Proposed Indian law to protect Trade Secrets

The Law Commission of India (LCI) has recently recommended a new trade secrets law for India. The LCI took into account existing principles of common law, equity, and judicial precedents. The business community should provide feedback to the government and persuade the government to enact this law.

1.???? Salient features:

1.???? The law is based on principles of lawful control and misappropriation, rather than ownership.

2.???? Control means the ability to use and disclose the trade secret. This definition would need some tweaks. It should include the element of lawful possession.

3.???? The law does not mandate or provide for the registration of trade secrets. Thus, the holder will need to demonstrate through evidence that it was in control of a trade secret.

4.???? The trade secret definition has four ingredients: information not widely known or accessible to relevant persons; has commercial value due to secrecy; has been protected through reasonable steps; its disclosure is likely to cause damage to the holder. Thus, in every case, the holder has to satisfy the courts of these ingredients. From the report, it appears that the intention is to cover a wide range of information as a trade secret. But the definition needs to be redrafted to capture this intent.

5.???? There are two exclusions from the definition of a trade secret: (i) experiences and skills acquired by an employee in the course of normal professional practice (this is to protect employees); (ii) any information disclosing a violation of any law. The enterprises will need to draft appropriate employment contracts to ensure that the employees do not misuse these provisions.

6.???? The holder of a trade secret has rights to use, disclose, and license the trade secret; and to sue in respect of misappropriation of the trade secret, to prevent further misappropriation or disclosure of the trade secret in the public domain. As such, even now, the holder of trade secrets is free to use, disclose, and license. This law is giving statutory recognition to an existing right. The more important right is a statutory right to sue for misappropriation.

7.???? The definition of misappropriation of trade secrets is limited to (i) acquisition of the trade secret by a person without the holder’s consent, unauthorized access to, appropriation of, or copying or through a practice which may not be deemed an honest commercial practice, (ii) use/disclosure of the trade secret without the holder’s consent wherein the trade secret is acquired unlawfully, or through the breach of a confidentiality agreement, or through the breach of any other contractual arrangement limiting the use of the trade secret (iii) acquisition, use, or disclosure of a trade secret by a person who knows that point (ii) has been violated in relation to that trade secret.

The exceptions to misappropriation include disclosure of trade secrets (i) to expose an unlawful act/professional misconduct (this was included to protect whistleblowers), and (ii) in good faith to protect public interests.

8. The law recognizes that trade secrets may be lawfully acquired through independent discovery and reverse engineering, etc. Thus, it does not provide a patent-like negative right.

9.???? A suit for misappropriation of a trade secret is required to be filed before Commercial Courts. In such a suit, the court is required to preserve the secrecy of the subject matter by prescribed reasonable means.

10.? Reliefs available in the suit: (i) injunction (including ex-parte), (ii) damages or account of profits, (iii) an order for surrender and/or destruction of material embodying trade secrets, (iv) an order for recall, withdrawal, permanent removal, destruction of goods or products which are based on the misappropriated trade secrets, (v) costs. The interlocutory orders include orders for document discovery, preservation of evidence, etc. It would be important to also add a remedy to disclose names of third parties to whom the trade secrets have been further disclosed.

11.? Like other IP laws, this law also has provision for groundless threats of legal proceedings.

12.? The law also provides for a compulsory license of a trade secret (CL). In case of circumstances of national emergency or extreme urgency involving substantial public interest, including situations of public health emergency, national security, etc., the Central Government may order a CL to a third party or Government. The license will be subject to a license fee and other conditions as may be prescribed as well as confidentiality obligation. The license may be terminated when the conditions mentioned above cease to exist.

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