This piece has been authored by Tanya George, 2nd year BA.LLB(Hons) student at MNLU, Mumbai
Introduction
In the modern world built on informational and knowledge-driven transactions, intellectual property law has become an indispensable part of trade, and ‘trade secrets,’ a form of intellectual property, stand at the core of the international economy. With the successes of internationally renowned corporate giants such as Google, Coca-Cola, KFC, and Pepsi underpinned by their tactfully guarded trade secrets, the significance of trade secrets in the modern era simply cannot be overstated.
The World Intellectual Property Organization defines trade secrets as commercially valuable information known exclusively to a restricted group of individuals, with the condition that the owners have implemented reasonable measures to ensure its confidentiality. In simple terms, a trade secret is a closely guarded, economically valuable key of information that equips enterprises with a competitive edge over one another. Although surveys have found that the significance placed on trade secrets now outweighs other forms of intellectual property, countries such as India have yet to make specific legislation to govern the protection of trade secrets, leading to potentially dire consequences for their economies.
This article aims to explore the fragile state of trade secret protection in India, which, despite currently being governed by contractual obligations, remains inadequate. The author aims to explore the potential consequences to economic growth and innovation by analysing the conflict between the Right to free speech and the protection of trade secrets. The author additionally scrutinises the potential misuse of Anton Piller orders in the country due to the current legal lacuna and calls for the formulation of comprehensive legislation to safeguard trade secrets, aligning with international standards.
The Trade Secret Regime in India
As the field of Intellectual Property Rights is a relatively recent legal domain, India has yet to formulate legislation centric on trade secrets. This creates a legal lacuna wherein businesses can potentially engage in stealing confidential information from their competitors to further their interests. Although the legal framework is sans such legislation, courts have, at times, upheld the protection of trade secrets on the basis of principles of equity.
The current legal framework enabling the protection of trade secrets is interpreted to be Section 27 of the Indian Contract Act. In Ambiance India Pvt. Ltd. v. Shri Naveen Jain, the Hon’ble Court iterated that a contract compelling an employee not to disclose trade secrets and other confidential information relating to his previous employment would not constitute a restraint of trade under section 27 and will be upheld by the court. Thus, this section allows the employer to legally prohibit his employee from giving out his trade secrets. In such cases, the remedies available to the employer are to get an injunction, receive his rightful information, or be compensated by way of damages.
Observing the inadequacies in section 27, the court in Dr. Sudipta Banerjee v. L.S. Davar & Company & Ors, advocated for the modification of Section 27 of the Indian Contracts Act to impose specific restrictions on and recognize negative covenants in contracts involving specialized knowledge. The court stated that the freedom of trade needs to be balanced with the protection of trade secrets and called for section 27 to adapt to the times and explicitly provide for a mechanism to legally protect trade secrets.
Balancing the Right to Free Speech and the Protection of Trade Secrets
A perpetual dilemma now vexing countries lies in choosing between prioritising the confidence of trade secrets or protecting free speech. Thus, a seminal drawback arising from the lack of a trade secret regime is the blurring of lines between the right to free speech and the protection of trade secrets. The court, in the case of Petronet LNG Ltd v Indian Petro Group & Anr, has attempted to establish a system to regulate this conflict.
In the case, the plaintiff alleged that the defendant, a journalistic website, had been publishing confidential information about the company’s ongoing negotiations. The court drew from English precedents to establish that the protection of trade secrets in the country is subservient to larger public interests. The court also established that the dissemination of information is of paramount importance and placed the onus on the plaintiffs to show the court that the secret in question holds the ability to threaten the very existence of the commercial venture in order to grant an injunction.
The current precedent set by the court and the legal principles drawn in the judgement portrays the judiciary’s inclination to prioritise the right to free speech and expression over the protection of trade secrets. However, due to the country’s lack of legislation for trade secrets, this decision’s unintended consequences would severely hinder domestic economic growth and innovation. Subsequently, it also becomes necessary to provide a defence of free speech in legislation to allow for confidential information to be published when it is of vital public interest.
The TRIPS Agreement
India became a signatory to the Trade-Related Aspects of Intellectual Property Rights Agreement or the ‘TRIPS’ Agreement in 1994. The TRIPS Agreement is the most internationally recognized covenant on intellectual property and inter alia, it consists of a provision for trade secrets. Article 39 of the TRIPS agreement defines a trade secret and Art.39(2) protects confidential information from being disclosed without lawfully obtaining the consent of the rightful owner of the trade secret. This article thus allows member states such as India to frame laws that prevent the disclosure of confidential information.
India has previously made changes in domestic legislation to amend its patent regime to comply with the TRIPS agreement pursuant to a complaint filed by the USA. India incorporated various provisions and broadened previously determined definitions to act in accordance with the international standards set by the TRIPS Agreement. Thus, the TRIPS Agreement has seemingly moulded the domestic intellectual property regime for decades and the country would only be furthering this stance of attaining international standards by making a legislation on trade secrets influenced by the TRIPS Agreement. Although having created a path for following the TRIPS obligations by amending its patent laws, India is yet to address its obligations under Article 39.
Being a member state, the country is obligated to formulate a legislation in line with the agreement to protect trade secrets. Aligning domestic laws with the TRIPS Agreement could potentially provide Indian companies with an internationally recognized framework for safeguarding trade secrets, boosting their competitiveness and market efficiency. Nevertheless, the lack of action taken by the country in the realm of trade secrets could be indicative that the Indian government considers its existing framework, under contractual laws, adequate in regard to the protection and regulation of trade secrets in the union. This raises the crucial question of how the lacunae of legislation for trade secrets impact the current legal landscape of the country.
The Consequences of a Lack of Legislation
An Anton Piller order is a pre-emptive order that is issued on an ex parte application to obtain information or procure assets when there is an apprehension that the defendant may destroy essential information had he been notified of the proceedings. The defendant is then under an obligation to permit his premises to be searched, the denial of which may lead to him being in held in contempt of court.
Such orders are usually granted in cases of trademark and copyright infringement, but courts have now employed them in cases concerning trade secrets as well. In M Sivasamy v Vestergaard Frandsen A/s & Ors, the Delhi High Court passed an Anton Piller order against the defendant. The plaintiff had raised suspicion that the defendant may be manufacturing on behalf of the plaintiff’s former employees. The order did not undertake any due care towards the defendants, and there is an overt lack of safeguards for the defendants present in the order.
The potential abuse of Anton Piller orders for the protection of trade secrets is arguably a significant danger. The implementation of an Anton Piller order clearly places an extraordinary burden on the defendant as the decision to employ such an order rests on whether the plaintiff satisfies the court of cogent suspicion and inference rather than evidence against the defendant. The burden is escalated by the defendant not having a chance to represent himself due to the ex-parte nature of the order and also due to being placed in an unfavourable position in future negotiations as all their business information is now disclosed.
The current lack of legislative clarity exacerbates the risks associated with Anton Piller orders in the realm of trade secrets. An outflow of such orders occurring in the absence of appropriate legislation could potentially compromise the rights and interests of the parties involved in trade secret disputes and lead to huge losses of revenue for companies in the union due to its exceedingly invasive nature. Therefore, the system is in dire need to establish procedural safeguards in the form of codified legislation to prevent the misuse of such orders.
Conclusion
Although India initially stated internationally that trade secrets do not constitute to be a part of intellectual property and they must be governed by contractual obligations and other civil law, the country simply cannot hold the same rigid stance today. The country’s inclination to adjudicate on cases in this sphere on the basis of equity and other civil legislation in the 21st century show that India does not plan to formulate a legislation on trade secrets.
However, in the era of international cooperation where the bedrock of trade lies in information and knowledge, the role of trade secrets is paramount, acting as a linchpin for the successes of corporate giants worldwide. The absence of specific legislation dedicated to trade secrets in India leaves a void that businesses may exploit, potentially engaging in the misappropriation of confidential information. Thus, akin to other recent legislation on intellectual property, Indian legislatures must consider constructing a law centric on regulating and protecting trade secrets in the country.