Trade Secrets: Businesses’ plea for a new regime!

Trade Secrets: Businesses’ plea for a new regime!

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It was recently reported by Reuters that Amazon and Flipkart moved to the Supreme Court of India against the Competition Commission of India (“CCI”), to restrain the regulatory body from seeking disclosure of certain sensitive information from the companies. This approach to the Supreme Court has been necessitated by the fact that the information sought by the anti-trust body is categorised by the companies as trade secrets. Trade secrets is an emerging field within the umbrella of intellectual property rights (“IPR”), to protect confidential and sensitive information of businesses and market players from its competitors. Trade secrets has been defined under Article 39(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”) as information that

  1. secret in the sense that it is not … generally known among or readily accessible to persons”;
  2. has commercial value because it is secret”; and
  3. has been subject to reasonable steps … to keep it secret.

Most major jurisdictions such as Europe Union and United States of America have recognised and enacted legislations for the regulation of trade secrets as IPR. And while India recognised the need to protect confidential and sensitive information providing competitive advantage to the owner of such information (John Richard Brady vs. Chemical Process Equipment, AIR 1987 Del 372), any protection extended to trade secrets in India has been largely under principles of equity and laws of contract. The present system in India requires companies to enter into specific non-disclosure agreements with each person who is provided access to the trade secret for carrying out the business activities, such as employees. However, this does not protect the trade secrets to be necessarily disclosed before regulatory bodies such as CCI, as seen in the cases of Amazon and Flipkart.

The proceedings before CCI often require disclosure of the sensitive information to the anti-trust body for a proper resolution of anti-trust proceedings. And while the Indian anti-trust laws have certain in-built mechanisms to protect the sensitive information from being disclosed before the CCI, such as Section 57 of the Competition Act, 2002, the same are deemed inadequate. Section 57 provides for maintaining the confidentiality of information disclosed to the CCI during the course of the proceedings, or for any purpose under the Competition Act, and the same cannot be disclosed by the CCI without prior permission of the enterprise in writing. However, this provision has been watered down by Regulation 35 of the Competition Commission of India (General) Regulations, 2009. Regulation 35 requires the parties disclosing any information before the CCI, to file a request before it for the information to be treated as confidential and protected against disclosure. However, the final discretion lies before the CCI or the Director General of the Commission to accept or reject the request of confidentiality. Even when such requests are accepted by the CCI, the attitude towards such trade secrets are cavalier, at best. The track record of CCI in protecting such information has been less than adequate. The disregard shown by CCI to the confidentiality of such trade secrets was evidenced in the case of Lafarge India Ltd vs. Competition Commission of India (2015 SCC Online Comp AT 1120), where the Director General disclosed the confidential information even though the request for confidentiality under Regulation 35 and Section 57 was accepted. No penalties are given under either Section 57 or Regulation 35 for such disclosure of confidential information. Regulation 35 merely calls for the institution of disciplinary proceedings against an officer or employee of the CCI for such disclosure.

Lack of protection for trade secrets, coupled with an apathetic outlook of CCI towards confidentiality also hampers the anti-trust proceedings. Many companies and businesses are forced to commit wilful non-compliance of disclosure orders by CCI, in fear of public disclosure of such confidential information. Furthermore, forced disclosures of trade secrets also might have the unintended effect of the enterprise abandoning its operations in the country. This occurred in 1977, when the Indian Government sought compulsory disclosure and demanded Coca-Cola to hand over the formula of its famous drink. Instead of disclosing the trade secret to the Government, Coca-Cola chose to withdraw all its operations from India, returning only after almost a decade.

The lack of comprehensive trade secrets regime in India has also been recognised by the United States. In the recently released Annual Special 301 Report on Intellectual Property Protection by the Office of United States Trade Representative, India was placed in the Priority Watch List for, inter alia, lack of trade secrets protection. The Report mentions the National IPR Policy 2016, which identified trade secrets as an important area of study and research for future policy developments. However, no civil or criminal regime has been enacted since the publication of the policy in 2016. The Report recognises the protection of trade secrets in India under contract law, it also points out the glaring lacunae in this model. Such protection and remedies are only limited to situations where the parties have an existing contractual relationship. Furthermore, such cases are also struck by the challenge to the validity of the confidentiality clauses under Section 27 of the Indian Contract Act, 1872.

The absence of a robust regime for protection of trade secrets also leads to unnecessary and excessive litigation, such as seen in the Amazon and Flipkart’s case. The two companies initially approached the Karnataka High Court in hopes of fending off the CCI from seeking disclosure of trade secrets, which was dismissed by the High Court. This prompted the appeal before the Supreme Court of India. As stated earlier, such a vacuum in trade secrets protection also forces certain companies to willingly default on disclosure before regulatory bodies due to fear of the trade secrets being disclosed, hampering proceedings before such regulatory bodies.

The need in India for a legislation for protection of trade secrets is pressing. And while situations such as Coca-Cola’s might not be feasible in today’s world and economy, especially in a market with the potential of the Indian market, absence of protection for trade secrets might turn away potential investors in India. With the focus on improving India’s position in the World Bank’s Ease of Doing Business Index, and the promotion of Digital India scheme, a trade secrets protection regulation would go a long way in achieving such goals. It will not only reduce the burden of unnecessary litigation, but will build confidence of businesses that their sensitive information and assets will be protected within the Indian territory from being revealed to the competitors or public, leading to a loss of commercial and competitive advantage.

First step in this regard was taken by the Department of Science and Technology, with the introduction of draft legislation on the National Innovation Act of 2008. The preamble of this draft legislation read:

An Act to facilitate public, private or public- private partnership initiatives for building an Innovation support system to encourage Innovation, evolve a National Integrated Science and Technology Plan and codify and consolidate the law of confidentiality in aid of protecting Confidential Information, trade secrets and Innovation.

The draft legislation opted for the term “confidential information” instead of “trade secret”. However, the definition has combined the aspects of US definition (defining “confidential information” as “information, including a formula, pattern, compilation, program device, method, technique, or process”), while adopting the three standards of secrecy from the TRIPS Agreement as discussed above. It also recognises both contractual obligations as well as obligations in equity to maintain the confidentiality of the information. Furthermore, it also imposes the duty on courts and tribunals for the protection of such confidential information in suits involving such information. It prescribes such protections by way of protective orders, in-camera proceedings, filing of confidential information in sealed envelopes, etc.

While the idea behind this draft legislation is in the right direction, the reality still remains that India lacks any legislation on protection of trade secrets and confidential information.

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