Paper Details
Paper Code: RP02V12023
Category: Research Papers
Date of Publication: December 06, 2023
Citation: Ms. Shruti Kukreti, “Trade Secrets and Confidential Information: A Cross-Jurisdictional Examination of India and China”, 1, AIJIPCA, 14, 14-20 (2023).
Author Details: Ms. Shruti Kukreti, Student, Fairfield Institute of Management and Technology, Guru Govind Singh Indraprastha University
ABSTRACT
The present scholarly piece offers a comprehensive exploration of the safe-guarding of intellectual property by means of a cross-jurisdictional study on trade secret legislation in India and China. The paper delves into the intricacies of protecting intellectual information within a modern context characterized by the growing importance of intangible assets.
It begins by examining the expansion and significance of intellectual property rights in contemporary times, namely in the domains of scientific inquiry, artistic expression, and commercialization. This statement highlights the significant importance of patents, trademarks, registered designs, copyright, and confidentiality laws in granting artists and innovators exclusive rights. The aforementioned context provides a foundation for the comprehensive examination of trade secrets as a unique type of intellectual property safeguarding, which is predicated on the preservation of confidentiality rather than public dissemination. The paper examines the divergent approaches used by China and India in protecting trade secrets, highlighting China's utilization of comprehensive legal procedures in contrast to India's reliance on common law principles and equitable remedies. It undertakes an analysis of the definitions, enforcement procedures, and potential remedies within each respective country.
In addition, the article analyses the consequences of international agreements, including the trade-related aspects of Intellectual Property Rights, on the landscape of trade secret protection. The statement recognizes the necessity of implementing customized safeguards within the framework of the international business environment.
KEYWORDS
Cross-Jurisdictional Analysis; China; Intel-lectual Property Pro-tection; India; Trade Secrets
“Keeping secret is a survival tactic and commitment” - Kaede Lazares
Introduction
There has been a significant increase in the need for safeguarding Intellectual Property, particularly in the domains of scientific and technological research, creative endeavours, and marketing tactics. Intellectual property laws, encompassing patents, trademarks, registered designs, copyright, and confidentiality provisions, provide legal mechanisms for granting exclusive rights within the marketplace. The significance of intangible property rights has grown substantially for organizations aiming to establish and sustain their market position. However, comprehending intellectual property rights necessitates a certain level of legal acumen owing to their intricate characteristics.
Intellectual property rights are predominantly governed at the national level rather than the international level and are obtained by complying with the specific laws of each country. International agreements such as the Paris Convention and the Agreement on Trade-Related Aspects of Intellectual Property Rights establish a baseline of requirements for the safeguarding of intellectual property at the national level. The extent of these rights is often limited to the national level; however, the protection of copyright is expanded to encompass member areas through the Berne Convention and domestic legislation. Famous trademarks possess privileges that extend beyond national rules inside member countries.
Intellectual Property is typically linked with the conventional safeguarding mechanisms of Patents, Trademarks, and Copyrights. Trade secrets, despite being less well recognized, hold comparable importance. Trade secrets and patents differ in their approach to protecting intellectual property. While patents include public disclosure of the invention, trade secrets rely on maintaining confidentiality. In contrast to patents, which have a limited duration, trade secrets endure indefinitely as long as they are maintained in a discreet manner.[1] Numerous corporations hold important intangible assets, such as customer lists, production procedures, and source code, which are more appropriate for safeguarding through trade secret protection rather than patents, trademarks, or copyrights. The safeguarding of trade secrets is of utmost importance in preventing unlawful utilization by former employees or competitors.
The present study explores the topic of safeguarding trade secrets and conducts a comparative analysis of the legal frameworks governing trade secret protection in China and India. This highlights the proactive procedures that trade secret owners can implement to protect against infringement and effectively assert their rights within the legal systems of both nations.
Overview
The History and Evolution
The Law of Trade Secrets can be traced back to its historical origins in Roman law, wherein competitors were subject to punitive measures for using enslaved individuals to disclose proprietary information. The phenomenon under consideration originated during the period of the Industrial Revolution in England and afterward manifested itself in the United States, with a notable occurrence transpiring in the year 1837. The Restatement (First) of Torts, which was introduced in 1939, sought to systematize trade secret law by drawing on principles derived from common law. The Uniform Trade Secret Act was introduced in 1979 to establish a uniform legal framework for trade secret protection. This legislation has been accepted by 48 states, with the exceptions of Massachusetts and New York.[2] Diverse regional adaptations arose as a result of the implementation of UTSA regulations. The introduction of the Restatement (Third) of Unfair Competition in 1993 marked the implementation of a contemporary perspective, while the enactment of the Economic Espionage Act in 1996 established a set of federal provisions.
An Insight into Trade Secrets
Trade secrets, in contrast to other types of IPs, are subject to the effect of territorial laws and may vary across different jurisdictions. In essence, it pertains to privileged information that confers a competitive advantage, such as formulas, patterns, or compilations. All trade secret definitions encompass certain fundamental elements:
a) Secrecy: Refers to the state or condition in which certain information is not widely disseminated or publicly accessible.
b) Economic Advantage: Lies in the competitive advantage that is derived from the concealment.
c) Confidentiality Measures: Precautions are implemented to ensure the maintenance of confidentiality.
Trade secrets are distinct from intellectual property and copyright. Breach of confidence acts cover no specific information. Insignificant or immoral knowledge may not be protected, similar to copyright standards.
Even if it doesn't meet copyright requirements, confidential material may be protected. Instead of copyright, trade secrets protect recognizable, original ideas with commercial worth. Instead of technical data's uniqueness, its cognitive process is important.
Examining trade secrets alongside trademarks and patents shows similarities and differences. Marks distinguish goods and services in the market, therefore consumer association and usage are necessary. Patents require the publication of an invention for a limited time. Trade secrets, however, create a persistent monopoly without legal protection, allowing competitors to copy the information.
Defining Trade Secret under TRIPS
The Uniform Trade Secrets Act of 1970 is widely used to create state trade secret statutes in the United States. This model defines a "trade secret" as information with independent economic worth that is not widely known or easily discoverable by stakeholders and subject to reasonable attempts to keep it secret.
Indian Innovation Bill Section 2(3) defines "confidential information" similarly to the US. Formulas, patterns, compilations, etc., that are not widely recognized, have commercial worth due to their secrecy, and have been kept confidential. Whether "information" is property is debated. Economic Espionage Act of 1996, which treats information as property, protects US trade secrets. Avoid immediately adopting the US method since English common law sees secret information as an equitable right rather than property. The Indian Innovation Bill definition nonetheless appears to match Article 39.2 of the TRIPS Agreement. TRIPS refers to trade secrets as "Undisclosed Information," underlining the need to prevent unauthorized disclosure, acquisition, or use. The Bill's definition conforms to TRIPS' "manner contrary to honest commercial practices," which covers contract, confidence, and incentive breaches. Protecting trade secrets and confidential information in innovation is stressed in the draft National Innovation Act. To protect competitive advantage and economic interests, innovative ideas, goods, and business procedures must be kept secret. Trade secrets and confidential information are essential to innovation and economic progress. While protecting against unfair competition, TRIPS Article 39.1 requires members to protect hidden information contained in Article 39, paragraphs 2 and 3. Common law countries protect sensitive information by case law rather than legislation, as in paragraph 2. Article 10bis of the Paris Convention (1967) concerns unfair competition, although it doesn't mention confidential information. Article 10bis prohibits unfair competition as interference with honest industrial and commercial processes.
Protecting government approval agency test data, especially for pharmaceutical products, was a concern. Member data must be protected from unfair commercial use and unlawful disclosure under Article 39.3. However, this rule applies only to pharmaceutical and chemical agricultural products, protects against unfair competition, and exempts government entities from secrecy requirements in the public interest. The government can utilize confidential test results to evaluate similar product applications from various applicants. In the excerpt, a person documents tries, uses, or sells the specifications of an invention relating to a product or substance before submitting a patent claim in India or a conventional country. After filing a patent claim, selling or distributing the product may violate exclusive rights. The exception applies if a person makes or uses a product or substance based on innovation specifics provided by someone with an exclusive right to sell or distribute it.
Comparative Analysis
Position in China
The comparison can be made under the following headings:
Defining Trade Secret
Chinese trade secret laws are more comprehensive than Indian ones. The Chinese Anti-Unfair Competition Law defines trade secrets under Article 10. "Technical and Operational information" that is not public knowledge, economically beneficial to the owner, practically applicable, and actively protected by the owner is included. This definition requires all four criteria for trade secret infringement enforcement.
This "public" refers to industrial competitors or anyone seeking economic gains by exploiting the secret. In addition, "public" is limited to the "Chinese public," therefore a trade secret known overseas but not in China is nonetheless "unknown to the public" under this definition.
Whether tangible or intangible, a trade secret must provide profit, commercial value, or competitive advantages. It should be specific, applicable to industrial and business environments, and usable immediately, not just theories or broad principles. The owner must show they took reasonable steps to protect the trade secret. Trade secret owners must prove these measures. Chinese trade secret laws, as described in the AUCL, provide stronger protection than Indian regulations.
Trade secret infringements under Article 10 of the Anti-Unfair Competition Law include:
v Theft, promises of benefit, pressure, or other unethical tactics to get trade secrets.
v Disclosure, use, or permission to utilize trade secrets obtained by theft, promises of gain, coercion, or other unlawful means.
v Disclose, use, or allow others to use trade secrets acquired by breaching an agreement or violating the trade secret owner's confidentiality restrictions.
v In circumstances where the other party obtains, uses, or discloses a trade secret, they should have known about the illegal conduct.
Plaintiffs must prove that the defendant stole their trade secret. A preponderance of evidence must show that the plaintiff's trade secret fits legal criteria, that the defendant's usage is identical or substantially similar, and that the defendant used illicit means.[3]
Legal Framework
China's trade secret laws, regulations, and judicial interpretations cover enforcement. Primary components are:
Ø Trade secrets and trade secret violations are defined under Article 10 of the PRC Anti-Unfair Competition Law. Civil and administrative trade secret actions are based on Articles 20 and 25.
Ø Article 219 of the PRC Criminal Law criminalizes trade secret violations that cause considerable losses to the legitimate owner.
Ø PRC Contract Law: Article 43 requires negotiators to protect trade secrets even if no contract is executed. Trade secrets can be violated by violating this duty.
Ø Supreme People's Court Interpretation: Articles 9 to 17 provide recommendations for civil trade secret lawsuits.
Protecting trade secrets involves several methods:[4]
Administrative Actions: The Administration for Industry and Commerce can help a party with trade secret damages file an administrative action against the infringer.
Civil actions: The trade secret holder can sue the infringer.
Criminal Actions: The PSB investigates trade secret crimes, whereas the PP prosecutes. Trade secret owners can even file criminal cases in People's Courts without PSB or PP involvement.
Administrative, civil, and criminal measures protect Chinese trade secrets under this multidimensional system.
Remedies
Trade secret owners in China have many tools to fight infringements and preserve their rights. They can take various legal steps if they can prove the knowledge is a trade secret. The choices are:
Criminal Action: Article 219 of China's Criminal Law criminalizes trade secret misuse, resulting in significant losses for owners and licensees. Fines, up to three years in prison, and harsher penalties for major offenses are possible. Trade secrets acquired, disclosed, or used through theft, coercion, inducement, or other illegal means are included.
Administrative Action: The State Administration for Industry and Commerce issued administrative trade secret enforcement regulations. These rules allow AICs to fine, stop, or confiscate offending goods. However, AICs cannot authorize compensation. AIC fines are sometimes insufficient deterrents.
Civil Action: Trade secret owners often sue infringers. Rights holders submit complaints to competent People's Courts to start such an action. Civil remedies include:
- Money Damages: Courts assess damages using patent infringement methodologies. Assess lost earnings, infringing gains, or appropriate license fees. If they are difficult to assess, courts can appropriate statutory amounts within a range. The infringer must pay the trade secret owner's investigation fees.
- Injunctive Relief is essential to stop infringement. A preliminary injunction can be obtained if the plaintiff establishes the knowledge is a trade secret, the defendant's acts create irreparable injury, and the plaintiff is likely to win.
- Pre-trial remedies include asset preservation orders and preliminary injunctions.
These steps give trade secret owners different ways to fight misuse and protect their rights under Chinese law.
Position in India
The lack of specialized legislation in India pertaining to the safeguarding of trade secrets and sensitive information is a noteworthy observation. Nevertheless, the Indian judicial system has exhibited a steadfast dedication to preserving the safeguarding of trade secrets by employing equitable principles, primarily relying on the legal acts of breach of confidence and contractual responsibilities derived from common law. Section 27 of the Indian Contract Act, of 1872, constitutes a fundamental legal basis that pertains to the notion of restraint of trade. The aforementioned legal framework not only serves to handle the potential violation of contractual commitments but also provides incentives for the promotion of creativity and innovation through the provision of suitable remedies.[5]
The legal framework for securing intellectual property is predicated on the notion that certain aspects of a product or innovation may be subject to different kinds of protection. The possible remedies for breaches of confidence include pursuing legal procedures to address the financial gains resulting from the improper utilization of sensitive information, seeking compensation for losses incurred, and getting court orders to prohibit further misuse. To achieve a favourable outcome in a judicial proceeding, it is imperative to show the existence of confidential information that was disclosed under a clear and explicit duty of confidentiality, either explicitly stated or implicitly. Furthermore, the activity must be considered to exhibit tangible evidence or the possibility for illegal utilization or revelation of the classified information. In situations when the dissemination of material has reached the public domain, pursuing legal recourse may not be feasible.
Interim injunctions are frequently granted for specific periods in cases where the plaintiff's confidential information holds time-sensitive value, according to the particular circumstances of the case. When assessing the balance of convenience, several factors are taken into account, including the possible severe consequences for the defendant resulting from an injunction, the level of clarity in the terms of the injunction, and the probability of the plaintiff getting an injunction as opposed to seeking damages.
Regarding legal remedies, the assessment of damages or compensation is predicated upon the market valuation of the confidential information. The process of valuation frequently encompasses theoretical situations wherein a transaction occurs between two parties who are both willing and agreeable. This technique is especially essential for protecting industrial designs, processes, or valuable business knowledge. The preservation of trade secrets is of utmost significance, as their status as trade secrets remains intact only as long as their confidentiality is upheld. However, if the confidentiality is breached, the material no longer retains its classification as a trade secret.[6]
Conclusion
In the contemporary global market, multinational corporations must have national regulations in place to safeguard their sensitive data. The assurance holds significant importance in influencing their investment selection within a particular country. Legislation is commonly required to delineate precise legal procedures for court proceedings due to the intricate nature of trade secret litigation. Inadvertently disclosing confidential information has the potential to diminish the competitive edge and economic benefits of the organization.
The Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement that governs the protection and enforcement of intellectual property rights on a global scale. The legal frameworks of all member states have incorporated TRIPS requirements through the enactment or modification of laws. India, as a signatory of the TRIPS agreement, made revisions to its patent and copyright legislation and implemented additional legislation about trademarks, geographical indications, industrial designs, and integrated circuits. In the intellectual property landscape of India, there exists a legal gap wherein private trade secrets and sensitive information are not afforded legal protection.[7]
In response to TRIPS, India implemented a preliminary version of the National Innovation Act in 2008. The act aims to foster research and innovation by implementing a resilient support system for innovation, which is backed by public, commercial, or public-private partnerships. The National Integrated Science and Technology Plan is an additional objective outlined in the legislation. Additionally, there is a plan in place to establish uniformity and integration of regulations about confidentiality, trade secrets, and innovation.
On the other hand, China places significant importance on charges of trade secret theft. The Chinese government and judicial system have a comprehensive understanding of the value of trade secrets and the potential risks associated with their unauthorized disclosure or exploitation. China rigorously enforces the protection of trade secrets, irrespective of the scale of the company.
The lack of awareness regarding legal protection for trade secrets is commonly observed among key individuals and senior staff in China and India. Comprehensive training programs and trade secret advertising play a crucial role in enhancing employee understanding and mitigating inadvertent breaches.
The landscape of trade secret protection has undergone significant transformations. In an increasingly interconnected global economy, businesses must possess a comprehensive understanding of foreign legal intricacies and practices to safeguard their trade secret rights. As trade and investment activities transcend national boundaries, the need to protect proprietary information becomes paramount. The TRIPS agreement and the North American Free Trade Agreement have established provisions for the protection of trade secrets. However, it is important to note that the implementation of these standards may vary across various nations.[8]
The protection of trade secrets is subject to variations in national laws across different jurisdictions. The presence of diversity underscores the importance for foreign legal practitioners to possess an awareness of potential disparities to provide accurate court advice within this intricate domain.[9]
“Trade secrets are valuable information that gives you a clear advantage over your competitors as long as they remain secret”[10]
[1] Tanushree Sangal, ‘Unfurling the Proposed National Innovation Act 3(3)’ [2007] Manupatra Intellectual Property Reports 29.
[2] Bradley E. Chambers, ‘Texas Joins 47 other states to Adopt the Uniform Trade Secrets Act’ (Baker Donelson, 30 May 2013) available at: <https://www. bakerdonelson.com/texas-joins-47-other-states-to-adopt-the-unifor m-trade-secrets-act-05-30-2013> accessed 16 August 2023.
[3] Vai Io Lo and Xiawen Tian, Law for Foreign Business and Investment in China (Routledge 2009) 193.
[4] Faizanur Rahman, ‘Trade Secret Laws in China and India: A Comparative Analysis’ (2015) JIPR 7.
[5] Chitra Narayan R Yashod Vardhan, Pullock & Mulla: The Indian Contract & Specific Relief Acts (16th edn, Lexis Nexis, 2019).
[6] MalathiLakshmikumaran, ‘Utility Models: Protection for Small Innovations’ (2004) JILI 322.
[7] Nandan Pendsey, ‘Trade Secrets: India’ (AB & Partners: Advocates and Solicitors, 16 August 2023) available at: <https://www.azbpartners.com/bank/trade-secrets-india/> accessed 16 August 2023.
[8] Edwin Lai, ‘The Economics of Intellectual Property Protection in the Global Economy’ IPRS available at: <https://www.iprsonline.org/karyiu/confer/Sea01/papers/lai.pdf> accessed 16 August 2023.
[9] Deepa Varadarajan, ‘Trade Secret Fair Use’ (2014) 3 Fordham Law Review available at: <https:// ir.lawnet.fordham.edu/flr/vol83/iss3/9/> accessed 16 August 2023.
[10] Julie Desrosiers.