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Trade secret protection Espionage Act, which make theft of confidential information a crime under certain circumstances. The law of breach of confidence is concerned not with the acquisition of information, but with its subsequent use or disclosure to his own advantage or to the prejudice of the lawful owner. An obligation of confidence arises where there is either a fiduciary relationship, a contractual relationship or an employeremployee relationship between the parties. A contractual relationship may be established between two parties by entering into non-disclosure agreements before the party which is the lawful owner of confidential information discloses some it to another party during the course of business. However, for there to be breach of confidence, there must exist information which is of a confidential character. A trade secret, once in public domain, loses its confidential character. India, being a signatory to the TRIPS Agreement, is under an obligation to bring its intellectual property laws in conformity with international standards, and to this effect, new laws are being proposed for the protection of trade secrets in India in the form of the National Innovation Bill, 2008.

Reasonable security measures The law requires that reasonable measures be taken by the proprietor of trade secrets to keep the information confidential. Some of the measures which can help establish a claim that such measures were indeed adopted are mentioned below: Trade secret policy: Every pharmaceutical business must identify what information should be kept confidential based on their value and sensitivity, and accordingly, formulate an ideal policy to preserve the confidential character of the information. Pharmaceutical scientists must also maintain records of their experiments and results to show that the trade secret was indeed developed by them and belongs to them. Non-disclosure agreements: It is advisable for the employers of a

June 2012 I Modern Pharmaceuticals

pharmaceutical company to enter into non-disclosure agreements with the employees to provide contractual remedy to them in case of misappropriation of such confidential information. Such agreements should define ‘confidential information’ and the exceptions to confidentiality. An even stronger remedy may be provided by adding non-compete clauses to such agreements to restrict the use of confidential information and trade secrets obtained during employment and to ensure that the employees do not compete unfairly upon termination of their employment. For example, if a few scientists employed by a pharmaceutical company decide to start their own pharmaceutical company, the non-compete clauses would pre-empt them from using the confidential information, which had come to their knowledge during the course of employment. However, such non-confidentiality agreements should be drafted keeping in view the limitations posed by Section 27 of the Indian Contract Act, 1872, which states that every agreement by which a person is restrained from carrying on any trade, business or profession, is invalid. Contract of employment and exit interviews: Contract of employment should, either expressly or impliedly, include the duty of fidelity to the employer, which can act as a measure to prevent breach of confidence by an employer during the course of employment. Exit interviews are a good way of reminding the employee of his obligation with respect to the company’s trade secrets. During such an interview, a form to this eff ect may be signed and kept on record along with the contract of employment and non-disclosure agreement previously signed by the exiting employee. Strong internal processes: To maintain the confidential character of trade secrets, it is advisable to have strong internal processes and appropriate security procedures. All

confidential information should be clearly marked ‘Confidential’ in all communications. If possible, only certain senior employees should be privy to such information and have access to specific sensitive areas of workplace where such information might be stored. Access to such specific sensitive areas of workplace should be allowed only after proper security checks. Information documented and accessed electronically should be protected using adequate software programs, firewalls and other online security systems to keep the information safe. In any case, all employees should be educated and be contractually bound to protect confidential information. These measures, though not absolute or full-proof, would be of evidential value in case of a dispute and enable the lawful owner to prove that ‘reasonable steps’ were taken to maintain secrecy.

Right step forward The National Innovation Bill is still at the stage of debates and discussions and it is to be seen what shape the Bill takes when enacted as a law. However, as is clear from the above mentioned discussion, such an Act will only give statutory force to the common law principles already being followed by our courts. Therefore, in any case, it makes tremendous business sense for pharmaceutical companies in possession of trade secrets to be prudent and take reasonable steps to ensure that the law is on their side in case of a challenge to their right of keeping vital business information confidential. (salhotra@lls.in)

Anuradha Salhotra Managing Partner, Lall Lahiri & Salhotra

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Modern Pharmaceuticals - June 2012  

Modern Pharmaceuticals is a leading monthly business magazine in India, catering to the pharmaceutical industry. Published by Network 18 Ltd...

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