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Trade secret? How to protect it

Last updated on: December 9, 2010 13:20 IST

Trade secret? How to protect it

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Anurag K Agarwal
Violations of business and intellectual property rights are on the rise and pose a huge challenge to corporations and innovators.

Keeping a 'trade secret' secret and 'confidential information' confidential is not only difficult but also costly.

The following book extract from "Business and Intellectual Property: Protect Your Ideas" by Anurag K Agarwal discusses some of the key issues relating to trade secret protection.

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Any information imparted in confidence is 'confidential information'. Any such information related to trade, industry or business is termed 'trade secret'.

When we say 'any' information, it does not as a matter of fact mean 'any' because such an information must be 'confidential' and a 'secret'.

It has to be tested on the anvil of reasonableness. The simple understanding is that such information should not be in public domain, it should not be obvious and there must be something 'secretive' about it.

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For instance, if A tells B in confidence that the Sun rises in the east, by any stretch of imagination it does not become 'confidential information'.

If A tells B in confidence a trade secret - the formula for making a successful movie - two brothers with similar tattoos on their backs separated in the village fair in childhood and meet later in life, one as a robber and the other as a police inspector, it does not become a 'trade secret' as it is well known and has been used by a number of film producers.

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Image: What makes infomartion confidential.

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Thus it is important that the information is not known to the public at large. It must not be obvious. It must be disclosed only to a very few select people by the owner of the information.

Owner believes the information to be confidential

One prerequisite is that the owner must believe that the information is confidential and a secret.

It is not necessary that no one else knows about it. There may be persons who know about it either by permission of the owner or through their own efforts or by serendipity.

But, till the time such information is not in public domain, it remains 'confidential information' or 'trade secret'.

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Image: Owner believes the information to be confidential.

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The problem the owner shall face in such a scenario is how to keep such a person silent. It will depend on how much such information can be commercially exploited.

For instance, if A comes to know of B's business plan, which is confidential and known only to B's team members (Bl, B2, B3...Bn), A may blackmail B. If B thinks that it does not affect him even if A discloses it to the world, there is no problem for B.

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Image: Infomation leak can lead to blackmailing.

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However, if B thinks otherwise and wishes to keep A silent, B can enter into a contract with A for this purpose.

In case B does not know that A knows B's plan, B will continue to believe that the information has not been leaked to anyone and it is safe to continue with the business plan.

Such a state of affairs is most undesirable on the part of B, as it shows that B has been living in a fool's paradise and has not taken adequate measures to protect the confidential information.


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The law, however, provides protection even in such cases when the owner believes that the information has been confidential and a secret.

It should be a reasonable belief. In case B goes on to tell such information indiscreetly to every one he meets as if discussing the day's weather, even if he starts the conversation with, 'this is between you and me...', there is no protection given by law as his understanding of keeping the information a secret is not reasonable.

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Reasonable precautions

The owner must take 'reasonable' precaution to keep such information a secret. What such precautionary steps are depends on the information and the context.

If it is highly confidential, all foreseeable precautions must be taken. The 'will' of a multi-billionaire, Coca-Cola formula, Tata's Rs 1-lakh car (before its launch and christening as Nano), etc all fall in this category.

In such a scenario abundant precaution is to be practiced. It may not be adequate protection even if it is kept inside a two-foot steel locker, if the key is not well-protected.

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Image: Nano car being assembled at the Sanand plant.
Photographs: Reuters.
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Reasonable measures must be taken to protect the key. After taking all such precautions, if the owner keeps on talking about it in the elevator, taxi or cafeteria, it defeats the purpose.

Reasonableness shall be judged by the holistic behaviour of the owner. It is reported that Tata Motors had taken unprecedented security measures to keep Nano a secret prior to its unveiling at the 9th Auto Expo at Pragati Maidan in New Delhi on January 10, 2008.

There was not even a whiff of Nano to the paparazzi. At this point one distinction needs to be made - the efforts have to be 'reasonable' and law does not expect the owner to make efforts, which may be made by a paranoid, who is obsessed with something and distrusts everyone.

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Image: Ratan Tata with the Nano.
Photographs: Reuters.
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The American Express case

Priya Puri was working as head of wealth management, Northern Region at the New Delhi office of American Express - AmEx, the international credit card major.

She had joined AmEx in March 2001, in the credit cards division and was transferred to the wealth management division in 2003 and was made the head of that division in April 2005.

AmEx had named and styled various business activities of wealth management as 'iWealth View', which had products like demand products, term deposits, and mutual funds.

As head of the Northern India wealth management division, Priya had a team of thirteen financial concierges and three regional managers. She had access to highly confidential information and trade secrets of AmEx such as customer data and information.

According to AmEx, it had taken all reasonable steps to ensure the protection of confidential information with individual password and authorisation to only such persons who could access that information.

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Priya submitted her resignation letter in September 2005 with a thirty-day notice. At this time, AmEx came to know that she had got an exhaustive list of large number of customers and their investment accounts prepared.

According to AmEx, she had used her official position to get the entire customer data which was confidential and to which she had no access.

AmEx also came to know that she had planned to join a competitor and was persuading customers to shift their accounts from AmEx to the competitor.

Talks between AmEx and Priya to resolve this dispute failed and in October 2005, AmEx terminated Priya's services primarily on the ground that she had disclosed confidential information to persons which was not in connection with AmEx's business.

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The other grounds were compromising the position of trust held by her as an employee, failing to avoid any conflict of interest between her personal interest and that of AmEx, using confidential information and trade secrets for her own benefit, violating AmEx's customer privacy policy, failing to return customer list and details, using them for personal benefit or for any of AmEx's competitor and violating AmEx's intellectual property rights.

Regarding confidential information, relevant clauses of the terms and conditions of her employment contract stated:

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"You will maintain the confidentiality of all the information that you will be exposed to and will not divulge any information pertaining to the operations of the Company or any of its affiliates to any one without the express written permission of your superior. You will not, at any time, while in employment with the Company, use other than in reference to the business of the Company and in the course of your duties any such confidential information OR after cessation of employment with the Company, use to disclose to anyone else such confidential information and you will also undertake to indemnify the Company and its affiliates from any loss or damage arising from any breach of this undertaking."

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Besides the contractual clauses, AmEx enforced a 'code of conduct' which was applicable to all the employees. Priya had attended various training sessions on code of conduct.

This code of conduct provides in great detail almost everything conceivable as intellectual property, including confidential information and trade secrets.

The termination letter included a request to Priya to return AmEx's confidential information and data (list of customers with account details) and to refrain from soliciting any of its customers.

Priya had returned the laptop, car, corporate card, identity card, mobile phone, and denied having possession of any confidential material of Am Ex.

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Thereafter, AmEx filed a suit in the Delhi High Court for perpetual injunction against Priya seeking primarily restrain against her from using any confidential information or trying to solicit AmEx's customers and directing her to deliver all confidential information in general and the customers' list with account details in particular.

Priya contested the claims of AmEx largely on two grounds, that she did not get any list prepared and that the said information - names, addresses, etc of the customers - was not confidential.

The Delhi High Court discussed the matter at great length and decided that first, Priya had no reason to get such a list prepared as she already knew it and secondly, such information cannot be categorised as 'confidential information'.

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Image: AmEx office.

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Priya knew very well the names, addresses, and financial details of the high income clients.

As a matter of fact, she approached a number of them to do business with the bank. They themselves were willing to disclose such details to her.

In such a scenario can she be restrained from taking those details because such details have already been given by the clients to AmEx?

Therefore, it cannot be inferred that Priya did not have the information which is touted as confidential and sacrosanct.

Moreover, Priya could not be restrained from soliciting AmEx's customers as it would create a situation of 'once a customer of American Express, always a customer of American Express'.

It is the prerogative of a person to bank with any banking company. Priya could not even be restrained from using the said information while working with the next employer as the Court felt that she could not be directed not to use her work experience.

(Reprinted with permission)


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