Case Name: Prof. Dr. Claudio De Simone & Anr. v. Actial Farmaceutica Srl 

Citations: AIRONLINE 2020 DEL 592 

Bench: Honourable Justice Rajiv Sahai  

Introduction: India’s Unwritten Secret  

 
Trade secrets sit on a strange, tenuous balance of India’s intellectual property system. They are not granted any special statutory status, unlike Patents, Copyright, or Trademarks, but they are neither protected by the Trade Secrets Act, nor do they have a codified framework, nor are there a minimum standard of protection. Rather, they thrash their way along the shaky foundations of common law concepts such as breach of confidence, implied contractual obligations, and equitable doctrines that have been grafted on to the American legal landscape to a large extent from the English system. The 2020 Delhi High Court order in Prof. Dr. Claudio De Simone & Anr. vs. Actial Farmaceutica Srl. is thus a cautionary tale and an important precedent in the legal void that has emerged. The question that the case asks is a not-so-complicated one: Is information that you willingly shared with the world in a patent application then revived as a trade secret? The Court’s response in the negative has far-reaching implications for all pharmaceutical firms, biotech startups and knowledge economy companies in India. 

The Factual Matrix: A Probiotic, A Patent, and A Broken Relationship 

A Probiotic and A Patent and A Broken Relationship. The issue relates to what is called the “De Simone Formulation”, a formulation of eight specific strains of live bacteria (probiotics), that was the result of decades of intensive research by Prof. Dr. Claudio De Simone, a world renowned Italian gastroenterologist and scientist. The formula, known as VSL3, was not a happy accident, but was the result of meticulous bacterial strains, ratios and manufacturing conditions that constituted, according to Dr. De Simone, proprietary know-how of great commercial value. The formulation was patented to Actial Farmaceutica Srl in time. Commercial exploitation by (and associated organizations) of these is forbidden. Unfortunately the business partnership went sour as they do, but this is the case. Dr. De Simone (Plaintiff) claimed that following the termination of the relationship, Defendant continued to produce and sell a product that he used a confidential formulation to make without consent the equivalent of misappropriation of trade secrets and violation of a confidential relationship. The key Defendant argument was surgical the alleged “secret” formulation had already been revealed in patent applications and scientific publications which were available to the public. They said the information disseminated to the world, the same information the patent system insisted had to be disseminated in order to qualify, was permanently in the public domain and as such could not, by law, be considered a trade secret worthy of protection. The tension between the Plaintiff’s complaint of continuing confidentiality and the Defendant’s claim of public disclosure was the basis of the Court’s inquiry. 

Core Legal Issues  

The Delhi High Court was requested to resolve the following important issues of law 

Issue 1: Whether the information disclosed in a patent application or patent specification can be protected as a trade secret under Indian common law?  

Issue 2: The second question raised is precisely what proof will be required for a party to prove that specific information is a “trade secret” and what degree of particularity will have to be pleaded?  

Issue 3: The issue is whether patents and trade secrets are mutually exclusive in that having one excludes the other.  

Issue 4: In India, there is no specific Trade Secrets Act, and the misuse of confidential business information is controlled by the common law. 

Issue 5: What is the evidential threshold to sustain an interim injunction restraining a defendant from using allegedly confidential information?  

Issue 6: When a formulation is in the public domain, can a claimant assert that “improvements,” “refinements,” or “manufacturing nuances” beyond the public disclosure retain trade secret character and if so, how specifically must these be identified? 

The Court’s Decision & Reasoning: The Ratio Decidendi 

The Delhi High Court in a comprehensive decision, refused to grant the relief contended finding that the Plaintiff had failed to prove the essential elements of a trade secret action.  

The following elements are important to the Court’s argument:  

• The Public Domain Doctrine is Absolute. The Public Domain Doctrine is absolute. The Court firmly rejected the idea that information once in the public domain could have the “necessary quality of confidence” that is the first and most important element of any trade secret claim. The judgment, which followed the principle laid down in the foundational English case, ‘Coco v. AN Clark (Engineers) Ltd. (1969)’ which has been consistently applied by Indian courts, the judgment reaffirmed the three-part test for breach of confidence: 

1. The information must have the necessary quality of confidence about it;  

2.  It must have been imparted in circumstances importing an obligation of confidence; and 

3. There must be an unauthorized use of that information. 

• Most importantly, the Court determined that the first condition was not satisfied. The bacterial strains and their identity, not to mention the overall compositional strategy, of the De Simone Formulation had been published to the public in patent applications and scientific papers. After the Rubicon is crossed, the information ceases to be confidential and cannot be recalled.  

• The second part of The Skill requires that you locate the secret. The most pragmatically important part of the judgment is perhaps the Court’s insistence on specificity. The Plaintiff was unable to prevail simply by stating, in a general and sweeping way, that the formulation was confidential. The Court has clarified that any Claimant would have to make a very specific and specific claim as to what specific information is confidential and what is not. Unspecific, general or sweeping allegations of lack of disclosure of the specific ingredient, ratio, method, or parameter that does not appear in the public disclosure are legally inadequate. This is not a matter of procedure, but one of substance as to the right that is being asserted. If you can’t draw the boundary of your secret, you won’t be able to keep it.  

• Control of the Physical Product: An Inherent Incompatibility In general 

The Court’s reasoning tacitly (and in several places expressly) accepted that patents and trade secrets are structurally unworkable. The cornerstone of the patent bargain is the grant of a monopoly for a limited period, coupled with complete disclosure to the public of the invention. Trade secrecy, on the other hand, is valuable because it is kept secret. It’s not possible to have both bargains at the same time on the same information. 

Critical Analysis  

In the De Simone case, a company is making a very basic IP mistake – assuming that it can secure several IP protections to the same information:  

• Patent it, and, when the patent expires, claim it as a trade secret afterward,  

• or even claim it as a trade secret after disclosure.  

This is because of an established but unconstitutional, commercial sense. Patents expire at the expiration of the 20-year period, the patented invention goes into the public domain, and the competition is free to take advantage of it.  

Of course, innovators look for ways to maintain that innovative edge.  

“There’s the allure of focusing on the difference, “Yes”, they had the general idea, but our ratios, our manufacturing quirks, our strain selection methodology that they did not have.”  

The De Simone Court response is telling; This argument is available, but only when it’s possible to draw a clear, evidence-supported line between that which was disclosed and that which was genuinely secret. It was a failure here that was not conceptual; it was evidentiary and pleading based. The Plaintiff was unable to isolate and narrow a sphere of genuine “privacy” in what was already “publicized”. It’s a big deal for biotech and pharmaceutical companies that regularly publish research, submit patent applications, and appear at conferences and think that the “implementation layer” will remain secure.  

In terms of the De Simone framework, this protection is legally present only when it is:  

(a) specifically identified,  

(b) demonstrably kept secret and  

(c) not logically derivable from public disclosures.  

The Pleading Problem: A Lesson in Litigation Strategy  

The lesson in this judgment that is missing the most is that it’s an implicit lesson in litigation preparedness. Trade secret cases are decided years before court and is based on evidence that is contained in the documents, companies access-control logs, and internal classification procedures of a company. The Plaintiff in De Simone was unable to specifically identify confidential information; not only was there a drafting problem in the Plaintiff, but there was a failure to identify confidential information.  

It signalled a greater organizational deficiency, and lack of a written and established trade secret management plan. Indian courts (following common law principles) will question:  

What is the secret?  

What people did have access to?  

How was it kept secret?  

A company that is unable to provide documentary evidence for these questions will have a weak claim. The identification requirement requires scientific accuracy, not legal generalisation, for pharmaceutical companies, where the “secret” might be in the proportions of strain A to strain B produced at a particular fermentation temperature. 

Conclusion 

The absence of a Trade Secrets Act in India is still causing hazardous uncertainty. Where there is no statute, the Indian courts have to construct the protections from the law of contract (breach of NDA), tort law (breach of confidence) and equity. There are slight variations in standards from one bench to another. The standard of protection is not fixed, there is no fixed limitation period for trade secret infringement, and there is no clear procedure for cross-border cases of trade secret misappropriation. There is a Trade Secrets Directive in place in the EU that was passed several years ago. The United States has a Defend Trade Secrets Act (2016). India doesn’t have any of these. The De Simone case in part, is reflective of this gap a highly fact intensive case where the ruling did not rely on an explicit statutory standard but instead was based on the application of the Court’s equitable doctrine, which dates back over 100 years, to cutting edge biotechnology. This is a wake-up call for pharma entrepreneurs and biotech investors: till India has a Trade Secrets Act, there is no safety net.