Business Law and The Law Of Trade Secrets

Business Law and The Law Of Trade Secrets


Since technology has advanced a lot, we've seen that businesses have become much more important. At the same time, the way businesses do things and handle their activities has changed a lot too. To stay ahead and make their products stand out, businesses are now really good at using clever and new ideas that their competitors can't easily copy. Within the framework of the North American Free Trade Agreement (referred to as "NAFTA"), a trade secret is defined as "information with commercial value, not publicly available, and protected through reasonable measures to ensure its confidentiality."

Protecting trade secrets is crucial for a company to last long. Nowadays, businesses need to make sure their trade secrets are really well-guarded, especially when they bring in new important staff or launch new things. Trade secrets are all about keeping fair and honest practices that help with coming up with new ideas. The improper utilization of trade secrets by unauthorized entities stands as an unjust practice, often tantamount to breaching confidentiality and the intellectual property accords mutually entered into by the involved parties.

Unveiling The Concept of Trade Secrets

As explored earlier, a trade secret embodies any concealed knowledge or information concerning a company that remains beyond the grasp of the general populace, safeguarded by prudent measures to ensure its confidentiality. Furthermore, the Trade-Related Aspects of Intellectual Property Rights (referred to as "TRIPS") elucidate three pivotal prerequisites that information must satisfy to earn the status of undisclosed data or a trade secret:

1. Secrecy: This denotes that the information is not commonly disseminated or effortlessly accessible to individuals operating within the spheres closely associated with the specific category of information.

2. Commercial Value: The information becomes very valuable when it's treated as a trade secret, which is really important in business.

3. Preservation: The owners of the information must undertake rational measures to maintain its secrecy, thus solidifying its classification as a trade secret.

Depending on the nature of the enterprise and its operations, financial records, client databases, consumer particulars, and even organizational strategies and protocols can be classified as trade secrets.

Navigating Employee-Related Risks

Protecting the loyalty of employees is a clear challenge for companies that want to keep their intellectual property safe. Sometimes, employees might accidentally or intentionally share sensitive information, which is a big problem for businesses. Some enterprises, in a bid to gain an edge, resort to unscrupulous tactics involving their employees to pilfer projects from competitors, thereby gaining illicit access to rival businesses' classified information.

Fundamentally, an employee's post-employment capacity to leverage the skills and knowledge garnered during their tenure cannot be restrained by contractual stipulations. They possess the liberty to apply their freshly honed expertise for personal gain or the benefit of others. Nevertheless, on the flip side, an employee might misuse or exploit such privileged information acquired during their employment for nefarious purposes.

Within any business framework, an implicit "psychological contract" exists between employers and employees. While not legally binding, this psychological contract signifies a mutual set of expectations encompassing contributions and rewards from both parties.

In alignment with this principle, every employer anticipates that employees will act as custodians of the company's trade secrets, not merely during employment but even after severing ties. Within the context of today's fiercely competitive market, employers and organizations often enforce rigorous formal contracts, delineating the distinct responsibilities an employee bears in preserving the confidentiality of proprietary information and trade secrets owned by the respective company.

Framework For Safeguarding Trade Secrets in India

In a time when businesses are spreading worldwide to become global, it's becoming harder to keep corporate plans and secret information safe. An illustrative case in point is the digital age, wherein businesses regard technology as a trade secret, prioritizing it over patentable knowledge. This change is happening because competition has reached a point where coming up with new ideas quickly is a response to having access to knowledge. While this encourages fair competition, it also makes it really tough for smaller companies to do well when bigger companies benefit from these new discoveries.

Nations worldwide are acutely recognizing the imperative of safeguarding such secrecy and are endeavouring to integrate it into their legal frameworks. International agreements like TRIPS, GATT, and NAFTA have all played a part in improving how trade secrets are protected around the world.

Within the Indian context, the protection of trade secrets has hitherto relied upon established judicial precedents and legal principles rooted in equitable law, contract law, and torts. The absence of dedicated trade secret legislation has perennially left a grey area, yet judicial pronouncements have consistently aimed to establish and shield trade secrets, concurrently furnishing remedies for breaches of confidence.

Landmark Legal Precedents:

In the case of Daljeet Titus, Advocate v. M Alfred A Adebare and Ors., 130 (2006) DLT 330, the Delhi High Court made a notable observation that courts are obliged to intervene in order to avert breaches of trust that may arise independently of external parties. As a result, the High Court ordered Defendant to stop using Plaintiff's confidential information that they had been given access to. Defendant, who was previously associated with Plaintiff, was prohibited from utilizing agreements, due diligence reports, consumer contact lists, and other sensitive information that had come into their possession during the course of their engagement.

In the absence of specific legislation addressing the matter, Indian Courts and Tribunals have unequivocally demonstrated their intent to safeguard trade secrets under the umbrella of common law, thereby ensuring the welfare of Indian enterprises.

In the case of John Richard Brady and Ors v. Chemical Process Equipment P Ltd and Anr, AIR 1987 Delhi 372, the Delhi High Court opined that upholding justice necessitates curbing the Defendants' potential misuse of the know-how, specifications, and technical insights related to the Plaintiff's organization. These confidential details had been shared with the Defendants under the explicit condition of stringent confidentiality.

Interplay Of Trade Secrets and Contract Law

The nexus between contract law and trade secrets is virtually inseparable, with their convergence being inherent and evident. This interplay becomes particularly pronounced through the prevalent utilization of non-compete clauses in contracts. Importantly, these clauses are often included in employment contracts. They limit employees from working for competitors or engaging in competitive activities, which can greatly affect how easily employees can change jobs and how effective they are in their roles.

A case that exemplifies this interrelation is Bombay Dyeing & Manufacturing Co Ltd v. Mehar Karan Singh, Notice of Motion No.4248 of 2008 In Suit No.3313 of 2008. In this instance, the Bombay High Court delineated specific precautions incumbent upon trade secret holders as a prerequisite for information to be designated as a trade secret.

Moreover, the High Court emphasized that organizations ought to employ confidentiality measures that are conspicuous to external observers, thereby unmistakably signalling their intent to preserve secrecy. Paradoxically, when the possessor of a trade secret voluntarily divulges it, the very essence of its "trade secret" classification is diluted. However, owners of trade secrets can strategically navigate this risk through the effective use of contract law.

By making really detailed agreements that say people can't share certain information, trade secret owners can share their valuable knowledge without worrying too much. This helps them keep their secrets safe while still letting others know what they need to.

Interrelation Of Trade Secrets and Intellectual Property Rights

In the Indian context, Intellectual Property Rights (referred to as "IPR") are inherently territorial, and the extent of protection extended to trade secrets exhibits variation across different domains. Attempting to classify what Indian Courts consider as confidential or constituting a trade secret proves to be a complex task.

As trade secrets assume a pivotal role in the contemporary landscape, they have garnered heightened attention and emerged as a preferred form of intellectual property. Nevertheless, devising trade secret legislation that aligns seamlessly with the realm of IPR presents certain challenges.

Intellectual Property Rights (IPR) cover various things like copyrights, trademarks, patents, and now, more often, trade secrets. But there's something important to note: there's no specific law just for trade secrets. Revealing trade secrets puts the owner's rights at risk and takes away the secret's value. This makes it hard to protect trade secrets as we do with patents, trademarks, or copyrights.

Trade secrets are private, and since there's no complete law for them, it's tough to protect them properly. This creates unique challenges when trying to keep these important assets safe, within the bigger category of intellectual property rights.

Resourses for Trade Secret Breaches

In instances of disputes caused by trade secret breaches, available remedies commonly encompass injunctive relief or financial restitution. However, crafting an initial dispute resolution framework that harmonizes practicality with the notion of irretrievable damage is of paramount importance.

It's noteworthy that in several instances, the grant of an injunction has been declined due to the frailty of the prima facie grounds presented. Also, the courts have decided that if someone is asking for fair help, they should be honest and share important information to prove their case.


1. Comprehensive Trade Secret Legislation: Given the evolving business landscape and the importance of protecting intellectual property, policymakers should consider drafting and implementing dedicated trade secret legislation for dispute resolution. This legislation should provide clear definitions, standards for protection, and a grievance redressal mechanism for legal recourse in cases of trade secret breaches.

2. Awareness and Training: Businesses should invest in educating their employees and stakeholders about the significance of trade secrets and how to handle confidential information. This can help foster a culture of confidentiality and reduce the risk of inadvertent disclosures.

3. Stronger Non-Disclosure Agreements (NDAs): Non-disclosure agreements are vital tools in safeguarding trade secrets. Businesses should carefully draft NDAs to ensure they are comprehensive, clearly define confidential information, and establish enforceable obligations.

4. Balancing Non-Compete Clauses: Having rules that prevent employees from competing with their former company is important to keep trade secrets safe. But it's also important to make sure employees can still find good jobs. Lawmakers and businesses need to cooperate to make fair rules about how these restrictions should work.

5. Collaboration Between Legal and Technical Teams: Effective protection of trade secrets requires close collaboration between legal teams and technical experts. Businesses should encourage regular communication between these departments to identify, classify, and protect trade secrets.

6. International Harmonization: With businesses expanding globally, efforts should be made to harmonize trade secret laws internationally. This can help prevent conflicts of law and ensure consistent protection across borders.

7. Incentives for Reporting Breaches: Encouraging employees to report potential breaches by establishing confidential reporting channels can help businesses address issues proactively and minimize the impact of a breach.

8. Rapid Legal Action: Courts should expedite legal proceedings in cases of trade secret breaches to ensure timely resolution and prevent irreparable harm. By means of various online dispute resolution mechanisms, the processes can be made faster and more efficient.

9. Innovation-Friendly Environment: Governments should foster an environment that encourages innovation and protects trade secrets, striking a balance between public disclosure through patents and private protection through trade secrets.

10. Ongoing Review and Adaptation: Trade secret laws should be regularly reviewed and adapted to keep pace with technological advancements and changing business practices.