Indian businesses that are increasingly relying on proprietary knowledge and trade secrets to gain a competitive edge are facing a major challenge: the absence of a dedicated trade-secret law. As things stand, a patchwork of legal protections has left courts struggling to impose uniform remedies in intellectual-property cases. But help may be on the way, with parliament ready to examine the 2024 Protection of Trade Secrets Bill. Legal experts believe the new law would be a game-changer for India — if and when it emerges from the recesses of parliament.
As India strives to become a global innovation powerhouse, a critical gap in its intellectual-property landscape is threatening to stifle progress: the absence of a dedicated trade-secret law. The patchwork of legal protections has left courts floundering as they attempt to impose uniform remedies. Among the tools at the judges’ disposal is the 1872 Indian Contract Act, the 1963 Specific Relief Act, common law, equitable principles, the 2000 Information Technology Act and criminal action under the 2023 Bhartiya Nyaya Sanhita — action that may be linked to offences such as theft, criminal breach of trust and cheating.
It’s an ad hoc approach that creates uncertainty and hinders effective enforcement, Indian intellectual property lawyers argue. "These mechanisms are fragmentary and often inadequate in addressing the challenges of trade secret protection," says Amaya Singh, Partner at LexOrbis.
For those Indian businesses increasingly relying on proprietary knowledge and trade secrets to gain a competitive edge, the current regime is, quite simply, unsustainable.
But things could all be about to change.
The 2024 Protection of Trade Secrets Bill, which was recommended in March by the 22nd Law Commission of India, seeks to bolster India's intellectual-property landscape by protecting valuable company secrets. By providing a robust legal framework, the bill aims to stimulate economic growth, innovation and fair competition.
While the draft bill largely codifies existing legal remedies, the inclusion of provisions for maintaining the confidentiality of legal proceedings is "a welcome step," according to Neel Mason, a managing partner at Mason & Associates, a law firm.
The benefits of replacing the complex and confusing maze of regulation with a one-stop regulatory shop are clear for those wanting to protect their IP, backers of the legislation argue.
Nirupam Lodha, a partner at law firm Khaitan & Co., believes that a single, comprehensive law will make legal processes clearer and more predictable for both domestic and foreign businesses — especially those licensing technology to Indian companies. It will also boost confidence in India's legal system.
The proposed law would also align India with international standards, particularly those under the Trade-Related Aspects of Intellectual Property Rights Agreement, or TRIPS, which establishes minimum standards for protecting intellectual property in trade. This could have the effect of facilitating cross-border trade and investment by providing a predictable legal environment.
It all points to why there’s so much riding on the proposed legislation, which has make little progress in parliament since March.
— New challenges, old law —
According to Khaitan & Co.'s Lodha, the current legal landscape for trade secret protection is "fragmented and difficult to navigate" and in dire need of review.
Highlighting the unique nature of trade secrets, Archana Balasubramanian, a partner at Agama Law Associates, says that "trade secrets, as a concept, are not limited by time, like in the case of intellectual property, which has a specific shelf life."
This distinction emphasizes the enduring value of trade secrets and the need for robust protection mechanisms. While courts have offered varying degrees of relief to claimants, no uniform principles have evolved, Balasubramanian says.
LexOrbis’ Singh agrees that enforcing trade-secret rights in India, especially in cross-border disputes, is challenging due to the lack of a specific legal framework, jurisdictional conflicts and the complexities of international cooperation.
"Digitalization and globalization have also introduced challenges, such as cyber theft and data breaches, which are difficult to trace and prosecute, particularly when perpetrators are based in foreign countries," Singh says.
The bill appears to address many of these concerns.
The draft defines a trade secret as confidential, commercially valuable information protected by reasonable security measures. Such secrets must be likely to suffer economic harm if disclosed.
The bill grants trade-secret holders various rights, including the right to prevent unauthorized use, disclosure or acquisition of their secrets. It also provides remedies for misappropriation, such as injunctions and damages.
To balance the protection of trade secrets with public interest, the bill includes provisions for compulsory licensing in certain circumstances. Additionally, it safeguards whistleblowers who report genuine cases of trade secret misappropriation.
The draft explicitly excludes general professional knowledge and information about illegal activities from the definition of trade secrets. This is designed to ensure that the bill doesn’t stifle legitimate competition or hinder law-enforcement efforts.
— Aligning with TRIPS —
The bill aims to align India with international standards, particularly those under the TRIPS Agreement. Balasubramanian notes that "as India moves towards implementing more robust protections for trade secrets, aligning domestic legislation with international standards like the TRIPS Agreement will be crucial for fostering innovation and protecting business interests."
Nirupam Lodha says that the draft bill draws on both TRIPS and the trade-secret protection regimes of 20 countries, including Singapore, South Korea, the US, the UK, China and Canada.
The bill's provisions will also offer greater legal protection to multinational companies that license trade secrets to Indian entities. To benefit from this protection, companies must implement reasonable security measures to safeguard their confidential information.
"This alignment is expected to enhance the confidence of foreign investors and multinational corporations, potentially leading to increased investment and collaboration opportunities within the Indian market," Lodha says.
The draft bill incorporates global best practices while introducing unique features, such as provisions for compulsory licensing of trade secrets that, Lodha says, may spark debate among legal experts.
The draft bill's compulsory-licensing provision aligns with Article 39.3 of the TRIPS Agreement, which allows for the disclosure of confidential information in the public interest, Vindhya S Mani, Partner at Lakshmikumaran & Sridharan Attorneys says.
Smriti Yadav, a partner at Khaitan & Co., says the compulsory licensing provisions "appear to be a deterrent to parties from unilaterally fixing license prices, as is the current market practice."
The provision will act as a safeguard against unfair practices and encourage fair negotiations between the trade-secret holder and potential licensees, ensuring that the technology or knowledge is accessible to the public at a reasonable cost, promoting innovation and economic growth, Yadav says.
— Need to refine —
IP lawyers who spoke to MLex say that whatever the merits of the bill, it also contains several shortcomings.
According to Balasubramanian, the absence of criminal penalties in the proposed legislation is problematic, especially when compared to countries like China, Japan and the US, which have imposed criminal liability on the breaching of trade secrets.
However, Vindhya S. Mani points out that the TRIPS Agreement also doesn't mandate criminal penalties for trade secret theft. India's draft bill does indeed focus on civil remedies, the lawyer says, "with the Law Commission Report indicating that any criminal remedies could be dealt with through criminal laws.”
While the proposed Act is a significant step forward, Yadav says could be further strengthened by including "dedicated penal provisions, similar to the Trade Marks Act, 1999." This would ensure that appropriate penalties are imposed on those who infringe trade secrets, deterring future misconduct and compensating victims for their losses, she says.
Meanwhile, Neel Mason says that the draft bill may require refinement to ensure practical application, with the definition of "trade secrets" under Section 2(f) of the bill currently limited to information with immediate commercial value.
"The draft bill does not take into account information that may presently not have commercial value but is capable of such in the future," Mason says.
Yet despite the shortcomings, Mason is confident that the enactment of the legislation that grants rights to trade-secret holders and provides protection mechanisms could both encourage more foreign multinational companies to invest in India while also incentivizing Indian companies to invest more in research and development of innovative technologies.
The proposed legislation aims to formalize existing judicial practices and provide a more structured approach to trade-secret protection. It introduces provisions for interim measures, which are crucial for safeguarding sensitive information during legal proceedings.
“The need of the hour is to protect small or large businesses or trades especially in the service industry ... where breach of confidentiality occurs," says lawyer Balasubramanian.
As for the timetable, the draft bill is a long way from becoming law. There has been no further update on the proposed bill since the draft was published in March this year and has not been listed in the parliament's winter-session docket. India probably has a long wait for its enactment.
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