Experts CornerGUJCOST - GNLU

What do Google’s search algorithm, Coca-Cola and KFC’s original recipe, the selection criteria for the New York Times annual best seller list and the Big Mac special sauce recipe, share in common? These valuable recipes, methods and selection criteria are protected as trade secrets. Also called the “other intellectual property right (IPR)”, trade secrets does not dominate the popularity index with regard to the types of IP protection sought, corporations and individuals generally prefer other modes of IP protection. However, in the family of intellectual property rights, this right may be the oldest form because who does not have secrets. And what better measure to protect the secret than by keeping it undisclosed? Here a line of differentiation must be drawn between a personal and a professional secret as some professional secrets hold commercial value, like Coca-Cola’s recipe. What is the status of this form of IPR? A lack of consensus is found among nations and scholars alike regarding the recognition and treatment of trade secrets.

In this age of overcommunication, Coca-Cola’s recipe is one of the best kept secrets in the world. The company goes nostalgic in an account of its 125 years journey and presents proudly on its website some facts of its recipe.[1] The recipe was developed by John S. Pemberton, a pharmacist in 1886 and has been closely guarded, for more than a century.[2] Competitors have fiercely hunted for the recipe, yet apparently, this best kept secret has aided the Coca-Cola Company to become the successful, globally recognised brand it is today. Similarly, KFC has been a secret keeper for Colonel Harland Sanders’ recipe of 11 herbs and spices used by the fast food restaurant chain which has become its flagship product. The recipe is more than 70 years old and was apparently scribbled on the back of a door, which is being followed till date.[3] KFC has gone to a great length to protect this prized secret recipe, when it recently built a brand new, hi-tech home for the original handwritten recipe where the recipe is protected in a digital safe weighing more than 770 pounds encased in two feet of concrete with a 24-hour video and motion detection surveillance system.[4]

Where do these facts leave trade secrets with regard to the protection they provide and most importantly where does inclusion of trade secrets as a form of IP protection stand? Michael Risch opines trade secrets to be curious anomalies in intellectual property law and goes to argue that despite being the most important and litigated form of intellectual property, trade secrets are given derogatory treatment citing another work which terms this form “parasitic”.[5] On the contrary, trade secrets are justified by the economic benefits that flow from their existence, most notably incentives for businesses to spend less money protecting secret information or attempting to appropriate secret information.[6]

My Way or Yours? A Historical Perspective to Protection of Trade Secrets

The history of trade secret law is an interesting study in how certain intellectual property rights have developed. Whereas copyright, patent and trade mark law find legal justification through statutes, the trade secret concept and related reliefs grew out of the common law. Indeed, the very assumptions underlying patent and copyright laws—that government-granted rights can serve to incentivise the creation and sharing of new ideas and expression—are diametrically opposed to the notion of keeping information secret to gain a competitive advantage.[7]

The concept that so-called business or “trade secrets” were entitled to legal protection spread rapidly throughout the world. As early as the Renaissance, most European nation-States had laws that protected businesses (notably, the guild cartels) from those who used their secret processes and ideas without permission. During the Industrial Revolution, courts and legislatures translated these early laws into statutes that protected “industrial secrets”. Many of these statutes are still in force today, albeit in modified form. The modern trade secret regime traces most clearly and directly to the Industrial Revolution and is primarily an Anglo-American doctrine.

Currently, nations differ regarding their standpoint on treating trade secrets. Some have chosen to grant statutory relief to an act of trade secret violations while others treat the violations through popular principles of common law breach of confidence, etc. Looking at how nations seek to work together on various legal issues it is surprising how a unified treatment of trade secrets has not been possible. There is clearly no consensus on whether it be treated as a creature of contract law, tort, property or criminal law. With the continued confusion, none of these different justifications have proven entirely persuasive. Worse, they have contributed to inconsistent treatment of the basic elements of a trade secret cause of action, and uncertainty as to the relationship between trade secret laws and other causes of action.[8] Robert Bone has gone so far as to suggest that this theoretical incoherence suggests that there is no need for trade secret law as a separate doctrine at all.[9]

There is no State agency that “issues” (or even registers) trade secrets, thus categorising it separately from other forms of IP.[10] At the judicial level, courts will find misappropriation of trade secrets in two circumstances: (1) where the secrets were obtained by theft or other improper means, or where they were used; or (2) disclosed in violation of a confidential relationship agreement. However,  trade secret laws do not protect against independent discovery or invention. Nor do they prevent competitors from “reverse engineering” a legally (read fairly) obtained product to determine the secrets contained inside. Violations of trade secrets entitle the owner to damages and in some cases injunctions against the use or further disclosure.[11]

The International Framework of Trade Secrets

At the international level, the Trips agreement was the first international agreement to accord express protection to trade secrets. The agreement while defining trade secrets laid out its approach, based on the notion that in order to establish and maintain a fair and free market, protection against unfair competition should include protection for undisclosed information. While presenting this approach and defining the term, the Trips agreement referred to the prior existing protection as presented in the Paris Convention for the Protection of Industrial Property.

Trade secrets are dual in nature, they are confidential as well as commercial. To get the commercial benefit out of the secret, the owner must share it with a limited number of people or partners. Thus, laws expect and account for a certain amount of protected disclosure, within a constrained circle.[12] Nevertheless, even if trade secrets are not “secret” in the strictest sense of the term, they must, in fact, remain non-public and known only to a limited number of people.[13] The Trips definition of trade secrets reflects a broadly similar understanding of the term across nations and addresses its dual nature as confidential but commercial. Moreover, in order to place all nations on a similar footing, the Trips platform took into consideration then current practices in many countries while laying down a path for shaping subsequent laws.

      7. Protection of undisclosed information.[14]

Article 39

  1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), members shall protect undisclosed information in accordance with Para 2 and data submitted to Governments or governmental agencies in accordance with Para 3.[15]
  2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information[16]:

           (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

                (b) has commercial value because it is secret; and

                (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

  1. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilise new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, members shall 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.[17]

These three conditions define trade secrets in a manner covering a potentially very large scope of economic activity. The range of subject-matter covered by trade secrets may be open-ended, though often trade secrets fall into one of two broad categories: technical information (e.g. technical plans and formulae) and confidential business information (e.g. customer lists and marketing strategies).[18] However, an interesting point is that trade secrecy does not provide an exclusive right for a specific time-limit, which means its discovery by a second party through fair means or entry in the market, and they can run out in the regular course of the competition, unlike patented inventions or copyright protected content.

Conclusion

Trade secrets are a form of intellectual property, serving the same purpose as patent, trade mark and copyright laws i.e. promotion of innovation. While protection under trade secrets results in reduced investment in terms of money and time, on the contrary it does not provide an exclusivity over the secret, if a second party learns the information through fair means in the market. A proper understanding of trade secrets as an intellectual property right will let them be absorbed by society and encourage the formation of a law designed in order to promote innovation.

With varying patentability standards across nations, patent rights have become increasingly uncertain, especially when there is a movement in many countries to further raise the bar as far as the patentability criteria are concerned. To address this situation if the trade secret law is strengthened across the world, it will provide a viable option to inventors to keep their inventions secret. More importantly, stronger protection under trade secret law will ensure enhanced protection to tacit knowledge or know-how that may complement a patent, enabling the owner to protect his patented technology better in fact even beyond the patent period.

India does not have a dedicated law in place to protect trade secrets, however, there is a rich stock of jurisprudence that got introduced through cases, covering the definition and scope of trade secrets, protection remedies and so on. However, there is an increasing expectation that India introduces a statutory protection for trade secrets but time alone can tell whether it is to take place.


*Hetvi Trivedi is Research Associate, GNLU-GUJCOST Research Centre of Excellence in IP Laws, Policies & Practices.

[1]  Coca-Cola journey, available at <https://www.cocacolacompany.com/content/dam/journey/us/en/private/fileassets/pdf/2011/05/Coca-Cola_125_years_booklet.pdf>.

[2]  Ibid.

[3] What Made Us Great is Still What Makes Us Great, available at <https://www.kfc.com/about>

[4]  R. Mark Halligan and David A. Haas, The Secret of Trade Secret Success, available at  <https://www.forbes.com/2010/02/19/protecting-trade-secrets-leadership-managing-halligan-haas.html#77ea0d661372>.

[5]  Michael Risch, Why do we have Trade Secrets, p. 3 (2007).

[6]  Id., p. 5.

[7]   Id., p. 6.

[8]  Miles J. Feldman, Toward a Clearer Standard of Protectable Information: Trade Secrets and the Employment Relationship, 9 High Tech. LJ 151, 161-163 (1994).

[9] Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 California Law Review 241 (1998).

[10] Peter S. Menell, Mark A. Lemley and Robert P. Merges, Intellectual Property in the New Technological Age: 2017, Vol. I: Perspectives, Trade Secrets and Patents, p. 62 (2017).

[11]  Ibid.

[12]  OECD, Enquiries into Intellectual Property’s Economic Impact, p. 132 (2015).

[13]  Ibid.

[14]  Trips agreement, available at <https://www.wto.org/english/docs_e/legal_e/27-trips.pdf>.

[15]  Ibid.

[16]  Ibid.

[17]  Ibid.

[18] Id., at p. 62.

 

Foreign CourtsNews

US District Court for Northern District of Texas: A federal court presided by Ed Kinkeade, J. halved the amount of USD 500 million that was to be paid by Facebook Inc. and others to ZeniMax Media Inc., a video game publisher. The Court also turned down ZeniMax’s request for the ban on sale and promotion of products by ‘Oculus’- virtual reality unit of Facebook. In 2014, Oculus (bought by Facebook for about USD 2 billion) was sued by ZeniMax alleging it of stealing trade secrets while developing a headset and violating copyright. In 2017, a US Jury in Dallas found that Oculus used ZeniMax’s computer code to launch ‘Oculus Rift’-VR headset; and ordered Facebook, Oculus, and others to pay a combined USD 500 mn to ZeniMax. Kinkeade, J., in his order, said that USD 250 mn ordered against Oculus and its co-founders for false designation lacked sufficient evidence for damages. Holding thus, the Court halved the amount to be paid by Facebook, Oculus, and others.

[Source: Reuters]