Trade Secrets- The Road not Taken?

Fashion is a very diverse term. It varies in its meaning geographically, culturally as well as individually. Moreover, it includes a wide range from shoes, belts, wallets to jewelry and clothing. The fashion industry is founded on the two basic elements of imagination and innovativeness. These creative elements call for  protection of intellectual property by not only the bigger players in the market but also the small and upcoming fashion designers. It stresses on the need for protection in order to succeed in this industry. 

The starting point for designers is the procurement of raw materials followed by the production. With fast fashion in trend and fashion fads gaining popularity, it becomes essential that the designers are alert and quick in keeping up with such trends. Thereby, the factors relating to quick but efficient production from procurement to sale in the market, become crucial to the designers. These aspects of what goes on in the background, from sensitive information, business strategy to new products and advanced logistic systems,  add value to the business and form the trade secrets of the organisation.[1] These attributes are the distinct features of any given organisation, that further the success of the business.

What are Trade Secrets?

The kind of information for which businesses take adequate measures to secure and safeguard, to prevent it from reaching the larger public and their competitors come under trade secrets. As mentioned above, fashion is a broad term that includes various products, including but not limited to apparel, footwear, jewellery, wallets, belts, perfumes and even other makeup and beauty products. From Forever 21 dresses, Chanel bags, Steve Madden shoes, to Victoria Secret perfumes and Body Shop beauty products, the process of production of these products involves an element that is unique and distinct to its production. 

Zara has been recognised to have an effective production system in place, by virtue of its proprietary information technology for fast and smooth production in a record of 30 days. [2] This time frame is in comparison to the usual range of three to four months taken by its competitors. This gives Zara an added advantage over its competitors and the ease of meeting consumer needs and demands with changing trends. Moreover, it is interesting to note that Zara delivers affordable fashion of high quality. Thereby, this use of technology forms the trade secret, an integral part in the success of the organisation.

European brands like Diane von Furstenberg (DVF) and Kate Spade introduced tech savvy handbags in collaboration with technology partners. It was designed to charge an I-phone when placed in the handbag, without any additional wiring or accessory. What would make their products distinct is their method of production, be it the technology adopted to logistics involved in introducing the product in the market. For instance, DVF not disclosing their technology partner would fall within the meaning of trade secrets.

It is crucial that such integral information is protected wholly to prevent any misuse or undue advantage taken by third parties. One incident to highlight the importance of securing such information is the case of Nike. Here, three designers left to join its rival, Adidas. They took with them all crucial and confidential information including but not limited to campaigns, new designs for products, technology and other proprietary information. Had Nike taken some precautionary measures with fool-proof contracts and agreements in place, it could have saved itself from tremendous losses. Unfortunately, it is difficult to control what information may be exchanged and disclosed between parties, making such an occurrence inevitable. Similar circumstances were also seen in the popular Jawbone- Fitbit dispute.[3] 

Are Trade Secrets protected?

Trade secret is the lesser known of all IP’s since it does not render any exclusive rights to the proprietor. In fact, they occupy the other side of a coin with patents. Any process, technique or technology adopted by an organisation that is not patentable under the Patent Act, 1970, such information comes within the ambit of trade secrets. Moreover, this information is a vital asset of the organisation, by virtue of which they have an upper hand over their competitors. It is also interesting to note that this IP is governed by national laws.[4] Hence, to ensure the proper and complete protection of trade secrets in a territory, it is essential that a legislation is in force.

Recognizing the importance of trade secrets to a business concern, various countries implemented laws and directives, to this end. The European Union has one of the best legal frameworks in recognition and protection of trade secrets with focus on the fashion industry. The Union took a major step in introducing and implementing the Trade Secrets Directive in 2016 for the protection of trade secrets. The Directive covers all aspects of protection including unlawful acquisition, use and disclosure of trade secrets. Further, each country of the Union has their own respective legislation in line with the Directive[5]

On the other hand, India does not have any specific legislation in place that recognizes and protects trade secrets. Nevertheless, the Courts have recognized the significance of trade secrets being essential and crucial to a business. It adopted the common law principles of equity, fair play and good faith. It also adopted the Springboard Doctrine from the UK at various instances and continues to do so. This doctrine refers to preventing any person from using information disclosed in confidence under any circumstances to any third party. This was first observed by the Court in N Deshpande v. Arvind Mills.[6]

It is interesting to note that India did take the first step to implement a formal framework in 2008. The Ministry of Science and Technology introduced a comprehensive draft National Innovation Act[7] in an attempt to codify and consolidate the law of confidentiality and aid in protecting confidential information, trade secrets and innovation.[8] However, this step was not pursued further by the Parliament,  and the draft Act never saw the light of day.

Hence, with no formal legislation in place guarenting protection for trade secrets, it becomes vital for businesses to ensure that proper contracts and non- disclosure agreements (NDA), non-compete agreements are undertaken and signed by the employees.[9] This has been observed to be a burden on businesses with the inevitable apprehension of their employee joining or disclosing information to its competitor. In consideration of this, the courts have observed and held that even in the absence of such special contracts and NDA’s, the employee or other managerial personnel of an organisation shall not disclose any information exchanged in confidence to any third party. Such persons shall not make any disclosure of proprietary information under any circumstances, without the prior consent of the business.[10] This was observed by the courts in multiple instances[11] including the popular case of Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh. [12]

Conclusion

With the largest economies of the world undertaking steps in guaranteeing protection of trade secrets, this only sheds light on the importance of protection of this commonly used but almost forgotten IP. This IP relating to the know-how and sensitive information that also forms the root in determining the success and growth of the fashion industry, is gaining popularity today. The mere adoption of equity principles and the application of the Doctrine would not hold good in the long run. It is essential that businesses and fashion designers are guaranteed protection and their earnest efforts are recognised. The need for a formal legislation in India is further emphasized upon whereby the scope and extent of protection is clearly made out. It is time that the draft National Innovation Act is revisited, modified to meet the present needs and put in force. This would especially encourage small businesses to experiment and innovate new products in this industry and also promote sustainable fashion. 

 

[1] WIPO, Trade Secrets: The Hidden IP, available at https://www.wipo.int/wipo_magazine/en/2017/06/article_0006.html (last visited on 08 Aug 2020, 21:24hrs).

[2] James Pooley, Trade Secrets: The other IP Right, available at https://www.wipo.int/wipo_magazine/en/2013/03/article_0001.html (last visited on 09 Aug 2020, 2:12hrs).

[3]  Washington Post, Criminal prosecutors to drop trade secret charges against former Fitbit employees, available at https://www.washingtonpost.com/technology/2020/02/14/fitbit-jawbone/ (last visited on 10 Aug 2020, 12:56hrs).

[4] Supra note 1.

[5] Directive (EU) 2016/943, Protection of trade secrets and know-how in the European Union, available at https://ip-iurisdictio.org/protection-of-trade-secrets-and-know-how-in-the-european-union-the-eu-trade-secrets-directive-eu-2019-943/ (last visited on 09 Aug 2020, 01:24hrs).

[6] N Deshpande v. Arvind Mills, AIR 1946 Bom 423.

[7] Draft National Innovation Act, 2008, available at https://www.prsindia.org/uploads/media/draftinnovationlaw.pdf (last visited on 09 Aug 2020, 11:07hrs).

[8] What you need to know about Trade Secrets in India, available at https://www.tradesecretslaw.com/2014/08/articles/trade-secrets/trade-secrets-in-india/ (last visited on 09 Aug 2020, 2:00hrs).

[9] Trade Secrets in Indian Courts, available at https://www.mondaq.com/india/trade-secrets/204598/trade-secrets-in-indian-courts (last visited on 09 Aug 2020, 01:26hrs).

[10] John Richard Brady and Ors. v. Chemical Process Equipments P. Ltd. and Anr., AIR 1987 Delhi 372; Gujarat Bottling Co. Ltd. v. Coca Cola, (1995) 5 SCC 545.

[11] Zee Telefilms Ltd and Anr. v. Sundial Communications Pvt Ltd and Ors, 2003 (5) Bom CR 404; Sirmour Remedies Private Ltd. v. Kepler Healthcare Private Ltd., C.S. No. 387 of 2013; Inphase Power Technologies v. Abb India Ltd., M.F.A. No. 3009/ 2016.

[12] Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh , Suit No.3313 of 2008.

 

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