top of page

Trade Secrets and Confidential Information

By: Ramesh Vaidyanathan

In the globalised world economy, businesses must take effective steps to protect business processes, technical knowledge and confidential information. While the importance of such protection is recognised by many corporations the world over, not all of them manage to take effective steps to legally protect such information.

What is meant by Trade Secrets?

Trade secret refers to data or information relating to the business that is not generally known to the public, which the owner reasonably attempts to keep secret and confidential. Trade secrets generally give the business a competitive edge.

The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) under the auspices of the World Trade Organisation lays down the following three criteria for treating any information as undisclosed information (or trade secrets):

  1. It must not be generally known or readily accessible by people who normally deal with such type of information.

  2. It must have commercial value as a secret.

  3. The lawful owner must take reasonable steps to keep it secret.

Customer lists, business information, employee details, financial records, data compilations, business plans and strategies, formulae, designs, drawings, algorithms, etc. could all amount to trade secrets. A trade secret need not be something that is novel nor should it have any real or intrinsic value to be protected. The only important requirement is that it must be a secret.

Breach of Confidence

The general law relating to breach of confidence prohibits an ex-employee from using information that can be identified as the property of the ex-employer and separate from the employee’s original knowledge. However, the general law does not prevent employees acting in concert from leaving their employer and setting themselves up in competition with the employer. A covenant covering clearly defined activities in which the employee would be likely to use confidential information relieves the employer of the need to prove that the employee subjectively appreciated the confidentiality of the information in question, or that the information was separable from the employee’s general trade knowledge.

Tools to Protect Trade Secrets

Commercial enterprises must ensure that they protect trade secrets from being misappropriated, sabotaged, lost or stolen. Some tools that they can adopt are:

  1. Employment agreement: Businesses should include suitable confidentiality, non-disclosure and non-compete clauses in agreements with employees. These may include the type of information that is likely to be disclosed, the manner in which it should be used and restrictions on disclosure post-termination of employment.

  2. Trade Secret Policy: Such a policy is a must for businesses that heavily rely on trade secrets. A basic step to develop such a policy is to identify and prioritize the business secrets based on their value and sensitivity. Employees must be informed about the policy and consequences of its breach before they agree to abide by the policy and sign an acknowledgement to that effect.

  3. Non-disclosure Agreements (NDAs): Businesses must enter into NDA’s with third parties before discussing business prospects and ventures.

  4. Adequate Documentation: It is important for businesses to keep a track of the trade secrets that are developed and have sufficient records to show that the trade secret was developed by them and belongs to them. These records would be of evidentiary value in case of a dispute. It would also be useful for such businesses to conduct a trade secret audit at regular intervals to and keep up to date with any changes.

  5. Security Systems: Access to trade secrets and confidential information may also be restricted to only select personnel who have to undergo proper security checks. In case of an electronic environment, the businesses should use adequate software programs, virus scans, firewalls and other security and authentication technologies to safeguard their trade secrets.

Guidelines to Employers

Till such time as a law is enacted in India, Indian companies should take the following steps to protect confidential information:

  1. Companies should ensure that before disclosing confidential information to employees, a non-disclosure agreement is in place.

  2. Companies should ensure that the confidential nature of the information is expressly communicated to the employees before disclosure.

  3. Companies should restrict the number of employees having access to confidential information at any point of time.

  4. Companies should mark files and relevant documents as confidential.

  5. Companies should have in place proper security systems for computers and networks. Passwords should be provided and changed frequently.

  6. Companies should have in place proper policies for document retention and destruction.

  7. Companies should very clearly set forth the standards of non-disclosure of confidential information in the employee handbook.

  8. Companies should take special care when an employee is leaving the company. The employee should be reminded of his obligations and asked to deposit all confidential material in his possession.

  9. A covenant of non-disclosure should also include a clause whereby the employee is under an obligation to disclose to the employer any confidential information acquired in the course of employment, which is in the nature of a trade secret for the company but unknown to the employer.

Confidentiality Agreements

A confidentiality agreement should not be wider than necessary; otherwise it will be void. An employer should not impose a restriction that prevents the employee from using in competition with the employer the skill, aptitude and general technical knowledge acquired by him in the course of his employment. Section 27 of the Indian Contract Act, 1872 (“Act”) states that agreements in restraint of trade are void.

If it is found that the employee is likely to misuse confidential information obtained while in employment, the employer is entitled to an injunction preventing such misuse. However, an injunction cannot be granted to protect the employer for misuse that has already taken place. For such past misuse, the employer is entitled only to damages, as otherwise, this will go against fair competition.

Trade Secrets & Indian Laws

Trade Secrets seems to be a neglected field in India, as there is no enactment or policy framework for the protection of trade secrets. Almost all the countries in the world have a policy for the protection of trade secrets and India also being a signatory to the TRIPS is under an obligation to amend its laws or create a new law in order to safeguard the trade secrets of various businesses.

The legislations which are having a connection with the trade secrets can be summed up as

  1. Copyright Act, 1957[Section 51,55 and 63]

  2. The Designs Act, 2000

  3. The Information Technology Act, 2000[Section 65, 72]

  4. Indian Penal Code [Section 408, 415]

  5. The Indian Contract Act [Section 27]

  6. The Competition Act, 2002 [Section 3]

  7. Civil Procedure Code

  8. Criminal Procedure Code

Trade Secrets & International Law

The essential tenets of trade secret law are recognized by NAFTA, GATT and the laws protecting trade secrets around the world.


The United States, Canada and Mexico entered into the North American Free Trade Agreement (NAFTA) in 1992. NAFTA follows US trade secret law. NAFTA defines a trade secret as information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy. Member countries must protect trade secrets from unauthorized acquisition, disclosure or use. Remedies must include injunctive relief and damages. In response to NAFTA, Mexico has amended its 1991 trade secrets law to permit private litigants to obtain injunctive relief.


In 1994, the major industrialized nations of the world concluded the Final Act resulting from the Uruguay Round of GATT (General Agreement on Tariffs and Trade). GATT established the World Trade Organization (WTO) and promulgated various trade-related agreements including TRIPS or the Trade-Related Aspects of Intellectual Property Rights.

The TRIPS Agreement provides protection for “undisclosed information.” Such information must be secret, i.e., not generally known or readily accessible to “persons within the circles that normally deal with the kinds of information in question.” Also, the information must have commercial value because it is secret and the information must be the subject of reasonable steps by its owners to keep it secret.

Under GATT, “undisclosed information” must be protected against use by others without the consent of the owner if the use is contrary to honest commercial practices. Also, there is third-party liability for misappropriation if third parties knew or were grossly negligent in not knowing that such information had been obtained dishonestly.

The TRIPS Agreement requires member countries to provide effective remedies for trade secret misappropriation including (a) injunctive relief (b) damages and (c) provisional relief to prevent infringement and to preserve evidence.

Selected Countries

United Kingdom

The United Kingdom provides broad and effective protection for trade secrets. Search and seizure orders may be issued to protect trade secrets and preserve evidence. There exists the full panoply of remedies for a “breach of confidence” including injunctive relief, damages and third-party liability.

Many aspects of the doctrinal development of the law of trade secrets in the United States came from England.


Germany provides strong protection for trade secrets. Germany’s 1909 unfair competition law created criminal penalties. Private litigants can obtain injunctive relief and damages. There is third-party liability. A trade secret includes information that is commercially valuable, not in the public domain, and for which its owner has shown an “objective intent” to keep secret.


As businesses are going global, effective trade secret protection is becoming a necessity. Though there is no enactment in India that affords protection to trade secrets, businesses can use some of the tools discussed above to safeguard these trade secrets. Businesses may do well to remember that adequate and effective protection, use and management of trade secrets would be crucial to the success of their business ventures in the long term.


bottom of page