Trade Secret: Protection & Remedies 1 Neelam Satija 2 ABSTRACT: This article presents the importance of trade secret protection and what are the several ways to protect the trade secret at national as well as international level. To understand the importance of trade secret protection one should know what actually trade secret means and what type of the information constitute trade secret. The article begins with a brief general definition of the trade secret and different types of the trade secret. After it will explain the essential elements or requirement that information must fulfill to be protected under trade secret right. Thereafter, some silent features of the trade secret protection system will be provided that makes trade secret different from other IP forms especially patent, as both protect the Innovations. The trade secrets are preliminary form of every intellectual property rights and have a great need of protection, which will be explained along with significance of protecting the information as trade secrets. It also provides a complete picture about the various ways of protecting the trade including the legal system, sui generis system, and international agreement bearing trade secret protection. This article also 1 The authors assume no legal responsibility for the views/information expressed in this paper. The references from the information has been taken is given in last section. Author respect the copyright of other writers. 2 Author can be reached at [email protected]1
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Transcript
Trade Secret: Protection & Remedies1
Neelam Satija2
ABSTRACT: This article presents the importance of trade secret protection and what are the several ways to protect the trade secret at national as well as
international level. To understand the importance of trade secret protection one should know what actually trade secret means and what type of the information constitute
trade secret. The article begins with a brief general definition of the trade secret and different types of the trade secret. After it will explain the essential elements or
requirement that information must fulfill to be protected under trade secret right. Thereafter, some silent features of the trade secret protection system will be provided that
makes trade secret different from other IP forms especially patent, as both protect the Innovations. The trade secrets are preliminary form of every intellectual property
rights and have a great need of protection, which will be explained along with significance of protecting the information as trade secrets. It also provides a complete picture
about the various ways of protecting the trade including the legal system, sui generis system, and international agreement bearing trade secret protection. This article also
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The authors assume no legal responsibility for the views/information expressed in this paper. The references from the information has been taken is given in last section. Author respect the copyright of other writers.
explains protection of trade secret at national level; this gives an idea about different laws enacted in different countries to protect the information under trade secret. Then
it will be necessary to explain, what the possible remedies available are for a person whose trade secrets are either infringed or prone to infringement in the future.
Wherever it is found necessary, I have tried best to make the subject matter clear with the help of case studies. In short the present author wants to give a deep insight of the
trade secret protection system starting from their definition to the judicial relief for the infringement of trade secret.
INTRODUCTION: Intellectual property rights protection is one of the most important and current legal issue in national as well as in international trade
area. As international trade and investment increases around the world, trademarks, patent, copyrights and trade secret need to be a subject of more global prospective.
Every intellectual property starts with trade secret as it needs protection from the competition till, the rights are granted to the owner by the government. The law of the
trade secret protection getting international attention because of its potential to become an effective legal tool when other regimes like patents or copyrights is not suited to
offer the satisfactory or desired protection for investors.
In the present scenario of aggressive competition, industrialization and liberalization every corporate house has certain information with regard to technological know-how,
idea and technology. Companies some tines overlook their trade secret as intellectual property assets both their creation and continued existence depend upon the secrecy of
the information. It is unlikely that a company will issue announcements or press releases that a trade secret has been created. The important distinguishing feature of the
trade secret from other intellectual property protection is that they are not publicly recognized or registered with the government. The main point here is to understand what
information constitutes a trade secret that can be judged by the criteria set up in the statute for the protection of information as trade secret. There is no global law for the
protection of trade secret or even a definition of trade secret. Almost 40 countries of the world rely on Uniform Trade secret Act for the protection of trade secret. The
protection of trade secret start with the enactment of Paris convention, the article 10 bis of the convention provide protection to the undisclosed information. Other
agreements which provide global protection to the trade secrets are TRIPS and NAFTA. The Restatement of TORTS provides a definition for a fairly good approximation
of the international censuses: “as a general rule, a trade secret can be any information not commonly known in the relevant industry that is use in connection with a business
to obtain a competitive advantage and the information is secret, is identifiable, and is not readily ascertainable”. This general rule being stated, it is cautioned that the
subject matter that can be protected as a trade secret will differ in nations, with some3 providing no protection for the trade secret at all. This tries to make the definitions of
trade secret relevant to all the countries of the world. But still different nation have some what different trade secret protection law. As the leading exporter of technology
worldwide, the US is increasingly concerned with strengthening international standard for the protection of trade secrets. The United States has been aggressive in
demanding stronger trade secret protection of American technology by the foreign countries. These efforts are successful and provide a privilege in bringing intellectual
property issue under the rubric of the international trade and GATT. In addition many Asian nations have enacted new trade secret laws as a result of threats by the United
States to impose trade sanctions for failing to provide adequate protection of their intellectual property within their borders. India is also one of the countries which protect
the trade secret by the common law and also rely on the UTSA for the protection. The Indian parliament proposes a new act for the protection of trade secret entitled
“National Innovation act of 2008”, once it come in to force the trade secret in Indian will have a statutory protection.
While the information economy has made the trade secret more important, it has also made them more likely to be stolen. A more mobile work environment of the present
scenario, the increased use of contractors and consultant and increased infrastructure outsourcing all the provide opportunities for the trade secret information to leave the
company’s control. Information technology itself contributed to the theft of the trade secret and also helpful in the storage of information in the easily copied computers and
internet connectivity. This all lead to theft of the trade secret which is commonly known as misappropriation of trade secret. The various national provides the criminal,
administrative, and civil remedies for the theft of the trade secret. As the trade secret are the primary creator of the innovation so must be protected all over the world.
WHAT IS TRADE SECRET? Trade secret could be traced to Roman law, whereas under such ancient legal system a competitor’s corruption of
a slave to divulge his master’s commercial affairs was punished. The modern trade secret law evolved in England during the industrial revolution.
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Philippines provide no protection to trade secret.
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A trade secret is an item of non-public information concerning the commercial practices of proprietary knowledge of a business and is subject to reasonable efforts to
preserve the confidentiality. Public disclosure of trade secrets may sometimes be illegal. Other terms used for the trade secret are “confidential information”, “proprietary
information”, and “know how”. In some jurisdictions, they are referred to as “classified information”. Trade secrets are actually any information that can be used in the
operation of a business or other enterprises that is sufficiently valuable and secret to afford an actual or potential advantage.
A trade secret can be any useful information that is not generally known. A popular definition is “anything the owner of useful information doesn’t want the competitors to
know”.
Almost anything can be a trade secret. As the English court of Appeal stated4:
“It is clearly impossible to provide a list of matters which will qualify as a trade secrets or their equivalent. Secret processes of manufactures provide obvious examples,
through the secrecy of some information may be short lived”
The precise language by which trade secret is defined varies by jurisdiction. The UTSA also provides for the definition of trade secret which is as follow:-
Information including formula, pattern, compilation, program device, method, techniques or process that: derives independent economic value, actual or potential, from no
being generally known to, and not being readily ascertainable by the proper means, other person who obtain economic value from its disclosure or use and is subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
Trade secrets are generally divided in to two categories:
Technical Trade in research and development, secret formulas, designs, computer source code, manufacturing tools and the like.
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Held in case Faccenda Chicken v. Fowler, [1986] 1 A11 E.R. 617 (C.A.) 623 AT 627
Business Trade Secret: These provide a broader category and cover the vast pool of marketing, sales, and financial and administrative data used to manage a business.
Examples of such business trade secrets include customer lists, marketing plans, financial and accounting data, and information about the employees.
It is necessary that above two types of the trade secret must fulfill the requirement of protection of the trade secret. Trade secret can not cover the information that is
generally known to the professional in the field of generalized know how for example an information necessary for a chemist to complete their synthesis of the drug
efficiently and smoothly like the temperature conditions, amount of the reagent used etc. Such information can not constitute the trade secret. So drawing a line between
what belongs to the employer and what are personnel to the employee is very difficult. In some states there are inventor protection laws that give the employees rights to the
invention made their Secret, Such trade secrets are found their own time.
DETERMINATION OF THE INFORMATION AS TRADE SECRET: Trade secrets are like other
intellectual property rights and have three main elements: information must be secret itself, it should have economic value, and the holder must show reasonable efforts to
keep the information secrets. These three main elements are described here which determine whether the information is a trade secret or not. These are as:-
(I) Unknown requirement: The information is secret when it is not generally known or readily accessible. Such an objective standard means that the information already
in the public domain can not be treated as a trade secret. Moreover this unknown requirement is defined in contact with the persons who normally deal with the secret
information in question. This seems to attach a relative standard of secrecy meaning that information generally known or readily accessible to the persons dealing in a
particular industry or a business is not a trade secret. Thus, in the international trade context, information is not trade secret if it is within a particular industry or business
public domain. It is very necessary to find out the extent to which the information is known outside of the business, by the employees and other involved in the business.
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This is similar to that of kept-secret requirement because the more the measures taken by the owner to kept their information secret, less it is known to the person outside
the business.
(II) Kept-Secret requirement: To become a trade secret, the information should be kept secret. The business should implement certain procedure to maintain the secrecy
of their important information. Because of intangible nature of trade secret, the extent of the property defined therein is defined by the extent to which the owner of the
secret protects his interest from disclosure to others5. The owner must take reasonable steps to protect trade secrets6.The various steps that can be taken by the owner to
keep their information secret, some of them are given below:
Non-disclosure agreement (NDA)7: A non-disclosure agreement (NDA), also known as a confidentiality agreement, confidential disclosure agreement (CDA), proprietary
information agreement (PIA), or secrecy agreement, is a legal contract between at least two parties that outlines confidential materials or knowledge the parties wish to
share with one another for certain purposes, but wish to restrict access to. It is a contract through which the parties agree not to disclose information covered by the
agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or a trade secret. As such, an
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It is ascertained by supreme court in the case Ruckeshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984)
NDA protects non-public business information. NDAs are commonly signed when two companies or individuals are considering doing business and need to understand the
processes used in each others business for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their
use of the materials provided, or they can restrict the use of material by a single party.
It is also possible for an employee to sign an NDA or NDA-like agreement with an employer. In fact, some employment agreements will include a clause restricting
employees use and dissemination of company-owned "confidential information." NDAs are used in the IT field, and are often given directly prior to taking a certification
exam. In rare cases, the contract may state that the existence of the NDA itself cannot be disclosed.
Marking information as Confidential: by marking the information as confidential or proprietary, those who gain access to the information are aware of its status and must
realize that they have to keep the information secret. Such a marking is not the same thing as a copyright notice8. A copyright notice only indicates who the copyright holder
is. It does not say anything about the confidentiality of the material.
Restricting distribution: As the saying goes, a secret known to three people is only secret if two of them are dead. However, assassinating those who know "too much" is
only an option in spy movies. The best thing for companies is to make sure that trade secret information is only disseminated to those people who have a real need to know
the information. For information on paper colored paper can be used to make copying more difficult, indicating to the owner of the paper that the document is not supposed
to be copied. With electronic documents, it is sometimes possible to indicate that the document may not be copied, printed or forwarded. Although such indicators can be
removed, this is difficult to do by accident. Intentionally removing such indicators proves intent to damage the trade secret status of the information.
(III) Utility requirement (Economic value): The information must have value to the business and to the competitors to become trade secret. The trade secret economic
value factor is very interconnected with the secrecy element. It does not encompass any assessable independent book value or a particular investment figure with respect to
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Refer to http://www.iusmentis.com/copyright/notice/
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the secret information. Instead, the economic value of the information increases from the competitive business advantage presupposed by the information secrecy. It is the
usefulness of the information for the ongoing concern that lens commercial value to the information. If information which needs protection under the trade secret protection
system has no use or no economic value in the related industry, then there is need to protect them.
The last but not the least method to determine whether information is a trade secret is to consider the efforts made by the owner to generate the trade secret and investment
made in acquiring or developing the information. Another criterion is the degree of the difficulty a competitor would face in duplicating the information.
Case study: The coca-cola company has most successfully protected is formula for the soft drinks. In a case of Coca-Cola formula in Coca-Cola Co., 107 F.R.D. 288 (D.
Del. 1985), the court held that company take several measures to protect its formula. The written version of formula is kept secret in security vault in Atlanta bank and
the vault is allowed to open only by the resolution by the Board of Directors. Only two employees of the company know the formula at a time and only those persons
oversee preparation of formula. The identity of the both employees is kept secret who have access to the formula. Both employees are not allowed to fly on same plane at
same time. The last element is also present in the formula kept secret by the company that it is not known to the persons of general public as well as to the person
experienced in the relevant field. From the above case study it is clear that a plain assertion of the secrecy is not enough to claim the protection under trade secret. The
claimant owner must take affirmative steps that show his or her desire to veil the information from others.
PATENT AND TRADE SECRET: Trade secret rights are different to the right granted by patent system in most jurisdictions however
both are meant for the protection of the innovation but trade secret protect the inventions and processes which are not patentable. The some differences are listed here:
Trade Secret Patents
DefinitionThe definition of the trade secret is broad and often vague and is very difficult to apply.
Patent system provides mainly three criteria: novelty, non obviousness, industrial applicability which have to be checked in proposed invention to become patentable
Limit No such limit or boundaries (like claims) are provided in the law to define the rights
Patent also provide for claims that attempt to strictly define the limits of the patent rights
of a trade secret. It is very difficult to draw a line between protect able and non protect able information, when think about trade secret
Term of protection
The trade secret may provide protection to any innovation for the unlimited period9 of time. Likewise they may instantly terminated by inadvertent or intentional public disclosure such as patents, article, journals, or presentations. The protection provided under trade secret last as long as the information met the requirement of protection. Once it is disclosed to public it loses its protection. Trade secret protection could be perpetual.
Every patent regime grant protection for a limited time period10, after which any one can use the patented invention at own will.
Volatile NatureThe trade secret rights are volatile in nature in contrast to the stable nature of patent rights
A patent right can be destroyed only through expensive and time consuming challenges against the validity of the patent but a trade secret right can be destroyed easily by the inappropriate public disclosure.
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The trade secret of the coca-cola company is a well known example of a trade secret which acquires protection at its best. It has been protected through such regime
for more than a century.
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Term of protection granted to a patent is 20 years from the effective filing of the application.
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Reverse engineering or independent development Trade secret may be discovered and exploited by the independent development and reverse engineering. The trade secret user is not liable for the trade secret infringement if he/she obtained it by lawful means.
Patent rights are not subject to independent development and reverse engineering. For the patented product the subsequent independent development will cause the patent infringement charge. The subsequent reverse engineering of the patented product or invention on the market place will not excuse patent infringement.
Economic aspectEconomic analysis support trade secret protection
An acquisition of the patent is a long and costly process that could undermine profitability. In spite of this, the trade secret protection economic implications are limited to the cost of keeping the information secret
WHY PROTECTION OF TRADE SECRET IS NECESSARY? Trademarks and patent are the well known
form of intellectual property rights, and are highly effective in protecting the creation of intellect of human mind. But the corporate houses are trying to convince their
respective government to provide protection of trade secret; they think trade secret to be back bone of their operations. The protection of the trade secret seems to be very
essential for the small sized industries, as they can not afford for the patent protection which is very expensive process. The trade secret also had an added advantage; they
would be sole possession of the holder as long as he is able to keep it secret and even if the competitor acquired through lawful mean the original holder can file patent
application to protect their innovation.
Generally, the trade secret have to be protected from the exploitation by those who either obtained access to someone trade secret by improper means or those who obtain
the information from one who knows or should have known the information by improper means; or those who breach the confidence/promise to keep the information
confidential. After the theft of the trade secret, if owner can prove that reasonable efforts have been made to keep the information confidential, the information remains a
trade secret and generally remains legally protected. Such reasonable efforts taken by the owner will prove highly beneficial during the suit in infringement against the trade
secret. Conversely, trade secret owners if cannot evidence reasonable efforts at protecting confidential information, risk losing the trade secret, even if the information is
obtained by the competitors illegally.
The policy objectives behind the protection of trade secrets are the maintenance of ethical commercial standards and the encouragement of research and innovation. In the
technology industry, trade secrets are particularly useful to protect a patentable invention during the application process, information not covered by the patent and
information this is not patentable. The other rationale behind the protection of trade secret is that creative efforts made by the owner are valuable because they are product
of creative work. To encourage those efforts, the society needs to ascribe the benefits of such creative labor to the owner. That is why trade secret deserved protection in
order to make them valuable assets.
“PROS AND CONS OF RELYING ON TRADE SECRET PROTECTION”
When deciding whether to patent a technical trade secret or to keep it as a secret, the owner of the confidential information must be aware of the several pros and cons of
protection under the trade secret system.
PROS OF THE TRADE SECRET PROTECTION:
The trade secret protection may continue indefinitely as long as the secret is not revealed to the public11.
Trade secrets involve no registration cost.
Trade secret protection arises immediately at the time they are discovered.
Trade secrets are very easy to obtain, although they require some diligence to maintain12.
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The case of the coca-cola company.
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Rockwell case
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Formulas are ideal to protect by trade secrets. Formulas may be more difficult to obtain patent protection. As formulas and algorithm are not patentable subject matter to
the extent that they merely abstract ideas. The formula or mathematical algorithm must be reduced to a practical application.
In case of software, it is very difficult to detect the infringement if the competitor has embedded the formula in the software. But if the processing or working of the
software is kept secret, it will be very easy to protect the interest of the owner.
CONS OF TRADE SECRET PROTECTION:
Along with the advantages there are some disadvantages of the trade secret protection. The owner can benefit from the trade secret protection by keeping these in mind.
Reverse engineering: if the trade secret is embodied in an innovative product, the competitors may be able to reverse engineer the product, discover the secret and be
thereafter entitled to use it.
Once the trade secret is made public, anyone may have access to the information and anyone can use it at own will.
Trade secret may be patented by someone else who develops the relevant information by legitimate means.
THEFT OF TRADE SECRET: MISAPPROPRIATION: Trade secret does not provide the owner with the exclusive
right to use the confidential information. Therefore a person is not legally precluded to use a trade secret, as long as the trade secret was acquired by the improper means.
The acquisition of the trade secret a person using improper means is known as misappropriation. Misappropriation is an amorphous tort that is a part of state unfair In the
terms of law, the misappropriation is the intentional, illegal use of the property or funds of another person for one’s own use or other unauthorized purpose, particularly by a
public official, a trustee of a trust, an executor or administrator or a dead person’s estate or by any person with a responsibility of care for and protect another’s assets. As
the trade secrets also constitute a property so the intentional or illegal use of the trade secret is also a misappropriation.
WHAT IS MISAPPROPRIATION?
Misappropriation covers illegal acts, such as wiretapping or theft. But also improper acts that might strictly speaking legal can qualify as misappropriation. For example, in
a famous US lawsuit on trade secret theft, a chemical company was building a plant in which a secret process was to be used. At some point during the construction it was
possible to look through the roof to see details of the process. A competitor hired a small plane to fly over the plant and took photos. Although flying over someone's
property is not trespassing, this act was still held to qualify as misappropriation because it was performed explicitly for the purpose of circumventing the precautions taken
by the chemical company to protect its secret process. In general terms, misappropriation is the wrongful acquisition, disclosure or use of a trade secret, which is defined by
the various trade secret acts as:
acquiring the secret through improper means or from another person knowing that they acquired the trade secret by improper means;
disclosing or using the trade secret without the consent when the circumstances create a duty not to disclose or use it.
In a case of International News Service v. Associated Press13 , seminal 1918 Supreme Court case creating the doctrine of misappropriation as part of unfair competition law.
In that case, AP sued INS for taking its news stories on the east coast and providing them to customers on the west coast. INS accomplished this by taking advantage of the
difference in time zones and using the intervening time to rewrite the news stories and wire them to publishers on the west coast. Since the essential facts were first
extracted and articles rewritten, there was no copyright infringement. Nevertheless, the Supreme Court granted relief since the defendants had “misappropriated” the “hot
news” generated by AP. The Court reasoned that the plaintiff had acquired an intangible quasi-property right in the news (at least temporarily while it was “hot”).
BREACH OF CONFIDENTIAL RELATIONSHIP:
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Refer to http://www.law.uconn.edu/homes/swilf/ip/cases/ins.htm
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Misappropriation of the trade secret is thought to be occur when the trade secret has been acquired improperly or under an obligation not to disclose or use it; or from
someone else who had an obligation not to disclose it; or by accident or mistake, if before using or disclosing the trade secret the person acquiring it learns that it is a trade
secret14.
Misappropriation can also occur when a confidential relationship is breached. If someone receives information under NDA and then reveals this information to others, he
violates the NDA and so is guilty of misappropriation of the trade secret information. But breach of confidentiality can also occur even if no NDA was signed. The
circumstances might make it clear that a confidential relationship exists. For example, a contractor who is asked to submit a quotation to build a certain product should
normally consider the information regarding the product to be confidential. At the same time, the person soliciting the quotations should know that these quotations should
be kept confidential. Knowing the quotations of his competitors enables a contractor to lower his price to have a bigger chance of getting the contract.
LIABILITY FOR MISAPPROPRIATES OF TRADE SECRETS:
Someone who misappropriated a trade secret is liable for damages. Also, the owner of the information can apply for an injunction to stop him from using the information.
The misappropriation may have resulted in loss of the trade secret status. Then an injunction is often limited in time to the "lead time" obtained by the misappropriator. That
is, the court tries to determine how long it would have taken to independently come up with the same information, and forbids the misappropriator to use trade secret
information for that period. If in the meantime a lot of different people have legitimately acquired the protected knowledge, the court is less likely to award an injunction.
The only remedy then is a compensation for the damages suffered by the loss of trade secret status. These damages can be computed as the profit made by the
misappropriator.
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These are the some reasons why companies even after high security and various protective measure lose their trade secrets.
In a case of Garth v. Staktek Corp15., the question presented on appeal was whether a temporary injunction should be upheld against a corporation and an individual who
would otherwise continue to make use of certain trade secrets obtained through a prior confidential relationship. Garth, Burns and Campbell formed a joint venture in
January, 1990 to produce a certain three-dimensional memory package for computer applications. In turn, Garth joined RTB Technology, Inc. (RTB) to proceed with a
competing product. Thereafter, Staktek brought suit against RTB. The trial court issued a temporary injunction and RTB appealed. On appeal, RTB argued that the public
disclosure of a patent abstract in Brussels on February 20, 1992 vitiated any trade secret rights. RTB also argued that its activities in the design of a competing product did
not constitute "commercial use" for purposes of finding a misappropriation of trade secrets. The Texas Court of Appeals rejected both arguments. Any misappropriation of
trade secrets, followed by an exercise of control and dominion, is considered a commercial use. The trial court found that RTB had used Burns' trade secrets to develop its
competing product before the Brussels publication. RTB's "use" of trade secrets before such information was allegedly disclosed to the public is a wrongful act that makes
imminent financial harm from unfair competition clearly foreseeable. An irreparable injury exists when unfair competition deprives the initial producer of a fair
opportunity to market its product. Lost opportunity to gain control of a new market may result in unquantifiable losses for which there is no adequate remedy of law. By
appropriating Staktek's confidential information before its publication, RTB was able to prepare to enter the market at the same time as Staktek, and thus could deprive
Staktek of the competitive advantage offered by the normal developmental period. Additionally, a single industrial standard generally dominates the market for computer
components. The trial court found that only one product is likely to survive, and that RTB's licensing a competing product with major manufacturers would probably
destroy Staktek's opportunity to develop the standard and market its product. To provide any real protection in situations in which the competing company uses the creator's
trade secrets to concurrently develop a similar product, injunctive relief beyond the date the company creating the technology publicizes its product is an appropriate
remedy.
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Refers to http://www.asksam.com/cgi-bin/as_web5.exe?Command=Doc&File=halligan&DocID=144363&Request=misappropriation
“Industrial espionage16” is one of the most common methods to misappropriate a trade secret. The UTSA provides civil rather than criminal liability for the
misappropriation of trade secrets and also provide a private cause of action for the victim. Along with these another remedies for the misappropriation of trade secret in
another countries are injunction and damages which will be explained later.
NO MISAPPROPRIATION
Trade secret protection does not extend to someone who obtained the same information from another source. A customer list may qualify as a trade secret, but a competitor
may have compiled the same list independently (for example, if the number of potential customers is limited). Also, the information could have been obtained from a public
source, which means that no trade secret misappropriation occurred. This applies also if the information can be derived from a product sold by the information owner,
unless the product was sold under NDA.
PROTECTION OF THE TRADE SECRETS: There is no global law of the trade secret protection or even not a worldwide
common definition of what constitute a trade secret.
A. LEGAL PROTECTION OF TRADE SECRETS: Trade secret rights are protected under the state as well as under federal law by different statute as explained here:
STATE LAW: Trade secrets are mainly protected under the state law rather than federal law in many countries. A model law which is adopted by almost 40 states mainly
U.S. is “ Uniform Trade Secret Ac 17t ” . UTSA was drafted by the National Conference of Commissioners on Uniform State Laws in 1970 and after that amended in 1985.
Approximately 45 states have adopted the modified version of the UTSA.
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Refer to http://en.wikipedia.org/wiki/Industrial_espionage
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Refer to http://en.wikipedia.org/wiki/Uniform_Trade_Secrets_Act
UTSA is the relevant law for the unauthorized commercial use of a trade secret by a third party, first of all enacted in U.S. The U.S. has such legal instrument to protect
trade secrets. The nature and methodology used is this act is quite different from the others.
FEDERAL LAW: The misappropriation or theft of the trade secret is a federal crime18 by the Economic Espionage Act19 of 1996. This law contains two provisions for
criminalizing two sort of the activity. The act criminalizes the theft or misappropriation of the trade secrets for the commercial or economic purposes20 or for the benefit of
the foreign powers21. The statutory penalties are different for the two offenses.
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A crime that is either made illegal by federal legislation of that country or a crime that occur federal property of that country.
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18 U.S.C. section 1831 to 1839
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18 U.S.C. section 1831 (a)
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18 U.S.C. section 1832
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The first, 18 USC section 1831 (a) criminalizes the misappropriation of trade secrets (including conspiracy to misappropriate trade secret and subsequent acquisition of
such misappropriated trade secrets) with the knowledge or intent that the left will benefit a foreign power. Penalties for the violation are fines up to US $500,000 per
offense and imprisonment of up to 15 years for individuals, and fines of up to US $ 10 million for organizations. The second, 18 USC section 1832, criminalize the
misappropriation of trade secrets related to or included in a product that is produced for or placed in interstate (including international) commerce, with the knowledge or
intent that the misappropriation will injure the owner of the trade secret. Penalties for violation of section 1832 are imprisonment for up to 10 years for individuals (no
fines) and fines of up to US $5 million for the organization. In adition to theses penalties, section 1834 of the EEA also requires criminal forfeiture of any proceeds of the
crime and property derived from proceeds of the crime; and any property used, or intended to be use, in commission of the crime.
Trade secrets are also protected under the Commonwealth common law jurisdictions, in this confidentiality and trade secrets are regarded as an equitable right rather than
a property right22.
B. PROTECTION OF TRADE SECRET BY SUI GENERIS SYSTEM
The large repository of the knowledge and practices are locked up with our vaidyas, hakims, artisans and artists, which remain as a trade secret and have current or potential
commercial value. Their protection is vital for the survival of these systems and practices. To protect the vast repository of undisclosed information and knowledge which is
kept trade secret by their practitioners, India should consider their protection under a pro-active legislation under a “sui generic” system. This sui generis trade secret
protection23 is provided under Article 10 bis of the Paris Convention and Article 39 (2) and 39 (3) of TRIPS24. Most of the information is already goes with the traditional
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There is an exception in Hong Kong where a judgment of the High Court indicates that confidential information may be a property right
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Refer to http://www.tradesecretsblog.info/2008/11/trade_secrets_protection_in_in.html
people, which could prove beneficial for the mankind if known to us, by keeping it trade secret. Hence their protection is very essential. These types of practices and
products, possessed by our large number of our vaidyas, hakims, artisans and artists, can be protected under “Sui Generis” legislation.
C. INTERNATIONAL TREATIES FOR THE PROTECTION OF TRADE SECRET:
There is an increasing recognition of the importance of trade secrets and trade secret protection in the United States and abroad. It has been estimated that the majority of
working technologies worldwide is protected as a trade secret rather than by patent. Also the globalization of the commerce requires even small companies to protect their
trade secret on international basis. If the companies fail to protect their trade secret internationally, then during business in abroad or foreign countries they have to sacrifice
competitive advantage. Various treaty and the agreements are enacted to protect the intellectual property on global basis that also protect the trade secret. Both the North
American Free Trade Agreement (NAFTA) and the Agreement on Trade Related Aspects of Intellectual Property (TRIPs) ratified during the Uruguay Round of the General
Agreement on Tariffs and Trade (GATT) include specific provisions directed toward increasing the protection of trade secrets. There are no comprehensive international
treaties pertaining to the trade secret. NAFTA and TRIPS provide only brief attention to the topic. Furthermore, in the past ten to fifteen years, there has been a trend toward
the adoption of domestic statutes specifically directed at the increased protection of trade secrets, particularly among Asian nations. There is a little difference in the
protection provided by the various international treaty and agreements:
24
2
Refer to http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm
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(I). PARIS CONVENTION: The Paris convention25 for the protection of industrial property (1883) was enacted, in part, to discourage the unfair competition. Article 10
bis of the Paris Convention26 (covering unfair competition) provided a potential source of support for the international standards of trade secret protection, but the language
of this provisions is only poorly suited for this purpose. The Paris convention prohibits unfair trade practices among its members, means “Any act of competition which is
in conflict with the fair customs of the industry and trade is not acceptable”. The examples of the unfair competition provided by the Paris convention do not include trade
secret infringement. Thus, it is not clear from the convention statement if economic espionage or other unfair means to appropriate a trade secret comprises unfair
competition. But the article 1 (2) of the Paris convention stipulates that the industrial property should be understood in its broadest sense. Therefore, legal consequences of
interpreting the Paris convention in the field of trade secret is deemed to be unclear because the lack of enforcement provisions in the Paris Convention left the international
community without a legal apparatus to achieve the protection level desired.
(II) TRIPS AGREEMENT: The main aim of the TRIPS agreement27 (1994) is to provide internationally accepted standards of protection of intellectual property rights
and it is implemented by the WTO. All the major industrialized countries are members of this agreement. GATE created the WTO which is responsible for the development
25
2
Refer to http://www.wipo.int/treaties/en/ip/paris/trtdocs_wo020.html
26
2
Refer to http://www.uspto.gov/web/offices/pac/mpep/documents/appxp_10_bis.htm
27
2
Refer to http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm
and administration of agreements and programs for the improvement of world commerce. WTO established an administrative procedure for resolving the trade secret
disputes.
It is a point to think whether trade secrets are form of intellectual property rights? The general opinion at the GATT negotiations was that unauthorized use of “confidential
information”, belonging to others, is an unfair practice. The developed countries wanted to further protect their economic interests and one such way was to provide
adequate protection to the capitalists, which could be achieved by protecting their creations. Various provisions of the TRIPS
Article 39 of the TRIPS, is a first multilateral acknowledgement of the essential role of the trade secret in the market place and this article stipulates that undisclosed
information, often synonymous to trade secrets, can be protected as provided for in Article 10 bis of the Paris Convention.
Article 39, clause 2 states that all members will protect undisclosed information from commercial exploitations.
Article 39, clause 3 states that data or information submitted to Government for regulatory or other approvals have to be protected from leakage to or theft by third parties.
Section 7, of the TRIPS agreement is the most relevant provisions for the protection of undisclosed information.
Article 39 of the TRIPS is certainly an international acknowledgement of the importance of the trade secret too worldwide trade. And is also a victory for the industrialized
western nations in their search for a better legal framework to protect industrial property like trade secret. TRIPS include provisions for the protection of trade secrets,
under the general term “undisclosed information”, but are silent on the modalities of achieving this and have left it to the member country as how much protection they
provide. Member’s countries must follow standard requirement for what constitute trade secret, infringements and available remedies.
(III) NAFTA (NORTH AMERICAN FREE TRADE AGREEMENT)28: The U.S., Mexico and Canada are the signatories to the North American Free Trade Agreement29
(NAFTA) in late 1992. NAFTA carries a provision directed to provide uniform minimum standards for protecting trade secret. NAFTA largely follows the tenets of trade
28
2
Refers to http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/texte/index.aspx
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secrets law in the United States. A trade secret under NAFTA is defined as commercially
valuable information, which is not publicly known and the owner of which takes
reasonable steps to maintain the information’s secrecy.
The article 1711 (1) of this agreement states the protection of the trade secret. It states
that each party shall provide the legal means for any person to prevent trade secret from
being disclosed to, acquire by, or used by others without the consent of the person
lawfully in control of the information in a manner contrary to honest commercial
practices, in so far as: The information is secret, has actual or potential value and the
person lawfully in control of the information has taken reasonable steps under the
circumstances to keep it secret. The NAFTA members are responsible for protecting trade
secrets and to prevent the unauthorized acquisition and use of materials that classify as
trade secrets. Among the available remedies in each of these countries, injunctions as
well as monetary remedies are required.
It seems clear from the above that NAFTA protection of trade secret is almost the same as
that provided by the TRIPS to undisclosed information. However the protection provided
by NAFTA is broader, to the extent that confidential information could have present or
potential value. While the TRIPS does not recognize such a dichotomy, it needs the
protection must have potential value. Other contrast are that NAFTA allow its members
to require some sort of the tangible evidences for the trade secret protection30, also
NAFTA prohibits the parties from limiting the duration of the protection. NAFTA
discourages or impedes the trade secret licensing process31. TRIPS is completely silent as
to the above elements.
29
2
Refers to http://www.fas.usda.gov/itp/Policy/nafta/nafta.asp