Transcript 8 January 2007 WIPO – CEHA SEMINAR Presentation by Manoj Pillai, Partner , LEX ORBIS IP PRACTICE Acknowledgement:This presentation contains textual and graphical matter from.

8 January 2007
WIPO – CEHA SEMINAR
Presentation by
Manoj Pillai,
Partner , LEX ORBIS IP PRACTICE
Acknowledgement:This presentation contains textual and graphical matter from a WIPO Presentation on Trade
Secrets. This is intended to be a fair academic use of the contents from the earlier
presentation.
What are trade secrets?
By keeping valuable
information secret, you can
prevent competitors from
learning about and using it and
thereby enjoy a competitive
advantage in the marketplace.
General principles:
• Information that has commercial value
and that has been diligently kept
confidential will be considered a trade
secret (TS).
• Owner will be entitled to legal
remedies against those who use it
without authorization, steals it, or
divulges it.
Contents of this Presentation
1. What qualifies as TS?
2. What makes something a TS?
3. When can you seek legal remedies?
4. How are TS lost or stolen?
5. How to protect your TS?
6. May TS be sold?
7. How is TS protection enforced?
8. If you have the choice: TS or patent?
9. What to bear in mind if you sign CA?
Question 1
WHAT KIND OF INFORMATION
QUALIFIES AS A TRADE
SECRET ?
TRADE
SECRET
• Provides
competitive
advantage
• Potential to
make money
Kept
confidential
Technical &
scientific
information
Financial
information
TRADE
SECRET
Commercial
information
Negative
information
Typical examples of TS
–
–
–
–
–
–
–
–
–
–
–
–
–
Hardware design
Software
Technical data about product performance
Pending patent applications
Business plans & strategies
New product names
Financial projections
Marketing plans, unpublished promotional material
Cost & pricing information
Sales data
Customer lists
Info re: new business opportunities
Personnel performance
Question 2
WHAT MAKES SOMETHING A
TRADE SECRET ?
When do you have
legal protection?
Three essential legal requirements:
1. The information must be secret
2. It must have commercial value because it’s
secret
3. Owner must have taken reasonable steps to
keep it secret
1. Secret
• “not generally known among or easily accessible to
persons within the circles that normally deal with this
kind of information”
• What is ‘generally known’ in the industry?
– matters of common knowledge
– information you find at library, online database, trade journals,
patent information, etc
– price list on website
– Hardware design, software application
1. Secret
• Not required that be known only by one person
– e.g. based on supplier relationship, joint development agreement,
due diligence investigation, etc.
2. Commercial value
• Must confer some economic benefit on the holder
• This benefit must derive specifically from the fact that
it is not generally known (not just from the value of the
information itself)
• How to demonstrate:
–
–
–
–
benefits derived from use
costs of developing the TS
licensing offers; etc.
actual or potential
3. Reasonable
steps
• Under most TS regimes, you cannot have a TS unless
you have taken reasonable precautions to keep the
information confidential
• ‘Reasonable’  case by case
– reasonable security procedures
– Non-disclosure agreements (NDA)
– such that the information could be obtained
– by others only through improper means
• Importance of proper TS management program
Caution: Who owns the TS?
• TS (e.g. new technology) developed by
employee …
• TS developed by external contractor
To avoid disputes:
WRITTEN AGREEMENT
+
ASSIGN
in advance all trade secrets developed
during employment or commission
Question 3
When can you seek Legal
Remedy?
Enforcing TS in India
No legislation governing Trade Secrets
Protection by way of Contracts
Recognition of legal rights in Trade
Secrets by courts of law invoking the
equitable jurisdiction – unclear as yet.
Past cases show attempts to combine
causes of action with violation of
statutory IPRs
Other statutes such as the IT Act is
relied on
Trade Secrets Contracts
The Specific Relief Act and the
Code of Civil Procedure are
relevant in enforcing contractual
obligations under a trade
secrecy agreement.
Contract Act governs the validity
and enforceability of
agreements in general.
Arbitration is the preferred route
to resolve disputes.
Reported Cases on Trade Secrets
21
Laws relied on
Indian Cases
John Richard Brady And Ors v. Chemical Process Equipments P. Ltd. and Anr
[AIR 1987 Delhi 372]
Issues Considered
(a) Whether the defendants Fodder Production Unit is based on the plaintiffs’
drawings and the related know-how passed to them under the express condition
of confidentiality?
(b) Whether the technical drawings of the defendants are artistic works that
qualify for protection under the Copyright laws?
The Court took the position that, even in the absence of an express confidentiality
clause in the contract, confidentiality is implied and that the defendant is liable for
breach of the confidentiality obligations.
Spring Board Doctrine
The Delhi HC relied on the Spring Board doctrine in this case.
The principle behind this doctrine is that an employee with knowledge of
a former employer’s trade secrets would “inevitably” disclose the same to
the new employer since the nature of the new job would lead to such
disclosures, given that the new and old employers were competitors.
Furthermore, given the inevitability of such disclosures, the former
employer was not limited to sitting around and waiting until there was an
actual or even threatened use of those trade secrets before the former
employer could seek legal redress.
Under this doctrine, that former employer could prevent the employee
from taking that job and prevent the new employer from hiring the
employee merely because the employee had such knowledge that would
“inevitably” be disclosed.
The Swyamvar Case
Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]
The plaintiff conceived the idea of ‘Swayamvar’, a reality television show
concerning match making. The plaintiff shared a concept note on this with the
defendants. Later on the plaintiff came across a newspaper report informing that
the defendants were planning to come out with a big budget reality matchmaking
show using the plaintiff’s concept. The plaintiff sought injunction.
Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) Could there be a violation of copyright if the theme is the same as that which
existed in the public domain but is presented and treated differently?
Court held that the concept developed and evolved by the plaintiff was a the
result of the work done by the plaintiff upon the material which may be available
in the public domain. However, what made the concept confidential was the fact
that the plaintiff had used his brain and thus produced a unique result applying
the concept. The Court granted an injunction.
English Precedents
Most cases dealing with trade secrecy in India refer to British
case law.
In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the “springboard doctrine”,
cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the ‘spring board’ doctrine.
Not many cases on trade secrets – from a
property right perspective
Research revealed 21 reported cases relating to trade secrets
Of the 21 cases, 20 related to breach of confidentiality by employees
At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act
No reported case offers a definition of trade secrets
At least in 1 case, the Delhi High Court invoked a wider equitable
jurisdiction and awarded injunction even in the absence of a contract – John
Richard Brady
Spring Board Doctrine
The Delhi HC relied on the Spring Board doctrine in this case.
The principle behind this doctrine is that an employee with knowledge of
a former employer’s trade secrets would “inevitably” disclose the same to
the new employer since the nature of the new job would lead to such
disclosures, given that the new and old employers were competitors.
Furthermore, given the inevitability of such disclosures, the former
employer was not limited to sitting around and waiting until there was an
actual or even threatened use of those trade secrets before the former
employer could seek legal redress.
Under this doctrine, that former employer could prevent the employee
from taking that job and prevent the new employer from hiring the
employee merely because the employee had such knowledge that would
“inevitably” be disclosed.
The Swyamvar Case
Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors
[97(2002) DLT 257]
The plaintiff conceived the idea of ‘Swayamvar’, a reality television show
concerning match making. The plaintiff shared a concept note on this with the
defendants. Later on the plaintiff came across a newspaper report informing that
the defendants were planning to come out with a big budget reality matchmaking
show using the plaintiff’s concept. The plaintiff sought injunction.
Issues Considered
1) Can there be a copyright in an idea, subject matter, themes, and plots which
existed in the public domain?
2) Could there be a violation of copyright if the theme is the same as that which
existed in the public domain but is presented and treated differently?
Court held that the concept developed and evolved by the plaintiff was a the
result of the work done by the plaintiff upon the material which may be available
in the public domain. However, what made the concept confidential was the fact
that the plaintiff had used his brain and thus produced a unique result applying
the concept. The Court granted an injunction.
English Precedents
Most cases dealing with trade secrecy in India refer to British
case law.
In Mr. Anil Gupta and Anr. Vs. Mr. Kunal Dasgupta and Ors., the
Plaintiff relied on the “springboard doctrine”,
cited
Franchi v. Franchi 1967 RPC 149,
Saltman Engg. V. Campbell Engg. (1948) 65 RPC 203,
Terrapin v. Builders Supply Co. 1967 RPC 375 and
Seager v, Copydex Ltd. (1967) RPC 349
and relied on the ‘spring board’ doctrine.
Not many cases on trade secrets – from a
property right perspective
Research revealed 21 reported cases relating to trade secrets
Of the 21 cases, 20 related to breach of confidentiality by employees
At least 1 case each attracted the Information Technology Act, the Indian
Penal Code, the Arbitration & Conciliation Act and the Designs Act
No reported case offers a definition of trade secrets
At least in 1 case, the Delhi High Court invoked a wider equitable
jurisdiction and awarded injunction even in the absence of a contract – John
Richard Brady
What is lawful and Not?
1. Reverse engineering is lawful.
2. Discovery of the secret by fair and
honest means is lawful
3. Breach of obligations; breach of trust are
unlawful
4. Breach of Confidentiality agreement or
NDA is unlawful
5. Industrial espionage, theft, bribery, hacking
are illegal
TS protection
provides
no exclusivity
!
Question 4
HOW ARE TRADE SECRETS
LOST OR STOLEN ?
A Growing Problem.
Why Does It Occur?
– Way we do business today (increased use of
contractors, temporary workers, outsourcing)
– Declining employee loyalty: more job changes
– Organized crime : discovered the money to
be made in stealing high tech IP
– Storage facilities (DVD, external memories,
keys)
– Expanding use of wireless technology
Examples
– Reverse engineering, independent discovery
– Improper licensing
– Burglaries by professional criminals targeting
specific technology
– Network attacks (hacking)
– Laptop computer theft
– Inducing employees to reveal TS
• 80% of trade secret loss
< employees, contractors, trusted
insiders!
– departing or disgruntled employees
– intentional (malicious)
– inevitable (knowledge acquired)
– by ignorance
Question 5
HOW TO PROTECT
YOUR TRADE
SECRETS?
1. Identify trade secrets
• Accurate record keeping is
important.
• Document retention system and
Docketing Policy
• Factors to determine if information is a TS
– Is it known outside the company?
– Is it widely known by employees and others involved
within the company?
– Have measures been taken to guard its secrecy?
– What is the value of the information for your
company?
– What is the potential value for your competitors?
– How much effort/money spent in developing it?
– How difficult would it be for others to acquire, collect
of duplicate it?
2. Develop a protection policy
Advantages of a written policy:
– Clarity (how to identify and protect)
– How to reveal (in-house or to outsiders)
– Demonstrates commitment to protection 
important in litigation
– Educate and train:
• Clear communication and repetition
• Copy of policy, intranet, periodic training &
audit, etc.
• Make known that disclosure of a TS may result
in termination and/or legal action
– Monitor compliance, prosecute violators
3. Restrict access
to only those persons having a
need to know
the information
 computer system should limit each
employee’s access to data actually
utilized or needed for a transaction
4. Mark documents
– Help employees recognize TS
 prevents inadvertent disclosure
– Uniform system of marking
documents
• paper based
• electronic (e.g. ‘confidential’ button
on standard email screen)
5. Physically isolate and protect
– Separate locked depository
– Authorization
– Access control
• log of access: person, document reviewed
• biometric palm readers
– Surveillance of depository/company premises
• guards, surveillance cameras
– Shredding
– Oversight; audit trail
6. Restrict public access
to facilities
– Log and visitor’s pass
– Accompany visitor
– Sometimes NDA/CA
– Visible to anyone walking through a
company’s premises
• type of machinery, layout, physical handling of work in
progress, etc
– Overheard conversations
– Documents left in plain view
– Unattended waste baskets
7. Maintain computer secrecy
– Secure online transactions, intranet, website
– Password; access control
– Mark confidential or secret (legend pop, or
before and after sensitive information)
– Physically isolate and lock: computer tapes,
discs, other storage media
– No external drives and USB ports
– Monitor remote access to servers
– Firewalls; anti-virus software; encryption
8. Measures for employees
1. New employees
• Brief on protection expectations early
• Obligations towards former employer!
• Assign all rights to inventions developed in
the course of employment
• NDA/CA
• Non-compete provision
2. Current employees
• Prevent inadvertent disclosure (ignorance)
• Train and educate
• NDA for particular task
3. Departing employees
• further limit access to data
• exit interview
• letter to new employer
• treat fairly & compensate reasonably
for patent work
9. Measures for third parties
– Sharing for exploitation
– Consultants, financial advisors,
computer programmers, website host,
designers, subcontractors, joint
ventures, etc.
– Confidentiality agreement, NDA
– Limit access on need-to-know
basis
Question 6
MAY TRADE SECRETS BE
SOLD OR LICENSED?
• SALE
– Most TS sales occur as part of the sale of the
business
• LICENSE
– e.g. in combination with patent license
– e.g. software license for highly specialized program
– Advantage: additional revenues
– Disadvantage: risk of disclosure (potential loss)
– In some countries, restrictions
TS Licensing
• Definition of the secret subject matter
– what is to be kept confidential?
– marked as such or broad clause?
• Permitted use
– disclosure to employees, professional advisors?
– modification of technology?
• Precautions to be taken
• Exclusions
TS Licensing
• Duration of secrecy obligations
• Royalties
• Sanctions
• Should not be subject to alternative dispute
resolution
Question 7
HOW IS TRADE SECRET
PROTECTION
ENFORCED?
What can you do if
someone steals or
improperly discloses
your TS?
TS protection may be based on...
1. Contract law
• When there is an agreement to protect the TS
– NDA/CA
– anti-reverse engineering clause
• Where a confidential relationship exists
– attorney, employee, independent contractors
2. Principle of tort / unfair competition
• Misappropriation by competitors who have no
contractual relationship
– theft, espionage, subversion of employees
3. Criminal laws
• e.g. for an employee to steal trade secrets from a
company
• e.g. unauthorized access to computers
• theft, electronic espionage, invasion of privacy, etc.
• circumvention of technical protection systems
4. Specific trade secret laws
• US: Uniform Trade Secrets Act; Economic
Espionage Act
3. Information Technology Laws
Remedies
1. Injunction – Temporary or Perpetual
2.
Damages
3.
Search & Seizure order
4.
Precautionary impoundment
Question 8
PROTECTING INVENTIONS:
TRADE SECRETS OR PATENTS?
Trade Secrets
Patents
no registration
registration
- less costs (but: costs to keep secret)
- immediately available
- fees (registration + maintenance)
- takes time to get patent
can last longer
limited in time
- but: limited to economic life
- uncertain lifespan: leak out is irremediable
- generally: max 20y
- but: can be invalided
no public disclosure
public disclosure
- but: practical need to disclose
- if leak out: TS lost
- publication 18m after filing
- if P not allowed: no TS
Trade Secrets
Patents
Large subject matter
Subject matter limited:
Protection of virtually anything
maintained in secret by a business
that gives competitive advantage
- Requirements: new, non obvious, useful
- Scope: patent claim
Only protection against
improper acquirement/use
Exclusive rights
More difficult to enforce
"Power tool"
- some countries: no laws
- ability to safeguard TS during litigation
monopoly to exploit
the invention
Things to bear in mind
1. ANY innovative idea should be kept as a
secret in the beginning
– to preserve option of patenting (or industrial
design) at later stage
INNOVATIVE IDEA
Later stage
Initially
Not patentable
patentable
Secret !
Strategic
business
decision
TS
©
patent
TS
•Part f the idea
TS
Things to bear in mind
2. Choice between patent or TS must
be made both from legal and
business perspectives
(if patentable)
Things to bear in mind
3. If you apply for a patent, only give up
what is necessary
– The decision to apply for a patent does not necessarily
require giving up all of one’s TS!
– However, patent application must contain :
• enough to enable skilled person to practice the
invention
• the best mode known to the applicant for
practicing the invention
Things to bear in mind
• 4. If you apply for a patent, your TS
may still be protected for a while
– In most countries: only publication after
18m. You may withdraw application any time
< publication
– In USA: possible to request non-publication
of the patent application until the patent is
issued
Things to bear in mind
5. Once patent published  TS lost in
ALL COUNTRIES
– patent documents “easily accessible” to
public
– if patent application published and later
rejected  you lose both patent and TS
rights
Question 9
WHAT TO BEAR IN MIND IF
YOU SIGN A CONFIDENTIALITY
AGREEMENT FOR A CLIENT ?
•
•
•
•
reasonable in scope
- defines precisely what information you
must keep confidential
- limited in time (max. 5 years)
- exceptions
The Art of Handling It!
‘Well-drafted’ contracts are the principal (if not the only) way to protect
trade secrets in India.
Be mindful provisions such as Sec. 27 of the Contract Act, Sec. 3 of the
Competition Act);
Ensure maximum back-to-back obligations with Independent
Contractors and Employees;
Avoid Litigating: Choose for arbitration to resolve disputes – ensure the
contract qualifies for International Commercial Arbitration – Choose
carefully the venue, the Rules of Arbitration, the Law governing the
enforcement of the arbitral award
In the event of a litigation – focus on getting a favorable injunctive relief
at the interim stage itself.
“Forum shopping”. Choose the jurisdiction of courts in a city (like Delhi)
– where the Judges know the nuances of IP laws
Thank you