14 - Protection of Trade Secrets

PROTECTION OF TRADE SECRETS
Submitted By:
1. Aditi Yadav ABM10037
2. Kaki Maheedhar PGP29409
3. Nihar Sreeram Shetty PGP29406
4. Rajesh Chandran PGP29408
5. Salana Lavanya PGP29407
2

PROTECTION OF TRADE SECRETS Page 2

TABLE OF CONTENTS

1. What are trade secrets? 3
2. Importance of trade secrets 6
3. Law for Protection of trade secrets 8
4. Trade secret misappropriation 10
5. Obligation of confidence 15
6. Licensing of Trade Secrets 17
7. Judicial Policy for Trade Secrets in India 21
8. Trade secrets legal suits 25
9. Conclusion 28
10. Reference 32

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Chapter 1. WHAT IS A TRADE SECRET
Trade secrets is one of the most elusive difficult concepts in the law to define
US Court Of Appeals forthe Fifth Circuit
1

A Trade secret is a formula, practice, process, design, instrument, pattern,
or compilation of information which is not generally known or reasonably ascertainable,
by which a business can obtain an economic advantage over competitors or
customers
2
. Trade secrets are referred to as confidential information, proprietary
information, undisclosed information etc. in the various jurisdiction laws.
When a competitor of a company or any entity acquires the trade secret of
the company by espionage or illegal means then a trade secret misappropriation suit is
filed. But others can develop the trade secret independently and derive economic
benefit from it.
According to TRIPs the following are the conditions for some information to
be considered a trade secret and thus eligible to receive protection from judiciary
3
:
(a) 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.
(b) Has commercial value because it is secret; and
(c) Has been subject to reasonable steps under the circumstances, by the person
lawfully in control of the information, to keep it secret.
There are some types of Information which cannot be classified as trade secrets.
(a) Trivial Information Information of a company that does not have any economic
value or is not commercially exploitable. The scope of this exception is restricted
because it is not easy for courts to label any information as trivial.

1
http://www.thetso.com/ date:21.07.2013
2
Wikipedia - http://en.wikipedia.org/wiki/Trade_secret date:21.07.2013
3
Licensing Intellectual Property: Law & Management, By Raman Mittal, Published by Satyam law International in
January 2011, Page.322

4


(b) Immoral information No immoral information will be given confidentiality
protection by court.
(c) Information that is vague Vague (Not simple ideas) will not be protected by law.
For receiving protection idea should be sufficiently developed to be capable of
being realized.
Trade secrets are among the most difficult assets of the company to quantify, or
even to identify because of the intangible nature of knowledge. Its takes lot of
money and time for companies to make intellectual property audit and ascertain
what is a trade secret and its value. Many companies usually avoid these pains to
their own economic determinant.
4

TYPES OF TRADE SECRETS
5

(a) Technical information R&D reports , experimental data, prototype , processes,
design data, design manuals , formulas, diagrams, drawings, vendor supplier
information, components, experiments, operation manuals
(b) Production information This kind of know how relates to the processes used
like machinery used, technology used, prices of the product etc.
(c) Sales and marketing information marketing plans , marketing budget, sales
leads, customer leads, customer related information , sales call reports and
promotion plans
(d) Internal financial information budgets, profit and loss statements, product
margins, operating reports, forecasting,
(e) Quality information- methods, manual and reports, quality control procedures,
(f) Procurement and materials- Cost, price data, inventory data and records, vendor
and suppliers information,
(g) HR & Personnel- training programs , HR policies, incentives schemes, employee
records, recruitment tests, salary structure

4
Protecting trade secrets, Nishan Swais, Self-Counsel Press, 01-Jan-1996 - Business & Economics, page 45,46
5
Securing Intellectual Property: Protecting Trade Secrets and Other Information Assets, Butterworth-Heinemann,
09-Dec-2008, page 34
5


(h) Administrative information organization structure, strategic business plans,
softwares used, decision makers.
Comparison of Trade Secrets with Patents
6,7

(a) A Trade secret need not be novel unlike patents.
Even a customer list - a compilation of otherwise publicly available information-
can be a trade secret if the overall compilation is not readily ascertainable by
competitors is a trade secret. Even thoughindividual components the list could be
obtained from publicly available sources, it does not prevent protection.
(b) Patent or copyrights one usually has to make some disclosure or publication of
the informationwhereas in Trade secrets there is no need. As long as the holder
is successful in maintaining the secrecy of the information the protection exists.
Patent or copyright protection is more appropriate where commercial exploitation
of the information will result in its disclosure. Trade secret protection is better if it
is possible to keep the information secret such as chemical components used in
manufacture are preferred. In such cases due to the difficulty in identifying
infringements patentingis less effective
(c) Trade secret laws unlike patents do not grant exclusive right to exploit the secret
information. Others may develop the information independently. They may even
derive it by reverse engineering the trade secret owners product.
(d) For patents Temporary protection is provided for a period of years, after which
the information becomes freely available to the public. A trade secret can receive
protection for an unlimited period of time.
8

(e) Unlike patents, trade secrets are protected without registration, that is, trade
secrets are protected without any procedural formalities.
Chapter 2. IMPORTANCE OF TRADE SECRETS

6
Protecting and profiting from trade secrets, Practicing Law Institute, 1975, page 56
7
Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur Press, 09-Oct-2007 -
Business & Economics, page 63,64
8
Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-Hill, 1982, page 22
6


The existing other intellectual tools may not be to protect some
intellectual knowledge. Patents, for example, are available only for inventions in the
field of technology and that too for only limited period. Patent is not suitable to protect
other business secrets in conducting the day to day activities of business. Again, in
case of scientific invention, which is protected by patent-a time period is necessary to
get patent protection. This time period commences from the moment of submission of
patent application to the moment of granting of patent. During the pendency of the
patent application the subject matter of patent, i.e. the invention is not protected.
During this period, Trade Secret can be effectively used for the protection of scientific
invention. It will give protection to the owner of invention against any wrongful
disclosure of the invention by the others, irrespective of the fact whether patent will be
granted or not.
Trade Secrets are the intellectual property of the new millennium
and can no longer be neglected. Trade secret misappropriation costs Walt Disney 240
million dollar and Cargill 300 million dollar. Trade Secret covers over 90% of new
technology. Patents are tips of icebergs in an ocean of Trade Secrets. Trade Secrets
precede, accompany and follow patents. Trade Secrets can be virtually any kind of
business information. These are important to industry and the economy because they
protect and encourage innovation.
A Trade Secret has the advantage of protecting information that
possibly could not be protected by a patent, a copyright, or the law on industrial
designs. Indeed, getting a patent for a product requires that it be innovative. Exactly in
the same way, copyright only applies to an original work. But, an innovation in case of
patent and originality in case of copyright is not required in case of Trade Secret
protection. Like other Intellectual Property Instruments, no fixed time limit of validity is
necessary for trade secret. An inventor need not disclose a Trade Secret for its
registration like patent. So long as the Trade Secret remains undisclosed, protection is
available for an indefinite period of time. We are living in an era of Globalization.
There are fierce competitions in the market and goods are circulated
freely throughout the world. At this juncture, the proper protection and use of Trade
Secret is the sine qua non. Confidential information or Trade Secret is no doubt an
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important intellectual property tools to protect the secret knowledge. However, in
comparison with other IP tools e.g. patent, Trade Mark, Design, Copyright etc. it has
some advantages. In case of Patent, Trade Mark, Industrial Design etc., some
registration fees are necessary for the registration. Patent protection is not available
for indefinite period of time. After some specified period of time, the invention must be
disclosed in the public domain. But in case of Trade Secret, no registration fees are
necessary and no limited and defined protection is applicable here. There is no
compulsion of disclosure of trade secret.
All research and development data, including data relating to
better modes, developed after patent filing, whether or not invention, can also be
protected by trade secret. Trade Secret protection operates very quickly without delay.
Trade Secrets encompass near about 80% of the assets of some companies and
before obtaining patent protection, virtually all inventions are protected by trade secret.
So, importance of Trade Secret cannot be denied.

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Chapter 3. LAWS FOR PROTECTION OF TRADE SECRETS
TRIPS -The Agreement on Trade Related Aspects of Intellectual Property
Rights - is an international agreement that sets down minimum standards for protection
of many forms of intellectual rights, including trade secrets. All WTO members are
obliged to respect TRIPs agreement. Article 39 of TRIPs covers Trade secrets. This
article has been incorporated in 1994 after hectic lobbying by American and European
countries and was one of the most important events in protection of trade secrets.
9

The Section 7: protection of undisclosed information, Article 39 states that:
10

1. 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 3.
2. 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 practices (Note.1) so long as such
information:
(a) 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.
(b) Has commercial value because it is secret; and
(c) Has been subject to reasonable steps under the circumstances, by the person
lawfully in control of the information, to keep it secret.
3. Members, when requiring, as a condition of approving the marketing of
pharmaceutical or of agricultural chemical products which utilize 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,

9
Competition Law, Technology Transfer and the TRIPS Agreement: Implications for Developing Countries, Dr. T
Thanh Nguyn, Edward Elgar Publishing, 01-Jan-2010, page 21
10
WTO website : http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm#7 date:21.07.2013
9


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.
Note 1. For the purpose of this provision, a manner contrary to honest commercial
practices shall mean at least practices such as breach of contract, breach of
confidence and inducement to breach, and includes the acquisition of undisclosed
information by third parties who knew, or were grossly negligent in failing to know, that
such practices were involved in the acquisition
Trade secret protection India
11, 12
In India protection of trade secret is common law based. Section 27 of Indian
contract act bars any person form disclosing any information which he acquires as a
part of contract. India has been lagging behind in protection of trade secrets because
since independence India has given importance to socialist pattern of growth and
attached less importance to private intellectual rights.
Pressure is building in government to make statutory protection to trade laws
due to TRIPs agreement and growing competitive environment.

Proofs required strengthening a Trade secret law suit
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(a) Existence: The petitioner should be able to prove existence of the trade secret.
(b) Ownership: It should have proof of ownership to the trade secret and all the
rights related to its usage.
(c) Access: It should be proved that the defendant had access to the trade secrets
under scan.
(d) Notice: A proof that the defendant was well aware that the trade secret(s) was
the property of the petitioner.
(e) Use: A proof that the trade secret information was used by the defendant.
(f) Damages: A proof that a remedy exists within the power of the court to apply

11
Managing intellectual property: the strategic imperative, Vinod v. Sople, PHI Learning Pvt. Ltd., 2012, pg 196
12
Competitive Intelligence and Global Business, David L. Blenkhorn, Craig S. Fleisher, Greenwood Publishing Group,
Jan-2005 , page 37
13
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=925056, dated 05-8-2013
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Chapter 4. TRADE SECRET MISAPPROPRIATION
Trade secret misappropriation involves improper means used to
acquire or use a trade secret. Misappropriation of Trade secrets as per Uniform Trade
Secrets Act (UTSA) which is the rules in USA concerning protection of trade secrets is
defined as:
14, 15

1. If the trade secret of another entity is acquired by a person who knows or who
has a reason to know that improper methods were used.
2. Without the express or implied consent for disclosure or use of trade secret by an
individual who
2.1.1 Acquired the knowledge of trade secrets by improper means
2.1.2 Knew or had reason to know that his knowledge of the trade secret at
the time of disclosure or use was
2.1.3 Acquired from or through an individual who utilized improper methods
2.1.4 Acquired under circumstances where there is a duty to maintain its
secrecy and limit its use
2.1.5 Acquired from or through an individual who owed a duty to the
individual seeking relief to maintain its secrecy or limit it use
2.1.6 Before a material change of an individuals position, knew or had
reason to know that it was a trade secret and that knowledge of it had
been acquired by accident or mistake.
Economic Espionage
Whoever, intending or knowing that the offense will benefit any foreign
government, foreign instrumentality, or foreign agent, knowingly
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steals, or without authorization appropriates, takes, carries away, or
conceals, or by fraud, artifice, or deception obtains a trade secret

14
Protecting and profiting from trade secrets, Practicing Law Institute, 1975, page 122
15
Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur Press, 09-Oct-2007 -
Business & Economics, page 158
16
Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-Hill, 1982, page 231
11


without authorization copies, duplicates, sketches, draws, photographs,
downloads, uploads, alters, destroys, photocopies, replicates, transmits,
delivers, sends, mails, communicates, or conveys a trade secret
receives, buys, or possesses a trade secret, knowing the same to have been
stolen or appropriated, obtained, or converted without authorization
attempts to commit any offense described in any of paragraphs (1) through
(3)
conspires with one or more other persons to commit any offense described in
any of first three paragraphs, and one or more of such persons do any act to
effect the object of the conspiracy
Shall, except as provided in subsection second, be fined not more than
$5,000,000 or imprisoned not more than 15 years, or both.

Any organization that commits any offense described in subsection shall
be fined not more than the greater of $10,000,000 or 3 times the value of the stolen
trade secret to the organization, including expenses for research and design and other
costs of reproducing the trade secret that the organization has thereby avoided.
Theft of Trade Secrets
Whoever, with intent to convert a trade secret, that is related to a product or
service used in or intended for use in interstate or foreign commerce, to the economic
benefit of anyone other than the owner thereof, and intending or knowing that the
offense will, injure any owner of that trade secret, knowingly
steals, or without authorization appropriates, takes, carries away, or conceals, or
by fraud, artifice, or deception obtains such information;
without authorization copies, duplicates, sketches, draws, photographs,
downloads, uploads, alters, destroys, photocopies, replicates, transmits,
delivers, sends, mails, communicates, or conveys such information;
receives, buys, or possesses such information, knowing the same to have been
stolen or appropriated, obtained, or converted without authorization;
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attempts to commit any offense described in paragraphs (1) through (3); or
conspires with one or more other persons to commit any offense described in
paragraphs first through third, and one or more of such persons do any act to
effect the object of the conspiracy, shall, except as provided in subsection
second, be fined under this title or imprisoned not more than 10 years, or both.
Any organization that commits any offense described in subsection first shall be
fined not more than $5,000,000.

Exception to prohibitions
Exception to prohibition does not prohibit
any otherwise lawful activity conducted by a governmental entity of the United
States, a State, or a political subdivision of a State; or
The reporting of a suspected violation of law to any governmental entity of the
United States, a State, or a political subdivision of a State, if such entity has
lawful authority with respect to that violation.

Orders to preserve confidentiality
In any prosecution or other proceeding under this, the court shall
enter such orders and take such other action as may be necessary and appropriate
to preserve the confidentiality of trade secrets, consistent with the requirements of
the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence,
and all other applicable laws. An interlocutory appeal by the United States shall lie
from a decision or order of a district court authorizing or directing the disclosure of
any trade secret.
Civil Proceedings against violations
The Attorney General may, in a civil action, obtain appropriate injunctive relief
against any violation of this chapter.
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The district courts of the United States shall have exclusive original jurisdiction of
civil actions under this section.

Administration and Trade secrets

Some developing countries forcefully argued that the system of administrative
control of the food and drugs industry practiced in most Western countries led to
the accumulation of a wealth of data concerning technical procedures to
manufacture new drugs or concerning the effects of drugs or agrochemicals on
the health of the consumers or the environment; therefore, the developed
countries' administrations should put this confidential information to the disposal
of countries of the South.
The United States and Sweden have passed the Freedom of Information Act
and similar legislation in order to assure a continuous flow of information from
the government to the citizens, as a means of heightening the legality and
objectivity of the decisions of the Administration, but also to avoid that
knowledge precious to Society be buried forever in the drawers of the public
offices.
Significantly, exceptions were made under the Freedom of Information Act to
protect trade secrets. Therefore, the Western governments had an easy day to
refute the demands of South countries. It is obvious that the Administration
cannot give access to confidential. Information for any other use than helping to
protect the public health.

TRIPs has reached a compromise solution. It protects only the
information given by private industry in order to get the official approval for the
marketing of products which utilize new chemical entities. It protects only
compilations of data which have requested a considerable effort (a test
conspicuously absent of the general definition of confidential information).
Moreover, the legal protection is subject to two exceptions:
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a) Where necessary to protect the public, protection shall lapse entirely, and
disclosure can be made without restriction by the Administration of one country.
This exception is Unobjectionable. To issue warnings that a given chemical or
pharmaceutical may have adverse effects on the consumer's health belongs to
the functions of a modern State, and the health of the people has a higher ethical
value than the profits of the industrialists.
b) No disclosure by an Administration is otherwise acceptable, unless precise
measures shall ensure that no unfair commercial use of those data shall be
possible. The distinction between fair and unfair use refers to honest commercial
practices. The test of commercial use is simple to apply. What is not clear is the
nature of the steps necessary in order to avoid such unfair commercial use. It
may only mean that communiqus and press releases shall be carefully
scrutinized, so that no trade secrets be leaked in any usable form; in other words,
imprecision and censorship shall ensure that the Administrations do not divulge
confidential information contrary to TRIPs.
After all, this regime is not without merit. It constitutes an
acknowledgement that, in a figurative way, the public Administration is not the
owner of the confidential information necessary to control the marketing of drugs
and agrochemicals, but only the trustee of that information, the public being the
ultimate beneficiaries, but only for very limited purposes.
In this respect however, the "public" should also be understood as the whole
mankind. Even if the information disclosed to a State agency is of material
relevance only to the citizens of another country, TRIPs should not prevent that
Administration to issue a warning19 and give medical details to the attention of
the word - rather than to keep under the cloak of secrecy some information that
is not relevant for its own citizens.

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Chapter 5. OBLIGATION OF CONFIDENCE
Persons related/working with a company have an obligation of confidentiality
of companys trade secrets. The various types of obligation are:
(a) Direct Relationship. In case of direct relationship, duty of confidence maybe
contractually, as a result of type of relationship between parties, or because of the way
information is communicated.
A person may be under a contractual obligation not to use or disclose
information, which may be expressed or implied. Expressed obligation of
confidentiality is typically in employment contracts. An example of implied
obligation of confidentiality is the relationship between banker and
customer.
An obligation of confidentiality might arise in case of fiduciary relationship
between parties. A fiduciary relationship is an equitable relationship in
which one party has a duty to act for the benefit of another, for example,
between doctor and patient, husband and wife, trustee and beneficiary.
Obligation of confidence may arise from the way information is
communicated between the parties. In these circumstances, the test for
whether there is a duty of confidence is to ask, would a reasonable recipient
have realized that the information given to them was in confidence. An
obligation of confidence may also be inferred from the circumstances.
(b) Third Party Recipients
If a person owing an obligation of confidence discloses confidential information to a third
party, the factors that determine when the third party will be treated as being subject to
obligation not to disclose the information are:-
An indirect recipient of information who is aware of its confidential status will
normally be bound by a duty of confidence.
If a person receives information innocently, but subsequently discovers that
the information is confidential, they will be bound by a duty of confidence.

(c) Where there is no relationship between parties.
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A person may come by confidential information without having it imparted
to them by the confident, or by a person owing an obligation of confidence. For
example, a burglar might uncover confidential files, or a member of public might find a
confidential document in the street. The courts have adopted two different approaches
when deciding whether a stranger receipt of confidential information falls under a duty of
confidence.
The first focuses on the conduct of the stranger in acquiring the information.
Here the courts have looked at whether the stranger has acted illegally. I
the stranger acted illegally, he or she comes under obligation, otherwise
not.
The second line of cases focus on the question of whether the stranger
knew the information was confidential.
(d) Employees of the company
Different obligations are imposed on an employee during employment than after the
employment relationship.
During employment
During the period of employment , the courts will enforce the express terms
of the contract
If the contract does not contain express clauses imposing a duty of
confidentiality upon an employee, employee is still under an implied duty of
fidelity to their employers.
Post Employment
A restraint of trade clause will only be enforceable if it is appropriately limited
to time, geographical applicability and the scope of activities.
Court also imposes implied obligations post-employment.

(e) Statutory obligations and public bodies
Obligation of confidentiality can be imposed by statue. Where a statue permits a public
body to acquire information, the statutory body is under a duty of confidentiality only to
use the information to satisfy the statutory purpose.
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Chapter 6. LICENSING OF TRADE SECRETS

Trade Secret, being an intellectual property can be legally transferred
from one party to the other. Such a transfer generally takes place between the inventor
of the trade secret and a larger party that can exploit the secret in creating revenues.
The transfer of the trade secret can be on a temporary basis or
on a permanent basis i.e. the owning party can rent the trade secret or can sell it on the
whole. Licensing trade secrets does face issues with the fact that it is an intangible
property. The requirements for transferring a trade secret are:
1) The present owner of the trade secret has maintained the confidentiality of the
information and that the information is not yet publically known.
2) The present owner did not disclose the trade secret to a third party who is not
obligated to maintain the confidentiality of the secret.
3) Both the parties have to enter into a written agreement clearly stating the terms
and conditions of the property transfer.
There are several problems pertaining to the transfer of Trade Secrets.
1) Being an intangible property in the form of knowledge/information, the property
even after the transfer stays with the original owner.
2) The original owner might try to re-transfer the same trade secret to another party.
3) The buying party needs to know the usability of the trade secret before going
through the transaction. This needs him to have some or complete exposure to
the trade secret in order to check its value. In case the transaction does not
happen, the buying party will have the know-how of the trade secret without
actually buying it.

Value of a trade secret
How much and for what period will the licensee needs to pay to the
licensor for the usage of the trade secret. Trade secret being a unique property has no
19


other scale to compare to in order to fix its price. In most of the cases the price is fixed b
bargaining between the licensee and the licensor. The following factors mostly
determine the value of the trade secret.
1) Risk involved in maintenance of the secret
2) Size of market that it can serve
3) Capital needed to convert the trade secret into revenues

Steps involved in Licensing of a Trade Secret
1) Preliminary Agreement: Before the actual purchase of a trade secret the licensee
should have an access to enough part of it, so that he can decide upon the value
and the usability of the trade secret. He has to confirm that the trade secret is
actually exploitable by the manufacturing unit/ industry to convert it into
revenues. He may conduct some test run/ test production using the trade secret.
Thus, upon this study he would base his decision on whether or not to go forward
to the actual agreement. During this time frame the trade secret is vulnerable to
infringement in the premises of the licensee. Thus a preliminary agreement is
used to protect the licensor from the trade secret infringement caused by the
licensee. It also prevents the licensee to use the trade secret if he decides not to
buy the trade secret.

2) The Licensing Agreement: This agreement transfers the rights from the licensor
to the licensee completely or as per the terms stated. This agreement consists of
all the terms and conditions of the transfer of this intellectual property in detail.
The following information is generally included.
- The identity of the trade secret: The provision of technical assistance:
- The scope of the license
- The payment terms
- The duration of the license
- General undertakings

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The Identity of the trade secret: There is a need to precisely mention the identity of the
trade secret i.e. nature, extent and ownership details etc. The more precise the
definition the lesser chances exist that the trade secret can be exploited. For example,
in a field of paints, the licensor may have variations between household, industrial and
marine paints concerning the same basic formula. The licensee may not be interested in
manufacturing all the three or the licensor may not be interested in giving the rights for
all the three. Thus it is important to specifically mention the purpose for which the paint
formula is to be used in the agreement. Formulae, specifications and drawings will, in
due course, have to be provided once the option has been exercised and these have to
be annexed along with the agreement so that there will be no doubts regarding the
same in the future.
Provision of Technical Assistance: In case the trade pertains to any technical/industrial
know-how, it quite usual that the licensee will appoint a technical advisor, who generally
not bound by the agreement between the licensor and the licensee, to evaluate the
trade secret. In such a case the technical expertise have to be chosen with an equal
consent from both the parties. There needs to be a separate confidentiality agreement
taken from the expertise. Clauses covering such an agreement should include:
Number of such technical advisors and their qualifications and status
A clear and detailed description of the duties
All monetary terms like pay, insurance, accommodation, maintenance etc.
An indemnity covering any damages to the trade property due to negligence or
action on part of any person belonging to the technical advisory group.
A limit of the time up to which the trade secret can be accessed by the expertise

The scope of the license: There are three aspects to consider when it comes to scope
of the agreement.
Where it concerns the place of manufacturing
Where it concerns the territory in which the licensee may apply the trade secret
Extent to which the licensor is restricted from using the trade secret

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Payment Terms: The most important aspect in any commercial agreement is the
pricing. The cost of a trade secret is quite difficult to evaluate as it is not a tangible
asset. None the less, it is attained through the negotiations between the licensor and
the licensee. The payment terms have to be precisely mentioned in the agreement. The
exact amount that is payable by the licensee, the mode in which the payments have to
be made, will the payment be made at one or the payments are made in installments,
for how long will the licensee have to pay the licensor.
The licensor has to make an informed and intelligent decision through the
speculations based on the business expertise and the market trends. The licensee will
have to make a decision based on the extractable value of the trade secret based on
the production costs, market trends and the good will of the trade secret.
The duration of the license: A trade secret, unlike patents has no defined life time. But
the fact that a trade secret has value only till it becomes public, poses a problem. A
trade secret seizes to have a value in case as and when it becomes public. But of
course, there is ambiguity on what kind of incidents can be defined as going public. In
general, the trade secret will lose its value, when the competitors of the licensee are
able to use it without paying for the same, as the property is no longer a secret. But it
still has a lot of ambiguity around it. Thus the duration of the license has to be strictly
defined as to under what conditions the license is deemed to be cancelled.
Protection of the Rights: Both the parties under the agreement will be equally
responsible for the protection the trade secrets under question. The terms pertaining to
the protection also have to be mentioned clearly in a licensing related to trade secrets.
Both parties may negotiate and agree upon the steps required to maintain the secret
and to have a vigilance in the market place.

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Chapter 7. JUDICIAL POLICY FOR TRADE SECRETS IN INDIA

In the US, trade secrets are afforded statutory protection, both at the
federal and state levels, with meaningful civil and criminal remedies to counter the
misappropriation of trade secrets, including compensatory and punitive damages,
injunctive relief, and attorneys fees. That is not the case in India. India provides no
statutory or other legal protection of trade secrets. This non-legal environment presents
a number of challenges concerning trade secret protection and enforcement and can
jeopardize a US customers IP unless it carefully employs certain contractual
mechanisms that are enforceable in India. In India, parties must primarily rely on
contracts to protect trade secrets. Indian law does recognize the common law tort of
breach of confidence irrespective of the existence of a contract. But the torts utility is
limited in an offshore sourcing context because the duty of confidence at issue can be
enforced only against a party that is either a fiduciary to the US customer or in an
employer employee relationship with the complaining party.
Also, the duty arguably only extends to the unauthorized disclosure
of confidential information to a third party and does not prevent the recipients own
misappropriation of the information. The Indian courts on several occasions delineated
the concept of trade secret. The court defined trade secrets as formulae, technical
know-how or a peculiar mode or method of business adopted by an employer which is
unknown to others. Such information has a reasonable impact on the organizational
expansion and economic interests.
Similarly the Court further ruled that the concept developed and evolved
by employee as the result of the work done by the employee upon material which may
be available for the use of anybody, but what makes it confidential is the fact that the
employee has used his brain and thus produced a result in the shape of a concept.
Moreover court held that the database complied by the organization could be subject
matter of copyright and its unpermitted use by other party amounted to infringement.
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Thus, the judicial policy for the trade secrets protection can be deducted from the
courts interpretation of NDAs, NCC and restraint of trade under Contact law.
An agreement to restraint an employee form competing with his employer
after termination of employment may not be allowed by the courts. Thus if an attempt is
made to restrain an employee from competing for five years after the period of service,
it is observed that, Contracts by which persons are restrained from competing, after the
term of their agreement is over, withtheir former employers within reasonable limits, are
well known in English law, and the omission to make any such contract an exception to
the general prohibition contained in section 27 indicated that it was intended to give
them legal effect in this country.
These principles have been approved by the Supreme Court again where
a company manufacturing type cord yarn was offered collaboration by a foreign
producer on the condition that the company shall maintain secrecy of all the technical
information and that should obtain corresponding secrecy arrangements from its
employees. The defendant was appointed for a period of five years, the condition being
that during this period he shall not serve anywhere even if he left the service earlier and
this agreement was held to be valid. The defendant was accordingly restrained from
serving anywhere else during the currency of the agreement. The observation of the
supreme court was that the injunction issued against the employee is restricted as to
time, the nature of employment and as to area and cannot therefore be said to be too
wide or unreasonable or unnecessary for the protection of the interest of the respondent
company.
From the above two landmark decisions of Supreme Court, it is clear
although an employer is not entitled to restrain his employee after the termination of
employment from offering competition, the employer is entitled to reasonable protection
against exploitation of trade secrets. In line with this principle, the Delhi High Court, was
of the view that the agreement between the parties prohibiting the employee for two
years form taking employment with any present, past or prospective customer of the
employer is void and hit by section 27 of the Indian Contract act 1872. This stipulation
25


was prima facie against public policy in India and an arm twisting tactic adopted by the
employer.
The court finally stated that the relief sought for an order of ad interim
injunction till the disposal of the suit should not be granted on these grounds. It is the
view of Supreme Court that an employee cannot be restrained for all times to come
from using his knowledge and experience gained by the employee in the course of his
employment especially when he was not in the service of the employer i.e., after the
termination of the service.
A restrictive clause in an employment contract imposing constraints on the
employee preventing him from misusing or revealing the confidential information and
the trade secrets acquired during the tenure of his employment was upheld in court of
law. This legislation thus provided a remedy to organizations from third party disclosure
of confidential information and trade secrets in the form of injunction against the
employee.
Indian Contract law besides bringing disclosure of trade secrets under
the breach of contract, offers remedies to encourage of creativeand innovative abilities.
Protection afforded by law is based on the principle that various facets of a product may
be protected by different form of IP.
The remedies of breach of confidence include action for an account of
earnings from the use of the information; action for damages and an injunction for
prevention of misuse. For an action to succeed it would be necessary to show that there
was information of confidential nature which was shared under an obligation of
confidence with the person proceeded against and that there was an actual or
threatened use or disclosure of the information.
If the information has already become a part of public knowledge no action
may lie. Since the information alleged to be confidential may be of value to the plaintiff
only for a certain period, interim injunction will only be granted for a specified period
26


depending upon the circumstances and the nature of the confidential information. With
regard to balance of convenience the following factors are considered:
1. Whether the effect of an injunction against potential disclosure be disastrous
to defendants,
2. Whether the terms of injunction are such that it is extremely difficult for the
defendants to know what they may do and what they may not do
3. Whether it is certain based upon the material before the court even if
successful at a trial, the plaintiff would obtain an injunction rather than
damages.
By way of relief, the damages or compensation is determined on the basis
of the market value of the confidential information based on a notion of scale between
willing purchasers. This method may be more appropriate for confidential information
related to industrial designs or processes or business secrets. Trade secrets are
protected forever, if kept confidential, if the confidentiality of the information is breached
it is no more a trade secret.

27


28


Chapter 8. TRADE SECRET LEGAL SUITS
Coco Cola case
The best example of trade secret is 'the formula for soft drink Coco Cola'. It is not
protected by any patent. The names "Coco Cola" and "Coke" are both registered
trademarks orcopyright. Despite many years of high sales and correspondingly intense
efforts by rivals to determine the formula of the drink, the secret is still safe. For over
125 years, the secret formula is been kept in each bottle and going all through the
world.In 2007, a secretary was accused of helping two employees of Coco cola in
stealing the trade secret and sell it to rival Pepsi. The three suspects were charged for
stealing and selling of trade secrets. They were ordered to pay $40,000 and were
arrested in late July 2007 for time duration of seven years.
American Super Conductor Corporation (AMSC) case
In June 2013, a federal grand jury in Wisconsin returned an indictment charging
Sinovel Wind Group Co. and two of its executives with stealing trade secrets from
American Super Conductor Corporation (AMSC). Sinovel is China's third biggest maker
of wind turbines and until March 2011, AMSC supplied Sinovel with Turbine control
software. According to the indictment, Sinovel owed AMSC more than $100 million for
delivering software. But instead of paying debts, Sinovel and two of its executives
plotted with a former AMSC employee to steal AMSC turbine control source code and
use it in Sinovel turbines. Summons are placed by both the parties and Sinovel is asked
to quash the summon by August 16, 2013.The main problem in such cases is that
prosecuting a foreign corporations or individuals for trade secret theft is not easy.
Before it moves forward, the United States has to follow the legal requirements to serve
them with a copy of the summons.
National Football Scouting Inc. Plaintiff
A football scouting company brought action against sports writer and
website owner Robert Rang, alleging claims of copyright infringement and
29


misappropriation of trade secrets based on publication of player grades from company's
scouting reports. The scouting company compiles yearly scouting reports to use during
the draft and is shared only with member clubs. Arguments from either side are
submitted and judgment was filed on December 2012. Football Companys claim was
denied and Defendants claim on copyrights are granted but claim on trade secrets are
denied.
Berg Nelson Case
Berg Nelson Company, Inc. was a company that designs and
fabricates rubber and metal hoses, belting, Valves and fittings. It worked with Chevron
Corporation for almost ten years developing quality control and safety procedures for
flexible using high pressure hoses and designed couplings for a number of different
uses within Chevrons EI Segundo, Calif., and refinery. They also designed and
fabricated proprietary, specialized fuel injection hoses for turbine generating units at
refinery, which were sold to Chevron on individual purchase basis.
On December 2006 Berg Nelson filed a lawsuit claiming that
Advanced Sealing and Supply, a competitor, misappropriated trade secrets by
wrongfully obtaining a technical drawing from a former Berg Nelson employee and a
sample of the co-gen hose, and also confidential price list from Chevron employees with
whom it had a long standing relationship. They claimed that this disclosure allowed their
competitor, Advanced Sealing and Supply to reverse engineer the hose and avoid the
expense and time involved with its own product development with their idea
implementation. The claim also alleged that armed with Berg-Nelsons confidential
designs and pricing information, Advanced Sealing and Supply interfered with Berg-
Nelsons contract and non-contractual business relationship with Chevron.
Cummins & White, LLP, pursued a variety of legal theories in
order to protect Berg-Nelson. The major dispute in this case was whether the Berg
Nelson hoses designed for Chevron constituted trade secrets. Berg-Nelson contended
that the design and make-up of the hoses was not known to the general public or even
30


to Chevron, which had previously requested the information without success. As the trial
progressed, Charles Spagnola, lead trial counsel from Cummins & White, argued that
the Berg-Nelson hoses did not need to be protected by a written non-disclosure or
confidentiality agreement in order to consider them as a trade secret. Mr. Spagnola
provided compelling evidence supporting the claim of misappropriation of trade secrets,
including the fact that Berg-Nelsons complaint was filed and served on its competitor,
Advanced Sealing and Supply before it had even started selling the hoses to Chevron.
The fact that it proceeded to sell the hoses with actual knowledge of
the allegations after the complaint was filed showed their witty and malicious behaviour.
Mr. Spagnola argument was based on Chevron companys written corporate policies
regarding the exchange of proprietary information and secrets. As part of its business
dealings with Chevron, Berg-Nelson went to extreme ends to clarify Chevrons position
regarding other contractors at the refinery and potential illegal disclosure of trade
secrets. Chevron has had written corporate policies to protect proprietary information of
its business partners and provided a written statement of hiring practices upon which
Berg-Nelson based on which its decision to enter into a services agreement with
Chevron was taken.
Result: After the trial, the jury awarded $242,000 to Berg-Nelson. The jury ordered the
defendant, Advanced Sealing and Supply Co., Inc., to pay substantial damages.
Chevron Corp., also named as a defendant in the original lawsuit which was settled
before the trial.

31


Chapter 9. CONCLUSION
Trade secrets are important to industry and provide protection
for the results of investment of time and money and research and development that are
difficult to protect by other means. Their importance in industry seems to be growing.
Trade secret, as a form of intellectual property law mechanism,
is the creation of the common law courts in England. This is a new element of
intellectual property outside the various classical forms of intellectual property like,
patents, copyrights, industrial design etc. There are no procedural complications for the
protection by Trade Secret like other IP instruments. Protection under Trade Secret is
very easy and less costly in comparison with patent and other IP instruments. But most
of the companies and business establishments do not provide a comprehensive
framework for safeguarding trade secrets. Instead of that, they often impose the
responsibility upon collective heads i.e. upon various persons. This collective and
divided responsibility may pose a serious threat to the security of Trade Secret.
Ultimately, this divided responsibility may turn into no ones responsibility. A single or
maximum two responsible persons must be given the responsibility to keep the trade
secret in secret. Theft and reverse engineering may pose a threat to the protection of
trade secret.
The danger may also come from outside the business.
Generally, other market competitors will always try to discover and use for themselves
the important intellectual property- Trade Secret. The moment they will be successful,
the trade secret will lose its value and protection would not be available anymore. To
prevent this risk the company and business house must act in a diligent and intelligent
manner. They should first identify the trade secrets then they should use them
strategically for the sake of protection of trade secret. Technology is changing so rapidly
that trade secret protection is, in some cases, has become the most attractive, effective
and easily available intellectual property right. Just like other intellectual properties,
32


trade secrets can be very valuable to a companys growth, development and sometimes
even to its survival.
Government of India should consider the enactment of a law like
The Uniform Trade Secret Act (UTSA) of U.S.A. for extending better protection to the
trade secret owners. Indias trade and commerce is widening very rapidly day by day.
To keep pace with this rapid development legal mechanism should also be framed
accordingly so that intellectual properties are properly protected and respected and also
enterprises and new creators are encouraged to create new inventions. Otherwise, they
will lose interests in new inventions and new creations which may be suicidal to the
entire development of the country in the days ahead.
The law in relation to trade secrets in the world varies widely in
some countries the protection is effective; in others sometimes because of the
difficulty in enforcement - the law provides inadequate protection. It would be
advantageous if there were consistency as to the types of information that can be
protected. However, attempting to produce a both detailed and comprehensive
definition of "trade secret" is probably unnecessary. TRIPS simply uses the expression
"undisclosed information" and specifies criteria which must be met for such information
to be protectable.
The enforcement action should not depend upon there being an
existing contractual relationship with the defendant. Many cases of serious industrial
espionage involve individuals or companies with whom no such relationship exists.
Although generally restrictions imposed by the law during employment are similar from
State to State, the position varies to some extent post-employment. This is important
because a large proportion of cases involve ex-employees. This issue is entangled with
employment law and public policy and some differences are, perhaps, unsurprising.
Member States attempt to reach a balance between the interests of the employer and
employee. The balance varies from State to State. In some countries there is no
protection post-employment or only in extreme circumstances. This limited, or lack of,
protection can cause problems. There are differences in approach to remedies available
33


against "innocent" recipients of trade secrets. In some countries it is possible to prevent
third parties making use of the information however innocent they are. In other cases it
is necessary to show bad faith on behalf of that party otherwise nothing can be done.
Where no injunction is available to prevent further use of the trade secret this may
cause considerable damage to the owner.
There can be considerable difficulties in obtaining evidence of
misuse and damage. If the necessary evidence cannot be obtained the action may
never get off the ground. Some courts will not (or cannot) compel defendants to provide
the relevant documents or information. To be effective there is a need for:
(a) Procedures to be available to compel defendants to provide information and/or
documents
(b) Effective search orders to be granted on an ex parte application where there are
serious grounds to suspect the defendant is dishonest.
(c) There is no clear correlation between the existence of statutory protection and the
effectiveness of protection.
(d) Common law countries which do not have statutory provisions have good and
effective protection in the main,
(e) Complex technical trade secret cases may require specialist judges.
(f) The methods used to calculate damages might also be reviewed to ensure plaintiffs
are properly compensated.
(g) The courts need to have means to protect secret information during proceedings.
This can be achieved with confidential schedules to pleadings and restricting the
disclosure of information during trial and in the judgment itself. Public) and the
protection of information contained in court documents.
(h) Amending the Customs Regulation to include trade secrets may be of some
assistance in controlling the flow of unlawfully manufactured goods, although, in
practice, this may not be effective in complex cases.

34


MUST-TAKE STEPS IN ORDER TO PROTECT TRADE SECRETS
(a) Ensure that a duly executed non-disclosure agreement is in place before sharing
confidential information. The organization may have different non-disclosure
agreements depending upon the sensitivity of the information shared under the
agreement.
(b) Label the information as confidential or proprietary. By doing this, you are putting
the other party on guard in terms of treatment given to the information.
(c) Champion the confidentiality policies amongst all employees, including providing
adequate training to all employees.
(d) Share the information within the organization only on a need-to-know basis.
(e) Treat and demonstrate that third parties confidential information is protected equally.
(f) Have an exit interview with terminated employees. During the interview highlight/
refresh their memory, on their obligations with regards to the non-disclosure
agreement they have signed, on keeping information that had access to during their
employment as confidential, it is okay to share best-known-methods with the next
employer but under no circumstances can the employee share trade-secrets. Also,
the fact that the next employer would understand that the employee cannot share
some information because it is confidential.
(g) The organization may also tailor a trade secret acknowledgment form which
terminating employee could sign-off before leaving. This form primarily helps in
enumerating the trade secrets that the employee is aware of during his employment.
(h) Other usual security measures of identifying sensitive areas, having certain areas
with restricted access, pass-words, badges, document retention / destruction policy,
visitor control systems etc.

35


REFERENCES
1. Practical Intellectual Property Compiled and edited by DLA Piper , Published by
Thomson, Sweet and Maxwell, Year of Publishing- 2011

2. Intellectual Property Law, Author-Lionel Bently, Brad Sherman, Published by -
Oxford University Press Inc., New York, Year of Publishing- 2001

3. Licensing Intellectual Property: Law & Management, Author- Raman Mittal,
Published by -Satyam law International ,Year of Publishing- 2011

4. The Law of Trade Secrets and Personal Secrets 2nd ed , Authors- Robert Dean,
Tony Thomas Publisher: Thomson Reuters Australia

5. Managing Intellectual Property , Author - Vinod V. Sople, Published by - Prentice-
Hall of India Pvt. Ltd., Year of Publishing 2006

6. The Business of Industrial Licensing , Author - Patrick Heam, Gower Publishing
Company ltd., Year of Publishing 1986

7. Cases and Materials on Intellectual Property , Author - William Cornish,
Published by - Sweet and MaxwellLtd., Year of Publishing - 2006

8. Wikipedia. http://en.wikipedia.org/wiki/Main_Page

9. WTO website. - http://www.wto.org
10. Intellectual Property - David Bainbridge - Pearson Longman- 2009 edition
11. Intellectual Property Margreth Barrett Aspen Publishers 2008 Edition
36


12. Intellectual Property, A reference Handbook Aaron Schwabach ABC-CLIO Inc.
2007 edition
13. Intellectual Property Economic and Legal Dimensions of Rights and Remedies Roger
D. Blair, Thomos F.Cotter Cambridge University Press 2005 edition
14. Protecting trade secrets, Nishan Swais, Self-Counsel Press, Jan-1996
15. Securing Intellectual Property: Protecting Trade Secrets and Other Information Assets,
Butterworth-Heinemann, Dec 2008
16. Protecting and profiting from trade secrets, Practicing Law Institute, 1975
17. Intellectual Property: Patents, Trademarks, Copyrights and Trade Secrets, Entrepreneur
Press, Oct-2007
18. Trade Secrets: How to Protect Your Ideas and Assets, James Pooley, Osborne/McGraw-
Hill, 1982

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