General Background: The TRIPS Agreement
India has been a member of the World Trade Organization (“WTO“) since 1st January 1995. The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), negotiated in the 1986-94 Uruguay Round, introduced intellectual property rules into the international multilateral trading system for the first time. The areas covered by the TRIPS Agreement included: (i) Copyright and related rights, (ii) Trademarks including service marks, (iii) Geographical indications, (iv) Industrial designs, (v) Patents, (vi) Layout-designs (topographies) of integrated circuits, (vii) Undisclosed information, including trade secrets.
As a signatory to the TRIPS Agreement, India (like other member states) was required to amend its municipal laws relating to intellectual property to align them with international obligations as envisaged by the TRIPS Agreement. Accordingly, several amendments were brought to the intellectual property regime in India. For purposes of the present inquiry, I note that the Patents Act, 1970 was amended by the amending Act 38 of 2002. However, these amendments did not alter the erstwhile Section 4 of the Act which bars the grant of a patent in respect of an invention relating to atomic energy “falling within sub-section (1) of Section 20 of the Atomic Energy Act, 1962″.
Relevant Provisions of the Patents Act, 1970
Section 4 of the [Indian] Patents Act, 1970 provides that “No patent shall be granted in respect of an invention relating to atomic energy falling within sub-section (1) of Section 20 of the Atomic Energy Act, 1962 (33 of 1963)”.
Section 47 of the Patents Act provides that the grant of a patent under the said Act is certain condition inter alia that any process / product which is the subject matter of a patent may be imported or made by the government for its own use.
Section 65 of the Patents Act, 1970 provides as follows:
Revocation of patent or amendment of complete specification on directions from Government in cases relating to atomic energy – (1) Where at any time after grant of a patent, the Central Government is satisfied that a patent is for an invention relating to atomic energy for which no patent can be granted under sub-section (1) of Section 20 of the Atomic Energy Act, 1962 it may direct the Controller to revoke the patent, and thereupon, the Controller, after giving notice to the patentee and every other person whose name has been entered in the register as having an interest in the patent, and after giving them an opportunity of being heard, may revoke the patent.
(2) In any proceedings under sub-section (1), the Controller may allow the patentee to amend the complete specification in such manner as he considers necessary instead of revoking the patent.”
Section 102 of the Patents Act provides for “Acquisition of inventions and patents by the Central Government” for a “public purpose”. Under this section an invention which is the subject of an application for a patent or a patent, both, could be acquired from the applicant / patentee for a public purpose. For such acquisition, the Central Government shall pay to the applicant / patentee (as the case may be) such compensation as may be agreed between the Central Government and such person.
Relevant Provisions of the Atomic Energy Act, 1962
The Atomic Energy Act, 1962 (“the AE Act“) is an Act “to provide for the development, control and use of atomic energy for the welfare of the people of India and for other peaceful purposes and for matters connected therewith”. Section 20 of the AE Act, which is relevant for present purposes, is reproduced here:
Section 20. Special provision as to inventions
(1) As from the commencement of this Act, no patents shall be granted for inventions which in the opinion of the Central Government are useful for or relate to the production, control, use or disposal of atomic energy or the prospecting, mining, extraction, production, physical and chemical treatment, fabrication, enrichment, canning or use of any prescribed substance or radioactive substance or the ensuring of safety in atomic energy operations.
(2) The prohibition under sub-section (1) shall also apply to any invention of the nature specified in that sub-section in respect of which an application for the grant of a patent has been made to the Controller of Patents and Designs appointed under the Indian Patents and Designs Act, 1911, before the commencement of this Act and is pending with him at such commencement.
(3) The Central Government shall have the power to inspect at any time any pending patent application and specification before its acceptance and if it considers that the invention relates to atomic energy, to issue directions to the Controller of Patents and Designs to refuse the application on that ground.
(4) Any person, who has made an invention which he has reason to believe relates to atomic energy, shall communicate to the Central Government the nature and description of the invention.
(5) Any person desiring to apply for a patent abroad for an invention relating to or which he has reason to believe relates to atomic energy shall obtain prior permission from the Central Government before making the application abroad or communicating the invention to any person abroad, unless three months have elapsed since his request for permission was made to the Central Government and no reply was received by him.
(6) The Controller of Patents and Designs shall have the power to refer any application to the Central Government for direction as to whether the invention is one relating to atomic energy and the direction given by the Central Government shall be final.
(7) Any invention in the field of atomic energy conceived whether in establishments controlled by the Central Government or under any contract, sub-contract, arrangement or other relationship with the Central Government shall be deemed to have been made or conceived by the Central Government, irrespective of whether such contract, sub-contract, arrangement or other relationship involves financial participation of or assistance from the Central Government.
(8) Notwithstanding anything contained in the Indian Patents and Designs Act, 1911, the decision of the Central Government on points connected with or arising out of this section shall be final”
Definitions of some of the key terms used in the above referred Section 20 of the AE Act are included herein below for ease of reference:
“Atomic Energy” means energy released from atomic nuclei as a result of any process, including the fission and fusion process [Section 2(1) (a) of the AE Act]
“Prescribed substance” means any substance including any mineral which the Central Government may, by notification, prescribe, being a substance which in its opinion is or may be used for the production or use of atomic energy or research into matters connected therewith and includes uranium, plutonium, thorium, beryllium, deuterium or any of their respective derivatives or compounds or any other materials containing any of the aforesaid substances. [Section 2(1) (g) of the AE Act]
“Radioactive Substance” or “Radioactive Material” means any substance or material which spontaneously emits radiation in excess of the levels prescribed by notification by the Central Government. [Section 2(1) (i) of the AE Act]
Section 3 of the AE Act in relation to “General Powers of the Central Government” stipulates inter alia that subject to the provisions of the AE Act, the Central Government shall have the power “to declare as “restricted information” any information not so far published or otherwise made public relating to… (iii) the theory, design, construction and operation of plants for the treatment and production of any of the prescribed substances and for the separation of isotopes; (iv) the theory, design, construction, and operation of nuclear reactors…” [Section 3 (c) of the AE Act]
Furthermore Section 18 of the Atomic Energy Act provides for “Restriction on disclosure of Information” and by sub-section (1) thereof empowers the Central Government to make an order restricting the disclosure of information, whether contained in a document, drawing, photograph, plan, model or in any other form whatsoever, which relates to, represents or illustrates: (a) an existing or proposed plant used or “proposed to be used” for the purpose of producing, developing, or using atomic energy, or (b) the purpose or method of operation of any such existing or proposed plan, or (c) any process operated or proposed to be operated in any such existing or proposed plant. Section 18(2) further stipulates that “No person shall disclose or obtain or attempt to obtain any information restricted under sub-section (1)”.
A seemingly dangerous provision appears in Section 11 of the AE Act which provides for “Compulsory acquisition of prescribed substances, minerals and plants”. Vide the said section, the Central Government may inter alia compulsorily acquire, in accordance with the provisions of the said section, any prescribed equipment; any plant which is designed or adapted for the mining or processing of any minerals referred to in Clause (b) of Section 11(1) or substances obtained therefrom or for the production or use of any prescribed substance or a radioactive substance or for the production, use or disposal of such articles as are or are likely to be required for or in connection with the production, use or disposal of atomic energy or for research into matters connected therewith. The said section then stipulates the procedure to be followed in the course of such compulsory acquisition and Section 21 of the AE Act stipulate the principles relating to payment of compensation for compulsory acquisition.
Section 28 of the AE Act clarifies that the provisions of the AE Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment (other than the AE Act) or any other instrument having effect by virtue of any enactment other than the AE Act. Finally, Section 30 of the AE Act provides for the Central Government’s power to make rules. Sub-section (2) of the said Section 30 stipulate that “without prejudice to the generality of the foregoing powers, such rules may provide for (a) declaring any information not so far published or otherwise made public as restricted information and prescribing the measures to be taken to guard against unauthorized dissemination or use thereof…”
Comments / Observations
It is clear that currently Indian law does not allow for patenting of inventions relating to atomic energy. This position appears to be different than the one ensuing in the United States of America (“the US“) where while there continues to be a bar on patents for inventions related solely to atomic weapons, patents for other inventions related to atomic invention may be granted after scrutiny by the Department of Energy in the US. No such distinction is made by the current legal framework in India between atomic weapons and atomic energy. It has therefore been vehemently argued (particularly after the Indo-US Civil Nuclear 123 Agreement) that although India may open doors for nuclear commerce and looks to import billions of dollars worth of civil nuclear technology however “antiquated provisions in the Indian Patents Act may make this bumpy ride a bit more uncomfortable”. Indian companies are lobbying hard with the Government of India to amend the Atomic Energy Act so as to allow private participation in nuclear power plants. However, until such amendments in fact come into force, it is the laws as they stand today which will be applied to commercial deals in the field of atomic energy.
As noted herein above at present the Indian law does not allow for patenting of inventions relating to atomic energy. Section 4 of the Patents Act and Section 20 of the AE Act are strictly worded in this behalf. Even if a patent is granted for an invention relating to atomic energy, the same may be revoked under Section 65 of the Patents Act as reflected above.
It must however be noted that the prohibition envisaged under the Patents Act read with the AE Act is against “grant” of a patent. In other words, what the AE Act mandates is that no patents
shall be granted for inventions
which (in the opinion of the Central Government) fall under the rigor of the said section. The said sections do not debar protection of technical know-how / trade secrets / confidential business information of a party whether relating to a patent or otherwise. Such rights are frequently the subject matter of a commercial contract and are protected by common law principles in India.
In the US trade secrets are afforded statutory protection, both at the Federal and State levels, with meaningful civil and criminal remedies to counter misappropriation of trade secrets, including compensatory and punitive damages, injunctive relief, attorneys’ fees. This is not the case in India which currently does not provide a statutory legal protection of trade secrets. The term “trade secrets” is not defined under any law at present. However, at the moment in India, common law and English precedents provide for protection of trade secrets and confidential information. Parties rely on and can rely on contracts to protect trade secrets / confidential information.
Article 39 of the TRIPS Agreement stipulates that “undisclosed information” often treated as synonymous with trade secrets, can be protected as provided for under Article 10 bis of the Paris Convention. India being a signatory to TRIPS, it is not long until India will have a substantive text on the protection of trade secrets. However, at present there is no such law. The National Innovation Bill, 2008 (draft), in Chapter VI titled “Confidentiality and Confidential Information and Remedies and Offences”, vide Section 8 “allows parties to contractually set out the terms and conditions governing rights and obligations in respect of confidential information, including with a view to maintain confidentiality and prevent misappropriation.” Section 2 (3) of the said Bill defines “confidential information” as meaning “information, including a formula, pattern, compilation, program, device, method, technique or process, that: (a) is secret, in that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within circles that normally deal with the kind of information in question; (b) has commercial value because it is a secret and (c) has been subject to responsible steps under the circumstances by the person lawfully in control of the information, to keep is secret.” This definition is based on the definition provided in the Uniform Trade Secrets Act (on which most US state laws regarding trade secrets are based). Please note that the National Innovation Bill is still to be codified as a law.
It has to be appreciated that trade secrets per se cannot be legally protected. What is enforceable is the consequential effects of breach of trust or legal contracts. The trade secrets law under the common law seems to have adopted a functional approach to defining trade secrets. The courts demarcate between information that is in the public domain and that which is not. A concise definition was given in this behalf by Megarry VC in Thomas Marshall Ltd vs. Guinle (1978) where the Court identified four factors that are to be considered: (i) the owner must believe that the release of the information would be injurious to him or of advantage to rivals or others, (ii) the owner must believe that the information is confidential or secret, that is, not already in the public domain, (iii) the owner’s belief must be reasonable, and (iv) the information must be judged in light of the usage and practice of the particular industry or trade concerned.
The basic test for imposing an obligation for breach of confidence was laid down in Saltman Engg Co vs. Campbell Engg Co Ltd.(1963) where it was stated (by Lord Greene) that “If the Defendant is proved to have used confidential information, directly or indirectly obtained from the Plaintiff, without the consent, express or implied, of the Plaintiff, he will be guilty of an infringement of the Plaintiff’s rights.” I also make a cautionary note that while it is prudent business practice to enter into non-disclosure agreements to prevent the misuse of trade secrets, however, the validity of such agreements has to be examined within the purview of 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. I have referred to cases pertaining to Section 27 of the Contract Act in the subsequent portion of this note.
In John Richard Brady and Ors. vs. Chemical Process Equipments Pvt. Ltd. and Anr. [AIR 1987 Delhi 372] the Delhi High Court, in a case involving unauthorized use of trade secrets observed, “It will also be in the interests of justice to restrain the defendants from abusing the know how, specifications, drawings, and other technical information regarding the plaintiff’s fodder production unit entrusted to them under strict confidentiality, which they have apparently used as a ‘spring board’ to jump into business field to the detriment of the plaintiffs… or from using in any other manner whatsoever the know-how, specifications, drawings and other technical information about the fodder production unit disclosed to them by the plaintiffs.”
In Daljeet Titus, Advocate vs. M Alfred A Adebare and Ors. [130 (2006) DLT 330]
the Delhi High Court relied upon the views expressed in Margaret, Duchess of Argyll (Feme Sole) vs. Duke of Argyll [(1965) 1 AllER 611] that a court must step in to restrain a breach of confidence independent of any right under law. Such an obligation need not be expressed but implied and the breach of such confidence is independent of any other right as stated above.
Section 27 of the Indian Contract Act has attracted most of the trade secret litigation in India. In Wipro Limited vs. Beckman Coulter International SA [2006 (2) CTLJ 57; 131 (2006) DLT 681], the Delhi High Court exhaustively dealt with the existing authorities on the doctrine of restraint of trade (embodied in Section 27 of the Indian Contract Act) and trade secrets. The court examined the observations made in Taprogge Gesellschaft case [AIR 1988 Bombay 157] that “the distinction between restraints imposed by a contract, operative during the subsistence of the contract and those operative after the lifetime of the contract is of a fundamental character… Again, the purpose for which a restraint is expected to serve determines the character of the restraint. For instance the restraints which operate during the term of the contract have to fulfill one kind of purpose, i.e. furthering the contract. On the other hand, the restraints operative after the termination of the contract strive to secure freedom from compensation for a person who no longer works within the contract.” The Court further observed that “Generally speaking, the negative covenants operative during the term of the contract are not hit by Section 27 of the Contract Act because they are designed to fulfill the contract and not to restrict them. On the other hand, when a restriction applies after the contract is terminated, the restriction on freedom of trade, business or profession takes the form of restraint on trade, business or profession. This distinction which is of fundamental nature has to be borne in mind.”
The Court also relied on the observation of the Supreme Court of India in Gujarat Bottling Company Ltd. vs. Coca Cola Co. & Ors. [(1995) 5 SCC 545] wherein it was stated that “Since the doctrine of restraint of trade is based on public policy, its application has been influenced by changing views of what is desirable in the public interest. The decisions on public policy are subject to change and development with the change and development of trade and the means of communication and the evolution of economic thought.”
In the end, the Delhi High Court in Wipro Limited vs. Beckman Coulter International SA concluded that “Negative covenants tied up with positive covenants during the subsistence of a contract be it of employment, partnership, commerce, agency or the like, would not normally be regarded as being in restraint of trade, business or profession unless the same are unconscionable or wholly one sided… The question of reasonableness as also the question of whether the restraint is partial or complete is not required to be considered at all whenever an issue arises as to whether a particular term of contract is or is not in restraint of trade, business or profession.”
Patent and Trade Secret: Distinction
Information eligible for trade secret protection may or may not be eligible for patent protection. Trade secrets unlike patents can include wider base of information. Trade secret protection can last in perpetuity as long as the information remains secret and maintains its value whereas a patent (granted in India) expires 20 years from its filing date [Section 53 of the Patents Act, 1970]. Further, in order to protect a trade secret, uniqueness in the sense of patent law is not required. Further, the owner of a trade secret unlike the holder of a patent does not have an absolute monopoly on the information or data that comprises the trade secret. Currently, in India, patentability of computer software is in question, which however can be easily protected as a trade secret.
Section 24 of the Indian Contract Act
Section 24 of the Indian Contract Act stipulates that a contract “contrary to law” shall be void. I note that what is contrary to law is protecting a patent in the atomic energy sector if it falls within Section 20(1) of the AE Act. It cannot mean that if two parties by contract agree to a certain set of obligations (in this case confidentiality of business related / technical information) then such obligations will not be protected. Arguably, the fact that such contract pertains to a protected area of law (viz. atomic energy) should not make a difference so long as the contract (or any provision thereof) is not contrary to a statutory tenet.
The fact that a patent cannot be granted for a particular technology cannot ipso facto mean that such technology cannot be protected by way of contractual agreement.
The one difficult area, as I presently see it, is technology that may be “derived” from that of another entity’s technology which the Government of India may have under license / contract. Section 20(7) of the AE Act, stipulates “any invention in the field of atomic energy conceived whether in establishments controlled by the Central Government or under any contract, sub-contract, arrangement or other relationship with the Central Government shall be deemed to have been made or conceived by the Central Government, irrespective of whether such contract, sub-contract, arrangement or other relationship involves financial participation of or assistance from the Central Government.” It is in relation to this provision of the AE Act that Section 24 of the Indian Contract Act may pose a hurdle. Section 24 of the Indian Contract Act stipulates that a contract “contrary to law” shall be void. I’m not sure therefore that contractual clauses which override the provision of Section 20(7) of the AE Act can be built into the contract and if yes whether they will be upheld. Prima facie it does not seem possible.