Trade secrets: Contractual obligation or intellectual property

“No one can doubt, that the convention for the distinction of property, and for the stability of possession, is of all circumstances the most necessary to the establishment of human society, and that after the agreement for the fixing and observing of this rule, there remains little or nothing to be done towards settling a […]

“No one can doubt, that the convention for the distinction of property, and for the stability of possession, is of all circumstances the most necessary to the establishment of human society, and that after the agreement for the fixing and observing of this rule, there remains little or nothing to be done towards settling a perfect harmony and concord.” -David Hume, Treatise of Human Nature

Property rights are central to every civilised society. The legal relationship between individuals, objects and the state is not easy to justify and is true in case of intellectual property. The two important elements of any property right are exclusivity and transferability. This means that the owner of the right has the exclusive right to use the property and also to transfer it voluntarily. Property rights exist with respect to both tangible and intangible properties.

 Intellectual property rights deal with intangible properties and have been gaining unprecedented importance in recent times. With the Paris convention in 1883 and the following Bern convention in 1886, the world recognized the intellectual property as a tool of innovation and development. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has further advanced the IP Regime worldwide among the member countries. The TRIPS Agreement requires WTO members to put in place their national intellectual property protection and enforcement systems to protect different forms of intellectual property and trade secrets against acts of unfair competition.

The rationale behind the increasing importance being accorded to intellectual property rights is not difficult to grasp. These are necessary to provide incentives to people to put in money, resources and hard work to innovate and create. However, giving too much protection to creators might be detrimental to the public interest and hence a balance needs to be struck between the interests of creators/researchers and the public interest at large. Intellectual property laws strive to achieve this arduous task.

 India being the member countries to the Trade Related Aspects of Intellectual Property Agreement (TRIPS) is obliged to provide standard protection to IP Rights holders as mandated and required under the TRIPS Agreement and for the fulfilment of obligation India has over the stretch of time has brought up its laws in consonance with the TRIPS in a variety of ways. Recently USTR in its special report 301 has put up India on the priority watch list for lack of sufficient measurable improvements to its IP framework and an outdated and insufficient trade secrets legal framework and have shown great concern over the Indian commitment in the persuasion of its international commitments. The United States provides statutory protection with sufficient civil and criminal remedies to counter the misappropriation of trade secrets. Whereas in India there is no statutory protection for the trade secrets, Currently in India the trade secrets are protected by the parties through the non-disclosure agreements and contracts which are governed by The Indian Contracts Act, 1872.

Nevertheless, Indian courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts a breach of contractual obligation. The remedies available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the trade secret, the return of all confidential and proprietary information and compensation for any losses suffered due to disclosure of trade secrets.


Out of various supporting theories for the protection of intellectual property, no single theory quite justifies for the protection of trade secrets. Robert Bone in 1998 suggested that there is no need to protect trade secret as a separate doctrine as it is an anomaly to the existing intellectual property theories and advocated for treating trade secret protection only under contractual principles. Per contra Mark A Lemley strongly advocates for the treatment of trade secrets as IP Rights. Lemley suggested that trade secrets can be justified as a form, not of traditional property, but intellectual property and proposed that the incentive justification for encouraging invention and innovation is straightforward.

Whereas Indian government in its communication dated 10th July 1989, to the members to negotiating group on Trade-Related aspects of intellectual property rights, including Trade in counterfeit goods communicated that any principle or standard relating to intellectual property rights to be carefully tested against the touchstone of the socioeconomic, developmental, and technological and public interest needs of developing countries. In Para 46 of part V Permanent Mission of India communicated that:

“The trade secret cannot be considered to be intellectual property rights as it lacks disclosure, publication and registration, while the fundamental basis of trade secret is its secrecy and confidentiality. The observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate civil law and not by intellectual property law.”

Thus making it clear that trade secret cannot be protected as other forms of intellectual properties as it lacks disclosure. India also pointed out that the essence of intellectual property system is its monopolistic and restrictive character; its purpose is not to liberalise but to confer exclusive rights on their owners. Further India being the Democratic Socialist Republic ideologically it is supposed to have a socially owned economy along with the democratic mode of governance.

Apart from this previous stance on the protection of trade secrets, The Indian government in May 2016 formulated National Intellectual Property Rights Policy and in its Para 3.8, identified trade secret protection as an important area of study and research for future policy development.

 Defining Trade Secret

Defining the subject matter of trade secret protection has also been an arduous task; there is no uniform definition for the same among the member countries to the TRIPS Agreement.

The United States Uniform Trade Secrets Act defines a trade secret as information, including a formula, pattern, compilation, programme, device, method, technique, or process.

To qualify as a trade secret the said information must meet the following requirements:

The information must have some independent economic value, actual or potential.

It must not be readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

There must be reasonable efforts under the circumstances to maintain it as a secret.

Thus not any information qualifies for trade secret protection but only which is having independent actual or potential economic value, it should not be readily available or known to the person that normally works with the kind of information and there must be efforts on part of owner to keep it secret.


 The TRIPS Agreement requires undisclosed information — trade secrets or know-how — to benefit from protection. According to Article 39.2, the protection must apply to information that is secret, which has commercial value because it is secret and that has been subject to reasonable steps to keep it secret.

The Agreement does not require undisclosed information to be treated as a form of property, but it does require that a person lawfully in control of such information must have the possibility of preventing it from being disclosed to, acquired by, or used by others without his or her consent in a manner contrary to honest commercial practices. “Manner contrary to honest commercial practices” includes breach of contract, breach of confidence and inducement to breach, as well as the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.

The Agreement also contains provisions on undisclosed test data and other data whose submission is required by governments as a condition of approving the marketing of pharmaceutical or agricultural chemical products which use new chemical entities. In such a situation the Member government concerned must protect the data against unfair commercial use. Besides, Members must protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use.

Need for Protection

U.S. companies that create innovative products and processes, and particularly those that are R&D intensive, often protect their innovations through trade secrets. Companies rely on trade secrets to protect technical information and confidential business information for the reason being non requirement of registration with the government, and relatively easy to implement protection, companies particularly SMEs rely on trade secrets as a default mode of IP protection.

A survey was conducted by the U.S. International Trade Commission (USITC) in 2014 and the U.S. companies were asked whether, and how, inadequate protection of IP affected their business in India. The surveys showed that firms were more likely to identify trade secrets as “very important” to their operations as other types of IP. The survey also provided that 56 per-cent of internationally-engaged firms considered trade secrets as “very important,” compared to 48 per-cent for trademarks, 37 per-cent for patents, and 31 per-cent for copyrights, even in sectors generally considered patent intensive, such as chemicals and information and communications technology (ICT), firms were more likely to consider trade secrets “very important” than patents.

 Further similar surveys were conducted by the Business R&D and Innovation Survey (BRDIS) undertaken by the National Science Foundation (NSF) and the Census Bureau. This reported that it’s not just large firms that care about trade secrets; 56.2 per-cents of U.S. firms with less than 500 employees considered trade secrets “very important,” compared to 45.4 per-cents for patents, 37.8 per-cents for trademarks, and 25.6 per-cents for copyrights.


Thus in a knowledge-driven economy, it has become significantly important for industry participants to keep their trade and business information confidential, to have a competitive advantage over others. It is desirable to strengthen trade secrets law by addressing the implementation of law issues and by increasing the means of lawful use, disclosure and acquisition for a social benefit. It is submitted that the existence of a robust and effective law would promote sharing of trade secrets with ample circles of contacts which may lead to the promotion of innovation in the country.

 Gaurav Goswami is Assistant Professor, School of Law, University of Petroleum & Energy Studies.