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09 trade secrets


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09 trade secrets

  1. 1. © Brain League IP Services Private Limited - 2011 1 TRADE SECRETS rade Secrets form part of most businesses. A trade secret, when present is generally very important for the growth and survival of the business. It affords competitive advantage to the business. The most common example of a well guarded trade secret is the formula for Coco Cola. By maintaining the formula as a trade secret, Coco Cola has been able to not only dominate but retain its position in the beverage market for more than hundred years. Meaning A trade secret may be any information such as a formula pattern, compilation, program, device, method, technique, or process and so on. Such information should have certain attributes in order to qualify as a trade secret These are: A. Independent economic value B. Not generally known C. Not readily ascertainable D. Reasonable efforts to maintain secrecy Independent economic value To qualify as a trade secret, the information should have independent economic value. It means that the information should have commercial or economic on its own without being dependant on other things. The information is generally said to have independent economic value if a competitor has to put in substantial amount of time and money to develop it. For example, a source code to GPS software for a mobile phone has independent economic value on its own and will quality this requirement. Not generally known To be protected as a trade secret the information should not be generally known. Generally known means that such information should not be common knowledge within the particular industry. T
  2. 2. © Brain League IP Services Private Limited - 2011 2 For example, a recipe to make sweet corn soup may be common knowledge in the hotel industry and thus may not qualify for trade secret protection. Not readily ascertainable In order to quality as a trade secret, the information should not be easily ascertainable by any person. It means that it should not be easy for any person to decipher the trade secret after looking at or combining the material available to the public. For example, a method for manufacturing a product will not qualify as trade secret if someone can know how to make it by simply examining the product. Reasonable efforts to maintain secrecy In order to qualify as a trade secret the information must be maintained as a trade secret using reasonable measures such as use of access cards, passwords, non disclosure agreements etc. Reasonable measures are considered to be measures which give a notice of secrecy and which are legally binding. Measures should be such that the put the person who comes in contact with the information a notice that the information is a trade secret and it has to remain a secret. Similarly the measures taken to maintain a trade secret must be legally binding i.e. measures should be valid in the eyes of the law. Some commonly used reasonable measures are non disclosure or confidentiality agreements, entry exit interviews, use of passwords, access cards, screening of employees, storing sensitive data under lock and key, information access to few employees etc. Misappropriation The violation of confidentiality relating to a trade secret is known as misappropriation. Misappropriation of trade secrets includes any of the following acts: Acquisition by improper means: Trade secrets are said to be misappropriated if they are acquired by improper means. Means other than the general practice of the particular industry is considered as improper means. Some examples of improper means are theft, bribery, misrepresentation, espionage etc. For example, if a company A implants an employee in company B in order to get trade secrets of company B then company A is liable for misappropriation of trade secrets
  3. 3. © Brain League IP Services Private Limited - 2011 3 Disclosure or use of a trade secret of another without express or implied consent: Disclosure or use of trade secret without oral or written consent of the owner is considered as misappropriation. For example, if Rohit and Rahul have similar business and Rohit comes across Rahul’s business methods which is maintained as a trade secret and uses it without Rahul’s knowledge. Such use is considered as misappropriation of Rahul's trade secret. Derived from or through a person who has utilized improper means to acquire it: If a person who acquires trade secret in a wrongful manner transfers it to another person, such transfer will be considered as misappropriation. For example, if Raju has legal access to trade secrets in a company and Mantri steals them from him when he visits Raju for a meeting, Mantri would be liable for misappropriation. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use: Where a person who has signed a non disclosure agreement breaches the same and passes the trade secret to a third party, such an acquisition by a third party would amount to misappropriation. For example, Chandan an employee with a company has access to trade secrets of the company and has signed a non disclosure agreement for the same. If, he sells the trade secret to Suryan, both Suryan and Chandan would be liable for misappropriation. Derived from or through a person who owed a duty to maintain secrecy: When an employee is under an obligation to maintain the proprietary information as a trade secret, if he breaches it, and passes the information to a third party, it amounts to misappropriation. For example, Vijay an employee with a software company sells software codes to a rival company. Such sale is considered as misappropriation. Accident or mistake: When a trade secret is obtained accidentally or by mistake, it will be considered as misappropriation if the party receiving the information is aware that the same is a trade secret. Remedies The following remedies may be available to a party aggrieved of trade secret misappropriation:
  4. 4. © Brain League IP Services Private Limited - 2011 4 Injunction Injunction means that the court will ask the accused party to refrain from further using the misappropriated trade secret. Injunction may be permanent or for a specific time period. Damages The court may order the party which misappropriated a trade secret to pay losses incurred by the owner of the trade secret as a result of such misappropriation. Account of Profits The party which has misappropriated the trade secret may be ordered to give the profits made by such party as a result of using the trade secret to the owner of the trade secret. Reasonable royalties The court may ask the party who misappropriated the trade secret to pay reasonable royalty at regular intervals as fixed by the court to the owner of the trade secret. Suggested Further Reading Trade Secret basics Trade Secrets Validity of Non compete covenants in India Is secrecy always possible? Integrating Secrecy and Exclusivity to gain competitive advantage – Secrecy obligations of employees Trade secrets and Bio technology Trade secret protection in India