by Mahima Agrawal, 1st prize, CONFLUX
This article is the winning entry of CONFLUX, a blog writing competition on the Intersection of IP and Competition Laws hosted by IPTLS in collaboration with NUJS SITC to promote discourse in this area. In this post, Mahima, a third-year student at Symbiosis Law School Pune, addresses the juxtaposition of trade secret protection with the need to foster competition and disclosure under the existing competition law regime.
Introduction
Given the importance both laws place on the growth of economic and commercial activities, the confluence between Intellectual Property and Competition Law is fairly possible. However, Trade Secrets, arguably the most commercially significant and exploited Intellectual Property, have yet to be adequately recognised or studied in connection to this intimate linkage between the two laws.
In essence, a trade secret is a company’s method or procedure that is closely guarded because its secrecy gives it a competitive advantage over its competitors by allowing it to deliver a product that is not easily replaceable or changed. This is only feasible because of the company’s concentrated efforts in research and development surrounding this product or service, which is even less well-known among the company’s employees. This is why a Trade Secret is not made public because it only has monetary value as long as it remains hidden.
What are Trade Secrets?
India has ratified the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and its article 39(2) gives members the freedom to draught legislation that prohibits the unauthorised disclosure and use of certain “information”. This is only possible as long as the information fits the specific criteria – commercial value, steps taken to protect and limited accessibility of the secret information.
Drawing inspiration from these criteria as well as witnessing the steady increase in trade secret lawsuits, the High Court of Bombay, in the case of Bombay Dyeing & Manufacturing Co. Ltd. v. Mehar Karan Singh, established the following considerations to consider when determining whether or not material may be classed as a trade secret:
- The extent of information in the public domain;
- The procedures undertaken by the holder to ensure information confidentiality;
- The information’s commercial value and competitive advantage;
- The holder’s financial and time investment in obtaining or developing the information.
Despite the fact that the above factors strengthen the interface of the two commercially relevant spheres of law, our developing nation continues to disregard the need for legislation while ironically striving to improve its position in the Ease of Business Index.
Commercial Relevance of Trade Secrets
In today’s climate, trade secret protection is a new necessity to stimulate steps, foreign investment, and healthy competition. Last year’s litigation against CCI brought by Amazon and Flipkart may be proof of this. Competitors can use these trade secrets to protect confidential company information from their competitors. The capacity of the IPR holder to price beyond the competitive level is an integral feature of the IPR exclusivity, and as such, it does not violate competition law. Encouraging companies to invest in new products and enhancing services or processes by granting IPR protection is critical for a healthy market, but so is competition’s pressure to innovate.
The Hon’ble Supreme Court stated in Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India that the primary purpose of competition legislation is to encourage competition in order to develop markets that respond to customer preferences. In light of this, it is evident that the ultimate purpose of the competition is to serve the consumer’s interests. When viewed from the perspective of Trade Secret Protection, it is clear that the success and popularity of one product and service stimulates other market actors to invest in and create substitutable or interchangeable products and services in order to foster market competition. At the same time, failing to appropriately protect trade secrets may result in unfair competition among market participants, which is contrary to the fundamental concept of competition law.
The Tussle Between Amazon, Flipkart and CCI Is a Testament To The Problematic Inadequacy And Application of Law by Indian Judiciary in the context of Trade Secret Protection.
Amazon and Flipkart filed a lawsuit against HC’s order in India’s Supreme Court, urging that the Apex Court should prevent the CCI from requesting sensitive information from them. The fact that the requested material by the antitrust authority is classed as trade secrets by the companies prompted this appeal. As can be seen, trade secret protection in India has traditionally been founded on equity and contract law notions. However, trade secrets that must be disclosed to regulatory agencies such as the CCI are not protected, as proven by SC’s refusal to interfere with Antitrust proceedings.
Given CCI’s inability to keep confidential information private in the past, the E-Commerce behemoths may be justified in defending their legal position against the CCI. The Director General of the CCI and its lead investigating officer in the Lafarge India Ltd case communicated sensitive information notwithstanding a request for secrecy being granted to one of the parties to the proceeding. As a result of this experience, Google declined to divulge material requested by the CCI in its 2014 action against the CCI because it included information relevant to modifications in its search algorithm, which is the most significant component of its company and a Trade Secret.
Current Confidentiality Regime under Indian Competition Law is in Direct Conflict with the Concept of Trade Secrets
In order to properly resolve antitrust proceedings, CCI processes frequently necessitate the disclosure of sensitive information to the antitrust authority. While certain built-in measures in Indian antitrust legislation, such as Section 57, prohibit sensitive information from being exposed before the CCI without written consent, these precautions are insufficient. Because Regulation 35 of the Competition Commission of India (General) Regulations, 2009 mandates that a party must request that the CCI treat specific documents as confidential, allowing the CCI to exercise discretion and determine the request’s legitimacy renders the entire system arbitrary.
We have observed over the years that even though CCI acknowledges such requests, the attitude toward trade secrets is, at best, casual due to these counter-productive rules. They have a bad track record when it comes to safeguarding sensitive information. Furthermore, under Section 57 or Regulation 35, there are no consequences or penalties for such disclosures of confidential information, and disciplinary actions have failed to prevent such disclosures.
The antitrust procedures are complicated by a lack of trade secret protection and CCI’s casual attitude toward confidentiality. Many organisations and corporations are forced to knowingly ignore CCI’s disclosure mandates in order to avoid public disclosure of such confidential information. Furthermore, forced trade secret disclosures may have the unintended consequence of the company suspending operations in the country or relocating to another IP-friendly country.
As a developing country, India faces stiff competition from other IP-friendly economies in Southeast Asia, such as Singapore and South Korea, to improve its ranking in the Ease of Doing Business Index. In this regard, we must reassess our current competition rules and implement appropriate legal protection for trade secrets.
As evidenced by the cases of Amazon and Flipkart, the lack of a strong trade secret protection statute leads to unnecessary and unproductive litigation. Furthermore, as previously stated, a lack of trade secret protection causes some corporations to willingly forego disclosure before regulatory organisations for fear of their trade secrets being revealed, causing procedures before such regulatory agencies to be hampered, which is harmful to the market as envisioned by the Competition Act 2002.
Future Pathway for Conflux of Trade Secrets and Competition Law
In 2021, the CCI recognised the flaws in the present Confidentiality Regime, as outlined in Regulation 35 of the Competition Commission of India (General) Regulations, 2009, and sought public input on how to improve it. However, we still have a long way to go because the issues are multi-faceted, and changing the current broad construction adopted by the Competition Commission regarding the disclosure of trade secrets for the purpose of investigating anti-competitive charges will undoubtedly take a significant amount of time and effort.
For example, the Commission wanted to implement confidentiality rings, allowing select parties’ representatives to process to view unredacted case records. This is consistent with the EU’s practice of protecting both parties’ interests by enabling disclosure while maintaining the confidentiality of the individual giving the information.
However, the main concern is that CCI takes a much broader and more ambiguous approach than the EU when forming a confidentiality ring, making the entire process arbitrary and thus futile in addressing the existing anomalies. Furthermore, under the guise of anti-competitive behaviour or abuse of dominating status, this might institutionalise a mechanism for firms to gain access to sensitive data of their competitors. As a result, it is unlikely to significantly contribute to resolving the issue of trade secret lawsuits brought against the regulator.
Conclusion
Though it is acknowledged that access to Confidential Information or Trade Secrets is sometimes required for CCI to conduct its investigation, it must also be acknowledged that the grant of confidentiality cannot be purely mechanical and will always require the application of thought and ad-hoc analysis of each case. Furthermore, it is critical to guarantee that the trade secret made available merely for the purpose of complying with statutory obligations is not misappropriated following the conclusion of the investigation.
In Re: NSK Ltd. and Ors., confidentiality rings were established in India previously. It is vital to emphasise that the cases were mostly about intellectual property rights and trade secrets. As a result, taking advantage of this process is critical to permitting proper research while maintaining security. As a result, the legislature must specify a precise method for the working and behaviour of the parties in a confidentiality ring in order to ensure due process.
The lack of a safety net for trade secrets in competition enforcement in the digital economy is particularly troubling. In digital enterprises, where information is the company’s primary value proposition but may also be important to understanding key features of antitrust behaviour, the tension between the competition and trade secrets doctrines reaches its apogee. In light of this, it is critical that legislators devote their attention to this long-overdue trade secret protection statute in India.
References
- Bombay Dyeing & Manufacturing Co. Ltd. v. Mehar Karan Singh, 2010 (112) BOM LR 3759
- BloombergQuint, India, U.K. Ink MoUs On IPR, Ease Of Doing Business, November 07 2016, available at: https://www.bloombergquint.com/business/india-uk-ink-mous-on-ipr-ease-of-doing-business (Last visited on April 4, 2022)
- Ashoka Smokeless Coal India Pvt. Ltd. vs. Union of India, 2007 2 SCC 640
- Amazon Seller Services Private Limited v. CCI, W.P. No. 3363 of 2020 clubbed with Flipkart Internet Private Limited v. CCI, W.P. No. 4334 of 2020
- Flipkart Internet Private Limited v. CCI, SLP (C) No. 11518 and 11615 of 2021
- Lafarge India Ltd vs. Competition Commission of India, 2015 SCC Online CompAT 1120
- Google Inc. & Ors vs. Competition Commission of India & Anr., W.P. (C ) No. 7084/ 2014
- Competition Act, 2002, §57
- Competition Commission of India (General) Regulations, 2009, Regulation 39
- Competition Commission of India, Inviting public comments regarding review of extant Confidentiality Regime as provided in Regulation 35 of the Competition Commission of India (General) Regulations, 2009, PR082021-22 (13 April 2021)
- Amritesh Anand and Krishnanunni U, Confidentiality Rings under Competition Law: Need for Ironing out Wrinkles, August 2 2021, available at: https://indiacorplaw.in/2021/08/confidentiality-rings-under-competition-law-need-for-ironing-out-wrinkles.html (Last visited on April 6, 2022)
- In Re: Cartelisation in the supply of Electric Power Steering Systems (EPS Systems), Suo Motu Case No. 07 (01) of 2014
Society for International Trade & Competition Law 
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