TRADE SECRET LAWS AND ARTIFICIAL INTELLIGENCE: OWNERSHIP AND TRADE SECRET PROTECTION

ABSTRACT

This article delves into the complex relationship between trade secret laws and artificial intelligence (AI), emphasizing the crucial need for ownership protection and confidentiality maintenance. While no specific legislation in India regarding trade secrets, common law principles dictate that ownership establishment requires rigorous documentation and evidence. The emergence of AI offers new ways to reinforce ownership protection through innovative tools and technologies. AI-powered algorithms can detect and prevent unauthorized access to sensitive information by monitoring user behavior patterns and network activities in real time. Additionally, AI enables robust encryption and obfuscation techniques, making confidential data inaccessible to unauthorized persons. Digital rights management (DRM) solutions enhanced by AI dynamically adjust access permissions based on contextual factors, reducing the risk of data breaches and unauthorized disclosures. However, integrating AI innovations in ownership protection presents challenges regarding authorship, ownership, and ethics, necessitating adaptable legal frameworks and collaborative efforts among policymakers, technologists, and legal experts.

Overall, the intersection of trade secret laws and artificial intelligence offers unprecedented opportunities to fortify ownership protection and preserve the confidentiality of sensitive information while upholding principles of innovation, security, and accountability.

KEYWORDS

Trade Secret laws, Ownership protection, Artificial Intelligence, Intellectual property Rights.

INTRODUCTION

A trade secret is a component of intellectual property rights wherein confidential information possessing commercial value is maintained as secret and known only to a restricted group within a specific business context. Information that holds commercial value has been developed through personal skill and effort and is not publicly known, typically under the “confidential information.” In India, no separate law protects confidential information, much less the narrower concept of

“trade secrets.” India is a signatory to the Agreement on Trade-Related Intellectual Property Rights (TRIPS), and under Article 39(2)^[1], it must frame laws to prevent unauthorized disclosure and use of certain information. However, Rights for trade secrets are enforced under section 27 ^[2]of contract law (Indian Contract Act 1872), a provision relating to restraint of trade in India. Trade secrets are encompassed within the broader category of ‘confidential information.’ Although some courts in India have treated the terms ‘trade secret’ and ‘confidential information’ interchangeably, others have drawn a clear distinction between them. These courts have emphasized that information about the routine operations of an employer, widely known among many individuals and commonly understood by others, does not qualify as a trade secret. In Tata Motors v State of WB^[3], the court adopted the definition of “trade secret” as defined in Black’s dictionary^[4]: “A formula, process, device, or other business information that is kept confidential to maintain an advantage over competitors; information including a formula, pattern, compilation, program, device, method, technique, or process that (i) derives independent economic value, actual or potential, from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and (ii) is the subject of reasonable efforts, under the circumstances, to maintain its secrecy”.^[5]

Meanwhile, Artificial Intelligence (AI) has become ubiquitous across various industries, showcasing its capacity to replicate human intelligence in machines. Serving as a synthetic brain, AI can adeptly handle multiple tasks concurrently. The intersection of AI with policy occurs at various junctures within the Intellectual Property Rights (IPR) realm. IP policy is geared towards nurturing innovation and creativity within economic and cultural frameworks, a mission aligning closely with AI’s function in shaping and advancing these objectives. As mentioned, trade secrets entail confidential information known exclusively to the owner or a restricted group. This raises pertinent questions about protecting ownership rights over such sensitive information. Why is ownership protection crucial, and how does A.I. significantly safeguard it? Let’s explore these queries further in the forthcoming section of this article.

OWNERSHIP PROTECTION IN TRADE SECRET

Protection of ownership is crucial for individuals engaged in a particular trade. Although there are no codified laws for trade secret protection in India, common laws can be used to ensure ownership protection. To assert rights in a trade secret, a person must provide positive evidence demonstrating what information is regarded as a trade secret and how the claimant acquired ownership of it.

For instance, if an employee generated the trade secret, then an agreement with the employee specifying that the item is confidential and is assigned to the employer would serve the purpose. A basic employment agreement may be a starting point, which can be supported by other correspondence leading to an inference of ownership and assignment. However, a more specific agreement or an internal document assigning the trade secret in favor of the employer would be ideal evidence. Poor documentation is often the Achilles heel of a plaintiff and is exploited by the defendant. In cases where the trade secret has been acquired through some acquisition or merger process, proper documentation would be necessary. Since trade secrets are often not documented, it is advisable to execute a termination agreement with employees leaving the company so that the employer can enlist items that they would consider as trade secrets. For example, technical drawings would bear the author’s name, and principles of copyright authorship would apply. Such cases would be straightforward to prove ownership, coupled with the employment agreement, quite like the case of John Richard Brady and Ors v Chemical Process Equipments Pvt Limited & Another^{^[6]}.

Have Courts Enforced the Right to Restrain Disclosure of Confidential Information?

In various cases where courts have considered covenants, they have been upheld as long as enough documentation specifically identifies the confidential information in question and any commercial value or usefulness attached to it. It is also necessary to demonstrate that measures have been taken to keep the information confidential and prevent it from becoming public and to prove that the employee has used it for the advantage of a third party, thus causing harm to the employer. Therefore, the courts, as seen in the Bombay Dyeing v Mehar Karan Singh^{^[7]}, have established strict standards for claiming protection for trade secrets.

The employees of Hi-Tech Systems v Suprabhat Ray^{^[8]} in the Calcutta High Court were software engineers. They were to maintain confidentiality with respect to all information and documents provided to them during their employment and for a period of three years from the date of termination via a code of conduct policy circulated to them. They left the company and started their own firm, and also started to solicit clients of the plaintiff by using confidential data known to them as employees. The court held that even post-employment, a restrictive covenant can be enforced for a certain period from the date of resignation/termination from the company.

ROLE OF ARTIFICIAL INTELLIGENCE IN OWNERSHIP PROTECTION IN TRADE SECRET

After the liberalization in 1991, India became a World Trade Organization (WTO) member. Subsequently, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was also signed by India in 1994^[9]. As per the TRIPS Agreement, it was mandatory for all the member states to protect the Trade Secrets/undisclosed information in accordance with Article 39 ¹⁰of the TRIPS Agreement. No specific law was enacted to protect Trade Secrets and Confidential Information in India, which is still not there. It is based on equity and common law. With the advancement of technology, the Indian government initiated specific laws to protect trade secrets and introduced the Draft of the National Innovation Act 2008^[10]. The Bill outlined all the regimes in the protection of Trade Secrets, but the Bill was never ratified to become an Act, ^[11]

Patents confer a legal right to exclude others from making, using, selling, and importing the invention claimed for several years. But, to take advantage of this government-sanctioned monopoly, the inventor must disclose the invention to the public with enough detail so that the invention can be recreated by others in that field. This quid-pro-quo—disclosure of the invention to the public in return for a limited-in-time monopoly on the invention—is one fundamental underlying policy objective of U.S. patent law.^[12]

In contrast, trade secrets safeguard confidential information by ensuring it remains undisclosed. Such protection is extended to any data that the owner has made reasonable efforts to keep confidential, and that holds economic value from not being widely known. Both federal and state laws offer safeguarding measures for trade secrets. Over time, this protection has been applied to diverse forms of information, ranging from compilations of public data to source code, schematics, diagrams, and customer lists. In this modern age, AI tools have become an essential part of our daily lives, helping us to work more efficiently and effectively. Even in the legal field, AI generated innovations and tools can play a crucial role in safeguarding the ownership of trade secrets. As humans, we cannot perform every task, but with the aid of AI, we can protect confidential information more efficiently. This is especially important for businesses and individuals in specific trades or industries. Nonetheless, it is crucial to understand how to use these AI tools correctly. Let’s delve into the world of AI-generated tools and innovations for protecting the ownership of trade secrets.

AI-GENERATED TOOLS AND INNOVATIONS IN OWNERSHIP PROTECTION

Artificial intelligence has made a notable contribution to enhancing the protection of trade secrets through various innovative tools. One significant advancement is the development of AI-powered algorithms that can detect and prevent unauthorized access to sensitive information. Algorithms are more likely to be patented as CIIs. The European Commission confirms that CIIs are patentable, provided their method claims contain computer executable steps or perform a certain functionality when deployed by a processor on a computer-readable medium hosting a computer program. These algorithms analyze user behavior patterns and network activities in real-time to identify potential threats and suspicious activities. Furthermore, AI has enabled the encryption and obfuscation of trade secrets, making it more difficult for unauthorized individuals to access or decipher confidential data. Advanced encryption techniques and AI-driven authentication mechanisms ensure that only authorized users can access protected information. Moreover, AI has completely transformed digital rights management (DRM) by allowing organizations to manage and enforce access controls over their trade secrets efficiently. Digital rights management (DRM) is a way to protect copyrights for digital media. This approach includes using technologies that limit the copying and using copyrighted works and proprietary software.^[13] DRM is a valuable set of tools that can help you protect your digital content, software, or product. It provides a way to limit how users can interact with your content, such as restricting editing, saving, or sharing and limiting actions like printing or taking screenshots. With DRM, you can also limit how often your content can be accessed or how long it can be used. You can control access to your content by restricting it to specific IP addresses, locations, or devices to comply with certain restrictions. Watermarking can help protect your content from unauthorized sharing, and detailed usage logs can provide insights into how your content is being used. Overall, DRM can help improve security and accountability for your digital assets. AI-powered DRM systems dynamically adjust access permissions based on contextual factors such as user roles, device characteristics, and location, thereby reducing the risk of data breaches. In addition, AI-driven monitoring and auditing solutions provide organizations comprehensive insights into how their trade secrets are accessed and utilized. These solutions can detect anomalies and unauthorized activities, allowing organizations to mitigate security risks and protect their valuable intellectual property proactively. Overall, AI-generated tools and innovations have significantly strengthened trade secret protection by enhancing detection capabilities, strengthening encryption techniques, streamlining access controls, and providing actionable insights for risk management. To be better prepared for the growing use of generative AI applications and innovations, companies should update their policies to protect their trade secrets better. Although AI tools offer many advantages, knowing their risks and challenges is essential. Regardless of how these tools are used, every technology has its own advantages and disadvantages. Therefore, it is crucial to highlight the risks or challenges associated with AI innovations in protecting ownership and trade secret laws.

CHALLENGES IN AI INNOVATIONS IN PROTECTING OWNERSHIP

Artificial intelligence (AI) has brought up several challenges, including issues regarding authorship, ownership, ethics, and the dynamic nature of AI technologies. These challenges call for legal frameworks that can adapt to the rapidly changing legal environment. The ownership and liability of AI-generated works present legal challenges that require immediate attention as AI continues to push the limits of human accomplishment. To find a balance between promoting innovation, defending individual rights, and ensuring accountability, policymakers, technologists, and legal experts must work together. They must update and improve IP protection laws to provide clear guidelines, handle ethical issues, and promote a balance between encouraging innovation and defending the rights of creators, users, and society. In addition to transforming current laws, an international agreement on the moral and legal guidelines for developing machines is necessary. Such an agreement would promote cooperation between countries, enabling the sharing of concepts, studies, and advancements in artificial intelligence. The continuous global expansion and advancement of AI technologies depend on this collaborative environment. Since AI operates globally, uniform legal frameworks across borders are essential. In cases involving multiple jurisdictions, the lack of standard regulations and norms for AI-generated creations can cause uncertainty and conflict.^[14]

CONCLUSION

The convergence of trade secret laws and artificial intelligence (AI) highlights the importance of protecting ownership and sensitive information in the digital age. While India lacks specific legislation for trade secrets, common law principles require strong documentation and evidence to establish ownership rights. The emergence of AI presents an opportunity to enhance ownership protection through innovative tools and technologies. AI-powered algorithms offer sophisticated capabilities for detecting and preventing unauthorized access to confidential information. These algorithms analyze user behavior and network activities in real-time, allowing organizations to identify and mitigate potential threats effectively. Furthermore, AI facilitates encryption and obfuscation techniques, making it increasingly difficult for unauthorized individuals to access or decipher sensitive data. Digital rights management (DRM) powered by AI revolutionizes the enforcement of access controls over trade secrets. AI-driven DRM systems dynamically adjust access permissions based on contextual factors, reducing the risk of data breaches and unauthorized disclosures. Additionally, AI-driven monitoring and auditing solutions provide comprehensive insights into the access and utilization of trade secrets, enabling proactive risk management strategies. However, adopting AI innovations in ownership protection also presents challenges. Issues related to authorship, ownership, ethics, and the dynamic nature of AI technologies require careful consideration and legal frameworks that can adapt to the evolving landscape. Collaborative efforts among policymakers, technologists, and legal experts are essential to address these challenges effectively. In navigating the complexities of AI-generated tools and innovations, it is crucial to balance promoting innovation, defending individual rights, and ensuring accountability. Updating and improving intellectual property protection laws and fostering international agreements are imperative to provide clear guidelines and handle ethical dilemmas associated with AI technologies.

Overall, the intersection of trade secret laws and artificial intelligence offers immense potential for strengthening ownership protection and safeguarding confidential information. By leveraging AI-powered solutions and fostering collaborative partnerships, stakeholders can navigate the challenges and opportunities presented by the evolving digital landscape while upholding the principles of innovation, security, and accountability.

REFERENCES

Jibin M Abraham(Member since December 19 2023 of legalsevicesindia), Challenges Of Assigning Ownership And Liability For Creations Generated By Artificial Intelligence, LEGAL SERVICES INDIA (6 Mar. 2024, 1:00 PM), https://www.legalserviceindia.com/legal/article –14558 challenges –of –assigning –ownership –and –liability –for –creations –generated –by –artificial –intelligence.html .
Conor Roach, What is DRM, DIGITAL GUARDIAN (6 Mar. 2024, 7:12 PM), https://www.digitalguardian.com/blog/what –digital –rights –management .
Vijay Pal Dalmia & Ankush Mangal(Vaish Associates Advocates), Protection Of Trade Secret In India, Lexology (Mar. 6, 2024, 10:20 PM) https://www.lexology.com/library/detail.aspx?g=4f23531b –10a4 –4b69 –a9fe –b7d3a10de67d .
BLOG IP 4. LEADERS https://blog.ipleaders.in/ (last visited Mar. 4, 2024)
QUINN EMANUEL TRIAL LAWYERS https://www.quinnemanuel.com/ (last visited Mar. 4, 2024)
WIPO, https://www.wipo.int/portal/en/index.html .
Black’s Law Dictionary, 8TH Edn. 1133.
Nandan Pendsey ( Practice Area Data Privacy & Protection Intellectual Property),Trade Secrets; India, A.Z.B. & PARTNERS (Marc. 6 2024, 2:00 PM), https://www.azbpartners.com/bank/trade –secrets –india/.

[1] WIPO, https://www.wipo.int/portal/en/index.html .

[2] Indian Contract Act, 1872, § 27, No. 09, Act of Parliament, 1872 (India).

[3] Tata Motors Limited and Anr. v. State of Bengal, G.A. No. 3876 of 2008 in W.P. No. 1773 of 2008.

[4] Black’s Law Dictionary, 8TH Edn. 1133.

[5] Nandan Pendsey, Trade Secrets; India, A.Z.B. & PARTNERS (Marc. 6 2024, 2:00 PM), https://www.azbpartners.com/bank/trade –secrets –india/.

[6] John Richard Brady and ors v. Chemical Process Equipments Pvt. Ltd. and Anr., AIR 1987 DEL 372.

[7] Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh, MANU/MH/0955/2010.

[8] Hi-Tech Systems v Suprabhat Ray, (2015) 06 CAL CK 0034.

[9] Vijay Pal Dalmia, Protection Of Trade Secret In India, Lexology (Mar. 6, 2024, 10:20 PM) https://www.lexology.com/library/detail.aspx?g=4f23531b –10a4 –4b69 –a9fe –b7d3a10de67d . ¹⁰ TRIPS Agreement, art. 39.

[10] National Innovation Act, 2008.

[11] BLOG IP LEADERS https://blog.ipleaders.in/ (last visited Mar. 4, 2024)

[12] QUINN EMANUEL TRIAL LAWYERS https://www.quinnemanuel.com/ (last visited Mar. 4, 2024)

[13] Conor Roach, What is DRM, DIGITAL GUARDIAN (6 Mar. 2024, 7:12 PM), https://www.digitalguardian.com/blog/what –digital –rights –management .

[14] Jibinabraham, Challenges Of Assigning Ownership And Liability For Creations Generated By Artificial Intelligence, LEGAL SERVICES INDIA (6 Mar. 2024, 1:00 PM), https://www.legalserviceindia.com/legal/article-14558 challenges-of-assigning-ownership-and-liability-for-creations-generated-by-artificial-intelligence.html.

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.