Trade Secret Protection in India and Gulf Countries – Comparative Analysis

Aastha Mehta

Trade secret is one of the most uncodified laws out of all other IPRs, and is one of the fast-paced developing fields, with newer forms of global businesses coming up. Use of comparative analysis, would show the readers how world trends in trade secret laws are evolving, and we can understand two different legal systems in one light. Trade secret has been by far most comprehensively defined in Trade Related Aspects of International property (TRIPS) in Article 39. Most of the Gulf Countries and India are signatories to TRIPS ((Contracting Parties/Signatories to TRIPS Available at http://www.wipo.int/wipolex/en/other_treaties/parties.jsp?treaty_id=231&group_id=22 (accessed on 7^th August 2015).)). In this paper the author tries to focus on how these two completely stark opposite legal systems have developed their law on trade secret. Author, firstly analyses the laws in various gulf countries, especially focusing on Gulf Countries Council, which is an economic and political alliance of 6 Islamic countries, UAE, Kuwait, Saudi Arabia, Oman, Bahrain and Qatar. Then, the paper describes Indian law on trade secret which is primarily a creation of Indian judgments, in absence of any written law. Following this, in order to give a comparative picture, author traces how both laws are different, starting from difference in legal systems, the reason for trade secret in these countries and ending with the similarities which these countries have. During the course of research there are very less case laws which could be found in Gulf literature, however Indian cases laws do give us a broader idea of what trade secret law is in India. Author concludes the research by stating how different the laws on trade secret are in these two countries, and suggestions are given in the end.

Law in gulf countries

Similar to European Union, Gulf Countries Co-operation (GCC) has been established for co-operation, economic and political for Gulf countries, and to establish a stronghold inter-country relation. The entire scenario of GCC can be explained in following terms, “The GCC is a regional common market with a defence planning council as well. The geographic proximity of these countries and their general adoption of free trade economic policies are factors that encouraged them to establish the GCC ((“Gulf Country Co-operation” Available at http://www.globalsecurity.org/military/world/gulf/gcc.htm (accessed on 8 August 2015).)).” We deal with each country in terms of their own domestic laws. Before proceeding, however it should be known that these countries are Islamic countries, which strictly follow Shariah Law, and it is well established rule that if there is no specific law, then the law which is applied is Shariah law, and same is the case for IPR. If there is no legislation which protects privacy or secret, then Shariah principles apply. Shariah principles protect the individual’s right to his own privacy and prohibit the disclosure of secrets (unless the owner of the secrets agrees to the disclosure or the public interest requires such disclosure) ((“Data Protection landscape in the GCC” Charles Russell Speechlys LLP, Available at http://www.lexology.com/library/detail.aspx?g=8e4bc5b5-d911-4b80-b63d-04ad4d0e4e4a (accessed on 8 August 2015).)). This directly links to trade secret laws, and therefore trade secret owners will not remain remedyless even if there is no legislation.

Bahrain:

In terms of many countries, Bahrain has a written, detailed and comprehensive law which is called Law No.7 of 2003 on Trade secrets. ((Text can be found at http://www.wipo.int/wipolex/en/text.jsp?file_id=198907 (accessed on 8 August 2015).))Under Article 7, it prescribes a specific penalty as follows, “any person who unlawfully discloses, acquires or uses trade secrets protected under the provisions of this Law, and was aware of their secrecy or that they were acquired by unlawful methods, shall be punished by an imprisonment of not less than 3 months and not more than one year and by a fine of not more than (5000) five Thousand Bahraini Dinars and not less than (2000) Two Thousand Bahraini Dinars, or by any of those penalties.”  This shows strict the laws in Bahrain are, and this also is an evidence of the fact that the country is serious when it comes to confidential commercial/business secrets, for the over-all growth of business community. Though the law as originally enacted is very brief, it is definitely well-drafted. But the law was expanded, when US-Bahrain concluded a Free Trade agreement, 2006. The expansion relates to agro-chemical and pharmaceutical items and confidentiality with respect to undisclosed safety and efficacy data ((David Price, “Development of Intellectual Property Regimes in Arabian Gulf States: Infidels at the Gate” Routledge Pvt Ltd. 2009, p. 124)). This law takes into account well-established doctrines in trade secret jurisprudence, for e.g. the concept of acquiring trade secret knowledge independently of any unlawful means, by using legitimate means. “A trade secret need not be exclusive to confer competitive advantage; different independent developers can acquire rights in same trade secret ((Jay Dratler, Stephen McJohn, “Intellectual Property Law: Commercial, Creative and Industrial Property” Law Journal Press, §4.04(2).)). Article 4 clearly provides that acquisition of trade secret by independent self-effort does not come within ambit of unfair trade practices. Another issue that usually crops in a trade secret issues is divulging of trade secret by employee to other competitors for money. Such disclosure is treated as a criminal offence, without there being a requirement of fiduciary relationship existing between the two persons. Bahrain Penal Code, expressly provides that divulging a secret of another without the consent of that person, for his own benefit or for benefit of another person is punishable offence ((Article 371 Bahrain Penal Code, Available at http://www.unodc.org/res/cld/document/bhr/1976/bahrain_penal_code_html/Bahrain_Penal_Code_1976 (accessed at 8 August 2015).)).

Kuwait:

There is no written legislation in Kuwait on trade secret. They rely only on contractual relationship for protection, and not in the form of an independent IP. In Kuwait the only way of protecting trade secret is by confidentiality agreement or by specific agreement ((Dennis Campbell, “International Joint Venture”2^nd ed. Centre for International legal studies 2013)). However Kuwait claims that trade secret is protected under copyright law, since copyright can determine who can publish his work. But the entire argument is flawed since the objective of copyright law is different and trade secret deals with non-disclosure which is not the case with copyright ((Supra fn.5 p. 123)). Absence of legislation, does not indicate that Kuwait does not recognize trade secret. In an agreement with Bosnia and Herzegovina, it defines Intellectual property to clearly include trade secret ((Agreement between Bosnia and Herzegovina and state of Kuwait for encouragement and reciprocal protection of investments, Available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/478 (accessed on 8 August 2015).)).

Oman:

Oman, like Bahrain has a well-established law, Law on Trademarks, Descriptions and Secrets and Protection from Unfair competition (Royal Decree 38/2000) under Part III, sections 34 and 35, trade secret protection has been given. Section 34 states the law in Oman in following terms, “Any natural person or legal entity may not disclose trade secrets in his or its possession in a manner that is contrary to honest practice in trade. A commercial or industrial activity shall be considered secret if, due to its nature, it is not known, it draws its commercial value from its confidentiality, reasonable measures have been taken to maintain its confidentiality or it is not easily accessible to an ordinary person having skill in the art ((Available at http://www.wipo.int/wipolex/en/text.jsp?file_id=129241#LinkTarget_63 (Accessed on 8 August 2015).)).” However trade secret matters have not arisen before Omani courts. Similar to Bahrain, Oman also has a FTA with US, and provisions are more or less the same.

While discussing this FTA, Bahrain and Oman have to give Most Favoured Nation (MFN) and national treatment to US investors. This means that whatever protection citizens of both these countries have will be given to US investors under national treatment and under MFN, Bahrain and Oman will have to treat US non-discriminatorily, just like it co-operates with other regional partners. This is however IPR specific and includes trade secrets. However, Saudi Arabia objected to such FTA, and Supreme Council of GCC in 2001stated that no member state of GCC should give any preferential treatment to non-member ((Mohamed A. Ramady, “The GCC economics: Stepping up to future challenges” Springer Science and Business Media 2012, p. 139)).

Qatar:

Joining Bahrain and Oman, even Qatar has a written domestic law, which is Law No. (5) of 2005 on the Protection of Secrets of Trade (the Trade Secrets Law). ((Available at http://www.wipo.int/wipolex/en/text.jsp?file_id=225264 (Accessed on 8 august 2015).))Out of all the gulf countries, this is the most articulated and lengthy law on trade secret which focuses solely on trade secret protection. One unique feature in this law is under Article 4, whereby trade secret can also be assigned to third party and the owner can retain the power to give prior consent before those third parties can use them.  Assignment of trade secret is a well-known ((“Trade secrets: knowing when not to tell” Available at http://www.wnlaw.com/ip-information/trade-secrets/ (accessed on 9 August 2015).)), and Qatar has incorporated such important idea in its legislation shows the foresight of the country’s law makers. Principle of reciprocity in trade secret law has also been utilized, which again adds a unique aspect in this legislation. Article 2 states foreign nationals will also have trade secret protection provided in their country Qatar citizens have the same protection for trade secret.

Saudi Arabia:

In 2012, a penal law was made by Saudi Arabia, Penal law on disclosure and dissemination on classified information and documents ((Royal Decree No. M/35, Available on http://www.wipo.int/wipolex/en/text.jsp?file_id=330797 (accessed on 11 August 2015).))which focuses on classified government information, with strict penalties for government officials if they divulge state secrets. However this law does not touch upon commercial trade secrets in any manner. On commercial information, there are regulations, called Regulations for the protection of Confidential Commercial Information, ((Issued by Ministry of Commerce and Industry’s decision no. 3218 dated 25/03/1426H (4 May 2005) Available on http://www.wipo.int/wipolex/en/text.jsp?file_id=129523 (accessed on 11 August 2015).))which defines trade secret in Article 1, and by far has been a very good working definition of trade secret/confidential information, and it reads as follows:

“Any information shall be deemed a commercial secret in any of the cases stated below:

(1) If it is usually not known in its final form, or in any of its minute constituents or if t is not     usually easily obtainable by those engaged in this type of business.

(2) If it is of commercial value due to its confidentiality.

(3) If the rightful owner takes reasonable measures to maintain its confidentiality under its current circumstances.”

It is worth noting that the definition under Saudi law is very similar to Article 39(2) of TRIPS which talks about confidential information. It is also in line with internationally known concepts, as under Article 3(3), reverse engineering does not qualify as breach of honest commercial practice. One of the most unique feature, which is outstanding in its law, and not found in any Gulf country so expressly is the fact that Under Article 7, it specifically states that no commercial secret will be protected under this Act if it is against Islamic Shariah or public policy. In an interesting literature on nexus between Islamic Shariah and IPR ((Silvia Beltramett, “The legality of Intellectual property rights under Islamic law” Available on http://www.digitalislam.eu/article.do?articleId=2729#_ftn66 (accessed on 11 Aug. 15).)), one issue that comes out is the concept of Gharar, which means no transaction should have indefiniteness and parties entering into the transaction should have full knowledge of the information. In agreements of buying trade secrets of technical know-how exact specifications are not known initially and they are not disclosed prior to entering into an agreement. Therefore it can be said that trade secret licensing agreements are contrary to Islamic principle, but Shariah does recognize that degree of certainty is not possible for commercial transaction in such cases and therefore it does allow trade secret buying agreements ((Heba A. Raslan – Sharī’a and the Protection of Intellectual Property: The Example of Egypt , 47 IDEA: The Intellectual property Law Review 497, 2007 at 555)).

United Arab Emirates (UAE):

There are three laws which focus on trade secret, though not a specific legislation on the same, but it is dealt under various civil and criminal law statutes ((Camille Paldi, “Confidential Information in UAE”Available at http://www.ilovetheuae.com/2010/11/03/confidential-information-in-the-uae (accessed on 11 Aug. 15).)).

Article 905 of Civil Transaction law of UAE, 1985 provides for the obligations of the workers, and it specifically points out that workers are under an obligation not to disclose the industrial and trade secrets of the employer even after the contract of employment has expired. Such clauses are also put in NDAs whereby the employee is contractually bound to keep trade secret only to his own knowledge and not to disclose it to other competitors even after the termination of employment. This is a well-practiced phenomenon ((Elizabeth Rowe and Sharon Sandeen, “Trade secret and International transaction: Law and Practice” Edward Elgar Publishing 2015, p.94)), which has been provided for in the UAE law. Even the labour laws are strict about the protection of trade secret, and it is definitely a pro-employer regime. Under Article 120 of UAE Labor Law, 2007 an employer can terminate his employee without notice and one of the grounds being disclosure of trade secret. Under criminal law, Article 379 of UAE Penal Code provides for punishment of not less than 20000 Dirhams, if any person gets to know a trade secret by virtue of his profession, employment etc. and he discloses it to third person or uses it for his own benefit other than any of the lawful means.

Yemen:

Recently a law was passed by Yemen called Law No.2 on Patents, Utility Models, Integrated Circuits, and Trade Secrets. The essential requirements of trade secret have been the same as required under other Gulf countries ((For more see, http://www.agip.com/Agip_Country_Service.aspx?country_key=70&service_key=P&lang=en (accessed on 25^th August 2015).))which is by and large along the well-defined international line definition.

Law in India

Indian courts have played a proactive role when it comes to trade secret laws, since there is no written legislation. However, indirect methods have been created to protect aggrieved parties. India is known for many big business giants, and innovation plays a key role in many sectors. Therefore, among contract law, fiduciary position etc. trade secret has found its place, and due recognition.

Generally, Non-disclosure agreements are governed by general principles of contract law. These agreements have different terms, out of which the first that we deal with is non-compete agreement. Under Section 27 of contract law any agreement which is in restraint of trade, profession etc. is considered void. Literal reading might give us an impression that any contract which allows the employee not to work for any other competitor after termination/resignation for a specific period is void. But judicial interpretation gives us a different view. There are two things which need to be focused at. One is during the employment period and another after the period of employment gets over.

27. When the period of employment is continuing, any negative covenant restricting the employee to leave midway and work for a competitor does not come within the ambit of Section 27.
28. When the period of employment is over, any negative covenant restricting the employee not to further work with competitor requires being reasonable in order to not attract section 27.

In a recent judgment Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan & Anr ((AIR 2006 SC 3426))Supreme Court held that any restrictive covenant beyond the employment term is void and not enforceable. Court specifically laid down the law that doctrine of restraint of trade does not apply when the contract is in force, but only when the contract comes to an end. Ruling on unconscionable terms and reasonableness it was held that a period of 20 years for not allowing a person to work for another is not reasonable and an unconscionable term ((Gopal Paper Mills v Surendra K Ganeshdas Malhotra AIR 1962 Cal 61)). In another judgment ((Niranjan Shankar Golikari v. Century Spinning & Mfg Co. Lt AIR 1967 SC 1098)), wherein courts specifically brought trade secrets within discussion and ruled that there is an implied term in every employment contract which prohibits the former employee to not make use of his/her former employer’s trade secret and hamper his  business. But apart from this limitation, when it comes to trade knowledge, which is the knowledge gained by an employee by his own skill and efforts during the course of employment and court upheld that after the employment term the former employee can now make use of his skill and exploit the knowledge by gaining employment somewhere. In another case of Desiccant Rotors International Pvt. Ltd v Bappaditya Sarkar & Anr ((Delhi HC, CS (OS) No. 337/2008 (decided on July 14, 2009).))the senior manager of a company had access to trade secret information, and he sought employment with the rival of his old company. He had also signed a non-compete clause, and Delhi High Court ruled that in the circumstances of the case, manager could not be said to have sufficient confidential information and the right of the company to control competition will not prevail over the right of the employee to find new employment.

Secondly apart from deciding whether any term is a restraint on trade or not, courts have to see multiple factors and then come to a conclusion, but the trend is so far that employees have been protected since the bargaining power of the employers have been higher, far more financially superior and therefore, it requires to be seen if the terms of the contracts are one-sided or not ((For more see, “Employment Contracts in India: Enforceability of Restrictive Covenants” Nishith Desai Associates August 2014, Available at http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Employment_Contracts_in_India.pdf (accessed on 23rd August 2015).)).

Author also proposes to throw light on non-solicitation of employees clause, which has now come to foray, and is increasingly being incorporated in employment agreements. This deals with a situation when either a group of former employees or current employees, solicit the business of the company, by having a parallel business for their own private gain, and thereby the company losses its clients. This results in the employees themselves becoming a rival of the main company. So these clauses prohibit employees to solicit the business of the company. There can be situations when an employee has some confidential information, and it is the most coveted trade secret for the company, and the employee starts making secret profits with all those dealers, suppliers, or even other co-employees by using trade secret information. The same can happen with former employees also. This does not have a direct case law, but it seems that any act done with a mala fide motive of divulging the trade secret and making backward profits will be a violation of trade secret as well breach of fiduciary relationship and other contractual terms, since trade secret is only divulged to such employees who are trustworthy and loyal towards the company. Non-solicitation clause helps an employer against their own employees whether during or after employment, as to protecting the trade secret and maintaining the business of the company.

Courts have in absence of a contract, also gone to the extent of exercising equity jurisdiction, and have held that even there is no non-disclosure agreement between a rival and an aggrieved company, but that does not absolve the competitors from using any knowledge knowing it is a trade secret of the competitor company ((Homag India Pvt. Ltd. vs. Mr. Ulfath Ali Khan and IMA AG Asia Pacific PTE. Ltd    M.F.A.No.1682/2010 C/W M.F.A.No.1683/2010 (CPC)Available at http://indiankanoon.org/doc/113689643/)). The court relied on Saltman Engineering Co Ltd vs. Campbell Engineering Co Ltd ((1948 (65) RPC 203).))where for the first time the duty to maintain secrecy is an equitable principle, and it is breach of conscientious course of conduct. Indian court it seems have taken the view that even when the contract is not full-proof to bring within its ambit all confidential information or trade secrets, even then by implication, the confidential information cannot be sued unfairly. The law has been well settled by an English case, Seager v. Copydex Limited ((1967 RFC 349))which clearly stated that law on subject of confidential information does not depend upon implied term but it depends on broad principles of equity, and this has been also relied upon in an Indian case John Richard Brady v. Chemical Process Equipment ((AIR 1987 Delhi 372)).

There are plethora of judgments which also deal with what constitutes confidential information, not in analogous to trade secret, but fall within the ambit of confidentiality norms. In Delhi High Court judgment of Diljeet Titus v. Alfred Adbare ((2006 (32) PTC 609 Del))which dealt with attorney-client confidentiality, by relying on various authorities like Universal Thermosensors Ltd. v. Hibben and Ors ((1992 3 All England Law Reports 257)), Robb v. Green ((1895 2 QB 1))and Market Investigations Limited v. Minister of Social Security ((1968 3 All England Law Reports 732))the court came to a conclusion that “the information between a client and his advocate has the necessary quality of confidence and when it is imparted there is an obligation of confidence. The defendants have not worked for the clients but for the plaintiff and thus when they take away the duplicate information, there is unauthorized use of information. The triple test laid down by Megarry J. in Coco v. A.N. Clark (Engineers) Ltd. (([1968] 1A IPR 587))case would thus stand satisfied ((Available at http://indiankanoon.org/doc/1023088/ (accessed on 24 August 2015).)).” The triple test which is required to be proven to succeed in a breach of confidence is as follows,

1. Information must be confidential in nature
2. It must be communicated importing an obligation of confidence
3. There must be unauthorised use of that information to the detriment of the person communicating.

These tests also hold true for Indian scenario as held in this case, and it shows our heavy reliance on English judgments, since in absence of codified law, the only source which remains is foreign judicial precedents. In this case the former employee who took away many of the data of his former firm, where he was lawyer was held to be a breach of confidentiality though not amounting to trade secret, and injunction was granted to the plaintiff firm.

Concluding the position in India, is highly judge-made, and derived from English precedents.

Comparative Approach: Similarities and Differences

In this section, we solely deal with linking both the laws together, searching for points where there is a resemblance and points where there are stark differences. The importance of comparative approach cannot be highlighted enough in academic field. It is required to understand two legal systems by integrating them into one, and then analyzing where they meet and where they diverge. The entire purpose of the previous two sections has been to understand the base of laws in India and GCC, and now to draw a parallel between the two.

Similarities:

GCC countries can be classified into two categories:

1. Countries with legislations: Bahrain, Oman, Saudi Arabia, UAE, Qatar, Yemen
2. Countries without legislations: Kuwait.
3. India can be compared with Category B, and not A. India is most familiarly situated with Kuwait, as both don’t have written laws. As mentioned earlier, Kuwait basically depends on either confidentiality agreements or on copyright laws. The same holds true, for India, because apart from contractual and employer relations in India, trade secret is also closely associated with copyright laws.
4. Looking the future, the prospect of legislation in India when it comes to trade secret and confidential information is a bright one. There is a proposed Bill, which National Innovation Bill ((For more, Zafar Mahfooz Nomani & Faizanur Rahman, “Intellection of Trade Secrets and Innovation laws in India” Journal of Intellectual property rights Vol.16 July 2011, pp.341-350))which under Section 2(3) defines confidential information, and just as GCC have adopted the uniform definition, India also has maintained the same set of elements, and so the Indian Draft and GCC laws, under Category A have similarity with respect to text.
5. This draft Bill also has a resemblance to Kuwaiti law, which mainly relies on contractual relation for trade secret, and in India, under proposed Section 8, contractual obligation is specifically recognized to give rise to confidentiality obligations. Therefore, Indian law has in a way corresponded to both Category A and B countries.

Differences:

1. While comparing, there seems to be a lot of difference between India and Category A countries. The basic and most prominent is the presence of legislations in those countries. India does need a law on trade secret, but the essential character of these laws in Gulf countries, is different due to their legal regime. These countries are by and large have monarchies or are under some kind monarchical rule partially. So there laws are promulgated as royal decrees, whereas under Indian system, a parliamentary law with proper debate is required. Similarly in India, there can be vast ways of doing business, lots of conflicting ideologies and thoughts to be synthesized, which is not there in these countries, where monarch lays down everything and people are not given scope to participate in law making to a larger extent.
2. Secondly, looking at the broader context, Islamic countries have a different way of doing business, and harsh penalties have been imposed for infringement of trade secret. In India, such a strong penalizing statute would require a lot of enforcement authorities as well as a strong will to make such a law. The other specific thing to be pointed out is, India is a secular state, and state has no .religion of its own. Therefore whatever remedy can be obtained is only through an enacted law. Just the opposite of this lies in Gulf countries, where Islam is the state religion, and nothing can go against Shariah. In absence of any law, principles of Shariah will be applied, and therefore there is always some kind of remedy available in those countries, but in India, the only thing which can be relied upon court’s good sense to give a remedy, and in very few cases, strong case for infringement of trade secret is made out since Indian parties have to fulfil such tests which have been laid down by English courts.
3. Another difference lies, in how both the laws deal with misappropriation. Under GCC countries, Category A, laws have provided for penalty and some also provide for imprisonment. But fine is a common characteristic in GCC countries. However under the Proposed Innovation Bill, under Section 12 and 13 the remedy provided is injunction and damages. Therefore the law in our country is more flexible because fine is a prescribed sum, but damages can be modified and decided by case by case, depending upon the loss to the aggrieved party. Moreover, no imprisonment is prescribed.
4. Under Islamic law, there is a well recognized concept of licensing of trade secret, but the concern was with respect to Gharar, because in situations of selling or licensing a trade secret, the party obtaining the trade secret usually does not know what the secret is until a contract has been signed ((Timothy Brindley, “CONFLICTING VALUES IN INTERNATIONAL INTELLECTUAL PROPERTY STANDARDS FOR PHARMACEUTICALS: WESTERN FRAMEWORKS VS. ISLAMIC TRADITIONS IN THE MIDDLE EAST” p.19 Available at https://m.repository.library.georgetown.edu/bitstream/handle/10822/712447/Brindley_georgetown_0076M_12775.pdf?sequence=1&isAllowed=y (accessed on 25^th August 2015).)). Under the Bill, Section 12(4) the law has provided that injunction can lay down for future use, reasonable royalty to be paid by one person to another for a time period for which us could be prohibited. This is a criticism, since if this Bill becomes an Act, it would amount to compulsory licensing of trade secret, and it would give too much discretionary for courts to interfere with business practices. So Indian law is on the line of providing compulsory licensing but this is not given in any written laws of Category A.
5. Lastly, enforcement in both countries is different. Indian laws are administered through hierarchy of courts, whereas in GCC countries, the law is administered through Sharia courts, and the literal text is seen since most of the countries have written law, whereas in India, remedy is on equitable grounds.

Conclusion

In this paper the author has highlighted essential features of both laws, at the domestic level, and has then made a comparison between the two. The method used is “block” method frequently used in comparative analysis articles, wherein after dealing with two themes separately, a link or a parallel is drawn between them. The author has come to the conclusion, that both laws are diagonally opposite, and are also based on different systems of law. But the future legislations if passed, would in some way bring about sychronity in the laws. Further author has also tried to incorporate cases law wherever possible to put the text in perspective and weaving judicial opinion also in it.