Innovation

The Innovation Bill, 2008, and Trade Secrets: Part II


In an earlier post, I had looked at some of the provisions in the Innovation Bill, 2008 dealing with the protection of trade secrets. This post continues that discussion, and I now focus on a few areas in the Bill which are likely to be controversial.

‘Public interest’ and ‘Reasonable royalties’?

Section 11 of the Bill, “Exceptions to Misappropriation of Confidential Information”, is a rather fascinating provision. Particularly interesting is Section 11 (c) which says “Confidential information shall not have been misappropriated where disclosure of the confidential information is held to be in the public interest by a court of law.” Is this really a change from the position of law? In the SCC article mentioned in the earlier post, the authors argue, “It is well established that no liability attaches to the use of information, which it was in the public interest to use or disclose…” A ‘public interest’ exception has also been recognized under case-law in England, for instance in Attorney General v. Guardian Newspapers (No 2) [1990] 1 AC 109. In a famous observation, Lord Goff stated “(the public interest protecting confidence) may be outweighed by some other countervailing public interest which favours disclosure.”

Nevertheless, the ‘public interest’ exception in the draft Bill has already drawn criticism. For instance, Mr. Pravin Anand is reported to have criticized the public interest exception, in the context of Section 11 (c) along with Section 12 (4). Section 12 (4) says that “In exceptional circumstances, an injunction may stipulate conditions for future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited.” According to Mr. Anand’s comments reported here, these proposed rules virtually create a “compulsory licensing” system in trade secrets. The provisions are also likely to be considered by some as too vague.

Undoubtedly, a comprehensive definition of ‘public interest’ is impossible. However, it might seem better to exclude certain activities from the purview of the term. It might well be (although the proposition will not always be free from doubt) in the public interest to enable access to medicines at cheaper prices. It appears unreasonable, though, to say that providing for cheaper access to the formula for preparation of soft-drinks is in the public interest. Perhaps, it could be considered whether an explanation can be added to Section 11 – something along the lines that mere economic benefit shall not be deemed to be in the public interest.

On the other hand, is there really any harm in leaving open the meaning of ‘public interest’ to the Courts? There might be cases when even an economic benefit on its own would be in the public interest. Why take away the discretion of the Courts in this connection? Under common law, Courts recognize the public interest in protecting trade secrets. That public interest may, however, need to be balanced against another countervailing public interest. The meaning of ‘public interest’ is then best left to Courts. One of the biggest merits of ‘public interest’ is its ability to be used to achieve a just result in peculiar factual circumstances. Defining public interest will take away this virtue. Seen in this light, the ‘public interest’ exception is more ‘flexible’ than ‘vague’.

The ‘public interest’ exception should be understood not as moving away from the policy of protection of trade secrets, but as recognizing that there may be stronger public interest issues which in certain circumstances would require a result where the secrets are not protected. In this light, the ‘public interest’ exception as it stands may well be praiseworthy; and certainly does deserve deep consideration before it is rejected.

So too is the case with Section 12 (4) where future use of the secret may be allowed on the payment of a reasonable royalty. Again, this must be understood not as an ‘anti-protection’ measure. The power in Section 12 (4) is to be exercised only under exceptional circumstances. As Mr. Anand noted, this might well appear to be a form of compulsory licensing. This, however, need not be a bad result on its own and may well have the important advantage of allowing Courts to mould the relief according to the specific circumstances.



Other issues:

Another interesting issue arises in Section 14 – this provides that “No legal proceeding or any other claim or action shall lie against any person for anything one in good faith under this Act or the Rules and Regulation made thereunder.” Now this is perfectly fine if the provision said that it was to apply to provide immunity to any of the officials/authorities acting under the Act. The use of the term “against any person” might open the door for a general good faith exception. I am not sure whether a broad good faith exception is useful – after all, the Act provides for civil remedies such as injunction and damages. Why should good faith prevent a remedy in these cases? Indeed, section 13 (which deals with mandatory damages) provides for three times the mandatory damages in cases of willful or malicious intent. It seems that policy behind the Bill is not to insist upon a requirement of “intent”. Also, the effect of the good faith exception is magnified by the public interest exception – if the defendant believes in good faith that disclosure is in public interest, he will be protected even if in reality the disclosure is not in public interest. Also, the ‘good faith’ provision is not found in the Section on exceptions (Section 11), but occurs at the end of the Chapter.

Presumably, then, ‘good faith’ is not intended to be a general exception. It might, therefore, be clearer to use the terminology found in several other enactments – “No legal proceeding or any other claim or action shall lie against any person exercising any power or discharging any function under this Act, for anything one in good faith under this Act or the Rules and Regulation made thereunder…



Conclusion:

As an earlier post on this blog had noted, making the Bill available to public scrutiny is indeed a welcome step. Nonetheless, this is only a first step. Certain aspects of the Bill need to be subjected to public debate, and it might be necessary to clarify these aspects and other issues raised by such debate. Hopefully, there will indeed be such a critical discussion, and the outcome of the discussion will be taken into consideration before the Bill is enacted.

(I would like to thank Mr. Shamnad Basheer for his guidance on this post in general, and for his invaluable suggestions on ‘public interest’ and ‘reasonable royalties’ in particular.)

2 comments.

  1. AvatarJorge

    Nice analysis in both posts. Just one issue I have – will Courts necessarily follow the path you suggested in defining ‘public interest’? What if they fail to recognize that their is a public interest in protection of trade secrets also; and other public interests must be counterbalanced against this?

    I am not a law student, so my apologies if this sounds a bit silly.

    Reply
  2. AvatarMihir Naniwadekar

    Hi,

    Thanks for the comment. The concern you raise is an entirely valid one. Nonetheless, it seems to me that Courts will take into consideration the fact that there is a public interest in protection of trade secrets too; and any argument on the “public interest” ground would involve the counterbalancing. In fact, Lord Goff’s judgment which I have quotes recognises as much; and it is likely that that trend will continue.

    Reply

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