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SEMINAR PAPER

9TH SEMESTER, BA.LLB (INTELLECTUAL PROPERTY RIGHTS)

Unlocking the Value: A Comprehensive Framework for Trade Secret IP

Valuation

HARSH YADAV, ROLL NO. 450219170, SAP 500077333

Submitted under the guidance of : Divya Dwivedi

School of Law
University of Petroleum and Energy Studies Dehradun

(March, 2023)
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PREFACE

I feel great pleasure in presenting this seminar paper entitled “Unlocking the Value: A
Comprehensive Framework for Trade Secret IP Valuation under study. I h0pe that the readers
will find this pr0ject inf0rmative and the pr0ject in its present f0rm shall be well received by
all. The pr0ject c0ntains the detailed research 0n Trade secrets and their IP valuation and the
various aspects which are associated with it

This paper deals with the study 0f Trade secrets as a subset of intellectual property rights which
are available to individuals and associations alike in c0nnecti0n t0 the process of IP valuation.
studies in c0nnecti0n with has als0 been discussed, furtherm0re the discussi0n rev0lves ar0und
the trends 0f increasing use of Trade secrets in the market and what such trend entails for the
future of IP valuation of trade secrets

The paper als0 takes int0 acc0unt the challenges which may be faced by any organisation when
carrying out IP valuation and the various methods which may adopted to carry out the same.
Every eff0rt is made t0 keep the pr0ject err0r free. I w0uld gratefully ackn0wledge the
suggesti0ns t0 impr0ve the paper s0 as t0 make it m0re useful.
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ACKNOWLEDGEMENT
On the successful c0mpleti0n 0f this pr0ject, I w0uld like t0 thank my w0rthy supervis0r Mr.
Divya Dwivedi, f0r helping me with the research and always attending my queries and d0ubts
regarding the same. I sincerely thank him f0r all the supp0rt and enc0uragement with0ut which
the c0mpleti0n 0f this pr0ject c0uld n0t have been p0ssible. I w0uld als0 thank the h0n0urable
Ass0ciate Dean, Sch00l 0f Law, Mr. Abhishek Sinha, f0r his inexplicable greatness t0 find
time t0 educate me as and when he finds an 0pp0rtunity.
I w0uld like t0 c0nvey my gratitude t0wards my friends and batch mates wh0 have rendered
me their valuable time and with0ut their help this pr0ject w0uld n0t have been in its present
shape and f0rm. N0 w0rk is c0mplete with s0l0 endeav0ur, neither is mine. I thank each and
every n0n-teaching staff 0f UPES, f0r their unc0nditi0nal supp0rt. I w0uld als0 like t0 c0nvey
my thanks t0 the Library Staff 0f UPES.
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TABLE OF CONTENTS

S.NO CONTENT PG.NO

1 ABSTRACT 5-6
2 CHAPTER 1- INTRODUCTION 6-8
3 CHAPTER- 2 WHAT ARE TRADE 8-10
SECRETS? WHAT DO THEY ENTAIL
4 CHAPTER 3- IP VALUATION OF TRADE 10-18
SECRRETS
5 CHAPTER- 4 POSSIBLE CHALLENGES IN 18-19
THE IP VALUATION OF TRADE SECRETS
6 19-20
CHAPTER 5- CONCLUSION
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ABSTRACT

"Unlocking the Value: A Comprehensive Framework for Trade Secret IP

Valuation"

The economic valuation of trade secret assets has posed a longstanding challenge within the
realm of intellectual property. This challenge arises from the need to reconcile both economic
and legal dimensions when assessing the worth of a trade secret, particularly in the context of
litigation. In the contemporary landscape, the valuation of trade secrets has become imperative
for various purposes, including strategic planning, financial accounting, and commercial
transactions. However, a notable gap exists as most companies lack an internal accounting
system that is specifically tailored to identify, categorize, safeguard, and appraise trade secrets.

Calculating the value of trade secrets is a complex undertaking, primarily due to the inherently
confidential nature of these assets. In simple terms, trade secrets can be defined as valuable
proprietary knowledge known to only a select few within an organization, making them distinct
from other forms of intellectual property. Unlike other intellectual property types, trade secrets
do not require formal registration. Instead, they encompass confidential information shared
between entities during the course of business. The essence of trade secrets is rooted in
equitable principles and trust, which obligate individuals not to exploit the information they
receive to the detriment of the disclosing party.

Valuing trade secrets, despite their inherent complexity, is a crucial task. This significance
arises from the fact that, despite their confidential nature, most trade secrets possess intrinsic
economic worth. Companies invest substantial resources in safeguarding their trade secrets
through the implementation of security protection systems and the utilization of patented
technologies. They do so because these trade secrets hold substantial value for the company.
Consequently, it becomes imperative to undertake the challenging task of calculating their
value.

This paper aims to comprehensively examine the intricacies of intellectual property (IP)
valuation, particularly within the context of trade secrets. It will delve into various facets of
this subject matter, addressing key considerations inherent in the valuation process.
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Furthermore, this paper will explore the nuances involved in valuing trade secrets compared to
other forms of intellectual properties, shedding light on potential disparities. It will also
spotlight the challenges that may arise when assessing the value of trade secrets and propose
potential solutions to overcome these challenges. Throughout the paper, the author will
endeavor to outline actionable steps for enhancing the IP valuation process, with a specific
focus on the valuation of trade secrets.

KEY WORD: Trade secrets, IP valuation, intrinsic economic growth, Patented

technologies

CHAPTER 1- INTRODUCTION

The economic valuation of trade secret assets has posed a longstanding challenge within the
realm of intellectual property. This challenge arises from the need to reconcile both economic
and legal dimensions when assessing the worth of a trade secret, particularly in the context of
litigation. In the contemporary landscape, the valuation of trade secrets has become imperative
for various purposes, including strategic planning, financial accounting, and commercial
transactions. However, a notable gap exists as most companies lack an internal accounting
system that is specifically tailored to identify, categorize, safeguard, and appraise trade secrets.

Calculating the value of trade secrets is a complex undertaking, primarily due to the inherently
confidential nature of these assets. In simple terms, trade secrets can be defined as valuable
proprietary knowledge known to only a select few within an organization, making them distinct
from other forms of intellectual property. Unlike other intellectual property types, trade secrets
do not require formal registration. Instead, they encompass confidential information shared
between entities during the course of business. The essence of trade secrets is rooted in
equitable principles and trust, which obligate individuals not to exploit the information they
receive to the detriment of the disclosing party.

Valuing trade secrets, despite their inherent complexity, is a crucial task. This significance
arises from the fact that, despite their confidential nature, most trade secrets possess intrinsic
economic worth. Companies invest substantial resources in safeguarding their trade secrets
through the implementation of security protection systems and the utilization of patented
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technologies. They do so because these trade secrets hold substantial value for the company.
Consequently, it becomes imperative to undertake the challenging task of calculating their
value.

This paper aims to comprehensively examine the intricacies of intellectual property (IP)
valuation, particularly within the context of trade secrets. It will delve into various facets of
this subject matter, addressing key considerations inherent in the valuation process.

Furthermore, this paper will explore the nuances involved in valuing trade secrets compared to
other forms of intellectual properties, shedding light on potential disparities. It will also
spotlight the challenges that may arise when assessing the value of trade secrets and propose
potential solutions to overcome these challenges. Throughout the paper, the author will
endeavor to outline actionable steps for enhancing the IP valuation process, with a specific
focus on the valuation of trade secrets.

OBJECTIVE
• To develop an understanding of Trdae secrets
• To develop an understanding of IP valuation
• To study the potential benefits of trade secrets to organisation
• To analyse the contribution of IP valuation in increasing the efficacy of trade secrets
• To analyse the growth of trade secrets and the process of IP valuation
• T0 study the challenges faced in carrying out IP valuation of trade secrets

METHODOLOGY

The research paper is an attempt of exploratory research. The data of this study is secondary
data which have been collected from different sources such as official websites of department
of Corporate Affair ministry, Newspaper Articles, journals, Research Papers, media reports
and Magazine Articles. The researcher has not used any statistical tools and techniques because
it is not tried to establish any relationship between different variables rather through
discussions and tried to see the contribution of trade secrets in the market and what things can
be changes or adopted in the future to deal with the possible challenges.

CHAPTER0- 2 WHAT ARE TRADE SECRETS? WHAT DO THEY ENTAIL

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Before swelling into Ip valuation of trade secrets it is important understand what is a trade
secrets and what makes it unique compared to the other intellectual property and why there is
even a need for Ip valuation of trade secrets. A trade secret can be defined as any confidential
information or item that can be utilized by any organization to gain an economic edge over its
competitors, here confidential information refers to any information having some kind of
commercial value which is transferred from one business to other. Trade secrets are not
relegated to just one kind information rather they are very versatile in the sense that they can
range from KFCs secret recipe to an e-commerce company’s delivery system to a tech
company’s algorithm for its search engine. The versatility of trade secrets can also be
established by the fat that trade secrets can include data which is in public knowledge if such
knowledge is combined with private information, the resulting information could be considered
a trade secret. 1

In the country of India intellectual property are provided reasonable protections there are
dedicated legislations for specific intellectual property like the Indian patent acts for protecting
inventions and Indian copyright act for protecting original work of the authors however despite
of having appropriate legislation for dealing with specific IPs, there is no separate law to protect
confidential information, and since trade secrets are a narrower concept of "trade secrets” there
is naturally no relevant provisions for the protection of trade secrets, but the reasoning for not
providing trade secrets proper protection is rooted in the nature of trade secrets, trade secrets
as an intellectual are unique in the sense that they do not require registration to be effective in-
fact going for registration of trade secrets goes against the principle of trade secrets as its
involves disclosing the secrets to public knowledge. Despite of not having any dedicated
legislation, India does offer some degree of protection to trade secrets as it is a signatory to the
Agreement on Trade-Related Intellectual Property Rights (TRIPS), and under this agreement
Article 39(2) of TRIPS requires the member nation to establish laws preventing the
unauthorized disclosure and use of specific information, the ambit of specific information
mentioned under article 39(2) under the TRIPS agreement is wide enough to include
Confidential information which as a result would also include trade secrets. However in order
to receive the protection under this article specific requirement criteria have to be met, which
is that the information in question must be a secret that is to say that it is not readily available

1 Unif. Trade Secrets Act § 1 cmt., 14 U.L.A. 637–38 (1985).

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to the public and furthermore that the information is in the knowledge of only to a specific
group of individuals, it must have some kind of commercial value and lastly Reasonable steps
should have been taken by the person lawfully in control of the information to keep it secret.

These criteria were established in the Bombay High Court case of Bombay Dyeing v Mehar
Karan Singh2 there have been several attempts made to enact specific legislation for protecting
trade secrets but ultimately it has not led to creation of specific legislation partially because of
the aforementioned grounds but also because of the fact that it is very complicated and
challenging to enact a legislation related to a niche subject matter like trade secrets and
furthermore a specific legislation for trade secrets can be effectively enacted only if the
principal characteristics of trade secrets are changes or modified which would not only be time
consuming but its also going to be a very convoluted process, but such an conundrum gives
rise to another question whether the advantages of bringing in an specific legislation for trade
secrets outweigh the challenges possible challenges, there is no absolute answer for such
question however one of the more prevailing arguments against the introduction of specific
legislation for trade secrets is that the provisions under the Copyright Act 1956, Trademarks
Act 1999, Patents Act 1970, Designs Act 2000, Information Technology Act 2000,
Competition Act 2000 and Contract Act 1872 are more than capable of dealing and preventing
individuals from using or infringing the trade secrets of other organizations.

It is also important to note that due to the absence of any specific legislation related to trade
secrets when it comes to violations of trade secrets or sensitive information, common law and
equity standards are applied. Under "Objective 3.8.4" of the National Intellectual Property (IP)
Rights Policy, trade secret protection is recognized as an essential part of a strong IP system
that strikes a balance between the rights of right owners and the public interest.

While some valid arguments may be put forth against the enactment of specific legislation for
trade secrets, the absence of a precise legal framework may also lead to some challenges before
ethe organizations and lawmakers, one of these issues is the dilemma between the phrases
"trade secrets" and "confidential information" generally both of these terms are used a
substitute to each other by the public and courts, but as discussed above there is a minor but
important difference between these two phrases, trade secret cannot be compared to the

2 Dyeing v Mehar Karan Singh, 2010 (112) BomLR375

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confidential information as the former is a subset of the latter, in other words all trade secrets
are confidential but it does not mean that all confidential information are trade secrets, therefore
it is important that a proper distinction between the two phrases is established by the courts so
that there is no vagueness surrounding these two concepts.

After analyzing the intricacies and the concepts involved with trade secrets, the question arises
as to how these trade secrets can be protected with the absence of any dedicated legislation or
if trade secrets can be protected in the first place. The primary means of preventing the
unapproved acquisition and use of confidential information, which is known as
misappropriation, are precedents set by law and contracts. This protection is based on equity
principles and is interpreted more as a tort than as the application of a particular law.

There are at least two categories of cases where such unauthorized conduct can lead to legal
action: breaches of contracts by employees and the unauthorized use of confidential
information by competitors. This report will provide detailed exploration of both scenarios.
Furthermore, courts have protected trade secrets in conjunction with violations of copyright,
trademark, design, or patent laws. They have done so by applying the relevant legal
frameworks, including the Copyright Act of 1956, the Trademarks Act of 1999, the Patents
Act of 1970, the Designs Act of 2000, the Information Technology Act of 2000, the
Competition Act of 2002, and the Contract Act of 1872.

CHAPTER 3- IP VALUATION OF TRADE SECRRETS

Before analysing the process of IP valuation of and the advantages of conducting IP valuation,
it is important to discuss why IP valuation of trade secrets needs to be conducted and if they
are capable to be valued, the answer for the latter is quite simple since the guiding principle of
Trade secrets is that they have some kind of commercial value and they must not be known to
the public at large in order to constitute a trade secret it is important that it has some kind of
commercial value therefore it important that undergoes the process of IP valuation

When dealing with the question of why or if there is a need of IP valuation of trade secrets it
is pertinent to deal with the various aspects related to trade secrets and efficacy of valuation of
trade secrets. One of the aspects related to trade secrets which should be clarified is the fact
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that the secret information is not the same thing as a trade secrets and the two terms should not
be used interchangeably, the relationship between the two is the same as the trade secrets and
confidential information while there may be certain similarities between the two phrases they
are not the same thing, the major distinction between trade secret and secret information is the
fact that trade information always denotes something which has some kind of economic or
commercial value while the same does not hold true for secret information and, some
information or knowledge must be accessible in order for the trade secret to generate an
economic advantage.

In order to determine how Trade secrets as an intellectual property can be valued it is important
to determine what all aspects of trade secrets should be protects and what aspects of
confidential information and secret information can be constituted as trade secrets.

MAINTAINING SECRECY

As previously established information which is in public cannot be constituted as appropriated

as a trade secret as it goes against the fundamental principle of trade secrets, therefore in order
to secure the primary characteristic of a trade secret it is pertinent that certain appropriate steps
are taken by the owner of the trade secret in order to secure and protect secrecy. For instance,
if in a normal course of business a theft or misappropriation of the trade secrets has taken place
a rational person would normally anticipate increased security in the future and in the case of
a mufti-millionaire organisation should often have more advanced trade secret protection
procedures than a smaller business, the reasonable steps for the protection of the trade secrets
not only protect the trade secrets but helps establish the economic value of the trade secrets as
the efforts which have been taken to protect the trade secrets being disclosed help in
establishing the possible economic or commercial value the trade secret may inhibit.

The owner of the trade secret bears the responsibility of providing reasonable security. The
analyst may be able to pinpoint the precise nature of the trade secret with the aid of the security
measures that are in place. For instance, the trade secret might be worth less if the owner does
not give sufficient thought to securing the data. This "security" component is where the industry
standard of care comes into play. Therefore, when evaluating the reasonableness of the care
used to safeguard the confidentiality of what has been recognized as the trade secret asset, one
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security criteria to take into account may be the measures employed by competitors in the
business.

GREATER COMPETITIVE ADVANTAGE COMPARED TO OTHER IPS

One of the biggest reason for why an organisation would go for IP valuation of a trade secrets
is because of the fact that a trade secret provides a competitive advantage to any specific
organisation, the scope and extent of the competitive advantage is determined by analysing
the economic benefit associated with the trade secret.

Contrary to other intellectual properties the economic benefit which is derived from a trade
secret is not as direct or blatant and there also may be circumstances where the benefit from
the trade secret does not justify the cost incurred from maintaining the trade secret, however
despite of its possible drawbacks there are various benefits which come with trade secrets.
Firstly, it may be rooted in the increased revenue or profit that becomes available to the trade
secret owner. Alternatively, the economic benefit may arise from the trade secret owner's
capacity to reduce competition. This competitive advantage can manifest in two ways:

Enhanced Competitive Position: The trade secret bolsters the owner's competitive stance,
allowing them to outperform rivals, the owner of the trade secret is able to do so because he is
not obliged to share such information with any of their competitors which helps the owner
establish its monopoly, but in order for the owner to have such an advantage it is important that
the trade secret has the properties which is not only makes the services or the products provided
the owner different from its competitors but it also adds to the efficacy of the respective goods
and services so as to compel the general public to buy such products.

Competitive Disadvantage to Competitors: another reason why trade secrets are preferred
by the owners of the big organisation over intellectual properties is because the information
which is protected as trade secret is not readily available in the public domain the Competitors
without knowledge of the trade secret find their competitive position weakened, when dealing
other intellectual properties like patent while the information available in the public domain is
protected by relevant section of the patent act which allows the owner of the patent to file a
suit for infringement but it does not prevent a person from taking the existing invention using
the blueprint laid down by the owner of the patent to create something completely new which
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can possibly be even more effective than the original invention, trade secret does not provide
any such disclosure to the competitors . To achieve a comparable position, these competitors
would otherwise need to invest substantial time, effort, and resources in a trial-and-error
process, attempting to attain the same standing they would effortlessly secure with access to
the trade secret knowledge.

LOOPHOLES AND EXCEPTIONS AGASINT TRADE SECRETS

Trade secrets give their owners a significant competitive advantage, but their protection is not
absolute. If the party accused of stealing a trade secret can show that the information within
the secret was independently developed without access to or use of the owner's information,
then that party is entitled to use the information. Trade secrets are kept secret unless they are
purposefully revealed through reverse engineering or by unintentional means. Reverse
engineering is the process by which a rival starts with the final product and finds the proprietary
knowledge by using information that is already known in the industry.

Protecting the owners of such confidential information from actions taken by workers or other
parties who obtain access to it in confidence and then violate their duty of confidentiality is the
goal of trade secret protection. Employees or other parties who access the secret information
with knowledge of its confidential nature may develop a special and private relationship with
the owner of the information.

WHY GO FOR IP VALUATION OF TRADE SECRET

After analysing all the integrities and complexities associated with trade secrets it can easily
be established that trade secrets do have an economic value and that there are various individual
motivations for conducting a valuation or economic analysis of a trade secret. The various
grounds based on which an organisation may go for Ip valuation of their trade secrets have
already been discussed and they can typically be grouped into several general categories based
on the client's objectives:

1. Transaction Pricing and Structuring: owning to the nature of trade secrets it is difficult
to place an exact value on the trade secret therefore it is important to determine the value of
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the trade secret for purposes such as its sale, purchase, or licensing which can be accomplished
by the process of IP valuation.

2. Financing Securitization and Collateralization: determining the value of trade secret for
the purposes loans and other financial arrangement is equally as important as determining its
value for sale or licensing purpose but it is not important that the value of trade secret remains
the same for both of these transaction since the method for assessing the value of trade secret
for these two scenarios may also differ and in case of assessing its value for loan purposes the
value would often be lower than for what it could possibly be sold, valuation of trade secrets
for securitization and collateralization includes assessing the trade secret's value for both cash
flow-based and asset-based financing.

3. Financial Statement Reporting and Taxation Planning: Reporting the value of assets
acquired through business combinations, deducting intangible asset amortization, deducting
abandonment losses, charitable contributions, federal income taxation, gift and estate tax
compliance, and estate planning are all included in this category.

4. Management Information and Strategic Planning: the importance and value of trade
secrets have grown substantially over the past few years, while there has been companies in
the past like KFC, PEPSI and Coco Cola who have successfully maintained their trade secrets
for a number years this trend has recently gaining prominence among small businesses and
organisation as well therefore more emphasis has started being given into analysing the trade
secret's role in business value enhancement, identifying licensing and commercialization
opportunities, exploring spin-off possibilities, and addressing long-term strategic issues, so the
businesses can better prepare themselves to manage and commercialise the trade secrets to the
best of their capabilities

5. Pre-Bankruptcy and Reorganization Analysis: in the instances where the company is

undergoing the insolvency process the resolution professional which is hired by the council of
creditors carries out the duty of valuing every assets of the company so that the debt incurred
by the company could be paid, in such a scenario the resolution profession shall value the trade
secrets this could be carried by the process of IP valuation, this is crucial for situations where
bankruptcy is a possibility, as the information may need to be disclosed during the bankruptcy
process.
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6. Litigation Support and Dispute Resolution: Since there is no specific legislation dealing
with trade secrets, the process of IP valuation assumes a more importance since it greatly
facilitates in choosing the most appropriate remedy from a number of legislation which the
owner can seek at the time of infringement, this covers various legal matters, including
infringement, misappropriation, fraud, lender liability, marital dissolution, and other
deprivation-related issues, such as breach of contract and expropriation.

PROCESS OF IP VALUATION OF A TRADE SECRET

There are a plethora of reasons why any specific organisation may opt of IP valuation of their
trade secret, the question before the organisation or the team within the organisation which is
conducting IP is that what process should they adopt for the purposes of conducting IP
valuation, there are There are three widely accepted approaches for estimating the value of a
trade secret. Various factors determine what method for the valuation of the trade secret is
going to be utilised, there is no single or universal method for the valuation of the trade secrets
the process may vary based on the specific purpose for which the valuation is intended. Based
on the facts and circumstances of each individual case different valuation methods may be
employed or emphasized to different extents, depending on the intended use of the valuation

MARKET APPROACH
Market method is a common method which is utilised in the IP valuation of other intellectual
property rights, this method is not exclusive one specific intellectual property and is
comparatively basic in practice, the market valuation approach involves researching “the
market” for both sale transactions and license transactions that may be useful in estimating the
value of the subject intellectual property, in other words it is process which involves comparing
the prices for transfer of rights of similar intellectual property which helps in establishing an
average market rate for a specific class of goods and services covered by the IP and different
class of IPs.

While effective with other intellectual properties, various challenges are faced in applying the
market approach method for the IP valuation of trade secrets, the major issues which is faced
in the application of market approach with trade secrets is the fact that it becomes extremely
difficult to find an alternative of the trade secret in the market which could be used to determine
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the cost of the trade secret owned by the organisation, the only thing which could be compared
is the class of the information the trade secret deals whether it deals with any code, recipe,
process of manufacturing or packaging etc, but even then it becomes very difficult to find an
exact valuation for the trade secret. It becomes challenging to locate and analyse pricing data
associated with other trade secrets that have been exchanged in arm's-length transactions. The
application of the market approach to derive a meaningful trade secret value indication is often
complicated. The intrinsic difficulty of comparing one trade secret to another gives rise to this
complexity. Because trade secrets are distinct and have intrinsic worth that is frequently
strongly correlated with their particular qualities, straight market comparisons can be tricky.3

COST APPROACH METHOD

The more practical approach for the purpose IP valuation of trade secrets is the process of cost
approach method as it does not involve dealing with markets rates and it directly deals with the
trade secrets and the expenses incurred in producing it.

The reason the cost approach works better than the market approach is because of the
confidential nature of trade secrets, which makes it difficult to find and analyze pricing
information related to other trade secrets that have been exchanged in arm's-length transactions.
As was previously mentioned, obtaining a useful trade secret value indication using the market
approach method is very challenging and complex. The inherent difficulty of comparing one
trade secret to another gives rise to this complexity. Because trade secrets are distinct and have
intrinsic value that is frequently strongly correlated with their particular qualities, direct market
comparisons can be problematic.

The approach for the valuation of the trade secrets is further divided into various subsets on
the basis of facts and circumstances of case, These cost approach valuation methods encompass
various approaches:

1. Incremental Income Valuation Methods: These methods quantify the additional economic
income that the trade secret owner gains by possessing the trade secret, as compared to not

3 Neil Eisgruber, “Trends in Trade Secret Litigation Report 2020,” Stout, Apr. 2, 2020, at 21.
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having it. This method involves analysing the economic benefit which is gained by the
organisation during the period of use of the trade secrets and the possible losses they would
incur if they stopped using the trade secret and use the difference two evaluate the true value
of the trade secrets, this method of valuation of trade secrets is far more effective because value
of trade secrets is not directly/easily available therefore the best way to value them is through
an indirect method.

2. Decremental Cost Valuation Methods: These methods quantify the reduction in economic
costs experienced by the trade secret owner when owning the trade secret, as opposed to not
having it. This method is very much similar to the first method the only difference being that
in this case focus is cantered around the costs which are incurred in producing of goods and
services and what differences there is in the absence of the trade secrets, this method for the
most part deals with information related to the process of manufacturing or processing.

3. Hypothetical License Agreement Valuation Methods: The effectiveness of this specific

method is based on the share of the market owned by the owner of the trade secrets as these
methods estimate the royalty payment a trade secret licensee would be willing to pay to a third-
party owner for access to and rights over the trade secret, if the trade secret of the owner gives
them a significant advantage over their competitor in terms of the quality of the product and
time involved in the production of the product then in such a scenario the licensee would be
more willing to pay a higher rate of royalty, therefore such a strategy is more suited for big
organisation who have already established there position in the market.

4. Business Value Differential Valuation Methods: These techniques evaluate the variation
in the trade secret owner's business value. Two operating scenarios are compared in order to
quantify this difference:
- The subject business owns and uses the trade secret in the first scenario. - In the second
scenario, the subject business neither owns nor uses the trade secret.

5. Residual Valuation Methods: These methods estimate the trade secret's value as a residual
component of the overall business enterprise's value. In some cases, they may also estimate the
trade secret's value as a residual portion of the total intangible asset value within the business
enterprise.
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CHAPTER- 4 POSSIBLE CHALLENGES IN THE IP VALUATION OF TRADE

SECRETS

One of the most prominent challenges faced in dealing with trade secrets or IP valuation of
trade secrets is that the process of litigation which is mandatory for seeking any kind of remedy
under any law of the land it is required that some information related to the trade secrets is
disclosed to the court. In the normal course of business, certain types of information or
knowledge must be disclosed to enable a trade secret to yield economic benefits for its owner.
However, it's essential to strike a delicate balance, as excessive disclosure could potentially
expose the secret, thereby eroding the legal protections afforded to trade secrets, this balance
should also be struck in the litigation proceedings.

In order to not undermine the protection which is granted to the trade secrets and for the
purposes of providing proper protection to trade secrets, it is crucial to establish a special
relationship between the trade secret owner and specific employees or workers. The court in
the litigation process takes specific steps in order to ensure that the trade secrets are granted
proper protection and that owners of the trade secrets are not discouraged for opting for the
litigation route, the court takes measures to safeguard the confidentiality of an alleged trade
secret through various means, including:

• Granting Protective Orders during discovery proceedings.

• Conducting in-camera hearings.
• Sealing the records of the legal action.
• Imposing penalties on anyone involved in the litigation who discloses a trade secret.

One of the points of contention in a proceeding related to a trade secrets is the fact whether the
trade secret was in the public knowledge or not, the owner of the trade secret has to prove that
he took reasonable steps to ensure the confidentiality of the trade secrets and the infringing his
trade secrets acquired the trade secreted through illegal means. Preserving the confidentiality
of a trade secret valued outside the context of litigation presents considerable challenges.
Consequently, the use of confidentiality agreements has seen a notable increase as a means to
protect information that could potentially be categorized as trade secrets
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A lender's primary goal when valuing trade secrets for financing securitization and
collateralization is to determine the intellectual property's value in the event of a loan default.
Foreclosure on intellectual property is one of the lender's common remedies in the event of
default. In order to foreclose on a trade secret, the lender might have to obtain and, if required,
reveal comprehensive details regarding the intellectual property.

In the context of tax planning and compliance, financial statement reporting, and trade secret
valuation, it might not always be necessary to reveal all the details of the trade secret. However,
if comprehensive details regarding the trade secret are not available, auditors may show
skepticism. It might be necessary to reveal protected information in the case of the intrusive
bankruptcy and reorganization procedures. In situations like these, parties involved in the
bankruptcy process frequently have a natural suspicion. Protecting trade secrets during the
debtor reorganization process can be difficult.

CHAPTER 5- CONCLUSION

Trade secrets are given unique legal protection. As long as rivals are unable to replicate a trade
secret through valid, independent research, it remains protected. Agreements to maintain
confidentiality regarding information that might be deemed to be trade secrets are becoming
more and more common.
For a number of reasons, valuing or economically analyzing a trade secret is crucial. Regardless
of the particular requirement for estimating a trade secret's value, valuation analysts generally
use all three widely recognized methods to do so.

The purpose and objective of the valuation can significantly influence the choice of valuation
methods or the emphasis placed on each method. Trade secret disputes, especially in the
technology sector, have become increasingly common, driven by a convergence of economic,
legal, and regulatory factors. Through this paper by analysing various aspects related to trade
secrets and IP valuation of trade secrets it has been made abundantly clear that trade secrets
have become an important benefactor of many multi-billionaire corporation and the success
stories of these companies has led more companies to adapt such practices in their work place
environment and the number of companies incorporating trade secrets in their business
operation is gradually going to increase over the years The absence of proper legislation for
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safeguarding trade secrets in a country like India, known for its proactive approach in
recognizing and addressing intellectual property rights for individuals and corporations, is a
cause for concern.

In addressing the protection of these subjects, there isn't a singular method that companies can
rely on, and there lacks a universally recognized remedy in case of infringement. While the
availability of various remedies is not inherently a criticism, the concern lies in the absence of
a unified system. These alternatives should not serve as the primary or guiding principle;
instead, they should be considered additional remedies accessible to any party involved.

BIBLOGRAPHY

BOOK
Intellectual property valuation- A primer for identifying and determining value- Weston anson
(American bar association)

INTERNET SOURCES
Trade Secret Law- https://www.justia.com/intellectual-property/trade-secrets/
Trade secrets 2023- https://practiceguides.chambers.com/practice-guides/trade-secrets-
2023/india/trends-and-developments

JOURNAL ARTICLES
Surprising Virtues of treating trade secrets as IP right-
https://heinonline.org/HOL/LandingPage?handle=hein.journals/stflr61&div=12&id=&page=
Intellectual property valuation: how to approach the selection of an appropriate valuation
method-https://www.emerald.com/insight/content/doi/10.1108/14691931011085641/full/html
Intangible Asset & Intellectual Property Valuation: A Multidisciplinary Perspective A
Multidisciplinary Perspective- http://www.labrate.ru/discus/messages/6730/IP_Valuation-
8256.pdf
Surprising virtues of treating Trade secrets as IP rights-
https://heinonline.org/HOL/LandingPage?handle=hein.journals/stflr61&div=12&id=&page=
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