Safeguarding Secrets: 22nd Law Commission’s push for Trade Secrets in India

The advancement of technology and the global integration of markets have exponentially increased the value of proprietary knowledge. In a rapidly growing economy like India, the protection of such intellectual assets has become paramount, not just for fostering innovation but also for maintaining competitive advantages in the international arena. The proposed “Protection of Trade Secrets Bill, 2024”, recommended by the Law Commission of India in its 289^th report in March 2024, promises a significant shift in India’s intellectual property landscape by proposing a robust legal framework dedicated to the protection of trade secrets. This initiative represents a collaborative effort to align India's intellectual property laws with international standards, particularly in compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Historically, India has managed trade secret protection through a patchwork of common law principles, contract law, criminal law and principles of breach of confidence and equity. The reliance on non-disclosure agreements (NDAs) and confidentiality clauses under the Indian Contract Act, 1872, has been the norm, but these measures have often proven inadequate in cases of misappropriation. Businesses, especially those engaged in cutting-edge technology and innovation-driven sectors, have voiced concerns over this fragmented approach, highlighting numerous instances where vital business information leaked without sufficient legal recourse.

The proposal for the Bill was inspired by these concerns and the growing recognition of the inadequacy of existing legal protections compared to global standards. The 22nd Law Commission of India, understanding the urgent need for specialized legislation, drafted the proposed Trade Secrets Bill, taking into account various international models of trade secret protection from jurisdictions like the USA, EU, and Japan, which offer more comprehensive and stringent safeguards.

1. National Innovation Bill, 2008: This early bill aimed to foster innovation with provisions for protecting confidential information, though it was not adopted into law.

2. US Interventions: In the year 2016, India and US released a joint statement wherein both governments affirmed that they were committed to strong protection of trade secrets and would engage on effective trade secret protection mechanisms. The lack of adequate legal measures for the protection of trade secrets in India is a regular mention in the annual Special 301 Report released by the US, thereby identifying the need for India to effectively protect Trade Secrets.

3. Intellectual Property Rights (IPR) Policy, 2016: The national IPR policy recognized the importance of trade secrets and suggested exploring legislative protections as part of strengthening the overall intellectual property framework.

1. Definition of Trade Secrets

   The Bill provides a clear and inclusive definition of what constitutes a trade secret, encapsulating a broad spectrum of information, including formulas, patterns, compilations, programs, devices, methods, techniques, or processes. To qualify as a trade secret, the information must:

   • Be a secret (i.e., not generally known or readily accessible to relevant business circles).

   • Derive economic value from its secrecy.

   • Be subject to reasonable measures by its holder to maintain its secrecy.

2. Rights and Responsibilities of Holders

   The proposed Protection of Trade Secrets Bill, 2024 outlines specific rights and responsibilities for holders of trade secrets, ensuring they have legal backing to protect and manage their intellectual property effectively. This clarity is crucial for enabling businesses to operate within a secure legal framework, encouraging the development and retention of innovations.

   Rights of the Holders

   The Bill explicitly grants several rights to the holders of trade secrets:

   • Usage and Disclosure: Holders are entitled to use their trade secrets in any manner they deem fit, including but not limited to manufacturing processes, business strategies, or technological implementations. They can also disclose the secrets under confidentiality agreements to parties like employees, partners, or third parties for business purposes.

   • Licensing and Commercialization: Holders have the right to license their trade secrets to others, providing a stream of revenue without disclosing the information publicly, thereby maintaining its protected status.

   • Legal Action for Misappropriation: Holders can initiate legal proceedings against anyone who misappropriates their trade secrets. This right is fundamental to enforcing the trade secret protections and serves as a deterrent against unauthorized use or disclosure.

   Responsibilities of the Holders

   To maintain the protected status of a trade secret, holders must fulfill certain responsibilities:

   • Secrecy Measures: The holder must demonstrate that reasonable measures have been taken to keep the information secret. This could involve physical security measures, digital cybersecurity protocols, or stringent contractual agreements with confidentiality clauses.

   • Legal Compliance: Holders must ensure that their use of trade secrets complies with all relevant laws, including labor laws and contract laws, to avoid any legal disputes that could lead to unwanted disclosure.

3. Misappropriation and Legal Remedies

   The Bill categorizes various actions as misappropriation, such as acquisition, disclosure, or use of a trade secret without consent by another person who used improper means to obtain it. It proposes civil remedies including injunctions and damages, aimed at both preventing and compensating for unauthorized use of trade secrets.

4. Whistle-blower Protection and Public Interest Exception

   The Bill includes provisions for whistle-blower protection, ensuring that individuals who disclose trade secrets for the purpose of exposing illegal activities are not subject to punishment. This is crucial for maintaining ethical practices within businesses and industries.

   Additionally, the Bill acknowledges situations where the disclosure of a trade secret may be necessary for the public interest. In such cases, exceptions are made to the usual protections afforded to trade secrets, allowing for their disclosure if it significantly benefits the public or is essential for public safety.

5. Compulsory Licensing

   One of the notable features of the Bill is the introduction of compulsory licensing provisions. In circumstances deemed critical by the government, such as national emergencies, public health crises, or other scenarios involving substantial public interest, the government may mandate the holder of a trade secret to grant licenses to third parties or the government itself. This ensures that while the rights of the holders are respected, the public interest can still be served in times of need.

6. Provisions from the Bill

   The Bill’s approach to detailing these rights and responsibilities is grounded in a balance between protection of intellectual property and the allowance for its use in benefiting society at large. For instance, under Section 3 of the Bill, while it gives extensive rights to the holder, it also emphasizes the necessity of their actions being in compliance with the Indian Contract Act, 1872. Moreover, Section 6 introduces a nuanced approach to compulsory licensing, reflecting the government's authority to intervene under specific, justified circumstances.

The proposed Protection of Trade Secrets Bill, 2024 offers several advantages. Firstly, it encourages businesses to invest in new technologies by providing robust protection for trade secrets, thereby fostering research and development activities. It also enhances India’s attractiveness to foreign investors by assuring stringent trade secret protections, potentially leading to increased technology transfer and collaborations. Lastly, by safeguarding trade secrets, the Bill directly contributes to economic performance, allowing companies to maintain and enhance their market position, consequently leading to greater economic outputs and job creation.

The proposed Protection of Trade Secrets Bill, 2024, represents a pivotal development in India's intellectual property rights regime. As businesses increasingly rely on innovation and proprietary knowledge, the need for stringent and clear legal protections has become crucial. The Bill not only addresses the current gaps in protection but also positions India as a leader in intellectual property rights protection in Asia. While the actual impact of the Bill will depend on its implementation and judicial interpretations, it undeniably sets a strong foundation for the protection of trade secrets in India, promoting a more innovation-friendly business environment. As the proposed Bill progresses through legislative processes, its refinement and eventual enactment will be closely watched by stakeholders across all sectors of the economy.

About the authors: Vikrant Rana is the Managing Partner of SS Rana & Co. Gaurav Goswami is a Managing Associate at the Firm.

Anuj Dhar, Assessment Intern at SS Rana & Co., has assisted in the research of this article.