Intellectual Property Management for Startups

Lesson on Trade Secrets and Confidentiality

This is a sample lesson from Turnip’s new course: Intellectual Property Management for Startups. Trade Secrets are in important form of IP and much ignored by startups and SMEs owing to lack of awareness. You can start the IP Management for Startups Course for FREE here:

The lesson has been contributed by Dr. Deepika Singh, Advocate and Registered India Patent Agent.

Confidentiality and Trade Secrets

As a business owner, there may be a scenario, where you have access to information which is of commercial importance. This information is not known publicly and is only shared between the people who are in the know. It may or may not include some traditional knowledge.
Such information is called a trade secret.

How do I know if the information I have is a trade secret?

I created an improved engine for which I have filed a patent application, but there are several small technical details which are required to run the invention efficiently. We also have a list of suppliers whose products work best for our invention. Are these trade secrets?

Wow, we have too many secrets here!

Yes, a trade secret may be some crucial technical know-how, a complete process or a procedure or its part, a secret formulation, a secret recipe or even a customer list maintained by a business. In fact, anything created with effort and regarded as confidential by a business is likely a trade secret.

Fun Facts: Did you know that Coca-Cola formula is a trade secret. Listerine was also a trade secret until its public disclosure. Well, so is KFC original fried chicken recipe and their “blend of 11 herbs and spices”. You may want to read more about it here:

Protecting Trade Secrets

We have some confidential information which has accumulated during our years in business. We definitely do not want it to get into the hands of our competitors or the general public. How do we go about protecting it?

For legal protection, a trade secret must be:

  • A secret.
  • Of commercial value.
  • Efforts should be taken so that this confidential information remains a secret.

💡 For an information to be considered a trade secret, part of the commercial value should be derived from the fact that the information is secret. That means, if the information was made public, the commercial value will be lost.

Guidelines for Startups/SMEs: Management of Trade Secrets

You may want to ensure that only selected people have access to this information. Such information should be marked “Confidential” and access restricted physically or electronically. A non-disclosure agreement with confidentiality and non-compete clauses may be signed with persons who have access to the trade secret information. Such confidentiality agreements should also be signed with your partners and future collaborators.

During licensing, franchising or mergers and acquisitions, you may agree to also include “technical know-how” like trade secrets. You must insist on confidentiality agreements with third parties and ensure the following:

  • that the duration, purpose and the specific roles of the parties are clearly defined.
  • identify and segregate the information clearly as known, protected or confidential.
  • clearly mention the purposes for which the confidential information may be used and when not used.
  • that the other party makes efforts to keep such information a secret.
  • that such agreements are not extended automatically but are extended beyond a time frame only when approved in writing.

Trade Secrets in India

The Right to Information Act, 2005 does not allow disclosure of information including commercial confidence, trade secrets and intellectual property unless the authority is satisfied that such disclosure is in public interest.

PS: There is no specific law for protection of trade secrets in India.

However, the courts in India have decided in favour of businesses in previous instances. In John Richard Brady case, technical knowhow (Trade Secrets) and Drawings (Copyright) were shared with a machinery part supplier in good faith to supply a specific panel after strict instructions to maintain confidentiality. Discussions led to an agreement, the terms of which were set out in a letter. The supplier, however, was unable to supply the required parts and the order was never placed. The trade secrets and the Drawings were misappropriated by the supplier to construct and sell their own machine which was strikingly similar to the original machine. The Court restrained the supplier from any commercial activities related to this machine.

Trade Secrets: Rewards vs. Drawbacks

Ensuring secrecy of trade secrets has its benefits. It can be indefinite, does not require form filling, registration costs, public disclosure and other legal requirements. The protection can begin as soon as the trade secret takes form.

On the other hand, they are difficult to enforce. It is possible for another person to “arrive at” a trade secret on their own or by reverse engineering a product. Accidental disclosure of a trade secret in public domain is also possible.

Unlike trade secrets, patent filing is costly, they require full disclosure, the term of protection is only 20 years, but enforcement is easier. For technical products that might be reverse engineered, patent protection maybe a better option.

For commercially valuable information, that cannot be protected by Patents, Designs, Trade Marks, Copyrights and others, you may look at ways to ensure secrecy of confidential information. This can give you an edge over your competitors and prove advantageous in the long run.

Best regards,

Dr. Deepika Singh