Are Trade Secret Lawsuits "Fishing Expeditions" To Discover Secret Information?
Most of the contentious trade secret disputes revolve around employer-employee relationships where employees leave either to start their own venture or to join a competitor. Some disputes are between competing parties in the same field of commercial interest. However, an early point of contention between the parties is the identification of a plaintiff's asserted trade secrets.
Curiously, both of the contenders proclaim to be holding a trade secret. Plaintiffs cautiously seek to identify the claimed stolen trade secrets with just enough specificity to lead the court to pass an order for discovery. On the other hand, the defendant vehemently seeks the court to dismiss the case on the grounds that the plaintiff has not sufficiently identified the alleged trade secret at issue. This also raises another pertinent question before the court about the sufficiency of disclosure of trade secrets for the identification of trade secrets in the complaint. Most courts accept that trade secrets do not need to be disclosed in detail in a complaint.
This logically leads the courts to accept the reasons of the plaintiff that a more detailed requirement would lead to a public disclosure of the claimed trade secret, thereby destroying the sanctity of its being a trade secret. On the other hand, allowing the discovery proceeding against defendants may result in the plaintiff being given a free pass to misuse and take advantage of the defendant's trade secret. Both litigants can seek the court's intervention to protect trade secrets during the discovery process using confidentiality or protective orders, sealing court records, and/or limiting access to trade secrets to specified individuals involved in the litigation.
Preserving Trade Secrets at Court Hearings: Position In the US
For a misappropriation claim brought under the Defend Trade Secrets Act of 2016 (DTSA), a trade secret owner can seek an order to preserve confidentiality under 18 U.S.C. § 1835 which states that "In any prosecution or other proceeding under this chapter, the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws....."
This is the statutory protection available to the trade secret owner in the US who decides to enforce their rights in court. However, the courts insist that owners of trade secrets must demonstrate that they took reasonable measures to protect their trade secrets. In the US, trade secrets identified in pleadings and other documents filed with the court may be protected by sealing these filings. In such cases, courts balance the public's common-law right of access against interests favouring nondisclosure. In appropriate cases, the court may order a hearing in a closed courtroom when a trade secret in question is being disclosed. The court may deny a closed court hearing where the issue is discussed only to seek a preliminary injunction.
For example, in a patent infringement case brought under the Hatch-Waxman Act, in Barr Labs., Inc. v. KOS Pharm., Inc., 362 F. Supp. 2d 421, 423—24 (S.D.N.Y. 2005) court denied a motion to close the courtroom during a preliminary injunction hearing because the parties could adequately argue the issues at the hearing without disclosing trade secrets. Courts in the US have granted motions to seal when necessary to ensure that judicial records are not used as sources of business information that might harm a litigant's competitive standing. It is common for a court in the US to seal documents filed in a case when these records contain trade secrets, sensitive commercial information, or privileged material. This also helps to prevent the fishing expeditions of the litigants to gain access to trade secrets.
Position in India
In India, since the proposed law on trade secret law of 2024 is still being deliberated, we do not have a clear guideline for the courts to take a stand on this issue. However, we may find a similar situation arising in a dispute involving infringement of a process patent, where we find that the court may resort to following a cautious approach as mandated by sub-section (2) of section 104A.
"104A. Burden of proof in case of suits concerning infringement.--(1) In any suit for infringement of a patent, where the subject matter of patent is a process for obtaining a product, the court may direct the defendant to prove that the process used by him to obtain the product, identical to the product of the patented process, is different from the patented process if,--
(a) the subject matter of the patent is a process for obtaining a new product; or
(b) there is a substantial likelihood that the identical product is made by the process, and the patentee or a person deriving title or interest in the patent from him, has been unable through reasonable efforts to determine the process actually used:
Provided that the patentee or a person deriving title or interest in the patent from him, first proves that the product is identical to the product directly obtained by the patented process.
(2) In considering whether a party has discharged the burden imposed upon him by sub-section (1), the court shall not require him to disclose any manufacturing or commercial secrets, if it appears to the court that it would be unreasonable to do so.]
The provision for reversal of burden of proof and protecting the defendant from disclosing the manufacturing or commercial secrets (trade secret) was introduced w.e.f. May 2003. From the term 'manufacturing or commercial secret' appearing in the context of process patent disputes, we may assume that the courts in India would follow this principle to prevent 'fishing expeditions' of the plaintiff. As a corollary, we also may say that courts in India in trade secret disputes would prevent the fishing expeditions from discovering the closely guarded trade secret of the plaintiff.
We may pause here to add that "confidentiality clubs", as has also been incorporated in Rule 19 of the Delhi High Court Intellectual Property Rights Division Rules, 2024, is indeed a step to address the confidentiality issue, including trade secrets. Given that a lot of confidential information is involved in trade secret misappropriation cases, it would be judicially prudent to have such a rule to maintain the integrity and secrecy of the information disclosed before the court. In the absence of any specific law on trade secrets and protection in India, the protection against misappropriation of trade secrets is afforded by courts based on principles of equity, common-law action of breach of confidence and contractual law.
However, the question of identifying the trade secret remained a primary point of dispute between the parties in all the jurisdictions around the world. This early tension among the contesting parties has challenged courts in India as well. The answer to this question becomes a more critical question when courts are required to determine when a plaintiff must particularly identify its trade secrets. An equally pertinent question before the court is whether to allow a plaintiff to take discovery prior to identifying its trade secrets. With no guidelines in place, it becomes a challenging task for the lawyers to prosecute or defend a trade secret case on this issue in India.
Need for a Comprehensive Trade Secret Protection Law in India
The discussion on the need for a comprehensive law on trade secret protection has been ongoing in India for quite a long time. In its 22nd Report titled "Trade Secrets and Economic Espionage", released in March 2024, the Law Commission of India has recognised the need for a comprehensive law on the protection of trade secrets in India and recommended a new legal framework to adjudicate claims related to trade secret disclosure. The key recommendations of the Law Commission inter alia were enacting a sui generis legislation for the protection of trade secrets and enabling the Commercial Courts Act, 2015, to resolve trade secret disputes to ensure expedited resolution. Implementing confidentiality measures in court proceedings to protect sensitive information during trade secret-related litigation was also recommended.
Concluding Remarks
Litigation in a trade secret misappropriation dispute in India is not governed by any special procedure. There is a possibility of disclosing material that is required to be kept secret during pleadings. The defendants seek to get more information to identify the information the plaintiff claims as its trade secrets before discovery production requires the revealing of their own secret information. Both the plaintiff and the defendants' side should take the steps necessary to protect their trade secrets, but special care must also be used to guard against their disclosure during litigation. In trade secret disputes, the plaintiff rarely identifies the trade secrets with particularity.
The Plaintiff generally want to delay such identification as long as possible. On the other hand, the defendant seeks a clear identity before discovery production requires revealing its own secret information. The dilemma before the court is first to determine what information is sufficient to identify the misappropriation of a trade secret. In case where disclosure of confidential information is necessary during a court proceeding, the courts normally follow the procedures to ensure that release of protected information to someone with a fiduciary responsibility or confidential relationship to the trade secret holder is enforced to prevent loss of property rights on the trade secret.
To stay with added competitive advantage, it is utmost necessary that the trade secrets are not only vigorously defended, but also adequate care must be taken to guard against their disclosure during litigation. Expert opinion may be useful in avoiding disclosing them and accidentally undermining the intention of the lawsuit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
