Updated: Mar 21
When someone mentions KFC, we instantly start craving for something that’s “Finger-Lickin' Good”. Ever wondered what makes the chicken taste that way? Or let’s take the example of Coco-Cola. While a majority of us have a go-to food pairing with the beverage, what about it makes us ‘taste the feeling’? Turns out, it is a well-guarded secret. Such secrets are commonly known as trade secrets and form a part of the company’s intellectual property.
Trade secrets comprise of methods, R & D information, lists, product specifications, formulae, devices, ingredients, designs that help a business gain a competitive edge over others and offer value to customers. Google’s search algorithm is another perfect illustration of this phenomenon. The method used to rank entries and websites has left everyone with their heads scratching as the company continues to update it while keeping it under wraps. This has helped Google to secure a top spot amongst other search engines.
Essentials for information to qualify as a trade secret
All trade secrets can be treated as confidential information. However, every kind of confidential information cannot be classified as a trade secret. For any type of undisclosed information to qualify as a trade secret, it has to meet the following requirements:
1. It is a secret in the sense that it is not generally known or readily accessible to persons within the circles that normally deal with the kind of information in question;
2. It has commercial value because it is secret; and
3. Reasonable steps have been taken under the circumstances by the person lawfully in control of the information, to keep it a secret.
Trade secret protection vs Patent protection
One cannot obtain patent and trade secret protection simultaneously to cover the same subject matter. Therefore, when it comes to choosing between the two forms of IP protection, companies are often in a dilemma. The nature of the subject matter provides the solution. Information, devices etc that are classified as trade secrets often carry economic value. This economic value is derived from secrecy. If the information is leaked out to competitors or the public, the company risks losing its USP. If the company opts for patent protection, then it will have to forego the benefit of secrecy that is associated with trade secret protection. If the subject matter fulfils the tests of patentability, the company can go for patent protection and avail the host of benefits associated with it. However, if the information is not patentable, it is prudent to go for trade secret protection. Unlike patents, there are no registration formalities and limited period of protection when it comes to trade secrets. Considering the aforementioned aspects and other circumstances, a company can decide to include patents or trade secrets as part of their IP strategy.
Framework for protecting trade secrets
Instruments such as the Convention for the Protection of Industrial Property (Paris Convention), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the North Atlantic Free Trade Agreement (NAFTA) contain provisions related to trade secrets. In the USA, the Uniform Trade Secrets Act, 1979 and the Defend Trade Secrets Act, 2016 have helped to strengthen the trade secret laws. The Directive on the Protection of Trade Secrets (Directive 2016/943) of the EU aims at harmonising the rules associated with trade secrets in the region. Unfortunately, India does not have a legislation on trade secrets yet. However, judicial rulings, contract and tort law have come to the rescue.
Steps to protect trade secrets
The reasonable steps to be taken by the company to protect the trade secrets may include the following:
1. Strong security measures for IT systems storing the trade secrets
2. Specific clauses in the contract of employment, background check of prospective employees
3. Controlled physical and electronic access to the information
4. Confidentiality policies
5. Non-disclosure agreements
6. Conducting training for the staff and third parties, making them aware of the repercussions of misappropriation of the information.
Article 39.2, Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)
WIPO - Frequently Asked Questions: Trade Secrets (https://www.wipo.int/tradesecrets/en/tradesecrets_faqs.html)
Prajwal Nirwan, Trade secrets: the hidden IP right, https://www.wipo.int/wipo_magazine/en/2017/06/article_0006.html
John Hull, Protecting trade secrets: how organizations can meet the challenge of taking “reasonable steps”, https://www.wipo.int/wipo_magazine/en/2019/05/article_0006.html