Trade secrets vs. confidential information


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Trade secrets vs. confidential information

  1. 1. By S.R. MYTREYI Patents Dept
  2. 2. What is a trade secret? <ul><li>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. </li></ul><ul><li>The precise language by which a trade secret is defined varies by jurisdiction (as do the particular types of information that are subject to trade secret protection). However, there are three factors that, although subject to differing interpretations, are common to all such definitions: a trade secret is information that: </li></ul><ul><li>is not generally known to the public; </li></ul><ul><li>confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the value of the information itself); </li></ul>
  3. 3. contd… <ul><li>is the subject of reasonable efforts to maintain its secrecy. </li></ul><ul><li>By comparison, under US law, &quot;A trade secret, as defined under 18 U.S.C.   § 1839 (3) (A), (B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known.&quot; </li></ul>
  4. 4. Uniform Trade secrets Act <ul><li>Trade secrets are defined broadly under the Uniform Trade Secrets Act to include: </li></ul><ul><li>“ Information, including a formula, pattern, compilation, program, device, method, technique, or process, that is both of the following: (i) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. ” </li></ul>
  5. 5. contd… <ul><li>The sine qua non of a trade secret, then, is the plaintiff’s possession of information of a type that can, at the possessor’s option, be made known to others, or withheld from them, i.e., kept secret. Trade secret law does not protect ideas as such. Indeed a trade secret may consist of something we would not ordinarily consider an idea (a conceptual datum) at all, but more a fact (an empirical datum), such as a customer’s preferences, or the location of a mineral deposit. </li></ul><ul><li>In either case, the trade secret is not the idea or fact itself, but information tending to communicate (disclose) the idea or fact to another. Trade secret law, in short, protects only the right to control the dissemination of information. </li></ul>
  6. 6. Historical background of trade secrets: <ul><li>The law of trade secrets had its origin in the common law and was imported into the United States from England in the landmark case of Peabody v. Norfolk, here the court held that the owner of a secret of trade or manufacture is “entitled to protection against those who in, or with knowledge of, violation of contract and breach of confidence, undertake to disclose it or to reap the benefit of it.” </li></ul>
  7. 7. Pictorial representation of Trade secrets
  8. 8. Necessity for Trade secret protection <ul><li>With the increase in cutthroat competition in every field, businesses must ensure that they adequately protect their business processes, technical know-how and confidential information from competitors. Whilst all businesses have some information that is valuable and which they endeavour to keep secret, they are unaware of how to legally protect such information. Just as other intellectual property rights, trade secrets can be extremely valuable to a company’s growth and sometimes even critical for its survival. In fact, it is only when some rival contender improperly obtains the trade secrets, do companies realise their significance. </li></ul>
  9. 9. Tools for Trade secret protection <ul><li>Businesses must ensure that they protect their trade secrets from being misappropriated, sabotaged, lost or stolen. Some tools that they can adopt are outlined herein below: </li></ul><ul><li>Employment agreement : Depending upon their needs, businesses should include suitable confidentiality, non-disclosure and non-compete clauses in agreements with employees. These may include the type of information that is likely to be disclosed, the manner in which it should be used and restrictions on disclosure post-termination. </li></ul><ul><li>Trade Secret Policy : Such a policy is a must for businesses that heavily rely on their trade secrets. A basic step to develop such a policy is to identify and prioritize the business secrets based on their value and sensitivity.  Employees must be informed about the policy and consequences of its breach before they agree to abide by the policy and sign an acknowledgement to that effect. </li></ul><ul><li>Non-disclosure Agreements (NDAs) : Businesses can also enter into NDAs with third parties while discussing any business prospects and ventures. In this way, the third parties can be precluded from divulging any trade secrets. </li></ul>
  10. 10. contd…. <ul><li>Adequate Documentation : It is important for businesses to keep a track of the trade secrets that are developed and have sufficient records to show that the trade secret was developed by them and belongs to them. These records would be of evidentiary value in case of a dispute. It would also be useful for such businesses to conduct a trade secret audit at regular intervals to and keep up to date with any changes. </li></ul><ul><li>Security Systems : Access to trade secrets and confidential information may also be restricted to only select personnel who have to undergo proper security checks. In case of an electronic environment, the businesses should use adequate software programs, virus scans, firewalls and other security and authentication technologies to safeguard their trade secrets.  </li></ul>
  11. 11. What is Confidential Information? <ul><li>A person who receives valuable or sensitive secret information in confidence (&quot;confidential information&quot;) owes a duty known as &quot;a duty of confidence&quot; neither to disclose  nor make use of that information for any purpose other than that for which the disclosure was made without the consent. Should the receiver of such information (&quot;the confidante&quot;) threaten to do so, the person who imparted it to him or her is entitled to an injunction to restrain such unauthorized use or disclosure. </li></ul><ul><li>Confidentiality is an ethical principle associated with several professions (e.g., medicine, law, religion, professional psychology, and journalism). In ethics, and (in some places) in law and alternative forms of legal dispute resolution such as mediation, some types of communication between a person and one of these professionals are &quot;privileged&quot; and may not be discussed or divulged to third parties. In those jurisdictions in which the law makes provision for such confidentiality, there are usually penalties for its violation. </li></ul>
  12. 12. History of English Law of Confidentiality <ul><li>The modern English law of confidence stems from the judgment of the Lord Chancellor, Lord Cottenham,in which he restrained the defendant from publishing a catalogue of private etchings made by Queen Victoria and Prince Albert (Prince Albert v Strange). </li></ul><ul><li>However, the jurisprudential basis of confidentiality remained largely unexamined until the case of Saltman Engineering Co. Ltd. v Campbell Engineering Co. Ltd. , in which the Court of Appeal upheld the existence of an equitable doctrine of confidence, independent of contract. </li></ul><ul><li>In Coco v A.N.Clark (Engineers) Ltd [1969] R.P.C. 41, Megarry J developed an influential tri-partite analysis of the essential ingredients of the cause of action for breach of confidence: the information must be confidential in quality, it must be imparted so as to import an obligation of confidence, and there must be an unauthorised use of that information to the detriment of the party communicating it. </li></ul>
  13. 13. contd.. <ul><li>The law in its then current state of development was authoritatively summarised by Lord Goff in the Spy Catcher case. He identified three qualifications limiting the broad general principle that a duty of confidence arose when confidential information came to the knowledge of a person (the confidant) in circumstances where he had notice that the information was confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others. First, once information had entered the public domain, it could no longer be protected as confidential. </li></ul>
  14. 14. contd… <ul><li>Secondly, the duty of confidence applied neither to useless information, nor to trivia. </li></ul><ul><li>Thirdly, the public interest in the preservation of a confidence might be outweighed by a greater public interest favouring disclosure. </li></ul>
  15. 15. contd… <ul><li>The incorporation into domestic law of Article 8 of the European Convention on Human Rights by the Human Rights Act 1998 has since had a profound effect on the development of the English law of confidentiality. Article 8 provides that everyone has the right to respect for his private and family life, his home and his correspondence. In Campbell v MGN Ltd, the House of Lords held that the Daily Mirror had breached Naomi Campbell’s confidentiality rights by publishing reports and pictures of her attendance at Narcotics Anonymous meetings . </li></ul>
  16. 16. contd… <ul><li>Although their lordships were divided 3-2 as to the result of the appeal and adopted slightly different formulations of the applicable principles, there was broad agreement that, in confidentiality cases involving issues of privacy, the focus shifted from the nature of the relationship between claimant and defendant to (a) an examination of the nature of the information itself and (b) a balancing exercise between the claimant’s rights under Article 8 and the defendant’s competing rights (for example, under Article 10, to free speech). </li></ul><ul><li>It presently remains unclear to what extent and how this judge-led development of a partial law of privacy will impact on the equitable principles of confidentiality as traditionally understood. </li></ul>
  17. 17. Differences between Trade Secret and Confidential Information (Brown V. Rollet Bros. Trucking) <ul><li>The court made a distinction between access to an actual trade secret and less valuable confidential information, the latter not amenable to protection through a non-compete. In Brown, the dispatcher was given access to a rate sheet listing his ex-employer's shipping rate and fuel surcharges. That sheet was adjusted at various times - sometimes monthly, sometimes annually. Relying on long-standing Missouri precedent, the court found that this type of confidential information was not a trade secret. In so holding, the court specifically noted the key difference between the two legal concepts: confidential information is generally limited to a single or ephemeral event in the conduct of a business, whereas a trade secret is a process or device for continuous use in the operation of a business. With respect to pricing out a customer job, a trade secret can be found if the employer uses a specifically developed code or formula to churn out bids. However, as in the Brown case and in countless other fields, pricing information is often fleeting with sales managers given vast discretion to match a competing bid or adjust prices based on a fluctuating cost of materials. </li></ul>
  18. 18. Legal Framework in India <ul><li>There is no specific law in India that protects trade secrets and confidential information.  Nevertheless, Indian courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation. </li></ul><ul><li>In India it is possible to contractually bind a person not to disclose any information that is revealed to him/her in confidence. In one case, the Delhi High Court has also upheld that a claim that disclosure of information would amount to breach of confidence is not defeated by the fact that other people in the world already knew the information. The Supreme Court of India (i.e. the apex court) has also upheld a restrictive clause in an employment contract, which imposed constraints on the employee to not reveal or misuse any trade secrets that he or she has learnt whilst in employment. </li></ul>
  19. 19. contd….. <ul><li>The remedies available to the owner of trade secrets would be to obtain an injunction preventing a third party from disclosing the trade secrets, return of all confidential and proprietary information, and compensation for any losses suffered due to disclosure of trade secrets. </li></ul>
  20. 20. Conclusion <ul><li>Trade secrets and Confidential information are both legal tools for protecting both intellectual property and confidential information relating to a nation’s security or even an individual’s security. Judicious use of these legal tools is necessary as any unwarranted usage can result in great losses. </li></ul>