Secrets and confidentiality are a given, particularly in highly competitive businesses. While the success mantra of some businesses is attributable to their ‘secrets’ – such as Coca-Cola’s coke formula, Google’s search algorithm or KFC’s chicken, many rely on building patent fences around their core innovations to ward off competitors. The predicament always is whether to protect proprietary information as a trade secret or patent innovations to enable commercial exploitation.
The following pointers may serve to guide in this decision-making.
At the outset, a trade secret is ‘any’ information that derives independent economic value because it is not generally known or readily ascertainable. This heavily guarded information provides an edge over competitors. Typically trade secrets may entail formulae (such as chemical compositions or formulations), designs, patterns (such as layouts or circuits), methods, processes (such as manufacturing or purification processes), compilations, programs (such as software), instruments or devices, practices or techniques that have an actual or potential economic value due to its secret nature. Trade secrets require reasonable efforts to maintain its secrecy and hold value for others who cannot obtain it legally.
On the other hand, a patent protects inventions that include new and useful products and processes, machines, manufacturers, compositions of matter, and improvements wherein a patentee is entitled to exclude others from making, selling, using, offering for sale or importing his invention and authorize others to exploit it for a limited period. However, in exchange for these exclusive rights, the patentee must disclose the invention publicly along with adequate details about it’s working.
Extent of protection and enforceability provided by patents and trade secrets:
• Eligibility for protection: Patent is granted upon fulfillment of legal requirements pertaining to subject matter, novelty, inventiveness (inventive step), and utility (industrial applicability) whereas at present there are no legal provisions in India under which trade secrets are protected.
• Time period: Patent term is typically for about 20 years, depending on territorial variations while trade secrets are not limited in time and remain protected until arrived at by independent invention or by reverse engineering in a fair and honest manner.
• Costs: Patent grants necessitate proper drafting and prosecution and further upon grant involve maintenance costs which can make patenting a costly affair in contrast to trade secrets which involve no registration or maintenance costs.
• Jurisdiction: While patents are territorial and governed by territorial legal framework, trade secrets have no such limitation.
• Enforceability: Claims of active patents are enforceable via assertion of evidence of infringement which is legally enforceable within the specific jurisdiction. Enforcement may be difficult in the case of foreign theft, such as by non-nationals or in jurisdictions where invention has not been patented. However, in India owing to absence of a specific law, trade secrets are safeguarded under general laws governing contracts, common law, criminal law, and principles of breach of confidence and equity. Compared to patents they are difficult to enforce, but misappropriation may be enforced based on proof of circumstantial evidence.
Practical considerations for choosing between trade secrets and patenting:
The choice of means of protection as patent or trade secret or part both depends on many factors pertaining to the information. Of primary consideration would be
First steps:
Information segregation: Innovators must first sift through and categorize information or data to determine whether a particular information would constitute as a trade secret or whether it would be necessary to patent.
i.e. whether it is generally unknown information whose commercial value is derivable from its secrecy and whether its disclosure will be damaging to the innovator.
Time value of the information: An important assessment is an enquiry into ‘timelessness’ – i.e. whether the information may be safeguarded from disclosure for an extended / substantial period of time or whether it would have to be revealed as a part of regular business activities. Difficulty in maintaining secrecy points to patenting as a
• Deducibility: Is it possible for others to decipher the secret via independently or by reverse engineering? Is the invention detectable from or embedded in the product itself or is it part of an internal manufacturing process?
• Likelihood of independent discovery: Is the invention likely to be independently discovered in the near future?
• Accessibility: Is the product regularly observed in public settings?
Method of protection should be based on the needs associated with the individual product and on how one plans to exploit that product in the future.
One may choose to use a combination of registered patents and trade secrets to protect the products, or even consider publishing details if they operate in a crowded market where others may patent an idea before the products are developed enough to make an application.
In the early stages of invention, it is always worth implementing confidentiality agreements before a product is ready for patenting. This then acts as a safeguard regardless of whether or not you intend to patent your fully- developed product.
There is no statute or legislation that governs the protection of trade secrets in India. However, rights in respect of trade secrets are enforced through contract law (Indian Contract Act, 1872) principles of equity or by way of a common law action for breach of confidence.
Case Laws
1. John Richard Brady & Ors v Chemical Process Equipment P Ltd & Anr (AIR 1987 Delhi 372)
The court held that – The maintenance of secrecy which plays such an important part in securing to the owner of an invention the uninterrupted proprietorship of marketable know-how, which thus remains at least a form of property, is enforceable at law. That statement may now be examined in the light of established rules making up the law of trade secrets. These rules may, according to the circumstances in any given case, either rest on the principles of equity, that is to say the application by the Court of the need for conscientiousness in the course of conduct, or by the common-law action for breach of confidence which is in effect a breach of contract.
2. Tata Motors Limited v. State of W.B., 2010 SCC OnLine Cal 55
On Manufacture of ‘Nano’ :
According to the petitioners, information provided to the Government of West Bengal and the Corporation relating to manufacture of ‘Nano’ and as contained in the MOA, inter alia, “is of a commercially confidential nature” and such information was imparted in confidence on the understanding that it would not be made public and that any disclosure contemplated would be subject to the provisions of Section 11 of the Right to Information Act, 2005 (hereafter the Act). It was claimed that if such information is made public, it would affect the economic and financial viability of the small car project at Singur, and would be of immense value and a boon to the competitors of the first petitioner in the automobile sector as it contained critical information regarding the costing involved in manufacturing ‘Nano’.
Court mentioned that – The term trade secrets has been defined in Black’s Law Dictionary as “A formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors; information-including a formula, pattern, compilation, program, device, method, technique, or process-that (1) derives independent economic value, actual or potential, from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and (2) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy
3. Star India Private Limited v. Laxmiraj Seetharam Nayak, 2003(3) Mh.L.J. 726 : 2003(3) Bom. C.R. 563
A similar case was considered by this Court in the case of Star India Private Limited v. Laxmiraj Seetharam Nayak, 2003(3) Mh.L.J. 726 : 2003(3) Bom. C.R. 563. The plaintiff was in the business of acquiring copyright in cinematographic films. Upon resignation of its employee, the plaintiff sought an order restraining him inter alia from divulging the confidential information and trade secret and knowledge relating to the plaintiff’s business including the plaintiff’s business plans, strategies, marketing policies, franchise agreements, affiliates/joint ventures, etc. The plaintiff itemised the so-called trade secrets and confidential information. It was observed that the itemised list exhibited to the Plaint did not show any trade secret or confidential information. All the items were within the knowledge of the concerned persons.
4. Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh, 2010 SCC OnLine Bom 1243
Court held that – Considering these definitions, the elements which could be identified as a trade secret, although the exact definition may not be possible, was laid down as the following factors:—
“(1) The extent to which the information is known outside the business.
(2) The extent to which it is known to those inside the business i.e. by the employees.
(3) The precautions taken by the holder of the trade secret to guard the secrecy of the information.
(4) The savings effected and the value to the holder in having the information as against competitors.
(5) The amount of effort or money expended in obtaining and developing the information; and
(6) The amount of time and expense it would take for others to acquire and duplicate the information.”
Drawing from Kodekey’s case (supra), it was held that novelty and intention were not elements required in trade secret doctrines. But a computer software was protected under the typical trade secret statutes and doctrine. (30 Geo. Wash Law Rev. 909)
Global Companies with Trade Secrets :
1. WD-40 (USPTO) – The formula for WD-40® Multi-Use Product is a trade secret so protected the company never even filed for a patent. In fact, only a single person knows every exact ingredient that goes into the famous formula. In 1953, a fledgling company called Rocket Chemical Company and its staff of three set out to create a line of rust-prevention solvents and degreasers for use in the aerospace industry. Working in a small lab in San Diego, California, it took them 40 attempts to get the water displacing formula worked out. But they must have been really good, because the original secret formula for WD-40® Multi-Use Product -which stands for Water Displacement perfected on the 40th try—is still in use today
2. Krispy Kreme – While the recipe for the Krispy Kreme Doughnut has been a trade secret for 70 years, it is not really the source of competitive advantage. Still, only a few employees have access to the recipe, and it is locked in a safe at company headquarters. The real secret of the taste of Krispy Kreme Doughnuts is the process by which it is made. The company designed a process where the fluffy doughnuts roll out of the kitchen on an assembly line, still warm, to be sold quickly after being made
3. Nike’s Shoe Design – Nike’s shoe design process involves a combination of technology and creativity to create shoes that are not only comfortable but also fashionable. The process includes designing and testing prototypes, as well as incorporating feedback from athletes. Nike’s trade secret also lies in its strategic manipulation of supply and demand through limited production runs of sneakers. By releasing small quantities of unique or popular models, Nike creates scarcity, driving up both desirability and resale value. This approach ensures that their products sell out quickly at full retail price, maintaining brand prestige. Nike also gathers and analyzes extensive market data, including resale trends, to fine-tune their production and release strategies, maximizing profits. This data and the methods used to interpret and leverage it are kept confidential to maintain competitive advantage.
4. Hershey’s (USPTO) – Hershey’s trade secret lies in its unique chocolate-making process, which combines a proprietary blend of ingredients and specific manufacturing techniques. This process, developed by Milton Hershey, allows for the stabilization of milk using lipolysis, creating the distinct flavor of Hershey’s chocolate. Despite the general knowledge of chocolate ingredients, the precise method Hershey uses remains confidential and has been perfected over years to produce the signature taste and texture of their chocolates. The secrecy and refinement of this process are crucial to maintaining Hershey’s competitive edge in the confectionery industry.
5. Thomas’ English Muffins, Bimbo Bakeries – The trade secret of Bimbo Bakeries USA, known for their distinctive “nooks and crannies” in bread, involves a closely guarded recipe and unique manufacturing process. This secret is crucial for their annual $500 million sales. In 2010, to prevent a former employee, who was one of the few with this knowledge, from joining competitor Hostess, Bimbo filed a trade secret lawsuit. The recipe details are stored in “code books,” and the information is compartmentalized to ensure security. Eventually, the employee was legally barred from moving to Hostess, protecting Bimbo’s proprietary methods.
6. Listerine mouthwash – The inventor licensed the secret formula to Lambert Pharmaceuticals. Lambert (now Pfizer) made royalty payments to the inventor’s family for over 70 years, even though the formula was revealed during that time. Pfizer tried to stop payments after paying over $22 million for a formula that was no longer secret. It sued, saying it was no longer responsible for licensing fees. The court ruled that the contract did not stipulate that payments could be stopped if the trade secret was legitimately discovered by others, especially since Pfizer had acquired the formula when it was still secret and derived competitive advantage from it.
7. Twinkies – The recipe for Twinkies is kept as a trade secret because the company fears consumers will not understand what the ingredients really are and stop eating them or giving them to kids. Many of the constituents are harmless but have chemical names that sometimes sound hazardous to those outside the food industry.
8. Dr. Pepper – Dr Pepper’s trade secret is its unique formula composed of 23 natural and artificial flavors. Only three people know the complete recipe, which was created by pharmacist Charles Alderton in 1885 in Waco, Texas. The original recipe is securely stored in a vault at the company’s headquarters in Plano, Texas. Despite rumors, the company has confirmed that prune juice is not an ingredient. Other beverages with similarly guarded formulas include Frangelico, Angostura bitters, Chartreuse liqueur, and Scotland’s Irn Bru.
9. Bush’s Baked Beans – Bush’s Baked Beans’ trade secret is their unique flavoring blend, which includes specially cured bacon, fine brown sugar, and a delicate mix of spices. This “Secret Family Recipe” has been a key selling point since the 1990s. Despite playful advertising featuring Jay Bush and his talking dog Duke, who jokingly threatens to reveal the recipe, the secret remains well-protected. The brand’s marketing cleverly maintains the allure and mystery of the recipe, contributing to its longstanding popularity and success.
10. Cadbury – Cadbury’s Dairy Milk chocolate is a beloved national favorite, cherished for over a century with a recipe shrouded in secrecy. While its base ingredients—sugar, milk, and cocoa—are widely known, the exact formula remains confidential. Produced at a staggering rate of 400 bars per minute in Bournville, each batch flows through the factory like a vital fluid, using state-of-the-art machinery to craft up to 500 tonnes daily. Distributed from a central Birmingham warehouse, Dairy Milk’s enduring appeal lies in its nostalgic blend of fat, sugar, and cocoa.
11. Maggi Masala – The trade secret of Maggi Magic Masala lies in the unique composition of its ingredients, which is kept confidential by Nestlé to maintain its competitive edge. This proprietary blend gives Maggi noodles their distinctive flavor, which cannot be easily replicated by competitors. The secrecy around the exact formulation ensures that the product remains unique in the market, leveraging the legal protections afforded to trade secrets.
12. Asian Paints – Asian Paints, an unexpected player in the IT sector, owes much of its longstanding success to its trade secret: a supercomputer acquired in 1970. This cutting-edge technology analyzes consumer preferences with precision, predicting color combinations and product demands. By leveraging data-driven insights decades ahead of its competitors, Asian Paints revolutionized the industry, shifting from a commodity-centric model to consumer-centric innovation. This strategic leap not only optimized production but also transformed customer engagement, solidifying Asian Paints’ dominant position and ensuring its continued growth in an otherwise mature market.
13. Ferrero – The trade secret of Ferrero lies in their meticulous approach to confectionery manufacturing, blending advanced robotics with artisanal precision. Within their facilities, khaki-uniformed workers oversee a symphony of robotic arms that meticulously produce iconic sweets like Kinder bars and Ferrero Rocher. Every detail is scrutinized: high-speed cameras detect imperfections, triggering swift corrections to maintain flawless quality. This commitment to excellence, pioneered by Giovanni Ferrero’s family since its inception in post-war Italy, has built an empire now navigating global markets through strategic acquisitions, yet staying true to its heritage of premium craftsmanship and consumer loyalty.
14. Lena Blackburne Rubbing Mud – In 1938, Lena Blackburne developed a secret mud mixture from southern New Jersey, designed to safely dull glossy baseballs for better grip without damaging them. Approved by umpires, this unique mud formula gained popularity across Major League Baseball, ensuring every team could enhance ball handling without violating game rules. Passed down to a trusted friend, the legacy of Lena Blackburne’s Rubbing Mud continues under careful stewardship, with its exact sourcing location a closely guarded secret to preserve its natural integrity and supply.
15. Mrs. Fields Chocolate Chip Cookies – The trade secret is the closely guarded recipe for Mrs. Fields Chocolate Chip Cookies, coveted for its gooey, chewy perfection. Despite many attempts at reverse engineering, the actual recipe remains confidential, adding to its allure. This secrecy has fueled urban legends and speculation, enhancing the brand’s mystique and driving curiosity among consumers. It’s a classic example of how a trade secret can not only protect intellectual property but also amplify a product’s market appeal and desirability, contributing significantly to its success.
https://hbr.org/2013/11/filing-for-a-patent-versus-keeping-your-invention-a-trade-secret
https://www.aippi.org/news/examining-the-thin-line-between-obtaining-patents-vs-protecting-trade-secrets/
https://www.wipo.int/tradesecrets/en/
https://www.mondaq.com/india/trade-secrets/783558/what-to-choose-between-trade-secrets-and-patents
