Trade-secret: an interesting form of Intellectual Property

Bindu Sharma, Origiin IP Solutions LLP

Your secret is no secret once it slips from the mouth

A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which:

1.       Is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers;

2.       Confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being generally known, not just from the value of the information itself);

3.       Is the subject of reasonable efforts to maintain its secrecy.

The formula for Coca-Cola, sauces of McDonald, KFC chicken recipe and the Hyderabad fish cure for asthma are well-known examples of trade-secret.

In Roman times, the law afforded relief against a person who induced another’s employee (slave) to disclose secrets relating to the master’s commercial affairs. Modern trade secret law evolved in England in the early 19th century in response to the growing accumulation of technology and know-how and the increased mobility of employees.

In Williams v. Williams case, a son sold medicines for his own account, although he had prepared them from formulas given to him by his father on the understanding that the two would use the formulas for their joint benefit. The Chancery trial court issued an injunction restraining the son from using or divulging the trade secret and from selling the medicines. Even on appeal, the court said that the son cannot breach the contract setup by his father but the court did not go into the injunction much because the formula had already been given out.

Trade-secret is an interesting form of Intellectual Property (IP) and has several peculiar features. It is not supposed to be disclosed like other forms of IP and independent creation or reverse engineering of a trade-secret is not an offence. Because it represents nothing more than information, which can be memorized, scribbled down, e-mailed or copied onto some tangible medium and then quietly removed from company premises, it can be easily misappropriated. Duration of a trade-secret is not fixed and once disclosed in public, value is lost forever.

Usually Confidential information and trade-secret terms are used synonymously but both are not the same. Confidential information is the information which company would like to keep secret but may or may not be essential for business. Moreover, confidential Information is generally limited to a single event in the conduct of a business, whereas a trade secret is a process or device for continuous use in the operation of a business. For example, merging or acquisition of company is confidential information but use of combination of yeast strains to make softer bread is a trade-secret.  We can say that all trade secrets are confidential in nature but all confidential information cannot be termed as trade secret.

In USA, the trade-secrets are protected under Uniform Trade Secrets Act but in India, we don’t have any specific legislation to protect it, but common law. There are various ways to prevent misappropriation of trade-secret in an organization such as having appropriate legally enforceable contacts with the employees, restricting access, having processes to ensure confidentiality and security are one of the most effective methods.

Well protected trade-secret can immensely contribute to the business of an organization and hence, its identification and methods to maintain confidentiality is extremely crucial. It is one of the most ignored, the most important and the most difficult to handle assets.