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.

By keeping valuable information secret, you can prevent competitors from learning about and using it and thereby enjoy a competitive advantage in the marketplace.

What are trade secrets?What are trade secrets?What are trade secrets?What are trade secrets?

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?

QuestionQuestion 11

WHAT KIND OF INFORMATION WHAT KIND OF INFORMATION QUALIFIES AS A TRADE QUALIFIES AS A TRADE

SECRET ?SECRET ?

TRADE SECRET

• Provides competitive advantage

• Potential to make money

Kept confidential

TRADE SECRET

Financial information

Technical & scientific

information

Commercialinformation

Negativeinformation

– 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– Marketing plans, unpublished promotional material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

Typical examples of TS

QuestionQuestion 22

WHAT MAKES SOMETHING A WHAT MAKES SOMETHING A TRADE SECRET ?TRADE SECRET ?

When do you have When do you have legal protection?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

• “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.

1. Secret

• 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

2. Commercial value

• 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

3. Reasonable steps

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

QuestionQuestion 33

When can you seek Legal When can you seek Legal Remedy? Remedy?

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

Enforcing TS in India

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.

Trade Secrets Contracts

Reported Cases on Trade Secrets

Laws relied on

21

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.

Indian Cases

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.

Spring Board Doctrine

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.

The Swyamvar Case

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.

English Precedents

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

Not many cases on trade secrets – from a property right perspective

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.

Spring Board Doctrine

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.

The Swyamvar Case

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.

English Precedents

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

Not many cases on trade secrets – from a property right perspective

What is lawful and Not?

1. Reverse engineering 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

2.Discovery of the secret by fair and honest means is lawful

QuestionQuestion 44

HOW ARE TRADE SECRETS HOW ARE TRADE SECRETS LOST OR STOLEN ?LOST OR STOLEN ?

A Growing Problem. A Growing Problem. Why Does It Occur?Why Does It Occur?

– Way we do business today (increased use of contractors, temporary workers, out-sourcing)

– 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

– Reverse engineering, independent discovery– Improper licensing– Burglaries by professional criminals targeting

specific technology– Network attacks (hacking)– Laptop computer theft– Inducing employees to reveal TS

ExamplesExamples

– departing or disgruntled employees– intentional (malicious)– inevitable (knowledge acquired)– by ignorance

• 80% of trade secret loss < employees, contractors, trusted

insiders!

QuestionQuestion 55

HOW TO PROTECT HOW TO PROTECT YOUR TRADE YOUR TRADE

SECRETS?SECRETS?

1. Identify trade secrets1. 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 policy2. 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 access3. 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 documents4. 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 protect5. 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 6. Restrict public access to facilitiesto 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 secrecy7. 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 employees8. 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 parties9. 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

QuestionQuestion 66

MAY TRADE SECRETS BE MAY TRADE SECRETS BE SOLD OR LICENSED?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

QuestionQuestion 77

HOW IS TRADE SECRET HOW IS TRADE SECRET PROTECTION PROTECTION ENFORCED?ENFORCED?

What can you do if What can you do if someone steals or someone steals or

improperly discloses improperly discloses your TS?your TS?

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

TS protection may be based on...

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

1. Injunction – Temporary or Perpetual

2. Damages

3. Search & Seizure order

4. Precautionary impoundment

Remedies

QuestionQuestion 88

PROTECTING INVENTIONS:PROTECTING INVENTIONS:

TRADE SECRETS OR PATENTS?TRADE SECRETS OR PATENTS?

no registration- le ss co s ts (b u t: co s ts to ke e p se c re t)

- im m e d ia te ly a va ila b le

can last longer- b u t: lim ite d to e con o m ic life

- u n ce rta in lifesp a n : le a k o u t is irre m e d ia b le

no public d isclosure- b u t: p rac tica l n ee d to d isc lo se

- if lea k o u t: T S lo st

Trade Secrets

reg istration- fe e s (re g is tra t io n + m a in te n an ce)

- ta ke s t im e to g e t p a te n t

lim ited in tim e- g e ne ra lly: m ax 2 0y

- b u t: c an be inv a lid ed

public d isclosure- p u b lica tio n 18 m a fte r f iling

- if P n o t a llo w e d : no TS

Patents

Large subject m atterP ro tec tio n o f virtu a lly a nyth ing

m a in ta ine d in se cre t by a b u sin e ssth a t g ive s com pe tit ive a d va n ta ge

O nly protection againstim proper acquirem ent/use

M ore d ifficu lt to enforce- so m e cou n tries : n o la w s

- a b ility to sa feg u a rd T S d u ring lit iga tion

Trade Secrets

Subject m atter lim ited:- R eq u irem en ts : n e w , n o n o bv io us , u se fu l

- S co p e : p a te n t c la im

Exclusive rightsm o no p o ly to e xp lo it

th e inve n tion

"Pow er tool"

Patents

1. ANY innovative idea should be kept as a

secret in the beginning

– to preserve option of patenting (or industrial design) at later stage

Things to bear in mind

INNOVATIVE IDEA

Secret !

Initially Later stage

Not patentable patentable

patent

TS

Strategic business decision

TS•Part f the idea

TS

©

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

Things to bear in mind

QuestionQuestion 99

WHAT TO BEAR IN MIND IF WHAT TO BEAR IN MIND IF YOU SIGN A CONFIDENTIALITY YOU SIGN A CONFIDENTIALITY AGREEMENT FOR A CLIENT ?AGREEMENT FOR A CLIENT ?

• reasonable in scope• - defines precisely what information you

must keep confidential• - limited in time (max. 5 years)• - exceptions

‘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

The Art of Handling It!

Thank you