Trade Secrets and Confidential Information

Definition of Trade Secret

Information that provides a competitive edge

Trade secrets are any form of information—technical, commercial, or strategic—that gives a business an advantage over competitors due to its secrecy.

Not generally known or readily ascertainable

The information must not be available to the general public or easily discovered by others in the industry.

Subject to reasonable efforts to maintain secrecy

The owner of the trade secret must take active steps, such as using passwords, security protocols, or legal agreements, to ensure the information remains confidential.

Example 1. A secret recipe of a food product, such as the Coca-Cola formula, is kept locked in a vault and known only to a few trusted employees.

Answer:

This qualifies as a trade secret because it provides a competitive edge, is not publicly known, and significant efforts are made to protect it.

Legal Protection

Common Law (Law of Confidence)

Under common law, trade secrets can be protected through the doctrine of breach of confidence. If confidential information is disclosed in violation of trust, the aggrieved party can seek remedies.

Contractual Agreements (Non-Disclosure Agreements - NDAs)

Parties often sign NDAs that legally bind them not to disclose or misuse trade secrets shared during business relationships or employment.

Section 72 of the Information Technology Act, 2000

This provision penalizes unauthorized disclosure of information accessed while performing powers under the Act, including imprisonment up to 2 years or fine up to ₹1 lakh, or both.

Example 2. An employee shares the confidential customer database of his company with a rival firm after resigning.

Answer:

The company may file a breach of confidence claim under common law and sue under the NDA, if signed, and possibly invoke Section 72 of the IT Act.

Breach of Confidence

A breach of confidence occurs when a person, having received information in trust or confidence, discloses or uses it without authorization. For a valid claim, three elements must be proven:

The information was confidential in nature.
It was communicated in circumstances that gave rise to an obligation of confidence.
There was unauthorized use or disclosure of the information.

Example 3. A start-up shares its business plan with a potential investor under a confidentiality agreement, but the investor later uses the idea to start a similar company.

Answer:

This is a clear case of breach of confidence and violation of the NDA. The start-up can pursue legal action for misuse of its confidential information.