Atrade secret covers information that is not publicly known or disclosed and for which reasonable measures and steps have been taken to maintain ‘secrecy’. It is a subset of confidential information linked to an organisation’s unique know-how and competitive advantage.
Currently, trade secret protection is not governed by a specific legislation in India; however, Indian courts have been proactive in protecting such assets where necessary. This article looks at the current legal framework and evolving trends.
India is a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) which defines intellectual property to include ‘protection of undisclosed information’. Further, Article 39 of the TRIPS Agreement ensures effective protection against unfair competition by mandating that member nations take steps to protect information that is: (a) a secret not generally known or readily available; (b) has commercial value by virtue of secrecy, and (c) has been subjected to reasonable steps for ensuring its privacy.
Rights in respect of trade secrets in India are primarily enforced through contract law – including legally binding Non-Disclosure Agreements (NDAs) to prevent any disclosure of confidential information; principles of equity; or by way of a common law action for breach of confidence. In some cases, trade secret information may consist of works created and developed by a proprietor that are the subject matter of copyright protection in which case the Indian Copyright Act, 1957 comes into play.
Furthermore, the Bharatiya Nyaya Sanhita, 2023 (India’s criminal code) and the Information Technology Act, 2000 (governing electronic records) contain provisions setting out specific offences that may be punishable by imprisonment or a fine. There is no specific offence of trade-secret misappropriation. However, offences such as criminal breach of trust, theft or cheating may be applicable, depending on the facts of the case.
In a keenly anticipated development, the 22nd Law Commission of India issued a report titled ‘Trade Secrets and Economic Espionage’ (along with a draft bill) on March 5, 2024, to recommend a sui generis legal framework to adjudicate claims related to trade secret disclosure. Commentators observe that such a law would offer companies clarity on protection of confidential information; increase industry confidence as well as enable technology transfer to India; and facilitate negotiation of free trade agreements, where the absence of a clear law on trade secret is often a point of concern. Notably, special exceptions are envisaged to protect whistle-blowers. In the meantime, NDAs, training and awareness programs, as well as robust data protection measures are a must to minimise the risk of unauthorised access and misuse of trade secret and confidential information.
Indian courts have historically recognised the significance of trade secrets and have provided guidelines for their protection. Court rulings through the years have developed and specified criteria for identifying and enforcing trade secret rights, which includes:
Court decisions reveal that trade secrets can be formulae, technical know-how, a peculiar mode or method of business adopted by the employer which is unknown to others. It could also include joint venture agreements, loan agreements, and lists of clients or disclosure agreements relating to clients. Financial arrangements, customer lists, business information such as cost and pricing, projected capital investments and inventory marketing strategies could also be classified as trade secret. In the 1995 Burlington shopping case, while the arguments relied on copyright infringement of the client database, applicability of trade secret protection to compilations such as client lists was also stressed.
Recent jurisprudence pertaining to misappropriation of trade secret information suggests an evolving understanding of its value and a more proactive and vocal approach of protecting it.
Existing case law suggests that confidentiality and principles of equity are sacrosanct conventions in trade secret protection in India and operate independent of an underlying contract. A 1998 judgement issued by the Delhi High Court in Escorts Construction Equipment Ltd v. Action Construction Equipment P. Ltd (1998) is a case in point. Here an ex-employee after putting in nearly ten years of service in key positions, left the company and in a span of the next three years set up a company which manufactured very similar Pick and Carry Hydraulic Self Mobile Cranes as produced by the plaintiff. There was no underlying contract which had been dishonoured. The Delhi High Court, however, imposed an injunction on the grounds of breach of confidence as the defendant who was an ex-employee of the plaintiff had tried to misappropriate the designs of his ex-employer. It held that the balance of convenience was in favour of the plaintiff as unless the defendants were restrained by the ad interim injunction, irreparable loss or injury which could not be estimated in terms of money would be caused to the plaintiff.
In a more recent case HT Process Controls Private Limited v. Ankur Gupta & Ors., CS(COMM) 560/2024, Delhi High Court, the plaintiff, HT Process Controls Private Limited, was a leading Indian company manufacturing special purpose machines for the oil and gas industry. Amongst its products are automatic LPG (liquified petroleum gas) carousal filling machines and robotic loading and unloading systems for cylinders. Through homegrown R&D efforts, the plaintiff developed an ‘Automatic Robotic Loading and Unloading System (of gas cylinders from transport vehicles)’ which was the subject matter of this dispute.
The specification and details of the system were captured in a confidential written ‘concept note’ in 2022 and the system was commissioned at several client’s premises. The same year, the plaintiff also filed multiple patent applications to seek protection for this robotic loading system. Per the plaintiff, the technical know-how and proprietary information pertaining to this robotic system was a confidential trade secret and included the following: the aforementioned concept note, technical drawings, specifications of the system and each of its components, bill of materials required to manufacture this system, the operations and maintenance manual and the directory of suppliers for specific components of this system.
One Ankur Gupta was appointed to the post of Chief Manager (Automation-Robotics) at the plaintiff’s organisation in mid-2021, and his terms of employment prohibited him from divulging any information, detail of trade, or any confidential information, technical data, or drawings relating to the plaintiff’s products that came to his knowledge or possession for carrying out his professional duties. His job entailed writing the basic code for the loading and unloading operations developed by the plaintiff, to further improve and refine the code, trial and testing of the system at its developmental stages, on field testing at customer sites where the system was being installed, etc.
In May 2023, Ankur Gupta resigned and joined one of the plaintiff’s competitors – JRPT Automation Pvt. Ltd. Upon scrutiny of his laptop, the plaintiff learnt that Ankur Gupta had emailed details of its proprietary robotic system such as component details, bill of materials, etc. from his official email address to his personal address. He had also emailed himself the concept note – to which he had gained access through fellow employees under the false pretext of requiring it for use on behalf of the plaintiff.
Aggrieved, the plaintiff issued a show cause notice to Ankur Gupta and initiated criminal complaints separately. Meanwhile, it emerged that JRPT Automation Pvt. Ltd. had filed pre-grant oppositions against two of the plaintiff’s patent applications connected with its robotic loading and unloading system.
The court took the view that since Ankur Gupta was prohibited under the terms of his employment to divulge confidential and trade secret information, the conduct of emailing the plaintiff’s proprietary documents to himself, to which he neither had access nor the authority to utilise, was culpable. The fact that he had joined a company who had now opposed the plaintiff’s patent applications was also viewed as suspicious. Accordingly, alongside the injunction, the court appointed local commissioners to conduct raids and seize devices such as laptops, phones, etc. (both personal and official) from the defendants that might contain the plaintiff’s confidential and trade secret information.
This judgement demonstrates judicial willingness to take prompt action in order to safeguard trade secrets and reassures organisations of having effective recourse against dishonest ex-employees. At the same time, it brings to the fore an interesting topic for further discussion – the interface between trade secret information and patents. Dimensions of an invention can overlap with trade secret matter which allows for protection of undisclosed information regarding a patented invention. Patent and trade secret protections can thus work in tandem to protect valuable, proprietary information.
Previously in 2020, this conundrum between a patent and trade secret right came to be assessed by the Delhi High Court in Prof. Dr. Claudio De Simone & Anr. v. Actial Farmaceutica Srl and Ors., 2020 SCC Online Del 476. This case pertained to a patented formulation for a probiotic drug in respect of which the plaintiff, a professor from Switzerland, secured a patent in the United States but not in India. Through a series of ‘know-how agreements’, the defendants were granted the right to import and manufacture the aforesaid drug formulation into India until the time the US patent was still valid. Once the US patent expired, the ‘know-how agreements’ were terminated by the plaintiff due to low quality ingredients used by the defendants and also the latter’s claim that their formulation was identical to the plaintiff’s formula. To restrain said use, the plaintiff approached the court.
The Delhi High Court held that information about the specification of the plaintiff’s drug formulation cannot be protected as a trade secret because once the patent expired, all information relating to the invention of the formulation is deemed to have become a part of the public domain, notwithstanding the status of the ‘know-how agreements’. The plaintiff here had contended that if the knowhow in which a trade secret is claimed is not disclosed in the patent (which it pleaded in the case here), then the subject matter of the patent and the proprietary know-how are distinct. This contention was aligned with judicial pronouncements in foreign jurisdictions including the United States. However, the Delhi High Court did not find merit in this argument and operated on the premise that apart from what is disclosed under a patent, there can be no separate know-how i.e. trade secret for successful implementation of the innovation.
Therefore, the contours of patent protection and its overlap with trade secret protection remain hazy.
It was recently reported that Club Concierge Services (India), led by its founder Dipali Sikand (an engagement and concierge service specialist), issued a cease and desist notice to Swiggy (a popular food delivery service in India) over alleged misuse of confidential and trade secret information. Swiggy was accused of having engaged in discussions with Club Concierge under the pretence of a false collaboration to obtain business model information for launching a competing concierge service. In this case, the absence of privity of contract adds another layer of complexity to securing rights over proprietary information.
That said, with or without specific legislation, protection of trade secret information can be challenging. Given the unique nature of such information and its high commercial value, organisations need to introduce best practices and measures to safeguard proprietary information. Such measures include NDAs, training and awareness sessions, stringent internal checks and security measures, to name a few. Further, an aggressive litigious approach can contribute towards creating a deterrent effect. Meanwhile, a robust sui generis legislation is awaited to further strengthen the trade protection regime in India.
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