1. Partner , LEX ORBIS IP PRACTICE
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.

2. 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.

3. 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.

4. 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?

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

6. Provides competitive advantage Potential to make money
TRADE
SECRET
Provides competitive advantage
Potential to make money
Kept confidential

7. TRADE SECRET Technical & scientific information Financial information
Negative information
Commercial information

8. 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Marketing plans, unpublished promotional material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

9. Question 2 WHAT MAKES SOMETHING A TRADE SECRET ?
When do you have legal protection?

10. Three essential legal requirements:
1. The information must be secret
2. It must have commercial value because it’s secret
3. Owner must have taken reasonable steps to keep it secret

11. 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

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

13. 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

14. 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

15. in advance all trade secrets developed during employment or commission
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

16. Question 3 When can you seek Legal Remedy?

17. 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

18. 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.

19. Reported Cases on Trade Secrets21
Laws relied on

20. 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.

21. 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 employer’s 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.

22. 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 plaintiff’s 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.

23. 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 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the ‘spring board’ doctrine.

24. 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

25. 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 employer’s 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.

26. 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 plaintiff’s 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.

27. 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 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the ‘spring board’ doctrine.

28. 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

29. What is lawful and Not? 1. Reverse engineering is lawful.
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

30. TS protection provides no exclusivity !

31. Question 4 HOW ARE TRADE SECRETS LOST OR STOLEN ?

32. A Growing Problem. Why Does It Occur?
Way we do business today (increased use of contractors, temporary workers, out-sourcing)
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

33. 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

34. 80% of trade secret loss departing or disgruntled employees
< employees, contractors, trusted insiders!
departing or disgruntled employees
intentional (malicious)
inevitable (knowledge acquired)
by ignorance

35. Question 5 HOW TO PROTECT YOUR TRADE SECRETS?

36. 1. Identify trade secrets
Accurate record keeping is important.
Document retention system and Docketing Policy

37. 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?

38. 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

39. Monitor compliance, prosecute violators
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

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

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

42. 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

43. 6. Restrict public access to facilities
Log and visitor’s pass
Accompany visitor
Sometimes NDA/CA
Visible to anyone walking through a company’s premises
type of machinery, layout, physical handling of work in progress, etc
Overheard conversations
Documents left in plain view
Unattended waste baskets

44. 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

45. 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

46. 2. Current employees 3. Departing 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

47. 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

48. Question 6 MAY TRADE SECRETS BE SOLD OR LICENSED?

49. SALE LICENSE Most TS sales occur as part of the sale of the business
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

50. TS Licensing Definition of the secret subject matter Permitted use
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

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

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

53. 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

54. 4. Specific trade secret laws
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

55. Remedies 1. Injunction – Temporary or Perpetual 2. Damages
3. Search & Seizure order
4. Precautionary impoundment

56. Question 8 PROTECTING INVENTIONS: TRADE SECRETS OR PATENTS?

59. 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

60. Strategic business decision
INNOVATIVE IDEA
Secret !
Initially
Later stage
Not patentable
patentable
patent TS
Strategic business decision TS TS
Part f the idea

61. Things to bear in mind (if patentable)
2. Choice between patent or TS must be made both from legal and business perspectives
(if patentable)

62. 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 one’s 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

63. 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

64. 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

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

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

67. 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

68. Thank you