative effect (benefiting the wrongdoer whilst simultaneously harming
the victim – this is particularly so in the case of poaching key staff who then have to be
13
replaced). The period of time over which the unlawful activity took place is relevant but not
decisive as springboard relief is “kinetic” not “linear”. In a team move case, for example,
there is the advantage of being able to solicit junior employees over whom the Defendants
exercise influence whilst their employment is continuing compared with trying to recruit as a
former employee: there is the advantage of stealth and secrecy so that management are
unaware and do not take defensive measures but conversely the Defendants may have been
able to work more speedily by not having to be covert about their activities. The nature and
length of the springboard should be fair and just in all the circumstances.
It is incumbent upon the employer to identify the precise period and nature of the competitive
advantage and the failure to do so will result in a refusal to grant springboard relief. In
particular, the employer must provide evidence as to the length of time it would have taken
the Defendants to achieve lawfully what they had achieved unlawfully.
The fact that the departing employees have already entered into contracts with third parties is
not of itself a bar to the grant of springboard relief, although the Court of Appeal accepted
that courts should be wary of interfering with the contractual rights of innocent third parties.
The doctrine of springboard relief is not therefore confined solely to future contracts.
Other considerations
The dangers of asking and getting too much relief for too long are amply demonstrated by the
outcome in Universal Thermosensors Ltd v Hibben where departing employees unlawfully
remove customer lists and pricing matrices with a view to setting up a competing business.
They approached and obtained orders from several customers featured in the lists. The
Claimant, after retrieving the stolen documents by means of a search order obtained an
interim injunction, restraining the Defendants from soliciting or entering into or fulfilling any
contract with any person with whom the Defendant had had contact while the customer lists
were in their possession.
At trial, however, the court concluded that this order went beyond what was necessary for the
proper protection of the Claimant’s legitimate rights. The effect of the injunction was to put
the Claimant in a better position than it would have been if there had been no breach of
confidence in the first place as its effect was to close down the Defendant’s business
altogether. As the confidential information was no longer in the Defendant’s possession,
there was no ongoing advantage at the time the injunction was granted. Any advantage
14
obtained prior to the grant of the injunction could adequately have been met through a claim
for damages or an account of profits. The court concluded that by the time the injunction was
granted, given the knowledge of Thermosensors’ customers and contacts, the former
employees would have been substantially in the same position as if they had not taken the
customer lists.
Consequently, Thermosensors were ordered to pay £20,000 to the Defendants under their
cross-undertaking in damages. Whilst it is arguable that this decision is unsatisfactory and
inconsistent with both the Roger Bullivant case and PSM International it emphasises the need
for caution in obtaining a springboard injunction in terms that may not be able to be
maintained at trial.
15
CHAPTER IV
COCA-COLA CASE STUDY
Many inventors and entrepreneurs wonder about the substantive difference between patents
and trade secrets. A brief look back at the inception of the Coca-Cola Company and its initial
marketing of its now world famous beverage will prove a useful starting point. In1880, upon
developing its secret recipe for the world’s first soft-drink, the Coca-Cola Company was
presented with a dilemma of sorts. It needed desperately to protect what it had just
developed, yet patent protection would only provide security for 17 years (the statutory
period of protection for a US patent). While the benefits of strong patent protection for 17
years seemed appealing, the down-side was that the secret recipe would be publicly
disclosed, and would be free for anyone to duplicate once the patent expired. Coca-Cola’s
secret formula would have entered the public domain in 1897.
While such protection might have been sufficient for a typical product of average market life
span, the founding members of the Coca-Cola Company had the foresight to see that this was
no average product - this was a product that had a potentially infinite market life.
Accordingly, it required the longest lasting protection available - protection that simply was
not afforded by a patent.
After kicking around various ideas, the executives at Coca-Cola determined that their needs
might be best served if they did not publicly disclose the recipe, and instead retained it as a
trade secret. A trade secret is a plan, process, formula, or any other valuable information not
patented but which gives its possessor a competitive trade advantage as long as it is kept
secret.
A trade secret differs from a patent in several important ways. First, trade secret protection
lasts for as long as the secret is kept confidential. If the secret is never publicly disclosed, it
will never lose its protection. If the secret is uncovered by means of industrial espionage,
16
disloyal employees, theft or the like, the owner of the secret has legal recourse against those
who misappropriated the secret, or anyone who procured it through such impropriety.
Of course, trade secret protection has its negative aspects also. Unlike a patent which
protects against intentional and unintentional copying a trade secret does not afford protection
in the event that someone else independently develops your formula, recipe, etc.
In Coca-Cola’s case, this meant that while there was protection against the intentional
misappropriation of the secret recipe, there was no protection available in the event that
someone managed to successfully duplicate the recipe by legitimate means.
The executives at Coca-Cola weighed these factors, and determined that they had the means
to keep the recipe for Coca-Cola completely secret. Thus they chose not to file a patent. This
proved to be a brilliant move, as the Coca-Cola Company managed to keep the recipe a
complete secret until the mid 1980’s when they were forced by a Delaware court to disclose it
to their adversary during civil litigation. Had Coca-Cola instead chosen to obtain patent
protection back in 1880, the recipe would have been disclosed a mere 17 years later, rather
than almost 100 years later. The company’s huge success might very well have hinged on
that important decision made by a handful of risk taking executives back in 1880.
The FBI arrested three people in Atlanta on charges that they conspired to steal trade secrets
from Coca-Cola Co. and sell the information for more than $1.5 million to PepsiCo Inc.,
federal law enforcement officials said.
The defendants, including one Coca-Cola employee, who worked as an administrative
assistant in the company's Atlanta headquarters, contacted PepsiCo officials, who tipped off
Coca-Cola officials, were sentenced to jail.
Cases in India 3
John Richard Brady v. Chemical Process Equipments (P) Ltd.
Issues considered:
3 http://www.supremecourtcases.com Eastern Book Company Generated: Friday, visited on December 25, 2015
17
Whether the defendants Fodder Production Unit is based on the plaintiffs drawings
and the related know-how passed to them under the express condition of
confidentiality?
Whether the technical drawings of the defendants are artistic works that qualify for
protection under the Copyright laws?
The Court took the position that, even in the absence of an express confidentiality clause in
the contract, confidentiality is implied and that the defendant is liable for breach of the
confidentiality obligations.
The Delhi High Court relied on the Spring Board doctrine in this case. The principle behind
this doctrine is that an employee with the knowledge of former employer’s trade secrets
would inevitably disclose the same to the new employer since the nature of the new job
would lead to such disclosures, given that the new and old employers were competitors.
Furthermore, given the inevitability of such disclosures, the former employer was not limited
to sitting around and waiting until there was an actual or even threatened use of those trade
secrets before the former employer could seek legal redress. Under this doctrine, that former
employer could prevent the employee from taking that job and prevent the new employer
from hiring the employee merely because the employee had such knowledge that would
inevitably be disclosed.
Anil Gupta v. Kunal Dasgupta
The plaintiff conceived the idea of Swayamvara, a reality television show concerning
matchmaking. The plaintiff shared a concept note on this with the defendants. Later on the
plaintiff came across a newspaper report informing that the defendants were planning to
come out with a big budget reality match-making show using the plaintiffs concept. The
plaintiff sought injunction.
Issues considered:
Can there be a copyright in an idea, subject-matter, themes and plots which existed in
the public domain?
Could there be a violation of copyright if the theme is the same as that which existed
in the public domain but is presented and treated differently?
18
The Court held that the concept developed and evolved by the plaintiff was the result of the
work done by the plaintiff upon the material which may be available in the public domain.
However, what made the concept confidential was the fact that the plaintiff had used his brain
and thus produced a unique result applying the concept. The Court granted an injunction. (B)
Trade secrets protection in US:
In US there is a law to protect the trade secret of a businessman or company, which is the
Uniform Trade Secret Act (UTSA). In addition, a federal law, the Economic Espionage Act,
1996 (EEA)8. The EEA has provision to punish with imprisonment to the provider and to the
receiver of unauthorised trade secrets.
Trade secrets protection in other countries 4
There is no specific law in many other countries to protect the trade secret. Except the United
States of America because they have established the separate law to protect the trade secret
but in the other countries judicial courts have to decide the matter according to common law
action of breach of confidence, which in effect amounts to a breach of contractual obligation.
Main reason for need of trade secret law
In the existence of treaty or conventions, namely, General Agreement on Tariffs and Trade
(GATT) and Trade-Related Aspects of Intellectual Property Rights (TRIPS), still there is no
separate law regarding trade secret in many countries including India.
Trade secrets protection in India
As seen earlier, there is no separate law on the trade secret in India. Since there is no
separate Trade Secret Act in India, if there is any infringement then it is governed by
common law action. The common law action includes breach of confidence or breach of
contractual obligations, etc. Since now several companies in India are also doing business
with foreign companies and since there is no separate Trade Secret Act, therefore, there are
4 Approaches to the protection of trade secrets, OECD 2015 visited on 24/12/2015
19
less chances of the foreign company who may agree to do business with the Indian
companies.
Now in this economic growth worldwide, it is necessary that the person doing the business
should be given full protection because good business is developed by hard work. The
company earns its name by hard work .
There is dire need to have separate law in India regarding trade secret. Business is also done
on the Internet by media through network also, hence there is need of Trade Secret Act.
Finding Effects of enacting trade secret law
The trade secret law will place responsibilities, accountability and obligation on all
businessmen and companies.
It will make answerable to all legal persons to Trade Secret officer or equivalent
officer. Trade Secret Law will update existing Trade Secret protection in various
statutes.
Trade Secret Law will declare that what does the Trade Secret cover and define kinds
of secret information.
Trade Secret Commissioner or equivalent will entertain complaints. If they are found
to be breaching the Trade Secret Law then legal action can be taken.
Effected person will get the right to sue for compensation and punishment for
wrongdoers.
20
CHAPTER – V
The TRIPS Agreement on Undisclosed Information 5
Protection of undisclosed information is addressed in Article 39 of the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization
(WTO). This agreement entered into force on 1 January 1995 and established an international
standard requiring WTO Members to protect undisclosed information including agricultural
and pharmaceutical test data.
Section 7: Protection of Undisclosed Information, Article 39
In the course of ensuring effective protection against unfair competition as provided
in Article 10b is of the Paris Convention (1967), Members shall protect undisclosed
information in accordance with paragraph 2 and data submitted to governments or
governmental agencies in accordance with paragraph 386.
Natural and legal persons shall have the possibility of preventing information lawfully
within their control from being disclosed to, acquired by, or used by others without
their consent in a manner contrary to honest commercial practices87 so long as such
information:
is secret in the sense that it 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;
has commercial value because it is secret;
5 Law relating to Intellectual property by B.L.Wadehra, fifth edition, reprint 2016, march 2011, pg no. 554-555
21
has been subject to reasonable steps under the circumstances, by the person lawfully
in control of the information, to keep it secret.
Members, when requiring, as a condition of approving the marketing of
pharmaceutical or of agricultural chemical products which utilise new chemical
entities, the submission of undisclosed test or other data, the origination of which
involves a considerable effort, shall protect such data against unfair commercial use.
In addition, Members shall protect such data against disclosure, except where
necessary to protect the public, or unless steps are taken to ensure that the data are
protected against unfair commercial use.
The similarities among countries in defining trade secrets correspond well with the three
requirements of Article 39 of TRIPS. In fact, on this matter, TRIPS reflected then-current
practice in many countries and it has shaped subsequent law-making. In practice, the TRIPS
requirements for trade secrets are now generally applied in law as follows:
• Secrecy. The information protected must actually be secret. Secrecy need not be absolute.
The trade secret owner may share the information with employees and business partners.
Secrecy requires instead that the information must not be readily publically accessible and
that it is revealed to others only under conditions that maintain secrecy with respect to the
broader public88.
• Commercial Value. The information must have economic value as a result of its being
secret. Trade secret law most typically protects commercial information; that information
must derive some utility from being kept secret.
• Reasonable Efforts to Maintain Secrecy. The information must be the subject of reasonable
efforts on the part of the rights holder to maintain its secrecy. By its nature, a trade secret
claim arises when measures to protect the secret have failed. Thus, the law does not require
one who claims a trade secret to be entirely successful at protecting it. However, the law does
require the owner to make some efforts to maintain secrecy. In national laws, the necessary
effort is often broadly described as “reasonable,” in keeping with Article 39 of TRIPS.
However, some countries impose more specific, additional obligations, which might be
characterised as a particular implementation of the broad reasonableness requirement. For
example, some common law countries require that the defendant have a contractual or
implied obligation to keep the information secret. Other countries require written agreements
with recipients and confidentiality notices.
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These three conditions define trade secrets in a manner covering a potentially very large
scope of economic activity. Still, the resulting definition has potentially important practical
implications as pointed out by Maskus (2000), who notes that trade secrets “are not protected
against learning by fair means, such as independent creation, reverse engineering or reading
public documents.” In other words, trade secrecy does not provide an exclusive right to use of
the information, so long as a second party obtains the information fairly or it enters the public
domain by fair means. Thus, unlike patented inventions or copyright protected content, trade
secrets are not protected for a statutory time limit and they can run out in the regular course
of competition. The range of subject matter covered by trade secrets may be open-ended,
though often trade secrets fall into one of two broad categories: technical information (e.g.
technical plans and formulae) and confidential business information (e.g. customer lists and
marketing strategies)
The TRIPS Agreement requires that WTO members put in place national systems to protect
trade secrets against acts of unfair competition. WTO members comply with this obligation in
a variety of ways. The fact that TRIPS Article 39 does not set forth a detailed regime for
protection is associated with substantial variation between countries in the means employed
to provide the TRIPS mandated protection. In some instances, countries have implemented
express legislation. In others, the obligation is met by laws that include misappropriation via
such means as breach of contract, inducement of others to breach contracts and acquisition by
third parties of information known to be disclosed dishonestly (or where it was negligent not
to know). This variation can affect the ways businesses and workers conduct their affairs and
thus there are reasons to believe that the legal protection of trade secrets may have important
economic effects.
Paris Convention for the Protection of Industrial Property, Articles 1 and 10bis.
In protecting Trade Secrets, the TRIPS Agreement references the protection provided in the
Paris Convention against unfair competition. Article 10bis of the Paris Convention highlights
the nature of protection against unfair competition. Article 1 of the Paris Convention is
included here to provide context concerning what is meant by “union” (see article 1.1).
Article 1 also defines the scope of industrial property originally covered, which the TRIPS
Agreement extends by explicitly providing for protection of undisclosed information.
Selected articles of the Paris Convention
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Article 1: Establishment of the Union; Scope of Industrial Property
(1) The countries to which this Convention applies constitute a Union for the protection of
industrial property.
(2) The protection of industrial property has as its object patents, utility models, industrial
designs, trademarks, service marks, trade names, indications of source or appellations of
origin, and the repression of unfair competition.
(3) Industrial property shall be understood in the broadest sense and shall apply not only to
industry and commerce proper, but likewise to agricultural and extractive industries and to all
manufactured or natural products, for example, wines, grain, tobacco leaf, fruit, cattle,
minerals, mineral waters, beer, flowers, and flour.
(4) Patents shall include the various kinds of industrial patents recognised by the laws of the
countries of the Union, such as patents of importation, patents of improvement, patents and
certificates of addition, etc.
Article 10bis: Unfair Competition
(1) The countries of the Union are bound to assure to nationals of such countries effective
protection against unfair competition.
(2) Any act of competition contrary to honest practices in industrial or commercial matters
constitutes an act of unfair competition.
(3) The following in particular shall be prohibited:
(i) all acts of such a nature as to create confusion by any means whatever with the
establishment, the goods, or the industrial or commercial activities, of a competitor;
(ii) false allegations in the course of trade of such a nature as to discredit the establishment,
the goods, or the industrial or commercial activities, of a competitor;
(iii) indications or allegations the use of which in the course of trade is liable to mislead the
public as to the nature, the manufacturing process, the characteristics, the suitability for their
purpose, or the quantity, of the goods.
Challenges and limitations of trade secret protection
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A trade secret cannot be protected against being discovered by fair and honest means, such
as by independent invention or reverse engineering.
If a person not having legal access to the trade secret information, deciphers the information
without taking recourse to any illegal means, such as by reverse engineering or as by
independent invention, then such a person cannot be stopped from using the information so
discovered. Under these types of circumstances, the owner of a trade secret cannot take any
legal action against the other person.
Advantages of trade secret protection
1. Trade secrets involve no registration costs;
2. Trade secret protection does not require disclosure or registration;
3. Trade secret protection is not limited in time;
4. Trade secrets have immediate effect.
In the case of inventions that may be patentable the disadvantages of protecting such
inventions as trade secrets.
1. The secret embodied in an innovative product may be discovered through “reverse
engineering” and be legitimately used.
2. Trade secret protection only protects you against improper acquisition, use or disclosure of
the confidential information.
3. A trade secret is difficult to enforce, as the level of protection is considerably weaker than
for patents.
4. Another person may patent someone’s trade secret if he has developed the same invention
by legitimate means.
Violation of trade secrets
How to establish violation of trade secrets
Main issues are:
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(1) Was the information indeed secret?
(2) Were reasonable steps taken to maintain the secrecy?
To establish violation of trade secret rights, the owner of a trade secret must be able to show
the following:
(1) Infringement by or competitive advantage gained by the person/company which
has misappropriated the trade secret.
(2) The owner had taken all reasonable steps to maintain it as a secret.
(3) There is misuse as the information obtained has been used or disclosed in violation
of the honest commercial practices.
The remedies
(1) A court order restraining the person from further benefiting from or misusing the
trade secret.
(2) A court order for monetary compensation in the form of damages, based on the
actual loss caused as a result of the misuse of trade secret. (For example, lost profits
or unjust enrichment)
(3) Seizure order by the court, based on a civil action, which may include a search of
the defendant’s premises in order to obtain evidence to establish the theft of trade
secrets at trial.
(4) Precautionary impoundment of articles that include misused trade secrets, or the
products resulting from its use or misuse.
(5) A court may order the destruction of the products made by the infringing act,
and/or destruction of the equipment used to carry out the infringing act.
(6) Some countries permit the imposition of punitive damages for willful
encouragement of trade secret theft.
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CHAPTER – VI
Conclusion
In the present scenario, trade secrets protection is fundamental to encourage innovative steps,
foreign investments and to promote healthy competition. Trade secret as a new form of
intellectual property is very significant and it is gathering wide importance because in the era
of globalisation, failure or success of any company depends on its secrets let them be policies
related secrets or information of their clients.
Trade secrets give the commerce an edge over the competitors and therefore, one must ensure
that he adequately protects his business related confidential information from his competitor.
Secrecy does not stop anyone else from inventing the same product or process independently
and exploiting it commercially. It doesn’t confer exclusive rights upon the owner and makes
him vulnerable when employees with this knowledge leave his firm. Trade secrets are
difficult to maintain over longer periods or when a large number of people are made privy to
the secret. Moreover, a contract between parties is a suitable way of protecting trade secrets
but at times it would be difficult to enforce such agreements as one has to be careful that it
does not restrict the employees’ right to earn a living.
Despite this, manufacturers or producers prefer trade secret protection as opposed to patent as
there is no fixed time period for which protection is granted and there are no cumbersome
official formalities and cost involved. Further, while patents and copyrights require an
individual to disclose one’s information in the application process (information that
eventually becomes public), trade secrets require the individual to actively keep the
information secret. In spite of its increasing importance, the remedies or protections that are
extended to trade secrets are highly inadequate and insufficient.
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The case of Coca Cola –Pepsi trade secrets is an example which elucidates the above
mentioned. If the Coca-Cola Company had used patent legislation to protect its secret
formula it might not have become the most popular soda in the world. Coca-Cola would have
had to make the formula known to the world when it filed the patent and would only have had
exclusive rights to the formula for as few as 20 years. However, by following critical steps to
protect the formula as a trade secret, the company has kept it a secret for more than a century.
While Coca-Cola may have realized the value of its soda formula and thus took immediate
steps to protect the information, unfortunately, the value of technology, information or
processes often isn’t recognized until it is compromised—at which point the information is
no longer protectable as a trade secret.
It is beyond doubt that intellectual property comprises of inter alia copyright, trademark,
patent and trade secrets. India has enacted Copyright Act, which provides complete and
comprehensive copyright protection in India. The Patent Act extends protection to patents in
India. But, it is very evident that there is no specific law for protection of trade secrets in
India. As opposed to India, other contracting parties to TRIPS have enacted specific and
comprehensive laws with the sole objective of protection of trade secrets. But in India, trade
secrets is the most deserted field as there is no proper policy framework for the protection of
trade secrets and some indirect provisions from contract law, criminal law and copyright law
protect the trade secrets. These laws are not sufficient for adequate protection of trade secrets
in India.
A specific legislation acquires even more importance because of the ambiguity that exists in
foreign laws, judgments and decisions on the issue trade secrets. No consistent line of
principles has been laid down for setting them as persuasive precedent for Indian courts to
follow. Moreover, in keeping with the mandate of Article 39 of the TRIPS agreement, it is
imperative for India to enact a legislation dealing specifically with the issue of trade secrets.
In my opinion, the proposed legislation should incorporate provisions regarding the
following:
1. Definition of trade secrets, misappropriation, improper means
2. Protection to be extended in the absence of non-compete or non- disclosure
agreements.
3. Third party liability
4. Standard format for non-compete and non-disclosure agreements.
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5. Exceptions to be made in public interest.
6. Over riding effect of the act on other existing laws such as Indian Contract Act.
7. Civil and Criminal Remedies in the nature of damages and injunctive relief.
It is difficult to accept the fact that Indian law doesn’t place any sort of relevance upon the
growth of new and developing IPR laws in the world. New trade secret legislation is
therefore, the only way to ensure strong and effective IPR protection which would in turn
open up new and profitable possibilities for the business scenario in India to flourish.
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