The line between Patents and Trade Secrets in India

Ask anyone in the business world and they’ll likely tell you that Intellectual Property is the fulcrum of any company’s success. Innovate or die is the mantra of the business world and it has never been more true today. But protecting Intellectual Property is a challenging task. It requires fastidious planning, resolute execution and the ability to grind it out in the face of relentless attack. In cricketing parlance it’s akin to a long overseas Test series.

The theory behind IP protection is quite simple – identify, protect and enforce. However, rendering this into practice is a wholly different affair, especially when it comes to Patents. Patent lawyers, both in-house and outside counsel, have to navigate a complex maze within
the corporate structure to sniff out innovation worthy of protection. It is a very difficult proposition when one considers that many creative outputs are amorphous, without proper documentary trails, and may not always succeed as intended, if at all. To derive protectable
IP from such variable information streams requires subject matter expertise as well as an acute insight on the big picture. There has to be a healthy consultative interaction on a continuous level between the owner and its counsel to create effective strategy designed to achieve its long term objectives. After all, unless the innovation spurs longevity and growth, its value for the owner diminishes.

A famous example of unintentional success is the story of Viagra – which was originally being developed to treat hypertension and angina, before some attentive researchers at Pfizer discovered it was far more effective on other organs. It is worth noting that Pfizer was able to pivot quickly because they had a robust patent filing program that permitted them to make organisational decisions to maximise innovation potential. This also highlights the value of filing broad provisional specifications as soon as the developmental process commences. Such provisional applications may lead to multiple inventive steps, each of which can be separately patented.

An effective patent filing program that is able to support a company’s innovative strength will certainly add immense value to its business. However, owners also need to be forward thinking in their approach and develop plans to monetise as many of their patented inventions as they can, either by using them themselves, or through licensing arrangement. However, owners should be aware that not every patent is a monetary success – and expecting each patent to be a money spinner would be foolish. This is an uncertain exercise that has to be viewed with a broader lens to determine overall success.

The uncertainty over successful monetisation aside, protecting Patents can be an expensive and time consuming affair that can often deter owners with smaller budgets. Patent rights, like most other IP, are territorial rights granted through registration. The individual costs
associated with registration across jurisdictions are significant and owners do not often see the benefit in spending to obtain benefits they are not sure about – especially when funding is limited. Furthermore, with jurisdictional variations in legislations and procedures (although the TRIPS agreement has created a somewhat uniform legal standard) and delays in obtaining protection the entire exercise may appear futile.

In these circumstances, trade secrets present an attractive proposition for owners eager for immediate protection for their creative endeavours. Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret. Trade Secrets essentially cover the following types of business information:

1) Information relating to innovations or manufacturing processes that are not eligible for patent protection as they do not meet the patentability criteria. Examples could include business methods, computer algorithms, recipes, etc.; or
2) Information that the owner wishes to keep secret. Examples include patentable inventions an owner does not want to disclose, ingredient formulae, etc.

Global standardisation under the TRIPS Agreement allows for a certain uniformity in the basic definition of trade secrets, as well as their protection. By virtue of Article 39 of the Agreement, member states are obligated to provide some form of protection from unauthorised disclosure of undisclosed information (the term includes trade secrets and know-how) that has been misappropriated, or unlawfully acquired without consent, or used without consent in a manner contrary to honest commercial practices. To qualify for protection, the information must:

a) be a secret;
b) have commercial value because of its secrecy; and
c) the owner should have taken reasonable steps to ensure its secrecy.

It is also worth pointing out that the protection afforded broadly encompasses a variety of actions that could be founded in common law, contract law or special statute. The ‘contrary to honest commercial practice’ standard has wide amplitude and includes unfair competition, breach of contract, breach of confidence and inducement to breach, as well as the acquisition of undisclosed information by third parties who knew, or were grossly negligent in failing to know, that such practices were involved in the acquisition.

While some countries have enacted special legislation for protection of trade secrets, others such as India give effect to their obligations under existing statutes and common law principles. There have been numerous occasions where the Indian Courts have upheld trade secret protection under various statutes, including Copyright law, law of Contracts, and principles of common law and equity. Injunctive relief and award of damages are the most common remedies.

Therefore, in proper circumstances, trade secrets are very useful and have some distinct advantages, namely:
• they can be secured immediately,
• they can be maintained indefinitely,
• there are no costs associated with their registration (as there is with Patents),
• there are no formal compliance or disclosure requirements, and
• there is also a degree of legal protection available to owners, which can be enhanced
contractually through non-disclosure agreements and confidentiality provisions.

However, it will be overly simplistic to believe that trade secrets are preferable over Patent protection, especially when the information meets the criteria for patentability. Trade Secrets are high risk endeavours with very concrete disadvantages – not least the immense effort and stress required to maintain secrecy. Some of these disadvantages are:
• measures to maintain secrecy can be very costly without any guarantee of success (especially in a digital world). Such costs can parallel and even exceed the cost of obtaining patent protection,
• if a secret leaks into the public domain (whatever the cause) it is lost forever and loses its commercial value,
• they can be difficult to enforce in the event of a leak because the owner has the dual burden of establishing the existence of a trade secret; and that the possessor acquired it unlawfully,
• they can be reverse engineered, especially if they are embodied in a vendible product and the owner would have little legal recourse against such actions,
• if a third party independently develops the same information, they are not only free to use it but can also patent it. they can be independently developed.

Deciding whether or not to choose trade secrets over patents must be based on a comprehensive analysis not merely a short term cost-benefit analysis. Some major facts would include:
• an objective analysis of the nature of the information and its patentability;
• the commercial value and the likely lifespan of such value; and
• the ability to maintain secrecy during its commercial exploitation.

The decision to proceed with trade secret protection will depend on the outcome of the analysis after thoroughly weighing the respective pros and cons. It is also important to develop an intellectual property strategy that maintains a clear informational demarcation between trade secrets and other forms of IP, especially Patents. One cannot, for obvious reasons, simultaneously hold a patent and maintain a trade secret over identical subject matter. But can one own a trade secret in undisclosed information surrounding a patent?

It is possible, but this is a strategy fraught with risk. Rarely will Courts allow trade secret or know-how protection to co-exist with a patent if the lines between the two are blurred. This would amount to a form of ever-greening that Courts are unlikely to enforce. A recent case in the Delhi High Court can shed some light on this issue.

In Dr. Claudio De Simone & Anr v. Actial Farmaceutical and ors., MANU/DE/0841/2020 the Court was faced with a unique argument where the Plaintiff instituted a commercial suit inter alia seeking an injunction against the Defendants on the ground that the Defendants’ had unjustly enriched themselves through violation of the Plaintiffs’ trade secret / know-how to make a product over which a patent had previously existed. The patent in question was an expired US patent over a pro-biotic formulation containing eight strains of bacteria but the Plaintiff had not obtained any Indian Patent (in USA and not India).

The parties were known to each other and the Plaintiffs had previously entered into broad commercial, know-how and licensing agreements with the Defendants for territories other than India but these agreements (some of which were tied to the term of the Plaintiffs’ patent) had also expired.

The Plaintiffs’ main claim was that the Defendants were attempting to enter the Indian market with a repackaged product that was essentially an inferior copy of the Plaintiffs’ formulation, but one which the Defendants were marketing as an equivalent substitute. The Plaintiffs alleged that the Defendants formulation was unlawfully derived using the Plaintiffs’ knowhow that was its trade secret, and which had been disclosed to the Defendants previously under the terms of the know-how and licensing agreements only. Thus, the Plaintiffs claim against the Defendants was one of unjust enrichment.

After carefully considering the facts, the Court dismissed the suit on grounds that the Plaintiffs had failed to disclose a valid cause of action. In its reasoned decision, the Court concluded that Plaintiffs were precluded from claiming their process of manufacture (know-how) was a trade secret because the subject matter i.e. the product was already in the public domain. The Court found that since the Plaintiffs did not hold a patent in India the invention was in the public domain in India, and because they had disclosed the product and its process of manufacture in their patent disclosure (which requires the best method to be disclosed) in the U.S, they could not prevent use of that public domain knowledge by the Defendants in India.

To hold otherwise would be to “construct a judicial creation of an extra-statutory monopoly for perpetuity in the invention” that was contrary to public interest and judicial discipline.

The Court further held “that information claimed to be confidential can be protected as trade secret only if such information is not available in the public domain and is hence unknown to others”.

The above judgement is instructive in many points, not least of which is the fact that in the event of an overlap between the subject matter of a trade secret and a patent, Courts are more likely to favour limited term bound (patent) protection over perpetual protection (trade secret) unless the Plaintiff can make out a substantial case in its favour. The decision also suggests that Courts will also be unwilling to recognise contractual obligations that seek to monopolies public domain information.

The above judgement is instructive in many points, not least of which is the fact that in the event of an overlap between the subject matter of a trade secret and a patent, Courts are more likely to favour limited term bound (patent) protection over perpetual protection (trade secret) unless the Plaintiff can make out a substantial case in its favour. The decision also suggests that Courts will also be unwilling to recognise contractual obligations that seek to monopolise public domain information.

To end with a cricketing metaphor – as the Delhi High Court demonstrated – the line belongs to the judge.