Trade secrets have been protectable since Roman times through actio servi corrupti (an “action for corrupting a servant”), whereby damages were recoverable for wrongfully inducing a servant to divulge the employer’s trade secrets. Although the roots of trade secret law can be traced to Roman times, India has no specific trade secret legislation. While patent, copyright and trademark laws have been defined in statutes, the protection of trade secrets remains a challenge in India.

During the course of operations, businesses collate information which has commercial value or gives an enterprise a competitive edge, and which may not fall under the purview of patent, copyright or trademark law. Indeed, even if the information is protectable by these laws, resorting to their use may not be the wisest option when considering short-term commercial viability, the expense of prosecution or privacy considerations. Thus, information that is not protected by other forms of IP legislation is often treated as a trade secret.

What is the rationale behind protecting trade secrets? Or to put it differently, why do we need a trade secret law? The reason is simple, as the well-known judgment in US case Kewanee Oil Co v Bicron Corp cites: “The necessity of good faith and honest, fair dealing is the very life and spirit of the commercial world.” It is highly unethical for one party to obtain, by unfair means or as the beneficiary of broken faith, the knowledge that it desires without paying the price in labour, money or equipment expended by the lawful owner of that knowledge.

Article 39.2 of the Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPs) defines a ‘trade secret’ as follows: “[F]or information to qualify as a trade secret, it should fulfil these conditions: a) it is a secret b) has a commercial value c) and has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

India has no legislation specifically defining or protecting trade secrets. Nevertheless, trade secrets can be protected by entering into a contract with the recipient of secret information, which binds that party to hold the information in confidence. Thus, a party can be expressly (ie, contractually) bound not to disclose any information that is revealed to it in confidence. In Richard Brady v Chemical Process Equipments P Ltd (AIR 1987 Delhi 372) the court went further by invoking a wider equitable jurisdiction and awarding an injunction even in the absence of a contract.

This chapter discusses the protection of databases and analyses whether they can be afforded the most appropriate protection under copyright law or by treating them as trade secrets.

Databases as copyrightable material

During the course of their operation, businesses regularly collect data that they arrange systematically or methodically and that can be accessed electronically – for example, in order to analyse business profitability or customer behaviour, or simply to maintain an inventory of goods. Thus, databases are an important tool for businesses, allowing them to run smoothly and plan their future development.

Databases are protectable under copyright law. Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as literary works.

There are two schools of thought regarding copyright protection for databases.

‘Sweat of brow’ doctrine

The ‘sweat of brow’ or ‘industrious collection’ doctrine holds that databases and compilations can receive protection per se without showing any creativity or originality. This doctrine is based on the reasoning that the author has invested time, money and labour in their creation. Therefore, if a party spent $1 million on the creation of a database, it would be entitled to copyright protection irrespective of whether the database demonstrated creativity. The rationale is that what is worth copying is worth protecting.

In Govindan v Gopalakrishna (AIR 1955 Mad 391), which concerned a compilation, it was held that although the amount of originality in a compilation is very small, that small amount is protected by law. Hence, no party may steal or appropriate the result of another’s intelligence, skills or labour, even in such works.

‘Modicum of creativity’ doctrine

The ‘modicum of creativity’ model extends copyright protection to the originality in the selection or arrangement of facts in databases (thus rejecting the sweat of brow doctrine). According to this doctrine, although the creativity required to create a database is minimal, it is central to the concept of copyright protection. Thus, it would not matter if a party had spent $1 million on the creation of a database – if the database lacked minimal creativity, it would not be afforded copyright protection.

In Eastern Book Company v DB Modak (2008 (1) SCC 1) the Supreme Court rejected the sweat of brow doctrine, holding that the work must be original “in the sense that by virtue of selection, co-ordination or arrangement of pre-existing data contained in the work, a work somewhat different in character is produced by the author”. Pertinently, the court noted that the sweat of brow and modicum of creativity doctrines are extreme positions; the court preferred a creativity threshold that lies somewhere between the two.

The present legal position thus mandates that not every effort, industry or expense of skill results in copyrightable work, but only those which:

  • create works that are somewhat different in character;
  • involve some intellectual effort; and
  • involve a minimum degree of creativity.

Thus, the following can be inferred about copyright law regarding databases.

Obtaining copyright

Copyright may be unavailable when a database lacks the minimum degree of creativity.

Proving infringement

Even if copyright protection is obtained, infringement must be proved, subject to substantial copying and fair use exceptions.

Copyright only in expression

In some instances obtaining copyright and proving infringement may be achievable, but copyright protection may be available only for the selection or arrangement of facts in a database, not the underlying facts.

Practical tips to protect trade secrets

  • Label the information to be protected as “confidential”, so that employees are aware that they are dealing with sensitive business information.
  • Restrict access to databases, servers and computer programs that store trade secrets.
  • Ensure that access to servers is password protected and that a suitable notice is displayed on computer screens when accessing sensitive areas.
  • Educate employees on why protecting trade secrets is important for business.
  • Sign non-disclosure agreements with any third parties with which commercial business information is shared.
  • Use a combination of technical and legal solutions to protect databases.

Databases as trade secrets

In theory at least, the treatment of databases as trade secrets can be a stronger form of protection, since it helps to protect the underlying or inherent data rather than the mere form of expression or layout protected by copyright law.

In Burlington Home Shopping Pvt Ltd v Rajnish Chibber (61(1995) DLT6), the Delhi High Court observed that although trade secret protection applies to a wide range of business data, customer lists and other compilations of business data may be copyrightable as works of fact. In theory, copyright and trade secret law protect different elements of compiled business data, with copyright protecting the expression in these compilations and trade secret law protecting the underlying data. In fact, copyright and trade secret protection for compilations of business data frequently converge: copyright protection for business directories often extends to the underlying data and trade secret protection may extend to particular expressive arrangements of data.

In Burlington the court dealt with an application for interim relief in a suit by a mail order service company against its employee for an injunction restraining “breach of copyright and confidentiality”. The court held that a compilation of addresses developed by devoting time, money, labour and skill – although the sources may be commonly situated – amounts to a literary work in which the author has copyright. Finding that the defendant’s database was substantially a copy of the plaintiff’s database, the court granted the interim injunction.

Similarly, in Mr Diljeet Titus, Advocate v Mr Alfred A Adebare (130 (2006) DLT 330) the court held that in the context of a law firm, copyright existed in a list which had been specially designed by an advocate and contained details of the firm’s clients, along with the nature of work and contact person for each one. Notably, it was held that the courts must step in to restrain a breach of confidence independent of any right under law. This obligation need not be expressed, but need only be implied.

In Genetics India Pvt Ltd v Shailendra Shivam (2011 (47) PTC 494), dealing with an application for interim relief, it was observed that “[p]leadings of the nature and quality of information which is confidential are crucial and in the absence thereof there is no question of confidentiality”.

Thus, a trade secret suit should make amply clear that the subject information is confidential. Apart from pleading that the information is confidential, it must be proven that reasonable efforts have been made to keep it confidential. If the owner of the information cannot prove as much, the information risks losing the quality of confidentiality.

Further, if the information and technique are neither unique nor novel, and the database is merely a documentation or compilation of existing material or techniques which are freely available or widely practised, there is no question of confidentiality. Thus, the mere fact that information is documented in the form of a database does not make it confidential: it must also have the requisite exclusivity. If a court were to accept, uncritically and without any statutory regime, a plaintiff’s blanket assumption that it possessed confidential information in something which was plainly part of the public’s material resources, that court would overstep the mandate of the Constitution – specifically, the rights to occupation (Article 19(1)(g)) and livelihood (Article 21).

Table 1. Copyright and trade secrets: a comparative study

 

Copyright

Trade secret

Comment

Minimum requirements

A minimum degree of creativity is required.

The information in the database should:

  • be a secret;
  • have commercial value; and
  • be subject to reasonable efforts to keep it confidential.

Copyrighted subject matter must have a minimal degree of creativity, while the subject matter of a trade secret must be a secret with commercial value, regardless of any creativity criterion.

What is protectable?

Pre-existing facts are protected. Originality (not novelty) is required, provided that the minimal creativity criterion is fulfilled.

Databases which comprise information that is not readily available in the industry or ascertainable from public sources are protectable as trade secrets.

Copyright protection depends on the originality of the expression, while trade secret protection depends on the exclusivity of the information (ie, customer lists may not be protected where such information is readily available).

Violation

Infringement requires proof of substantial copying, with no fair use exceptions available.

Violation can be proved by theft of physical copies (documents, disks or files) or breach of confidentiality. Trade secret violation requires additional wrongful acts that are qualitatively different from the elements of copyright law.

Copyright infringement can be proved when there is substantial copying; however, trade secret violation requires an extra element of misappropriation – that is, acquisition by improper means (eg, theft or disclosure by an employee or breach of confidence).

Privacy

Copyright law provides no right to privacy as only the expression is protected, not the ideas. Thus, others are free to use the same ideas in different forms of expression.

Trade secrets are based on the secrecy or privacy of information. The moment information loses its secrecy and enters the public domain, it is no longer a trade secret.

One of the reasons for resorting to trade secret protection for databases is the private nature of the information. Trade secret protection helps to keep information private.

Term

Copyright protection has a fixed term. For databases, which are defined as literary works, the term of protection is the lifetime of the author plus 60 years (from the beginning of the calendar year following the year of the author’s death).

Trade secrets can be protected on contractual terms which can be continued in perpetuity.

Copyright has a fixed time limit of protection, while trade secrets can be protected in perpetuity.

Conclusion

Table 1 demonstrates that protection of a database through copyright or as a trade secret each involves pros and cons. There is growing demand for the introduction of a specific law to protect trade secrets – specifically, for sui generis database protection. The weak protection granted to trade secrets was flagged by the Office of the US Trade Representative in its recent Special 301 report, which placed India on a priority watch list.

Ranjan Narula andMayur Varshney

This article first appeared in IAM. For further information please visit www.iam-media.com.