Law Commission Recommends Whistleblower Protection, Says Amendments May Be Brought To Mandate Test Data Disclosure

In a recent development, the Law Commission of India has recommended in its 289th Report dated March 5, 2024 that there should be a special legislation for protection of Trade Secrets, with exceptions pertaining to whistleblower protection, compulsory licensing and government use, and public interest. In the same report, it has proposed a separate legislation for Economic Espionage as well.

The Report has been prepared pursuant to a 2017 reference by the Department of Legal Affairs and Legislative Department, Ministry of Law & Justice and is the outcome of deliberations with judges, academicians, etc. on protection of trade secrets and prevention of economic espionage.

With regard to trade secrets protection, the law panel notes that India historically opposed inclusion of Trade Secrets in the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement and fought off pressure to legislate on the subject. However, today, looking at the economic scenario and development of indigenous industry, there is a need for a clear and precise law to regulate cross-border transfer of technology as well as cooperation amongst industries.

"In today's economic climate, there are fast emerging technologies and sectors such as artificial intelligence (AI) and data-driven technologies that have gained significance...The law as it stands now is fragmented and difficult to navigate. A statute will bring in clarity and espouse confidence in the legal system amongst the industry."

Pointing to MSMEs and start-ups, the law panel explains that a specific legislation will benefit them as well. MSMEs form a major chunk of the indigenous industry, and they as well as start-ups have intellectual capital which they need to protect.

"A sui generis law on trade secrets evolved by consolidating the existing principles of common law, equity, confidence and contracts as affirmed in judicial precedents while also adding in new elements and contextualising it against the special needs of the Indian industry and economy would be best suited. The courts have largely followed a balanced approach and the same must be incorporated and maintained under the proposed Act."

Some key suggestions given by the panel wrt the Trade Secrets law are as follows:

(i) Trade Secrets must not have proprietary conception, unlike other forms of intellectual property.

(ii) The definition of "trade secrets" must be broad, to allow for judicial interpretation, so that emerging aspects and industries may fit in the framework. The triple criteria (specified under TRIPS Agreement) of secrecy, commercial value and reasonable steps should be adopted.

(iii) The framework should not be over-protective. Only bad faith acts must attract liability, not acts of use, acquisition or disclosure which are honest or bonafide. What does not constitute "misappropriation" (such as, independent discovery, reverse engineering) must be clearly defined.

(iv) Negative covenants, or post-employment restraints shall not be permitted. When an employee leaves an employer, there can be no injunction on his joining a competitor on the presumption that the trade secrets of the former employer would inevitably be used or disclosed. One has to establish such use or disclosure in the facts of the case.

(v) Exceptions in the law should be carved out for (a) whistleblowers, (b) compulsory licensing and government use (c) freedom of speech and expression and (d) public interest.

(vi) Remedies against misappropriation of Trade Secrets must include injunctive relief, damages, rendition of accounts, profits/disgorgement of profits, delivery up, surrender and destruction. The same must only be civil in nature. Criminal action may follow under provisions of the IPC, Bharatiya Nyaya Sanhita, Information Technology Act or any other law that applies. At the same time, the law must also provide protection to defendants, as there may be groundless threats, restrictions on mobility in the face of non-disclosure agreements.

(vii) Confidentiality clubs, which allow analysis of confidential documents filed before courts in sealed covers by restricting access to some key persons, may be established when dealing with cases of misappropriation. Further, there can be redaction of information on application by a party, and publication of non-confidential version of judicial decision.

(viii) Test data and other data submitted before regulatory authorities may be treated as confidential information or trade secrets. However, there is no case for data exclusivity provisions so far as trade secrets are concerned. If deemed necessary, existing legislations may be amended to mandate disclosure of test/other data.

Whistleblower Protection

Notably, the law panel in its 289th report deals extensively with the need for protection of whistleblowers and recommends that the proposal law on trade secrets must contain a safe harbor clause which grants immunity to whistleblowers (and not just a defence).

It stresses that illegal activities cannot be exempted from the purview of law in the garb of trade secrets; nor can use of non-disclosure agreements be permitted to discourage reporting on such activities. To quote,

"...incorporating a provision grating immunity from civil or criminal action/retaliation to whistle-blowers is not at variance with the principles of contract law or equity".

After analyzing the position on the subject in the US and Europe, it records that India does not have a whistleblower protection law (insofar as misconduct, illegal activities in industries are concerned). Though there is Whistle Blowers Protection Act, 2014, it only applies with respect to disclosure of allegations of corruption, or willful misuse of power or discretion against any public servant.

Accordingly, the panel recommends a whistleblower protection clause in the following terms: "The proposed provision must grant immunity to whistle-blowers and not make it a mere defence, thereby saving them from protracted litigations that may discourage them to come forward. However, the requirement of good faith and public interest may be added to ensure that such immunity is not abused for personal gains."

The Report (which annexes a Draft Bill) is prepared and signed by the following 7-member panel, besides Chairperson Ritu Raj Awasthi (former Chief Justice, Karnataka High Court):

1. Justice KT Sankaran, Member

2. Prof.(Dr.) Anand Paliwal, Member

3. Prof. DP Verma, Member

4. Dr. Reeta Vasishta, Member Secretary

5. Dr. Rajiv Mani, Member (ex-officio)

6. Mr. M Karunanithi, Part-time Member

7. Prof.(Dr.) Raka Arya, Part-time Member

Click here to read the conclusions of the report.