We know that certain inventions, even if novel, fall under patent law exclusions that do not allow you to obtain patent protection. The discovery of scientific principles, formulation of an abstract theory, mathematical method/formula or algorithms are universally kept out of the patenting eligibility list in all jurisdictions, including India. An Algorithm, by definition, is a set of instructions designed to perform a specific task. Proprietary algorithms offer new or significantly improved techniques for solving problems or enhancing existing processes of the company.
These algorithms have been pivotal in their respective domains, driving innovation and providing companies with valuable tools to enhance their services and products. A deeper look at the potential of algorithms reveals that they are like a recipe in the culinary world, where a step-by-step guide to preparing a cuisine achieves a delicious outcome. In the digital world, this could range from sorting data and optimising search results to diagnosing diseases based on medical records. The versatility and application of algorithms are boundless, making them invaluable assets. For instance, the launch of ChatGPT under the shroud of secrecy is the best example of selling the product while keeping its working model secret. In fact, OpenAI launched ChatGPT in a closed-source format that hides algorithms, code, training data, and underlying model architecture from users.
Additionally, they are attaching contractual limitations on its use that limit users’ ability to reverse engineer information about how the models work, and that prohibit using the outputs of a generative AI model to develop competing products. Breach of such contractual terms on use appears to be a mere contract violation, but reverse engineering in breach of contract can constitute trade secret misappropriation. This perhaps transforms such a breach of the contract into otherwise a lawful act of reverse engineering, into an “improper means” of acquiring trade secrets.
Protection of Trade Secrets in India
A close perusal of decided cases on trade secrets in India reveals that there is no reported case of treating algorithms as trade secrets. We have trade secret misappropriation cases such as Daljit Titus v Aifred Adehare and others involving a trade secret in the client list of a law firm, where Titus successfully restrained defendants from using misappropriated digital /data material of Titus. In the Burlington Home Shopping Pvt. v Rajnish Chibber case, the defendants were restrained during the pendency of the suit from carrying on any business, including mail order business, by utilising the list of clientele/customers included in the database exclusively owned by the plaintiff. (Customer list of mail-order companies).
In a bank trade secret misappropriation case between American Express Bank Ltd. And Ms. Priya Puri, [MANU/DE/2106/2006], the Court ruled in favour of Priya Puri. In another case involving misappropriation of television show scripts based on audience interactions – Anil Gupta and Anr. v Kunal Dasgupta and Ors. [MANU/DE/0790/2002], the Court ruled that scrips shared in confidence should be protected from being misappropriated.
In yet another case involving the manufacture of aluminium phosphorus and zinc phosphorus by substituting white/yellow phosphorus for red phosphorus, viz. Sandhya Organic Chemicals P. Ltd. and Ors. v United Phosphorous Ltd. and Anr. [MANU/GJ/0131/1997] allegation of misappropriation of trade secret on the defendant, who was a former employee, did not find favour with the Court as the Court ruled that the plaintiff has failed to make out even a prima facie case in its favour and is therefore not entitled to the relief prayed for injunction and damages. Citing precedents from English and Indian courts, the Court ruled that a former employee cannot be restrained at all times from using his knowledge and experience, which he gained during the course of his employment either with the plaintiff or, for that matter, with any other employer.
In Shree Gopal Paper Mills Ltd. v Surendra K. Ganeshdas Malhotra, [MANU/WB/0016/1962] (Employer-Employee dispute), the Court ruled that “The facts and circumstances of this case and specially the terms of the agreement which I have already discussed are sufficient consideration to hold that the grant of an injunction is not only (sic. not?) warranted but will also be hardship on the defendant.” In Emergent Genetics India Pvt. Ltd. vs Shailendra Shivam and Ors. [MANU/DE/3012/2011], the plaintiff sought an injunction on the grounds that its trade secret (in Hybrid seeds) has been unauthorisedly misappropriated by the Defendants.
It was contended by the plaintiff that the defendant’s products (seeds) and those of the plaintiff (hybrid Seeds) were genotypically identical. Therefore, the defendant has misappropriated the seeds of the plaintiff, and they are selling them as their own. In this case, the Court found that the plaintiff has been unable to establish a prima facie on its claim for copyright protection in the databases claimed by it. Additionally, “it has not shown that the information, which it claims to be exclusive, is capable of protection, qualifying as “confidential information”. Consequently, “the ex-parte injunction granted at an earlier stage of the proceeding, has to be, and is, vacated.”
Golikari case and injunction
In Niranjan Shankar Golikari vs The Century Spinning and Mfg. Co. Ltd. [1967 AIR 1098], the Supreme Court was dealing with the weaving process, which the plaintiff was obliged under an agreement with the foreign collaborator to keep secret. The appellant, who was employed by the plaintiff on the conditions as per Clause 9 of the appointment agreement, that the defendant shall keep confidential and prevent divulgence of any of the information and documents, etc., which may have come to his knowledge during his service. The Supreme Court, in this case, ruled that:
“The evidence is clear that the appellant has torn the agreement to pieces only because he was offered a higher remuneration. Obviously, he cannot be heard to say that no injunction should be granted against him to enforce the negative covenant which is not opposed to public policy. The injunction issued against him is restricted as to time, the nature of employment and as to area and cannot therefore be said to be too wide or unreasonable or unnecessary for the protection of the interests of the respondent company. As regards Clause 9, the injunction is to restrain him from divulging any and all information, instruments, documents, reports, etc., which may have come to his knowledge while he was serving the respondent company.”
If we look at the ratio of the above cases and other cases, like in the Golikari case, the Supreme Court held that the plaintiff was entitled to be protected regarding their interest in the trade secret and secret process of manufacturing. Therefore, wherever necessary, this protection was secured through courts by restraining the defendant from divulging those trade secrets or by putting them to the use of the competitor. It may be noted that most cases of misappropriation of trade secrets in India originated in the context of the employer-employee relationship.
Prevention is Better Than Punishment
Like software, algorithms do not qualify for patent protection in many jurisdictions, including India. Section 3(k) explicitly excludes algorithms as subject matter falling under the definition of inventions. The best option left with the developer is to keep it a guarded secret. This makes the work of the developer of algorithms twofold. Aside from developing a novel algorithm, he should also devise a way to keep it under a not-so-easily breakable secret code. Google’s algorithm is the best example of a well-guarded secret. It is well known that to crack the Google algorithm, any ambitious competitor has to toil extremely hard and struggle a lot to find out.
This means prevention is better in rare cases like the “Levandowski case”, where he was accused of unlawful exploitation of trade secrets regarding Google’s autonomous vehicle research. He was sentenced to 18 months in prison. Certainly, trade secrets have immense value. They should be properly protected. This requires companies and inventors to take adequate steps to prevent such misappropriations from occurring at the first stage.
Cautionary Remarks
The Trade secrets theft/misappropriation litigations in India have mixed results. Most decided cases reveal that trade secrets can be protected by using equity under common law principles or by proving a breach of contractual obligations. If we look into finer aspects associated with trade secrets cases, we will find that the protection offered to trade secrets under common law is available only against wrongful appropriation. Since all adjudication cases involving the misappropriation of trade secrets are fact-based, the unwary plaintiff finds it difficult, at times, even to establish a prima facie case to get a favourable injunction.
When we talk about the subject matter covered by trade secret protection, we may, by default, say that when patent protection is unavailable for subject matters like algorithms and software data, we may use trade secret protection as an effective weapon to check its misappropriation. In many jurisdictions, like the US and Europe, a comprehensive law for protecting trade secrets is in place. If the Law Commission recommendations are implemented, we may also find statutory provisions to protect trade secrets in India. Till then, we may seek such protection through common law, through equity, or breach of contract or confidence.
The courts in India are aware of the need to protect trade secrets and do not hesitate to restrain the misappropriator from divulging those trade secrets or putting them to the use of the competitor in appropriate cases (like the Golikari case). The protection of algorithms as a trade secret is a viable option at the hands of developers to protect against misappropriation in India as well. However, punishment is a last resort and option. We may probably agree that Mr. Levandowski was rightfully punished, but the best way to avoid lengthy litigation is to devise the best ways to guard it as a trade secret. Expert advice would help deal with suits relating to misappropriation of trade secrets. One who unlawfully shares trade secrets will unlikely face any consequences.
Author: DPS Parmar
First Published by: Mondaq here