What are the trade secret laws in India

January 31, 2023

This article has been written by Ms. Amrutha Selvam, an LLB student at Mahatma Gandhi University, Kerala.

Introduction

Trade secrets are a valuable form of intellectual property that can give a business a competitive advantage in the market. They are defined as information that is not generally known or easily ascertainable by others, and that provides a business with a competitive advantage. In India, the law governing trade secrets is the Indian Contract Act, of 1872, and the common law principle of confidentiality. These laws provide a legal framework for the protection of trade secrets, but there are several challenges that businesses may face in protecting them.

The Indian Contract Act, of 1872 is the primary legislation that governs trade secrets in India. It lays down the general principle of confidentiality and also provides for specific provisions on non-disclosure agreements. The common law principle of confidentiality also recognizes the importance of protecting trade secrets. However, despite these legal protections, businesses in India may still face challenges in protecting their trade secrets. This is because the legal framework for trade secret protection in India is not as developed as in other countries and there are several challenges that businesses may face in protecting their trade secrets. These include difficulty in proving misappropriation, lack of specialized courts, limited remedies, and difficulty in defining trade secrets.

This article will examine the legal framework for trade secret protection in India and the challenges that businesses may face in protecting their trade secrets. It will also look at some of the steps that businesses can take to protect their trade secrets, such as using non-disclosure agreements, and employee agreements, and seeking injunctions and criminal sanctions in case of misappropriation. Additionally, we will also examine some of the case laws related to trade secrets in India to understand how the Indian courts have dealt with trade secret disputes.

Trade Secret Laws in India

The Indian Contract Act, of 1872 is the primary legislation governing trade secrets in India. The Act lays down the general principles of contract law and includes provisions on the protection of confidential information. Section 27 of the Act prohibits any person from disclosing a trade secret that they have acquired under a contract without the express or implied consent of the person who is the owner of the trade secret.

Additionally, the common law principle of confidentiality also applies to trade secrets in India. Under this principle, an individual or a business has a legal obligation to keep confidential information that has been shared with them in trust and confidence. This principle applies to both verbal and written communications and can be enforced through the courts in case of a breach.

Protection of Trade Secrets

There are several ways in which businesses can protect their trade secrets in India:

Non-Disclosure Agreements: One of the most common ways of protecting trade secrets is through the use of non-disclosure agreements (NDAs). These agreements prohibit the recipient of the confidential information from disclosing it to any third party without the express consent of the person who is the owner of the trade secret. NDAs can be used to protect trade secrets during the development of new products, during business negotiations, and in other situations where confidential information may be shared.
Employee agreements: Employers can also protect their trade secrets by including specific provisions in their employee agreements. These provisions can prohibit employees from disclosing trade secrets and can also include non-competition clauses that prohibit employees from working for competitors after leaving the company.
Injunctions: In cases where a trade secret has been misappropriated, the courts in India have the power to grant injunctions to prevent the continued use or disclosure of the trade secret. Injunctions can also be granted to prevent third parties from using or disclosing trade secrets that they have obtained through improper means.
Criminal sanctions: The Indian Contract Act, of 1872 also provides for criminal sanctions for the misappropriation of trade secrets. Section 405 of the Indian Penal Code makes the misappropriation of trade secrets a criminal offense and provides for imprisonment and fines for those found guilty.

Challenges in Protecting Trade Secrets in India

While trade secret laws in India provide a legal framework for the protection of trade secrets, there are several challenges that businesses may face in protecting their trade secrets. These include:

Difficulty in proving misappropriation: In order to be successful in a legal action for the misappropriation of trade secrets, a business will need to prove that the information in question is a trade secret, that it has taken reasonable steps to keep the information secret, and that the information has been misappropriated. This can be a difficult and time-consuming process, and many businesses may choose not to pursue legal action due to the high costs and uncertain outcomes.
Lack of specialized courts: India does not have any specialized courts to deal with trade secret disputes. This means that trade secret disputes are heard in general courts, which may not have the expertise or resources to deal with these cases. This can lead to delays in the resolution of disputes and may also result in inconsistent decisions.
Limited remedies: In India, the remedies available for the misappropriation of trade secrets are limited. While injunctions can be obtained to prevent the continued use or disclosure of tradesecrets, there are no specific statutory damages or compensation available for trade secret misappropriation. This can make it difficult for businesses to recover the full value of their trade secrets and may also act as a disincentive for businesses to pursue legal action.
Difficulty in defining trade secrets: One of the challenges that businesses may face in protecting their trade secrets is in defining what constitutes a trade secret. While there is no specific definition of a trade secret under Indian law, it is generally understood to be any information that is not generally known or easily ascertainable by others and that provides a business with a competitive advantage. However, determining whether a particular piece of information qualifies as a trade secret can be difficult and may require the input of legal experts.

Case Laws

In the case of Tata Sons Ltd. v. Greenpeace International, the Delhi High Court upheld the principle of confidentiality and granted an injunction to Tata Sons against Greenpeace International for disclosing confidential information relating to Tata Sons’ business operations.
In the case of Genpact India Pvt. Ltd. v. KPMG, the Delhi High Court held that the defendant, KPMG, had misappropriated confidential information belonging to Genpact and granted an injunction restraining KPMG from using or disclosing the said information.
In the case of Ericsson v. Micromax Informatics, the Delhi High Court granted an interim injunction against Micromax for allegedly infringing Ericsson’s standard essential patents and also misusing Ericsson’s confidential information.
In the case of Cadila Healthcare Ltd. v. Cadila Pharmaceuticals Ltd., the Gujarat High Court held that the defendant, Cadila Pharmaceuticals, had misused trade secrets belonging to Cadila Healthcare and granted an injunction restraining Cadila Pharmaceuticals from using or disclosing the said information.
In the case of U-Haul International Inc. v. Jamshed N. Patel, the Delhi High Court held that the defendant, Jamshed Patel, had breached his non-disclosure agreement with U-Haul by disclosing confidential information and granted an injunction restraining him from using or disclosing the said information.

These cases demonstrate the Indian courts’ willingness to protect trade secrets and the importance of confidentiality agreements and non-disclosure agreements in protecting trade secrets. However, it’s important to note that each case is unique, and the outcome of a trade secret dispute can depend on the specific facts and circumstances of the case.

Conclusion

Trade secrets are a valuable form of intellectual property that can give a business a competitive advantage in the market. In India, the law governing trade secrets is the Indian Contract Act, of 1872 and the common law principle of confidentiality. While these laws provide a legal framework for the protection of trade secrets, there are several challenges that businesses may face in protecting their trade secrets. These include difficulty in proving misappropriation, lack of specialized courts, limited remedies, and difficulty in defining trade secrets. Despite these challenges, businesses in India can take steps to protect their trade secrets by using non-disclosure agreements, and employee agreements, and seeking injunctions and criminal sanctions in case of misappropriation.

Reference

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January 31, 2023