This Article is written by Devang Shukla, TRADE SECRET LAWS , Atal Bihari Vajpayee School of Legal Studies  

Abstract – The Trade Secret Bill 2024 in India aims to fortify trade secret protection against cyber threats and industrial espionage by defining trade secrets, expanding legal frameworks, and enforcing stricter penalties. It mandates security measures, employee training, and NDAs, aligning with international standards to foster innovation and economic growth.

Introduction – The laws on trade secrets guard the private information of organizations that offer them an advantage over their rivals. A trade secret can include anything from sole proprietorship recipes and production techniques to marketing plans or client records. In order to qualify for any kind of legal protection under the guise of this kind, it must be worth money because of its concealed nature and steps taken by that particular establishment so as to prevent outside parties from accessing it. These statutes are crucial as they hinder competitors from pilfering or utilizing a firm’s intellectual property without authorization. Company usually take legal measures against anyone who mishandles or divulges trade secrets, requesting them to refrain from doing so and also demanding restitution for the damages caused.

What constitute a Trade Secret – 

Trade secret is any confidential business information that provides a company with a competitive edge. To be legally considered a trade secret, three main criteria must be met:

1. Secrecy: The information must not be generally known or easily accessible to people who typically deal with such information. This means it must be kept confidential within the company and not disclosed to the public.
2. Economic Value: The information must provide some economic benefit to the business because it is not known to competitors. This value can come from the information’s ability to improve efficiency, reduce costs, enhance products, or otherwise give the business an advantage in the marketplace.
3. Efforts to Maintain Secrecy: The business must take reasonable steps to keep the information secret. This can include measures such as restricting access to the information, using confidentiality agreements with employees and business partners, and implementing security protocols.

Examples of trade secrets include formulas, recipes, manufacturing processes, customer lists, marketing strategies, and proprietary software. By protecting these secrets, businesses can safeguard their unique methods and innovations from being exploited by competitors. If a trade secret is misappropriated, the business can seek legal remedies to prevent further misuse and recover damages. 

Legal Standards for Trade Secret Protection

 Legal requirements for protection of trade secrets differ from jurisdiction to jurisdiction; however, almost all of them follow a few base criteria to have any protection for trade secrets. What follows is a basic outline of those standards:

1. Definition of Trade Secrets: A trade secret is characterized in terms of secrecy and having economic value. The information should be kept secret and have to provide an economic advantage to a business. The legal definition normally encompasses practices, formulas, processes, designs, or compilations of information.
2. Reasonable Measures: The owner is under obligation to take some reasonable measures to maintain the secrecy of the information. This would also involve physical, administrative, and contractual safeguards like confidentiality agreements, restricted access, secure storage, etc.
3. Misappropriation: It is the legal requirement that creates misappropriation or wrongful acquisition of trade secrets. Misappropriation usually involves some improper means whereby there is unauthorized acquisition, use, or disclosure of trade secrets obtained through improper means such as theft, bribery, or breach of a confidentiality agreement.
4. Legal Framework: The Defend Trade Secrets Act is the central federal law in the US, providing a uniform level of protection for trade secrets and giving federal court remedies. The majority of states also adopted the Uniform Trade Secrets Act, providing the similar framework at the level of the state, though it may differ slightly on details.
5. Proof of Ownership and Value: To enforce trade secret protection, it has to be shown by a business that the information is, in fact, a trade secret; measures have been adopted to keep it confidential; and such information was misappropriated. Courts will review the efforts taken to protect secrecy and economic value derived from the trade secret.

Such legal benchmarks may help businesses protect some of the most important pieces of confidential information and look for legal redressal if their trade secrets were utilized or divulged without consent

Federal vs. State Trade Secret Laws The Role of the Defend Trade Secrets Act (DTSA) State-Level Protections under the Uniform Trade Secrets Act (UTSA)

Federal vs. State Trade Secret Laws

Trade secrets are protected under federal and state laws in the United States. Now, how these laws come to play is what a business has to understand to be able to safeguard its confidential information.

How DTSA Works – The Defend Trade Secrets Act is a federal law enacted in 2016. One of its principal objectives is to establish a harmonized legal system for trade secret protection throughout the United States. Prior to DTSA, all states had their independent statutory laws governing trade secrets. This presented a dilemma for companies that conducted business in multiple states.

Some of the major characteristics associated with DTSA are:

– Federal Court Access- The DTSA gives businesses the statute to file actions in federal court if there is any theft or misappropriation of their trade secrets. The premise of this is that different states may end up rendering decisions and granting cures that are inconsistent.

– Remedies for Misappropriation- The DTSA provides that remedies available for business against misappropriation include injunctive relief, trying to prevent further misappropriation of the trade secret, and monetary damages for loss suffered.

– Whistleblower Protection- The DTSA protects individuals who disclose trade secrets to the government to report illegal activities from being retaliated against by their employers.

State-Level Protections under the Uniform Trade Secrets Act

The Uniform Trade Secrets Act is a model law that has been adopted, with minor modifications in most states. It is an effort at creating uniformity in the protection awarded to trade secrets among states.

The major highlights of UTSA are:

– Definition of Trade Secrets: UTSA provides clear and consistent definitions for what comprises a trade secret, hence allowing businesses to know what information is protected.

– Misappropriation Standards : UTSA clearly stipulates those actions that count as misappropriation by improper acquisition, use, or disclosure of trade secrets.

– State Remedies: Similar to the DTSA, the UTSA includes injunctions and damages, though applied at the state level.

In summary, the DTSA makes available a federal avenue for trade secret protection, while the UTSA ensures that states have uniformity in standards. Businesses may choose to avail themselves of remedies under federal or state law, whichever is deemed more appropriate under the circumstances. The dual system generally allows for comprehensive protection of trade secrets throughout the United States.

Best Practise for Trade secrets – 

Protecting trade secrets is crucial for maintaining a competitive edge in business. To ensure that confidential information remains secure, businesses should follow several best practices.

First, it is essential to identify and clearly document what constitutes a trade secret within the organization. This list should be periodically updated as new information and processes develop. Implementing strong access controls is also vital. Only employees who need access to trade secrets for their work should have it, and digital protection measures like password protection and encryption should be in place to limit access to sensitive information.

Non-disclosure agreements (NDAs) are a key tool in safeguarding trade secrets. Employees, independent contractors, and business partners should sign NDAs before accessing trade secrets. These agreements must clearly define what is considered confidential information and outline what constitutes unauthorized disclosure.

Employee training is another critical aspect. Regular training sessions should be conducted to educate employees on how to protect trade secrets and what their responsibilities are. Employees should also be made aware of the possible legal and financial consequences of misappropriating trade secrets.

Monitoring and auditing access to trade secrets is essential. Regular monitoring should be in place, and logs of all access to sensitive information should be maintained, recording who accessed the information and when. Both physical and digital environments need protection. Paper files containing trade secrets should be stored in locked areas with restricted access, while digital information should be safeguarded with robust cybersecurity measures against hacking or unauthorized access.

Having a response plan for any misappropriation or breach of trade secrets is crucial. Employees should know how to report suspected breaches, and there should be a clear process for investigating and addressing such reports. Exit procedures for departing employees should ensure that all confidential information is returned, access is disabled, and company devices are retrieved immediately upon termination. Employees should also be reminded of their continuing obligation to maintain the secrecy of trade secrets.

When collaborating with external partners, share only the minimal information necessary for the collaboration. Agreements should include provisions protecting trade secrets, and technologies like virtual data rooms can be used to track and limit access during collaborations.

Regular consultation with legal experts is important to ensure that protective measures comply with current trade secret laws. Legal agreements and policies should be reviewed and updated regularly to maintain robust protection. Following these guidelines can significantly reduce the risk of trade secret misappropriation and ensure that highly valued information remains confidential.

Trade Secret misappropriation with case law 

 Trade Secret Misappropriation: A Case Law Example

Trade secret misappropriation occurs when someone wrongfully acquires, discloses, or uses a company’s trade secrets. A notable example is the case of ‘DuPont v. Kolon Industries’

Background

In 2009, E.I. du Pont de Nemours and Company (DuPont), a major chemical company, filed a lawsuit against Kolon Industries, a South Korean company, alleging that Kolon had misappropriated trade secrets related to DuPont’s Kevlar aramid fiber technology.

The Allegations

DuPont claimed that Kolon hired a former DuPont employee who had access to confidential information about Kevlar. This employee provided Kolon with proprietary information about the manufacturing process, which Kolon used to develop its own competing aramid fiber product.

Legal Findings

The court found that Kolon had intentionally recruited former DuPont employees to gain access to trade secrets. Evidence showed that Kolon executives encouraged these employees to disclose confidential information and used this information to improve Kolon’s products.

Court Decision

In 2011, a jury awarded DuPont $919.9 million in damages, one of the largest trade secret misappropriation awards at the time. The court also issued an injunction preventing Kolon from producing aramid fiber for 20 years. This case highlighted several key aspects of trade secret misapproprDecisio

1. Improper Acquisition – Kolon acquired DuPont’s trade secrets through former employees who had legal obligations to maintain confidentiality.

2. Use of Confidential Information – Kolon used the acquired trade secrets to develop competing products, thereby gaining an unfair advantage.

3. Legal Remedies- The substantial monetary award and injunctive relief demonstrated the serious consequences of misappropriating trade secrets.

Impact

The DuPont v. Kolon case underscores the importance of safeguarding trade secrets and the severe penalties for misappropriation. It also highlights the need for companies to have robust security measures and legal agreements in place to protect their confidential information. By enforcing these protections through legal action, companies can deter potential misappropriators and protect their competitive edge.

Non-Disclosure Agreements 

A non-disclosure agreement (NDA) is necessary to protect trade secrets and other confidential information within an organization. This legal agreement ensures that employees, contractors, and business associates are legally bound to maintain the confidentiality of the information they receive By establishing clear expectations and legal obligations, NDAs help prevent the unauthorized disclosure and use of sensitive information. Generally, an NDA consists of two parties: the disclosing party, who shares confidential information, and the receiving party, who receives this information For an NDA to be legally binding, both parties must agree to its terms on.

An effective NDA must include several key elements to ensure complete coverage. It should clearly define what constitutes confidential information, which can include trade secrets, business processes, customer names and personal information. They must specify the scope of confidentiality, explain what the receiving party can and cannot do with the information, and the duration of the confidentiality obligation, which may extend beyond business hours or business relationship The NDA must also identify any exemptions from confidentiality obligations , such as information already in the public domain or information developed by the supplying party itself. Furthermore, the consequences of a breach of the NDA should be broad, including the possibility of legal action, monetary penalties, and injunctive relief to prevent further disclosure including the disclosure of access

To be valid, an NDA must meet certain legal requirements. It should be clear, specific. 

Trade Secret Bill, 2024 – 

The Trade Secret Bill 2024 in India aims to strengthen the protection of trade secrets amid rising cyber threats and industrial espionage. This legislation provides clearer definitions of what constitutes a trade secret and expands the legal framework to cover a broader range of confidential business information. It imposes stricter penalties for misappropriation and unauthorized disclosure, ensuring robust deterrents against such actions.

Under the bill, companies are required to adopt comprehensive security measures, including advanced encryption, restricted access policies, and regular audits. It mandates regular employee training on trade secret protection and underscores the importance of non-disclosure agreements (NDAs) with employees, contractors, and business partners. The bill also introduces a streamlined process for reporting and investigating trade secret theft, enhancing cooperation between businesses and law enforcement agencies.

To address global competition, the Trade Secret Bill 2024 aligns India’s trade secret laws with international standards, facilitating cross-border protection of intellectual property. By bolstering legal safeguards and encouraging best practices, the bill aims to create a secure environment for businesses to innovate and maintain competitive advantages. This legislation underscores the Indian government’s commitment to protecting intellectual assets, fostering economic growth, and ensuring the integrity of Indian businesses in the global market.

In conclusion, protecting trade secrets is essential for maintaining a competitive edge and safeguarding a business’s valuable information. By clearly identifying trade secrets, implementing strong access controls, and utilizing non-disclosure agreements, companies can significantly reduce the risk of unauthorized disclosure. Regular employee training, monitoring, and auditing, along with robust physical and digital security measures, further strengthen this protection. Developing response plans for breaches and ensuring secure exit procedures for departing employees are also crucial. Collaborating cautiously and consulting legal experts regularly ensure that protective measures remain effective and compliant with current laws. Adhering to these best practices helps businesses keep their confidential information secure and sustain their competitive advantage in the market.

Reference –

Protection of trade secrets and confidential information in India and global trends( August 9, 2022) https://blog.ipleaders.in/protection-of-trade-secrets-and-confidential-information-in-india-and-global-trends/

Nandan Pendsey ‘Trade Secrets India’ (Feb 18, 2021) https://www.azbpartners.com/bank/trade-secrets-india/#:~:text=How%20a%20’trade%20secret’%20is,action%20for%20breach%20of%20confidence

Vikrant Rana, Gaurav Goswami ‘Safeguarding Secrets: 22nd Law Commission’s push for Trade Secrets in India’ (14th May, 2024) https://www.google.com/amp/s/www.barandbench.com/amp/story/law-firms/view-point/safeguarding-secrets-22nd-law-commission-push-for-trade-secrets-in-india