TRADE SECRETS AS A RESPONSE TO COMPULSORY LICENSING

ORIGIN AND JUSTIFICATION FOR IP PROTECTION

The legal protection of Intellectual Property is rooted in the philosophy of property rights as one of the most efficient instruments in the production and consumption of goods and services. While there is no single definition of IP, the World Intellectual Property Organization constructs it as “the legal rights which result from intellectual activity in the industrial, scientific, literary and artistic fields.”

Intellectual property is a result of one’s intellect and creative manifestation and is thus, termed as ‘Information goods’. Information goods like patents are characterized as ‘public goods’ because the possibility of each person consuming the same piece of knowledge does not diminish when many people consume knowledge at the same time. Secondly, once information is consumed, it cannot be taken away from the person who consumed it. Additionally, such information or knowledge can be easily recreated, which leaves little incentive to invest in the creation of new inventions. However, if the owners of intellectual property and their developers are awarded rights to forbid others from accessing and reproducing their information, they can profit from their creation during the exclusion period by selling or licensing it for the payment of royalties. This exclusion right (in the form of patents), therefore, act as an incentive that increases the rate of innovation.

However, this ability to exclude others comes with its own set of disadvantages. By creating a monopoly, patent holders have the power to create artificial scarcity of their product in the market or charge unreasonably high prices for the same. This inefficiency is also referred to as ‘Static inefficiency’ and is reflected starkly in markets like pharmaceutical and technology where the larger public interest and human rights are involved.

CONCEPT OF COMPULSORY LICENSING

The TRIPS does not define the term “Compulsory Licensing.” However, it provides for the doctrine of Article 31, which allows for the use of a patented product by a third party without the consent of the patent owner.

Such use is allowed only on the fulfilment of certain conditions like:

1. Before compulsorily licensing the patent, it should be made sure that reasonable efforts have been made by the licensee to obtain a license from the patent holder. This requirement is negotiable in cases of national emergency, extreme urgency, or public non-commercial use.
2. Such use shall be “non-exclusive”, which means that compulsory licenses may be granted to multiple third parties, none of which will enjoy the right to exclude others from the use of the invention.
3. Such use shall be “non-assignable use”, which means that the use of the patent is not transferrable to any other enterprise or part of the enterprise except for the one which is an immediate party to the contract.
4. Payment of “adequate remuneration” to the patentee, etc.

However, terms like “reasonable commercial terms and conditions”, “national emergency”, and “adequate protection” etc. have nowhere been defined in the entire document. Members of the WTO are free to decide how best to implement the TRIPS Agreement within their legal systems and practices, and this includes the standards they use to determine what constitutes “reasonable” royalties or “adequate” remuneration.

Generally, The grant of such a patent license tends to fulfill one of the three purposes: To ensure large scale production of patented medical products (e.g., patented drugs) to cure a disease, To regulate anti-competitive market activities, and abuse of dominant due to monopoly rights, and non-commercial use by the government in the interest of the general public.

The need for compulsory licensing was felt after an outbreak of pandemics like HIV/AIDS when large-scale unmet demand for essential drugs emerged as a global concern.

While compulsory licensing is an effective tool to ensure greater public welfare by curbing monopolies and the resultant abuse from the exercise of the exclusive patent rights, it creates several disincentives for patent holders:

1. Anything that infringes on the patentee’s exclusive right would undoubtedly deter investment in the field of research.
2. In the case of the pharmaceutical industry, it is observed that since several diseases are only found in third-world countries. Large companies lose their motivation to invest to find a cure for such diseases when forced to license the technology to other competitors. Patent uncertainty might put a stop to the development of novel treatments, which are badly needed in underdeveloped nations.[1]
3. Many developing countries prefer not to use compulsory licenses to attract future investment and technology. E.g., it is a common phenomenon that developed countries force developing or underdeveloped countries to follow a rigid intellectual property regime. Large corporates are more likely to enter markets of such countries.[2]

Consequently, trade secrets have emerged to be a safe hideout for these developers. According to a report published in 2010 by Forrester Consulting titled The Value of Corporate Secrets: How Compliance and Collaboration Affect Enterprise Perceptions of Risk, “…enterprises in highly knowledge-intensive industries like manufacturing, information services, professional, scientific and technical services, and transportation accrue between 70% and 80% of their information portfolio from trade secrets.” Other studies, such as the European Commission’s Study on trade secrets and sensitive company information in the internal market, show that confidentiality is a much-valued form of intellectual property by all business sizes.

CONCEPT OF TRADE SECRET

A trade secret “may consist of any formula, pattern, device, or compilation of information which is used in one’s business, and which allows him to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.”

Trade secrets law, unlike most other kinds of intellectual property rights in India, is not codified and is instead protected by common law principles. Under article 39 of TRIPS, countries must protect “undisclosed information,” provided that the information is relatively secret, “has commercial value because it is secret,” and is “subject to reasonable steps under the circumstances” to maintain its secrecy.

Trade secrets emerged as an effective tool for large pharmaceutical companies to protect their exclusionary interests during the COVID-19 medical crisis. As was seen when several national manufacturers requested licensing of the available vaccine technologies in several countries, which was denied by vaccine producers. For example, J&J refused to license its technology to Biolyse, a Canadian manufacturer of cancer drugs, which can manufacture two million doses a month and thus has the potential to produce significant doses of vaccines, thus catering to the unmet demand of J&Js adenovirus vaccine in developing countries.

This trend accelerated due to the following reasons:

1. Trade secrets are accorded protection without any procedural formalities as a prerequisite for protection. Protection is offered under the law of contract or through an action for breach of confidence in tort.
2. Trade secrets are protected for an infinite period. A patent is valid for a fixed term, usually 20 years, and the holder of the patent right, known as a patentee is entitled to use (by exclusion) or transfer the right to use the patent to others.
3. Trade secrets have no subject matter limitations. This means that practically everything that a company considers as reasonably undisclosed information can be termed as a trade secret.
4. Disclosure is a mandatory requirement for the grant of a patent, while there is no express statutory requirement for trade secret owners to disclose their secrets. As a result, while a trade secret can be licensed voluntarily, a request for a license could be denied.

CONCLUSION

Trade secrets have become a greater priority for businesses, governments, and law enforcement authorities in recent years as a viable means of safeguarding a company’s “secret sauce.” They continue to be an efficient alternative for them to protect important information and research. But in the absence of any statutory regulatory requirement, the tool can be exploited. The protection of trade secrets and confidential corporate information has begun to create barriers to data and information that the general public has a vital interest in. Critical public interests such as democratic accountability, public health, and public safety are jeopardized by this opacity.

With no specific mention of ‘trade secrets in the TRIPS agreement, countries around the world have developed differently around the subject. Some countries like the USA have express legislations while countries like India rule on a case-by-case basis. What is needed is harmonization in setting up of some bare minimum standards in the protection and revelation of trade secrets. The purpose of such reforms is to reduce the difficulty of administering trade secrets protection across international borders while also boosting market opening effects where enterprises are now barred from entering.

Author(s) Name: Aditi Rathore (Institute of Law, Nirma University, Ahmedabad)

[1] R. C. Bird, “Developing nations and the compulsory license: maximizing access to essential medicines while minimizing investment side effects”, Journal of Law, Medicine & Ethics, vol. 37, no. 2, pp. 210, 2009.