The Common Law Protection Of Trade Secrets And The Need For A Statue

Dec 2022

A trade secret is anything you use in your business that gives you an advantage over your competitors. A trade secret can be a recipe, process, formula, strategy, technique or device that your competitors do not know, do not have, and cannot use.

With development in technology, as well as the ease of sharing, copying and storing information in the digital world, one of the biggest challenges that businesses face is the protection of their confidential business information.

There are three essential requirements for information to be classified as a trade secret:
  • The information must be secret. It is not generally not known among or readily accessible to persons within the circles that normally deal with that kind of information.
  • It must have commercial value
  • Holder must have taken reasonable steps to keep it secret.
Protection Under Various Laws:
  • Section 27 of the Indian Contract Act bars any person from disclosing any information which he acquires as a result of a contract. In India, a person can e contractually bound not to disclose information that is revealed to him or her in confidence.
  • Section 72 of the Information Technology Act provides for criminal remedies. If a person is found to have secured access to any electronic record, book, register, information, document, or other material without the consent of the person concerned and such first person discloses such information further then he may be punished with imprisonment for a term along with a fine.
  • In 2009, the Information Technology Act, under Section 43A provided for “Compensation for failure to protect sensitive personal data.” Sensitive personal data is further defined in the rules promulgated under this Act and include passwords, financial data, biometric data etc.
  • The Securities Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, renders the use and disclosure of confidential information by an insider subject to prosecution under the Securities Exchange Board of India Act.
  • The Copyright Act, 1957: In some cases, the courts have recognized client information stored in the form of databases as copyrightable material. During the course of their operation, businesses regularly collect data. Databases are protectable under copyright law. Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as “literary works”.
  • Breach of confidence: According to Indian Courts, “routine day-to-day affairs of employer which are in the knowledge of many and are commonly known to others cannot be called trade secrets.” The requirements for a cause of action for a breach of confidence are as as follows:
    • the information itself must have the necessary quality of confidence about it;
    • that information must have been imparted in circumstances imparting an obligation of confidence;
    • there must be an unauthorized use of that information to the detriment of the party communicating it.

    Even if there is absence of a contract, courts in India have still issued injunctions based on the rules of equity.

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