The evolution of innovation, startups across all over the world by individual or group of individuals is been increasing over, by using their formulative confidential, unrestricted methods or techniques which can also be said as “secret “used in manufacturing any product or design. Such confidential secrets which gives ascends liability, rights towards the proprietor in form of intellectual property rights, which grants him liberty to sell in the form over takeovers, granting of license towards using intellectual property, and as well as protection of certain trade secrets. This article emphasis on the protection of trade secrets of an entity, company or an owner in the context of Indian legal context and the antitakeover provisions, nature of the liability, rights, as well as the process of anti-takeover of an entity of an organizations.
Trade secrets can be interpreted as, any confidential undisclosed information which is generally of a commercial value or confidential in nature, such as list of customers report , formula of a program, recipe of commodity, process of manufacturing of a good or valuable confidential information which economically valuable in nature and which gives an competitive advantage over the other competitors in terms of research and development. The characteristics of trade secrets are primarily based on jurisdiction but these trade secrets have common grounds such as, information over the economic activities, giving the production of goods or any activity which is confidential.
Rendering to the TRIPS Agreement, any information can fall under the ambit of ‘trade secret’, if it fulfills the criteria which include,1) if the information has an economic value ,b) the entity or any individual has specified and acknowledged by trying to preserve the information as secret, c) any information which is not accessible to the public in any platform or public domain.
Real life example: the manufacturing process and production red bull which is never been disclosed to the public. even companies like Tesla where the algorithm of the companies are been protected under the various intellectual property rights or law. Even the recipes of Burger king and manufacturing process is an example of trade secrets
But during recent times we are witnessing unprecedent growth of ethical hacking of confidential data of various companies, as well infringement of intellectual property right such as copyright infringement of author book. which also results in violation of trade secrets of such entities; thus, such breaching of trade secrets results in change of dynamism of overall activity of such entity. So, what can a person or entity do to as to safeguard its trade secrets?
Trade secrets under Indian legislation
As per the Indian legislation, India does not have any specific legislation for protecting trade secrets but there are various Indian legislation and judicial precedents, which precisely protects any information, which are deemed in any personal capacity of a person or any entity.
India banks on certain legislation such as, Indian contract act, Indian copyright act, Indian technology act , Indian penal code and any common law in which the Indian judiciary as held as trade secrets on the basis of equity, so, breach of any trade secrets would result in breach of confidence, which would result in breach of contractual obligation or breach of trust, but somehow this steps aren’t suffice enough to control cyber-crime which involve data breach.
The Indian contract act
So, under Indian contract act the parties can be contractually restrained from revealing certain kind of information which can be also termed as trade secret towards the general public. in a case of Richard brady v chemical process equipment , where in this case the plaintiff had given fodders equipment and the Necessary steps, detailed drawing, steps how to cultivate fodder, but due to some reason the defendant fail to manufacture, but during later on that time the plaintiff sought to have learned that the defendant has started his own fodder manufacturing unit.
From the above instance, the issue was whether the artistic drawings or any other Necessary vital information given by plaintiff would result in any breach of contract or any copyright? and whether technical drawing has an interrelation with the manufacturing of defendant fodder manufacturing work?
The court held that there was breach of confidentiality clause and defendant is liable for breach of confidential contractual, hence the court has made the defendant liable for breaching of trade secret.
The parties can restrain the contracting parties by the virtue through section 27 of Indian contract, although any contract which restrains the party from trade, the contract shall be void but parties can be restrained from practicing, professing and confessing certain confidential for trade practice but under reasonable restriction, which could disrupt the trade process, manufacturing process or cause any injury to the entity or the person. Such restrain can be obtained by injunction towards another party under civil procedure code and specific performance act.
Under the Copyright Act,1957, the term ‘trade secret’ have not been mentioned anywhere in Indian copyright act, 1957 , but section 2(o) which states, any compilation including data base including computer base, where any infringement of database would result in copyright infringement.in a leading case of Govindan v Gopalkrishna, where the hon’ble high court has held that, however the compilation originality be minimal, it shall be protected by law. The copyright law only protects certain data, which are not similar in nature, which require or makes a presence of certain intellectual and certain degree of creativity.
The interconnection of copyright and trade secret can be observed under the case of Burlington Home Shopping Pvt Ltd v Rajnish Chhibber, where it was held that there is vastness of trade secret under the copyright act, this safeness of data also extends to underlying data and also expressive arrangement of data.
Confidentiality of agreement: where any information which is presumedly confidential shall be falls under ambit of trade secret, in case law of Ritika v Biba apparels where it was held that if there is a trade secret it shall has to be specifically should be mentioned as trade secret to the plaintiff’s ownership.
Any data or compilation of unregistered or registered data present in a form in a public domain, which is open at large to general public, shall not be termed as trade secret. Thus, a trade secret suit must make sure that the data should amply that the infringed data is a form of trade secret data, if the information does not fail to prove that data is not a form of trade secret it shall be at jeopardy of losing the data.
INDIAN PENAL CODE
Under IPC, any theft of data can also be filled under section 378 of IPC i.e. theft, which includes stolen confidential client list, business innovation etc. but in a movable form. IPC also punishes for criminal breach of trust & confidence under sec 405 & 408 read along with Sec 420 i.e. cheating
INFORMATION TECHNOLOGY ACT
According to the information technology act, there is an inclusion of amendment of section 43Aand section 72A. section 43A states that, any company or any such entity breaches their customer sensitive data or leaks any certain information of any individual, shall be liable for any kind of such breach shall result in violation of section 43A.
Section 72A of the information technology act, can be elaborated as, any party who are rendering a contract which have been agreed between the party or parties, any such condition which is stated under the contract that prevents the party from stating any such sensitive information from disclosing that information shall be punishable offence, with the punishment maximum of three years, fine up to 3 lakhs or both.
Although section 43 bestows liability towards the corporate company for breaching any kind of private information of a customer towards the public or using it in a cynical manner. Although section 72A bestows liability and restriction towards the contractual obligation towards the party from preventing any disclosure of information which is stated under the terms of the contract.
But section 72A and 43A covers only a limited scope for protecting data and gives liability towards corporate body, intermediary and any party who is under the contract, but not against the third party such as hacker etc.
As there is not an hostile trade secret’s guarding provisions which are present, there are certain loopholes in the act to breach those legislation and seem to be nothing has been damaged such as in legislation under section 26 of Indian contract act where there is restraint of trade is void but with a certain exception of a good will i.e. where the parties are in agreement not to conduct any business of similar nature elsewhere , but this makes it that the person can breach the trade secrets and does not provide an remedy to the owner.
NATIONAL INNOVATION ACT
National innovation act was a proposed legislation, gateway for protection of trade secrets, confidential information, to facilitate and promote innovation in respective field. However, the definition of trade secret was elaborated under chapter VI under the titled definition under “Confidentiality and Confidential Information and Remedies and Offences”, section 8 of the innovation act which gives an obligation towards party which can decide, what certain kind of information are confidential, thus those certain kind of information can be contractually restricted.
Section 9 of the national innovation act, bestows obligation towards the parties from preventing revealing confidential information which is stated under the contract as per section 8, if the third party receives any confidential information without the knowledge of contracting party, thus that information shall be also deemed to be confidential information
Section 10 of the national innovation act provides protection to those kinds of information which was obtained, concealed and can be misappropriated towards public, But, those kinds of misappropriated information which was obtained from public domain, any information which was obtained by mis appropriator or by influencing any third party and any such information which was obtained for public interest by any court of law which is stated under section 11.
Section 12 embodies the courts to grant injunction against the misappropriating parties from preventing him for using that certain information for his purpose or any other purpose, while section 13 provides compensation towards aggrieved party with upto 3 times more amount which is estimated from the defendant.
However, the defendant is exempted from any incarnation if he has done any act in good faith which is done under section 14 of the act.
However, the national innovation act is just draft legislation, if the national innovation act is passed by the government, it shall be an milestone in terms for protection of trade secrets, and data protection.
ANTI-TAKEOVER AGREEMENTS WITH RESPECTIVE TO SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011 ("TAKEOVER CODE")
Anti-takeover agreements can be defined as any method in which the companies or a firm prevents themselves from being taken over by another firm or company, this is also defined as hostile takeovers. So, to prevent such antitakeover happening the company shall have to take certain defensive measures. The anti-take over happens due to undue influences, buying out majority of the shares of the majority of the company.
So, what does a party do to prevent certain hostile takeover? Although India as seen a very limited number of hostile takeovers, the securities board and Exchange Board of India, has enacted SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code"), which states that an acquire who directly or indirectly, targets the majority company for certain shares. So, under the regulation 3 of the SEBI act when an acquirer has acquired an interest taking over such company shall have to make an public announcement and can take over the more than 25 percent voting rights of the company, in the code there is no marginal line drawn whether which is an hostile takeover or friendly takeover.
But there is certain defense given to the company to prevent those hostile takeovers from the company as:
Poison pill: this is a process where the target company dilutes its majority of the shares in such a way the acquirer of the company has a lot of expenditure to spend.
The white knight: the company has been occupied with knight, so in this defense the target company can sell its share to a friendlier company instead of the company who is planning to takeover.
Sale of assets: if the company feels so threatened by the acquirer company, it can sell its key assets, so to just make the company look dull and uninteresting and just to ward of its interest.
Greenmail: where the target company purchases its own shares from the acquirer company in a premium form.
Pac man defense: where the target company acquires its own shares from the target company just to revive its share.
Shark repellent’s: this a type of defense, where the company amends its legal character such way that any take over happening it shall activate its amended rules, this is giving an immunity to board of directors protect itself from such takeovers happening,
This are the listed defense for antitakeover provisions given company from preventing certain hostile takeovers.
From the above article , where the light has been thrown at protection of certain trade secrets , we gain a knowledge that majority of provision of trade secrets are majority of judiciary made rules, during the pandemic where a majority of people have lost their livelihood, it has also been noticed there is eruption of startups, where there assumedly a lot of infringement of trade secrets,. this is as most need of hour for the parliament to establishment of protection of trade secrets. Even in the case of anti-takeovers where there is defense giving to party are in risky proprietorship, where the takeover which is predicated does not occur, will result in the target company loss of its share capital, well it is also has been noticed that there is a very marginal line difference of hostile takeovers and friendly takeovers but which are contrary in nature.
SUBMITTED BY: KUSHAGRA GAHLOT
BATCH :4TH YEAR B.A.L.LB (HONS)
COLLEGE: CMR UNIVERSITY OF LEGAL STUDIES