APHRDI

Residential Training
Program
Professor & Lawyer Puttu. Guru
Prasad
M.B.A., M.Com., M.Phil., PGDFTM., APSET., PhD at
JNTUK

Trade secretes
Professor & Lawyer Puttu. Guru
Prasad
M.B.A., M.Com., M.Phil., PGDFTM., APSET., PhD at
JNTUK

Financial
information

Technical &
scientific
information

Commercial
information

Negative
information

A trade secret is a formula, pattern,

physical device, idea, process, or
compilation of information which is
not generally known or reasonably
ascertainable, by which a business
can
obtain
an
economic
advantage over competitors or
customers.

A formula for a sports drink

Survey methods used by professional
pollsters, and Recipes (food)
A new invention for which a patent
application has not yet been filed
Marketing strategies
Manufacturing techniques
Computer algorithms

Secrecy

Restrict access to the information (lock it

away in a secure place, such as a bank vault)
Limit the number of people who know the
information
Have the people who know the trade secret
agree in writing not to disclose the
information (sign non-disclosure agreements)
Have anyone that comes in contact with the
trade secret, directly or indirectly, sign nondisclosure agreements
Mark any written material pertaining to the
trade secret as proprietary

Unlimited duration -trade secrets could

potentially last longer than patents (20
years) and copyrights
Your protection is theoretically worldwide
No application required
No registration costs
No public disclosure or registration with
government agency
Effective immediately

Formula for CocaCola

The Big Mac Special Sauce

KFC Chicken Recipe

WD-40 Formula

Secret Recipes
Kentucky fried chicken
The secret recipe of 11 herbs and spices lies in a bank
vault. Few people know it, and they are contractually
obligated to secrecy.
The ingredients are mixed by two different companies in
two different locations and then combined elsewhere in a
third, separate location.
To mix the final formula, a computer processing system is
used to blend the mixtures together and ensure that no
one outside KFC has the complete recipe

Initially

Later stage

Not patentable

patentable

Secret !

TS

TS

Strategic
business
decision

patent

ID
Part of the idea

TS

What is difference between TS and Patent

T r a d e S e c r e ts

P a te n ts

n o r e g is t r a t io n

r e g is t r a t io n

- le s s c o s t s ( b u t : c o s t s t o k e e p s e c r e t)
- im m e d ia t e ly a v a ila b le

- f e e s ( r e g is t r a t io n + m a in t e n a n c e )
- t a k e s t im e t o g e t p a t e n t

c a n la s t lo n g e r

lim it e d in t im e

- b u t : lim it e d t o e c o n o m ic life
- u n c e r t a in lif e s p a n : le a k o u t is ir re m e d ia b le

- g e n e r a lly : m a x 2 0 y
- b u t : c a n b e in v a lid e d

n o p u b lic d is c lo s u r e

p u b lic d is c lo s u r e

- b u t: p r a c t ic a l n e e d t o d is c lo s e
- if le a k o u t : T S lo s t

- p u b lic a tio n 1 8 m a f t e r f ilin g

- if P n o t a llo w e d : n o T S

Remedies to Misappropriation
1

Court

Order to stop the misuse

2. Monetary damages
Actual damages caused as a result of the
misuse (lost profits)
Amount
by
which
defendant
unjustly
benefited from the misappropriation (unjust
enrichment)

3. Seizure order

Can be obtained in civil actions to search the

defendant's premises in order to obtain the
evidence to establish the theft of TS at trial
4. Precautionary impoundment
Of the articles that include misused TS, or the

1. Independent Creation- similar formula

created with his own knowledge.
2.Unclean hands The owners behavior is
morally wrong.
3.Laches- unreasonable delay in asserting
a claim, which may result in its dismissal.
4.Absence of secrecy protection
measures- failed in protecting its trade
secret, sharing it through publication.
5.Privileges- sharing the information
before media at court trail.

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

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

Trade secret litigation comprises of two

aspects.

1. violation of trade secret law takes

place,
when
the
confidential
information
is
obtained
through
misappropriation.
2.
violation
of
nondisclosure
agreement takes place when a party
in
the
contract
breached
the
agreement.

The law of unfair competition is to

safeguard the interest of the customers
from unfair or misleading trade practices.
Types of Unfair Competition:
Passing off
Misappropriation
Right of Publicity
False Advertising
Product Disparagement
Dilution
Infringement of Trade Dress

Infringement of Trade Dress:- the unique

and distinctive feature of a product ,
service, or business which differentiates it
from others is known as Trade Dress.

Trade Dress protection is needed to

restrict others from duplicating a product.

Dilution: Basically , Tarnishment and

Blurring are the two important aspects
which are responsible for dilution of a
product.
The unauthorized use of a mark on a
dissimilar product which damages the
distinctiveness of the that mark is known
as Blurring.
Tarnishment refers to the unauthorized
use of mark for a poor quality product
which effects the products of mark owner.

Product Disparagement: when a false

statement is made with an intention to harm
a company or its products or its services,
then it is known as product disparagement.
It is also known as Trade Libel or
Commercial Disparagement.
Right of Publicity: Allows individuals to protect
their identities from being used for
commercial purpose by other parties. Many
companies misuse the celebrities name in
fake to sell their products

Passing off occurs when one party sells

his goods and services by affixing
another companys trade mark on them.
Passing off is confined to registered and
unregistered trademarks , symbols , signs
and devices etc.,
Passing off is an offence which is done by
misrepresenting the goods and services
for creating confusion in customers mind
which effects the image or good will of
the original manufacturer.

Misappropriation exists when one party

uses the property of other party without
informing them.
Misappropriation means unauthorized use
of person's name or likeness for
advertising purpose, which effects the
image of other persons.
The plaintiff does not possess any copy
right for it and he cannot claim any
damages; ex- stock market rumors , new
paper report etc.,

The Clean Room:- The clean room refers

to a room in which a team of engineers,
designers, researchers or scientists work
together for a specific purpose. Each and
every activity is documented .
The clean room act as an evidence to
prove that the information which is
identical to some others trade secret has
derived through team efforts.
It also ensures that the information was
not copied , theft or gained through any
other improper means

Reverse Engineering: Any information

which is obtained through reverse
engineering of a product, will also be
unprotectable under TS.

Ex:- A Gel Pen company has a secret

formula for making Gel used in pens. If a
person purchases the pen and analyze
the Gel chemically and come to knew
about the secret formula, then it is called
Reverse Engineering

HOW ARE TRADE SECRETS LOST

OR STOLEN ?

A Growing Problem.
Why Does It Occur?
80% of trade secret loss

< employees, contractors, trusted insiders!

departing or disgruntled employees

intentional (malicious)
inevitable (knowledge acquired)
by ignorance

A Growing Problem.
Why Does It Occur?
The 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)

Trade secrets may be legally discovered

by the following proper means:

Independent invention
Reverse engineering:-

that is, starting with the known product and

working backward to find the method by which it
was developed (assuming the reverse engineering
is not prohibited by contract)

Observing the item in public use or on

public display

Obtaining the trade secret from published

literature
29

What is lawful?

Discovery of the secret by fair and

honest means
1. Independent creation
without using illegal means or violating agreements
or law
patent

TS protection
provides
no exclusivity !

What is lawful?
2.

Reverse engineering
Common practice among software
companies: studying competitors'
products
to make software that can
interoperate with the software being
studied
to make a product that will compete
with it
E.g. decompile object code to reveal its
structure and figure out the interface
specifications for interoperability

What is typically considered

wrongful?
1. Duty of trust
implied or imposed by law
e.g., employees, directors, lawyers
2. Confidentiality agreement or NDA
e.g., employees, suppliers,
consultants, financial advisors
3. Industrial espionage, theft,
bribery, hacking

A partial list of improper means

includes
theft,
bribery,
misrepresentation, breach, or
inducement of a breach of a
duty to maintain secrecy or
espionage through electronic or
other means

33

A springboard injunction is a type of injunction

designed to remove or limit the advantage or
head-start that an employee has gained through
unlawful activities, typically through the misuse of
the employers confidential information.
The individual is placed under a special
disability by the injunction in order to ensure
that he does not get an unfair start
A springboard injunction is unlike any other kind
of injunction, because it is not targeted at
preventing future unlawful activity but rather its
purpose is to restore a level playing field between
the parties.

Mr Ellis, Bullivants Managing Director, left to set up a competing

business, taking confidential information with him including a card
index with the contact details of Bullivants contacts, which he
used to contact those clients in direct competition.
The High Court granted an injunction prohibiting Ellis from
entering into or fulfilling any contract made with or through any of
the contacts in the card index until judgment or further order.
Ellis appealed to the Court of Appeal, arguing that the injunction
should not apply to any customers that he was able to make
contact with without using the card index.
His appeal failed on this point, the court concluding that having
made deliberate and unlawful use of Bullivants property, he
cannot complain if he finds that the eye of the law is unable to
distinguish between those whom, had he so chosen, he could
have contacted lawfully and those whom he could not.

CDA= Confidentiality Agreement

NDA= Non Disclosure Agreement
The important elements included in the
written agreement of CDA & NDA are:
1. Ownership of Inventions
2. Non Disclosure Provisions
3. Non Solicitation Provisions
4. Non Competition Provisions

Complaint is a first document which is

brought into the notice of the court by the
plaintiff and
asks for the corrective
measures.
The defendant is required to give response
to such complaint after receiving the
summons from the court with in stipulated
time period mentioned by the relevant
court .
All the case data will be kept in Civil Cover
Sheet.

The trail note book has to be

maintained by paralegal for future
assistance.
The trail note book is a binder used to
index and provide reference to the
necessary information required to
handle the case.
It contains all the relevant and
important
and
legal
information
regarding the lawsuit.

Breach of contract takes place when a

party fails to fulfill the promise made in
an agreement.
For example the employee fails to fulfill
the promise and discloses the trade
secret to other parties, then it is known
as breach of contract.
This
is also treated as Breach of
Fiduciary duty that employee is failed in
maintaining the secrecy

Contract is nothing but An Agreement

Enforceable by Law.
The Ten Essential Conditions for a
Contract:
1. Offer, 2. Acceptance, 3.Concensus-AdIdam,
4. Lawful Consideration, 5.
Capacity to Contract, 6. Free consent,
7.Legal object,
8. Possibility of
Performance, 9. Intention to create a legal
relation ship 10. Writing and Registration.

In India , violation of trade secrets will be covered

under Sec 27 of the Indian Contract act. It restricts
parties in contract from
Disclosing any kind of
Information.

The Special Contract Acts like , Agency law

clearly defines the Duties and Responsibilities
of the Employer and Employee.
And it provides the eligible Remedies for the
possible Damages occurred to the Owner
from the agent .
The Agent is Liable to the Owner for the loss
occurred due to him.

Always read an NDA before signing. Some

agreements are titled Nondisclosure or
Confidentiality agreements, yet their
terms have the opposite effect.
People
who
sign
nondisclosure
agreements promising not to disclose
trade secrets without authorization from
the owner.
All the employees are bound under an
Implied duty not to disclose sensitive
information
and should be kept it
confidential from Stake Holders.

The Diljeet Titus case,1997.

The conflict: Illegal and unauthorized
copying of material and information belong
to Titus and company by its four
employees.
Advocate: Arun Jaitly
Page number 195,
Annexure 1 Model Non disclosure or
Confidentiality Agreement 203 page.
Annexure 2-Trade Secret Bond 210 page.

For further Questions or Doubts- Call me or Mail

Prof. Puttu Guru Prasad , VVIT.

93 94 96 98 98. 767 40 60 336, 90 59
457 336

Cell :

Mail:

puttuvvit@gamil.com.

Reference :
BS Publication ;
Fundamentals of Intellectual
Property for Engineers.
Cengage Learning: Intellectual Property by
Deborah.