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Introductory Note
Ideas and knowledge form the quintessential of trade in modern times.
The value of a new product lies in the amount of invention, innovation,
research, design and testing that go behind its successful production.
With globalization and rapid industrialization the need to protect these
ideas has attained paramount importance as it is these ideas that help
business concerns to maintain a competitive superiority in the market
and further their economic interests. It is for this very reason that
corporations, particularly those having multi-national operations need
to prevent others from using their inventions, designs or other
creations - and to use that right to negotiate payment in return for
others using them. These are referred to as "intellectual property
rights" in the present day parlance. Intellectual property rights are
not abstract legal concepts, but a broad ranging means to protect core
business assets in a fiercely competitive environment, build and protect
good will, avoid significant liabilities to others, and preserve and
expand enterprise's equity.
In the middle to late nineteenth
century, fostering of creation with monetary reward grew into
capitalism. Capitalism embodied (a) the benefits and rewards of hard
work (concepts from Puritanism ); (b) the exchange of business ideas
through products and services; and (c) competition in the marketplace
and financial reward for the most popular or beneficial ideas i.e. those
items that sell the most make the most for their inventors. The need to
protect these ideas or intellectual property was realized as early as
1883 when the Paris Convention for Protection of Industrial Property
came into existence. With passage of time, emergence of new concepts in
intellectual property and need to harmonize different national
legislations the developed countries began pressing for the inclusion of
intellectual property as an area of discussion under GATT.
In 1986 the Uruguay Round of
negotiations began which concluded on 15th April in Marrakesh with the
signing of the 'Final Act'. This Act contained 28 agreements, TRIPs
being one of them. The aim of TRIPs was to provide and enhance
international standards of intellectual property and to harmonize
different national laws on protection of these intellectual properties.
This paper deals with the concept of
trade secrets in the framework presented by TRIPs and questions the
basic doctrinaire assertion of trade secrets as a right in the 'Hohfeldian'
sense.
TRIPs
The extent of protection and enforcement of intellectual property rights
varied widely around the world; and as intellectual property attained
increasing importance in trade, these differences became a source of
tension in international economic relations. New internationally agreed
trade rules for intellectual property rights were seen as a way to
introduce more order and predictability, and for disputes to be settled
more systematically.
The Uruguay Round achieved that. The
TRIPs Agreement is an attempt to narrow the gaps in the way these rights
are protected around the world, and to bring them under common
international rules. It establishes minimum levels of protection that
each government has to give to the intellectual property of fellow WTO
members. In doing so, it strikes a balance between the long-term
benefits and possible short term costs to society. Society benefits in
the long term when intellectual property protection encourages creation
and invention, especially when the period of protection expires and the
creations and inventions enter the public domain. The preamble of the
TRIPs Agreement states the object of the agreement as:
"To reduce distortions and impediments to international trade, and
taking into account the need to promote effective and adequate
protection of intellectual property rights, and to ensure that measures
and procedures to enforce intellectual property rights do not themselves
become barriers to legitimate trade"
The agreement
covers five broad issues -
1. How basic principles of the trading system and other international
intellectual property agreements should be applied,
2. How to give adequate protection to intellectual property rights,
3. How countries should enforce those rights adequately in their own
territories,
4. How to settle disputes on intellectual property between members of
the WTO, and
5. Special transitional arrangements during the period when the new
system is being introduced
The TRIPs
Agreement divided intellectual property rights into the following seven
heads -
1. Patents,
2. Trademarks,
3. Copyrights,
4. Industrial designs,
5. Layout designs of integrated circuits,
6. Undisclosed information (trade secrets), and
7. Geographical indications.
Trade
Secrets Under Trips
Under the TRIPs Agreement 'trade secrets' are referred to as
'Undisclosed information' . The Agreement defines trade secrets as -
"An information is a trade secret if:
1. it is not, as a body or in the precise configuration and assembly of
its components, generally known among or readily accessible to persons
within the circles that normally deal with the kind of information in
question;
2. has commercial value because it is secret, and
3. has been subject to reasonable steps under the circumstances, by the
person lawfully in control of the information, to keep it secret..
In the present scenario of
aggressive competition, industrialization and liberalization every
corporate house has certain information with regard to technological
know-how, idea, business methods etc. over which it has exclusive
possession that it wants to protect. These are known as trade secrets.
For instance, the formula for making coke is considered to be the most
well guarded trade secret in the world.
A trade secret is both a type of
intellectual property and a strategy for protecting your intellectual
property. It can provide effective protection for some technologies,
proprietary knowledge (know-how), confidential information and other
forms of intellectual property. The importance of trade secrets is
highlighted by the fact that corporations spend millions of dollars
every year to protect their trade secrets. Also the employees are
required to sign non-disclosure agreements, which clearly state that the
employee will not use or disclose any information which he comes to know
during his association with the company at the time of joining the
company. In cases where for some reason or the other an employee does
not sign such an agreement at the time of joining he is made to sign an
exit agreement. Both the agreements non-disclosure agreement and exit
agreement contain a covenant not to compete. This covenant bars the
employee who wants to leave his job from starting a similar business as
to the one in which his previous employer deals (restriction on subject
matter) or lay down a limitation on the area of operation, i.e.,
restricting the geographical area. However, to maintain a balance the
Courts have held in a number of cases that if such a covenant is
unreasonable it can be declared void and non-operative. One way of
avoiding such a situation where the agreement is declared unreasonable
is to lay down a specific time frame. For example, company A can
restrict person working for it not to start a similar business for a
period of 10 years after the employee leaves the company. By providing a
specific time frame company A's restriction would not be unreasonable.
These restrictions differ from business to business.
To determine
whether particular information is a trade secret or not courts generally
look into the following points -
1. The extent to which the information is known to the outside world,
2. The extent to which the information is known to the employees,
3. What measures are taken by the company to protect the secret,
4. The value of the information to the business and to the competitors,
5. The amount of time and money spent in developing the information, and
6. The ease or difficulty with which the information can be acquired and
duplicated by others.
The above list however is not exhaustive and it would in the end depend
on the facts of the case.
Even though keeping a particular
invention or information a secret has its advantages - the most
important one being the indefinite time period for which one may use it,
and consequently prohibit others from using it - there is the
accompanying risk of the trade secret passing on from the inventor into
the public domain. Moreover, since trade secrets are not registered, it
becomes difficult for the inventor to prove that he came up with the
trade secret. In most intellectual property cases, the other party
claims that he or she, in fact, created or used the item or information
first and that any subsequent use is unauthorized. Also, if the
competitor acquires the secret by lawful and proper means or by the
process of reverse engineering the holder would have no right, while in
case of patents even though the protection offered is for a limited
period of 20 years no person can duplicate the patented product (in case
of a product patent) or use the same method (in case of a process
patent) till the protection period expires.
Rationale
For Inclusion In Trips
As stated earlier the TRIPs agreement aimed at providing internationally
accepted standards of protection to creation of human intellect
(intellectual property). The developed countries wanted to further and
protect their economic interests and one such way was to provide
adequate protection to the capitalists, which could be achieved to a
large extent by protecting their creations. Trademarks, patents etc
would have achieved this but that was not enough, corporate houses had
been for long pressing upon their respective governments to provide
protection to their trade secrets which form the back bone of their
operations. Trade secrets also had an added advantage, they would be the
sole possession of the holder as long as he is able to keep it a secret
and even if the competitor acquired the secret through lawful means the
original holder could always file a patent application. United States of
America was the first country to enact a statute dealing with trade
secrets. The Act is known as the Uniform Trade Secret Act (UTSA). The
UTSA sought to provide some consistency in trade secret law that, until
recently, was protected only by state laws. Most European and developed
countries have based their statutes on the UTSA. However, with
liberation and globalization there emerged a need to provide an
internationally accepted framework for the protection of these secrets.
By including them under the TRIPs was the best way out. The second wave
of argument forwarded for their inclusion in TRIPS is that they are a
result of human intellect and thus, necessarily fall under the domain of
TRIPs.
Position In
India
The intellectual property laws in India have had an almost docile and
stagnant existence ever since they were framed. Being a signatory of the
TRIPs Agreement India is under an obligation to bring its intellectual
property laws in conformity with international standards. India has
achieved this to a large extent by enacting new and amending existing
legislations on intellectual property laws. However, unlike the US and
other developed countries India has no legislation dealing with trade
secrets.
In India protection of trade secrets
is Common Law based. However, section 27 of the Indian Contract Act
provides some sort of limited remedy, it bars any person from disclosing
any information which he acquires as a result of a contract. There are
scores of reasons for the absence of any statute dealing with trade
secrets. India has since its independence followed a socialist pattern
because of which the Indian legal system has always strived for social
benefit and public rights as a result of which private rights like
intellectual property rights have not been given any importance. Another
reason for absence of any trade secret laws is the dependence of Indian
economy on agriculture. Also, with the absence of big private corporate
houses in India until recently there has hardly been any pressure on the
government for granting statutory protection to trade secrets.
The Concept
Of 'Right' In Pure Hohfeldian Sense
Claims, liberties and powers are subsumed under the term 'rights' in
ordinary speech. They, however, connote four different ideas concerning
the activity, or potential activity, of one person with reference to
another. The use of the homonym 'right' to denote these separate ideas
obscures the distinction and leads to confusion. Gradually, distinctions
between the above four terms were arrived at. The credit for bringing
out a clear distinction between the four terms goes to Hohfeld, an
American jurist who added a fourth term 'immunity' and worked out a
table of jural relations with incisive logic .
Hohfeld set out the following diagram - Right or claim Privilege
Duty
No-right
Hohfeld suggested the word 'claim' as a substitute for 'right', but
continued to use 'right'. Thus, for Hohfeld, 'every right has a
corresponding duty'. Hohfeld then differentiated between a right or
claim, from the freedom which a person has to do or not to do something,
and called it a privilege. For Hohfeld right and privilege are jural
opposite . There can be a privilege without a corresponding duty, but
there cannot be a right without a corresponding duty.
Trade Secrets:
Whether A Right In The Pure Hohfeldian Sense?
During the GATT negotiations, which took place before the draft of the
'Final Act' was passed a number of developing countries questioned the
rationale of including trade secrets in TRIPs. Their basic contention
was that even though trade secrets are creation of human intellect they
are not a right. It is this very premise that the author would like to
evaluate and analyse in the Hohfeldian sense.
Trade secrets unlike other
intellectual property rights like trademarks, patents, copyrights etc do
not confer any right on the holder. A patent holder, user of a
registered trade mark, copyright holder etc have a right stricto sensu
as they can prevent others from infringing, duplicating and using their
product. The law bestows a right on the above mentioned by making it
clear that as long as the period of statutory protection is in force no
one can without the permission of their permission derive any benefit
from their products. However, there is no such provision with regard to
trade secrets. Even if we assume that they grant certain rights on the
holder, they impose no duty on the other person. As explained above,
'every right has a corresponding duty,' i.e., if 'A' has a right, 'B'
has a corresponding duty. A trade secret according to the Hohfeldian
analysis would fall under the head of 'privilege' and not a right. If
'A' has a trade secret he would like to refrain 'B' from using it.
However, 'A' can refrain 'B' from using that secret only if 'B' has
acquired it unlawfully, i.e., 'A' would have privilege over the use of
that secret and would in turn have a liberty and licence to use it
exclusively for his own benefit. There is no correlation between 'A's'
right and 'B's' duty. The privilege of 'A' cannot be said to be a right
. A would have a privilege over that secret as long as he is able to
maintain its secrecy, his privilege would end the moment another person
acquires or duplicates it using proper means. It is generally argued
that in case a person acquires or obtains the trade secrets of his
competitor by unlawful means the original holder can prevent his
competitor from using them and, hence, the holder of a trade secret has
a right from stopping his competitors' from acquiring his secrets.
However, it would be pertinent to note over here that the holder of a
trade secret has no right, the law only provides him a remedy and a
remedy can be there even in the absence of a right. The remedy is
further limited to the mode of acquisition. The holder of a secret would
be entitled to a remedy only if his competitor acquires his secret in an
unlawful manner, i.e., without employing any proper skill. Moreover, the
remedy provided here is not for the protection of a right but to make
good or prevent the loss, which a person would incur if his trade
secrets were acquired unlawfully. A right entails a positive duty.
Incase of trade secrets the law not only provides a privilege to the
holder but also to its competitor in the sense that it even provides a
privilege to the competitor that he can duplicate the secret by the
process of reverse engineering.
Conclusion
The corporate practice of protecting trade secrets can be backtracked to
the early 19th century. Protecting these secrets was an important method
by which corporate houses maintained a competitive edge - a monopoly.
Coca-cola has zealously protected its famous formula for making coke
since late 19th century. This example seeks to illustrate that
protecting trade secrets has been an age-old ritual for the companies.
The TRIPs has just given global recognition and provided certain
standards, which have to be complied with. Even in the absence of TRIPs
Agreement companies would have protected their secrets. What it means is
that the TRIPs Agreement has under the garb of intellectual property
extended its ambit to general trade practices.
Also the various statutes that have
been enacted limit themselves to the task of defining what constitutes
trade secrets and conditions under which there disclosure and
acquisition would be proper. The general practice of filing a patent
application as soon as the competitor acquires the trade secret by way
of reverse engineering also substantiates the point. If trade secrets
are a right in itself then why should any person resort to any other
right like patents for protecting his interest?
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