Protecting Trade Secrets: Legislative Measures, Technology Transfer Agreements and NDAs

1. The modes of protection

1. Contract: non-disclosure agreements, confidentiality clauses in employment, consultancy, supply and licence agreements.
2. Equity: the action for breach of confidence, available even without a contract (Saltman; John Richard Brady v. Chemical Process Equipments, Delhi High Court, 1987).
3. Other IP: copyright in compilations such as customer databases (Burlington Home Shopping v. Rajnish Chibber, Delhi High Court, 1995), and patents once the owner chooses disclosure.
4. Scattered statutes: no single Indian law, but pieces in several:
   • section 72A of the Information Technology Act, 2000 punishes disclosure of personal information obtained under a lawful contract, in breach of it, with intent to cause wrongful loss or gain; it does not reach commercial secrets generally;
   • the criminal law of breach of trust and cheating, which works awkwardly because information is not “movable property”;
   • section 27 of the Indian Contract Act, 1872, which limits what contracts may do (below); and
   • sector rules such as securities law on unpublished price-sensitive information.
5. Practical measures: TRIPS Article 39(2)(c) and the US and EU statutes protect only information subject to “reasonable steps” to keep it secret. Marking documents, need-to-know access, passwords, visitor logs, exit interviews and return of devices are evidence that the holder treated the information as secret.

Legislative measures elsewhere, and the Indian proposal

The US has the Uniform Trade Secrets Act (adopted in most states), the Economic Espionage Act, 1996 and the Defend Trade Secrets Act, 2016; the EU has Directive 2016/943, implemented in the UK by the Trade Secrets (Enforcement, etc.) Regulations 2018. Japan and China protect trade secrets through unfair competition statutes. In India the Law Commission’s 289th Report (2024) proposed a separate statute with a TRIPS-based definition, civil remedies, and exceptions for independent discovery, reverse engineering and whistle-blowing. Until that happens, a trade secret in India is only as strong as the contract that protects it.

2. Non-disclosure agreements

Kinds

• Unilateral: one party discloses (a start-up showing a prototype to an investor).
• Mutual: both disclose (two companies exploring a joint venture).
• Embedded: confidentiality clauses inside employment, supply or licence contracts.

The clauses that decide disputes

1. Definition of confidential information: wide enough to cover oral disclosures and derived material, but certain enough for a court to enforce. Courts will not enforce a clause that treats everything as secret.
2. Exclusions: information already public, already known to the recipient, independently developed, lawfully received from a third party, or required to be disclosed by law or a court.
3. Purpose limitation: use only for the stated purpose, so that use for any other purpose is a breach even without disclosure.
4. Standard of care and onward disclosure to employees and advisers on a need-to-know basis, under equal obligations.
5. Term and survival: obligations that last beyond the end of the relationship, often for a fixed period, and indefinitely for true trade secrets.
6. Return or destruction of materials on demand or termination.
7. Residuals clause: a recipient-friendly term allowing use of what remains in the unaided memory of its staff. A discloser should resist it.
8. Remedies: an acknowledgement that damages are inadequate and that an injunction is appropriate; liquidated damages; governing law and arbitration.

Enforceability: section 27 of the Contract Act

Section 27 voids every agreement by which anyone is restrained from exercising a lawful profession, trade or business. Indian courts have drawn three lines:

• During the relationship, a negative covenant is not a restraint of trade. Niranjan Shankar Golikari v. Century Spinning and Mfg. Co., 1967 INSC 10 upheld a covenant not to work for a competitor during the term of employment, and Gujarat Bottling Co. v. Coca Cola Co., 1995 INSC 441 upheld a franchisee’s covenant not to deal in competing products while the agreement lasted. Section 42 of the Specific Relief Act, 1963 allows an injunction to enforce such a negative covenant.
• After the relationship, a restraint on working is void: Superintendence Company of India v. Krishan Murgai, 1980 INSC 124. In Percept D’Mark (India) v. Zaheer Khan, 2006 INSC 161, a right of first refusal operating after the contract ended was held void as a restraint.
• Confidentiality is different. An obligation not to disclose or misuse confidential information does not stop anyone working, so it survives the relationship and is enforceable. The employee keeps his general skill and knowledge (Faccenda Chicken v. Fowler, Court of Appeal, 1986; American Express Bank v. Priya Puri, Delhi High Court, 2006), but not the employer’s secrets. In Diljeet Titus v. Alfred A. Adebare (Delhi High Court, 2006), lawyers leaving a firm were restrained from using its client data and documents.

3. Technology transfer agreements

What they are

A technology transfer agreement moves technology from one enterprise to another: by licence or assignment of patents, by a know-how licence, by software licences, by supply of designs and drawings, or through technical assistance in a joint venture. Patents are public; know-how is not. Most of the value is usually in unpatented know-how, which is a licence of trade secrets protected only by the confidentiality terms.

Core clauses

• grant: scope, field of use, territory, exclusivity, sublicensing;
• definition and delivery of know-how, training and technical assistance;
• improvements: who owns them, and whether the licensee must grant back its improvements;
• confidentiality during and after the term, and restrictions on use after termination;
• consideration: lump sum, running royalty, milestones; tax withholding;
• quality control, warranties of title and non-infringement, indemnities;
• term, termination, governing law and arbitration.

Legal limits

• TRIPS. Article 7 states that IP protection should contribute to the transfer and dissemination of technology. Article 40 recognises that some licensing practices restrain competition and allows members to control them, giving as examples exclusive grant-back conditions, conditions preventing challenges to validity, and coercive package licensing. Article 66(2) asks developed countries to give their enterprises incentives to transfer technology to least-developed members.
• Patents Act, section 140 makes certain conditions in patent licences and contracts unlawful, such as requiring the licensee to buy unpatented articles from the licensor, preventing the use of others’ articles or processes, exclusive grant-backs, preventing challenges to validity, and coercive package licensing.
• Competition Act, 2002. Section 3(5)(i) protects reasonable conditions needed to protect rights under the Copyright, Patents, Trade Marks, GI, Designs and Semiconductor Layout-Design Acts. Trade secrets and know-how are not in that list, so restrictive terms in a pure know-how licence get no such shelter and are tested under section 3 directly.
• Tax. The character of payments matters: in Engineering Analysis Centre of Excellence v. CIT, 2021 INSC 137, payments for end-user software licences were held not to be royalty, because no copyright interest was transferred.

The development debate runs through this topic. Developing countries pressed in the 1970s and 1980s for an international code of conduct on technology transfer at UNCTAD, which was never adopted. TRIPS chose the opposite approach: strong rights with limited competition safeguards. A critical answer asks whether section 140 and the Competition Act do enough to stop licensors from using confidentiality and grant-back terms to keep licensees dependent.

How this is examined

“Discuss the modes of protection of trade secrets” wants the five modes in section 1, the Law Commission proposal, and the NDA and technology transfer routes with section 27 and TRIPS Article 40. A short note on “non-disclosure agreements” needs kinds, the eight clauses and the section 27 cases; on “technology transfer agreements”, the meaning, core clauses and the legal limits.