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8 January 2007

WIPO CEHA SEMINAR


Presentation by

Manoj Pillai,
Partner , LEX ORBIS IP PRACTICE

Acknowledgement:This presentation contains textual and graphical matter from a WIPO Presentation on Trade Secrets.
This is intended to be a fair academic use of the contents from the earlier presentation .

What are trade secrets?


By keeping valuable
information secret, you can
prevent competitors from
learning about and using it and
thereby enjoy a competitive
advantage in the marketplace.

General principles:
Information that has commercial value
and that has been diligently kept
confidential will be considered a trade
secret (TS).
Owner will be entitled to legal
remedies against those who use it
without authorization, steals it, or
divulges it.

Contents of this Presentation


1. What qualifies as TS?
2. What makes something a TS?
3. When can you seek legal remedies?
4. How are TS lost or stolen?
5. How to protect your TS?
6. May TS be sold?
7. How is TS protection enforced?
8. If you have the choice: TS or patent?
9. What to bear in mind if you sign CA?

Question 1
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE
SECRET ?

TRADE
Provides
competitive
advantage
Potential to
make money

SECRET
Kept
confidential

Technical &
scientific
information

Financial
information

TRADE
SECRET
Commercial
information

Negative
information

Typical examples of TS

Hardware design
Software
Technical data about product performance
Pending patent applications
Business plans & strategies
New product names
Financial projections
Marketing plans, unpublished promotional material
Cost & pricing information
Sales data
Customer lists
Info re: new business opportunities
Personnel performance

Question 2
WHAT MAKES SOMETHING A
TRADE SECRET ?

When do you have


legal protection?

Three essential legal requirements:


1. The information must be secret
2. It must have commercial value because its
secret
3. Owner must have taken reasonable steps to
keep it secret

1. Secret
not generally known among or easily accessible to
persons within the circles that normally deal with this
kind of information
What is generally known in the industry?
matters of common knowledge
information you find at library, online database, trade journals,
patent information, etc
price list on website
Hardware design, software application

1. Secret
Not required that be known only by one person
e.g. based on supplier relationship, joint development agreement,
due diligence investigation, etc.

2. Commercial value
Must confer some economic benefit on the holder
This benefit must derive specifically from the fact that
it is not generally known (not just from the value of
the information itself)
How to demonstrate:

benefits derived from use


costs of developing the TS
licensing offers; etc.
actual or potential

3. Reasonable
steps
Under most TS regimes, you cannot have a TS unless
you have taken reasonable precautions to keep the
information confidential
Reasonable case by case
reasonable security procedures
Non-disclosure agreements (NDA)
such that the information could be obtained
by others only through improper means

Importance of proper TS management program

Caution: Who owns the TS?


TS (e.g. new technology) developed by
employee
TS developed by external contractor

To avoid disputes:

WRITTEN AGREEMENT
+

ASSIGN
in advance all trade secrets developed
during employment or commission

Question 3
When can you seek Legal
Remedy?

Enforcing TS in India
No legislation governing Trade Secrets

Protection by way of Contracts

Recognition of legal rights in Trade


Secrets by courts of law invoking the
equitable jurisdiction unclear as yet.

Past cases show attempts to combine


causes of action with violation of
statutory IPRs

Other statutes such as the IT Act is


relied on

Trade Secrets Contracts


The Specific Relief Act and the
Code of Civil Procedure are
relevant in enforcing contractual
obligations under a trade
secrecy agreement.
Contract Act governs the validity
and enforceability of
agreements in general.
Arbitration is the preferred route
to resolve disputes.

Reported Cases on Trade Secrets


21

Laws relied on

Indian Cases
John Richard Brady And Ors v. Chemical Process Equipments P. Ltd. and Anr
[AIR 1987 Delhi 372]
Issues Considered
(a) 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?
(b) 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.

Spring Board Doctrine


The Delhi HC relied on the Spring Board doctrine in this case.
The principle behind this doctrine is that an employee with knowledge of
a former employers 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.

The Swyamvar Case


Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]
The plaintiff conceived the idea of Swayamvar, a reality television show
concerning match making. 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 matchmaking
show using the plaintiffs concept. The plaintiff sought injunction.
Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) 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?
Court held that the concept developed and evolved by the plaintiff was a 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.

English Precedents
Most cases dealing with trade secrecy in India refer to British
case law.
In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the springboard doctrine,
cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the spring board doctrine.

Not many cases on trade secrets from a


property right perspective
Research revealed 21 reported cases relating to trade secrets

Of the 21 cases, 20 related to breach of confidentiality by employees

At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act

No reported case offers a definition of trade secrets

At least in 1 case, the Delhi High Court invoked a wider equitable jurisdiction
and awarded injunction even in the absence of a contract John Richard
Brady

Spring Board Doctrine


The Delhi HC relied on the Spring Board doctrine in this case.
The principle behind this doctrine is that an employee with knowledge of
a former employers 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.

The Swyamvar Case


Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]
The plaintiff conceived the idea of Swayamvar, a reality television show
concerning match making. 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 matchmaking
show using the plaintiffs concept. The plaintiff sought injunction.
Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) 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?
Court held that the concept developed and evolved by the plaintiff was a 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.

English Precedents
Most cases dealing with trade secrecy in India refer to British
case law.
In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the springboard doctrine,
cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the spring board doctrine.

Not many cases on trade secrets from a


property right perspective
Research revealed 21 reported cases relating to trade secrets

Of the 21 cases, 20 related to breach of confidentiality by employees

At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act

No reported case offers a definition of trade secrets

At least in 1 case, the Delhi High Court invoked a wider equitable jurisdiction
and awarded injunction even in the absence of a contract John Richard
Brady

What is lawful and Not?


1. Reverse engineering is lawful.
2. Discovery of the secret by fair and
honest means is lawful

3. Breach of obligations; breach of trust are


unlawful

4. Breach of Confidentiality agreement or


NDA is unlawful

5. Industrial espionage, theft, bribery, hacking


are illegal

Question 4
HOW ARE TRADE SECRETS
LOST OR STOLEN ?

A Growing Problem.
Why Does It Occur?
Way we do business today (increased use of
contractors, temporary workers, outsourcing)
Declining employee loyalty: more job changes
Organized crime : discovered the money to
be made in stealing high tech IP
Storage facilities (DVD, external memories,
keys)
Expanding use of wireless technology

Examples
Reverse engineering, independent discovery
Improper licensing
Burglaries by professional criminals targeting
specific technology
Network attacks (hacking)
Laptop computer theft
Inducing employees to reveal TS

80% of trade secret loss


< employees, contractors, trusted
insiders!

departing or disgruntled employees


intentional (malicious)
inevitable (knowledge acquired)
by ignorance

Question 5
HOW TO PROTECT
YOUR TRADE
SECRETS?

1. Identify trade secrets


Accurate record keeping is
important.
Document retention system and
Docketing Policy

Factors to determine if information is a TS


Is it known outside the company?
Is it widely known by employees and others involved
within the company?
Have measures been taken to guard its secrecy?
What is the value of the information for your
company?
What is the potential value for your competitors?
How much effort/money spent in developing it?
How difficult would it be for others to acquire, collect
of duplicate it?

2. Develop a protection policy


Advantages of a written policy:
Clarity (how to identify and protect)
How to reveal (in-house or to outsiders)
Demonstrates commitment to protection
important in litigation

Educate and train:


Clear communication and repetition
Copy of policy, intranet, periodic training &
audit, etc.
Make known that disclosure of a TS may result
in termination and/or legal action

Monitor compliance, prosecute violators

3. Restrict access
to only those persons having a
need to know
the information
computer system should limit each
employees access to data actually
utilized or needed for a transaction

4. Mark documents
Help employees recognize TS
prevents inadvertent disclosure
Uniform system of marking
documents
paper based
electronic (e.g. confidential button
on standard email screen)

5. Physically isolate and protect


Separate locked depository
Authorization
Access control
log of access: person, document reviewed
biometric palm readers

Surveillance of depository/company premises


guards, surveillance cameras

Shredding
Oversight; audit trail

6. Restrict public access


to facilities
Log and visitors pass
Accompany visitor
Sometimes NDA/CA
Visible to anyone walking through a
companys premises
type of machinery, layout, physical handling of work in
progress, etc

Overheard conversations
Documents left in plain view
Unattended waste baskets

7. Maintain computer secrecy


Secure online transactions, intranet, website
Password; access control
Mark confidential or secret (legend pop, or
before and after sensitive information)
Physically isolate and lock: computer tapes,
discs, other storage media
No external drives and USB ports
Monitor remote access to servers
Firewalls; anti-virus software; encryption

8. Measures for employees


1. New employees
Brief on protection expectations early
Obligations towards former employer!
Assign all rights to inventions developed in
the course of employment
NDA/CA
Non-compete provision

2. Current employees
Prevent inadvertent disclosure (ignorance)
Train and educate
NDA for particular task

3. Departing employees
further limit access to data
exit interview
letter to new employer
treat fairly & compensate reasonably
for patent work

9. Measures for third parties


Sharing for exploitation
Consultants, financial advisors,
computer programmers, website host,
designers, subcontractors, joint
ventures, etc.

Confidentiality agreement, NDA


Limit access on need-to-know
basis

Question 6
MAY TRADE SECRETS BE
SOLD OR LICENSED?

SALE
Most TS sales occur as part of the sale of the business

LICENSE
e.g. in combination with patent license
e.g. software license for highly specialized program
Advantage: additional revenues
Disadvantage: risk of disclosure (potential loss)
In some countries, restrictions

TS Licensing
Definition of the secret subject matter
what is to be kept confidential?
marked as such or broad clause?

Permitted use
disclosure to employees, professional advisors?
modification of technology?

Precautions to be taken
Exclusions

TS Licensing
Duration of secrecy obligations
Royalties
Sanctions
Should not be subject to alternative dispute
resolution

Question 7
HOW IS TRADE SECRET
PROTECTION
ENFORCED?
What can you do if
someone steals or
improperly discloses
your TS?

TS protection may be based on...


1. Contract law
When there is an agreement to protect the TS
NDA/CA
anti-reverse engineering clause

Where a confidential relationship exists


attorney, employee, independent contractors

2. Principle of tort / unfair competition


Misappropriation by competitors who have no
contractual relationship
theft, espionage, subversion of employees

3. Criminal laws
e.g. for an employee to steal trade secrets from a
company
e.g. unauthorized access to computers
theft, electronic espionage, invasion of privacy, etc.
circumvention of technical protection systems

4. Specific trade secret laws


US: Uniform Trade Secrets Act; Economic
Espionage Act

3. Information Technology Laws

Remedies
1. Injunction Temporary or Perpetual
2.

Damages

3.

Search & Seizure order

4.

Precautionary impoundment

Question 8
PROTECTING INVENTIONS:
TRADE SECRETS OR PATENTS?

T r a d e S e c r e ts

P a te n t s

n o r e g is tr a tio n

r e g is tr a tio n

- le s s c o s ts (b u t: c o s ts to k e e p s e c re t)
- im m e d ia te ly a v a ila b l e

- fe e s (re g is tra tio n + m a i n te n a n c e )


- ta k e s tim e to g e t p a te n t

c a n la s t lo n g e r

lim ite d in tim e

- b u t: lim i t e d to e c o n o m ic life
- u n c e rta in life s p a n : le a k o u t is irre m e d ia b l e

- g e n e ra lly : m a x 2 0 y
- b u t: c a n b e in v a l i d e d

n o p u b lic d is c lo s u r e

p u b lic d is c lo s u r e

- b u t: p ra c tic a l n e e d to d is c lo s e
- if le a k o u t: T S lo s t

- p u b lic a tio n 1 8 m a fte r filin g


- if P n o t a llo w e d : n o T S

T r a d e S e c r e ts

P a te n ts

L a r g e s u b je c t m a t t e r

S u b je c t m a t t e r li m it e d :

P r o t e c t io n o f v ir t u a lly a n y t h in g
m a in t a in e d in s e c r e t b y a b u s in e s s
t h a t g iv e s c o m p e t it iv e a d v a n t a g e

- R e q u ir e m e n t s : n e w , n o n o b v io u s , u s e f u l
- S c o p e : p a te n t c la im

O n l y p r o t e c t io n a g a i n s t
im p r o p e r a c q u i r e m e n t /u s e

E x c l u s iv e r ig h t s

M o r e d if f i c u l t t o e n f o r c e

" P o w e r to o l"

- s o m e c o u n t r ie s : n o la w s
- a b ilit y t o s a f e g u a r d T S d u r in g lit ig a t io n

m o n o p o ly t o e x p lo it
t h e in v e n t io n

Things to bear in mind


1. ANY innovative idea should be kept as a

secret in the beginning


to preserve option of patenting (or industrial
design) at later stage

INNOVATIVE IDEA
Initially

Later stage

Not patentable

patentable

Secret !
Strategic
business
decision

TS

patent

TS
Part f the idea

TS

Things to bear in mind


2. Choice between patent or TS must

be made both from legal and


business perspectives
(if patentable)

Things to bear in mind


3. If you apply for a patent, only give up
what is necessary
The decision to apply for a patent does not necessarily
require giving up all of ones TS!
However, patent application must contain :
enough to enable skilled person to practice the
invention
the best mode known to the applicant for
practicing the invention

Things to bear in mind


4. If you apply for a patent, your TS
may still be protected for a while
In most countries: only publication after
18m. You may withdraw application any time
< publication
In USA: possible to request non-publication
of the patent application until the patent is
issued

Things to bear in mind


5. Once patent published TS lost in
ALL COUNTRIES
patent documents easily accessible to
public
if patent application published and later
rejected you lose both patent and TS
rights

Question 9
WHAT TO BEAR IN MIND IF
YOU SIGN A CONFIDENTIALITY
AGREEMENT FOR A CLIENT ?

reasonable in scope
- defines precisely what information you
must keep confidential
- limited in time (max. 5 years)
- exceptions

The Art of Handling It!


Well-drafted contracts are the principal (if not the only) way to protect
trade secrets in India.
Be mindful provisions such as Sec. 27 of the Contract Act, Sec. 3 of the
Competition Act);
Ensure maximum back-to-back obligations with Independent
Contractors and Employees;
Avoid Litigating: Choose for arbitration to resolve disputes ensure the
contract qualifies for International Commercial Arbitration Choose
carefully the venue, the Rules of Arbitration, the Law governing the
enforcement of the arbitral award
In the event of a litigation focus on getting a favorable injunctive relief
at the interim stage itself.
Forum shopping. Choose the jurisdiction of courts in a city (like Delhi)
where the Judges know the nuances of IP laws

Thank you

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