Trade Secrets 2023

Last Updated April 11, 2023

India

Law and Practice

Authors



Anand and Anand is a full-service intellectual property law firm, providing all-round IP solutions; its forte is developing new law and precision-navigation of grey areas. Its principal office is in New Delhi, with other offices in Noida, Mumbai and Chennai. The firm provides a comprehensive IP service encompassing protection, enforcement, advisory, licensing and litigation for patents, designs, trade marks, copyrights, trade secrets, domain names, geographical indications and more. Credited with lawsuits that have transformed the IP landscape in India, the firm’s litigation arm has decades of unmatched experience in dispute resolution. It has maintained a patent grant rate of over 93%, while its trade mark team recently recorded 1,800-plus successful trade mark oppositions.

The Indian legal system follows the common law system principally based on customs, precedents and legislations. India does not have a specific statute or Act to protect trade secrets. Trade secrets are protected through a series of precedents and legislations concerning various laws such as: 

  • the Patents Act of 1970; 
  • the Trademarks Act of 1999;
  • the Copyright Act of 1957; 
  • the Designs Act of 2000;
  • the Geographical Indications of Goods (Registration and Protection) Act of 1999;
  • the Plant Variety Protection and Farmers’ Rights Act of 2001;
  • the Biodiversity Act of 2002;
  • the Semiconductor Integrated Circuits Layout Designs Act of 2000;
  • the Information Technology Act of 2000; 
  • the Indian Contract Act, 1872;
  • the Competition Act, 2002; and
  • the Indian Penal Code, 1860.

As a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPS Agreement”), India is obliged under Article 39 to protect “undisclosed information”. Further, as Article 10bis of the Paris Convention and Article 39(2) to 39(3) of the TRIPS Agreement allow member states to have sui generis mechanisms, Indian courts have taken advantage of common law principles to protect such undisclosed information. 

The National IPR Policy, 2006 states at Objective 3.8.4 that protection of trade secrets is pivotal for strong and effective IP laws to balance the interests of rights owners with the larger public interest. 

Trade secrets have been protected through various means such as the constitution of “confidentiality clubs”, non-disclosure agreements and other contractual obligations. In the case of breach of such contractual agreement, the owner of trade secrets can bring an action for specific performance and the tort of misappropriation under common law, criminal breach of trust, theft, damages, etc, and therefore trade secrets have been given the status of an equitable right. 

Whether certain information qualifies as a trade secret depends on the facts of each case. For information to be given protection as a trade secret, it should be confidential in nature and should not be in the public domain.

Definitions in Case Law

To protect certain information as confidential, the following conditions should be met, as held in Beyond Dreams Entertainment v Zee Entertainment Enterprises (2016) 5 Bom CR 266: 

  • the information must be confidential;
  • it must have been disclosed in circumstances from which an obligation of confidentiality arises; and
  • the confidant should be attempting to use or disclose the information.

Black’s Law Dictionary (8th Edition) defines trade secrets as “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: (i) that 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) that is the subject of reasonable efforts, under the circumstances, to maintain its secrecy”. 

The above definition was relied on by the Calcutta High Court in Tata Motors v State of WB; W.P. No 1773 of 2008.

In Burlington Home Shopping v Rajnish Chibber; 1995 PTC (15) 278, the Delhi High Court held that a trade secret is information that would cause real or significant harm to the owner if disclosed to a competitor. This was also upheld in Linde v Kerr (1991) 1 All E.R.418. Therefore, trade secrets not only include secret formulas of product manufacturing but also, in appropriate cases, the names of customers and the goods that they buy.

In Seager v Copydex (1967) 1 WLR 923, the court noted that “the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public”.

In LifeCell International v Vinay Katrela; 2020 SCC OnLine Mad 15343, the Supreme Court referred to the decision in Hi-Tech Systems v Suprabhat Ray; (2015 SCC OnLine Cal 1192), to hold that whether certain information is confidential is dependent on several factors. In Saltman Engineering v Campbell Engineering reported at (1963) 3 All ER 413, the Court of Appeal held that the confidential information: “must not be something which is public property and public knowledge”. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan or a sketch, which is the result of work done by the maker on materials which may be available for the use of anybody; what makes it confidential is the fact that the maker of the document has used their brain and thus produced a result which can only be produced by somebody who goes through the same process. 

A trade secret or a business secret may relate to a financial arrangement and/or the customer list of a trader – such information would be potentially damaging if a competitor obtained and utilised it to the detriment of the giver of the information. Business information such as cost and pricing, projected capital investments, inventory marketing strategies and customers list may qualify as trade secrets. 

In Navigators Logistics v Kashif Qureshi; 2018 SCC OnLine Del 11321, the court – referring to Star India v Laxmiraj Seetharam, 2003 SCC OnLine Bom 27 – held that anyone in any employment for a period of time would know certain facts and information without any special effort; such persons cannot be said to know trade secrets or confidential information, and such facts cannot be labelled as trade secrets. 

Ambiance India v Naveen Jain; 2005 SCC OnLine Del 367, stated that written day-to-day affairs of employment which are commonly known cannot be called trade secrets. It was further held that in the course of business, employees discharging their duties come across many matters, not all of which are trade secrets or confidential matters, the divulgence of which may be injurious to the employer; also, if an employee in the course of their employment has learnt some business acumen or ways of dealing with clients, the same do not constitute trade secrets or confidential information.

The Bombay High Court in Bombay Dyeing v Mehar Karan Singh; 2010 (112) BomLR375, held that for information to be classified as a trade secret, the following factors may be considered:

  • the extent to which the information is known outside the business;
  • the extent to which it is known to those inside the business (ie, by employees);
  • the precautions taken by the holder of the trade secret to guard the secrecy;
  • the savings affected and the value to the holder in having the information as against competitors;
  • the amount of effort or money expended in obtaining and developing the information; and
  • the amount of time and expense it would take others to acquire and duplicate the information.

See 1.2 What Is Protectable as a Trade Secret.

There is no codified law in India defining the elements of trade secret protection. The Bombay Dyeing case identifies the elements essential for information to be classified as a trade secret, as detailed in 1.2 What Is Protectable as a Trade Secret

Various case laws have unanimously established that the quality of confidentiality makes the information eligible for legal protection as a trade secret. It is very important for the owners of confidential information to show that reasonable efforts were expended by them to maintain secrecy. If such efforts cannot be proved, the owners risk losing the quality of confidence, even if such information is obtained by third parties without permission. 

An important element for confidential information to be categorised as a trade secret is an obligation on any other person who receives the same to maintain its secrecy if they have received it with the knowledge of obligation of confidence.

It is important for the owner of a trade secret to show that they took reasonable measures to maintain secrecy regarding such information. Trade secrets are protected in India either under contract law or through the equitable doctrine of breach of confidentiality. They are protected by way of restrictive covenants, non-disclosure agreements and other contractual means. In Navigators Logistics v Kashif Qureshi; CS(COMM) 735/2016, the Delhi High Court rejected the claimant’s claim/complaint as it did not clearly identity what was the trade secret in issue, the secrecy about such data and what steps – apart from the secrecy clauses under the appointment letters with the defendants – the plaintiff took to maintain secrecy/confidentiality.   

Trade secrets can also be protected by an action against misappropriation under common law, wherein misappropriation of trade secrets may occur by way of breach of an obligation of confidence, whether arising implicitly or expressly, as well as theft.

The parameters for determining whether the right-owner of a trade secret has taken reasonable measures for protection of their trade secret varies from case to case. While there is no definitive formula, below are few illustrative measures a right-holder can adopt. 

It is reasonable for owners of trade secrets to insert clauses in a technology transfer or other licence agreement stating that the technology transferred is of a confidential nature and the licensee is obliged to maintain confidentiality, during the pendency as well as after its termination. 

Moreover, the owner may mandate the licensee to enter into appropriate secrecy agreements with their employees, sub-contractors and visitors to their factory to maintain due secrecy. Owners of the trade secrets may even insert a cautionary notice on all technical manuals clearly stating that the information contained therein is of a proprietary and confidential nature. 

However, an ex-employee cannot be prohibited from divulging or using their skill set for a competitor of the owner of a trade secret. The High Court of Delhi in the Ambiance India case held that day-to-day employment affairs that are in the knowledge of many cannot be called trade secrets.

Disclosure of a trade secret to employees does not mean the information has lost confidentiality. The presence of a non-disclosure agreement with employees is not a mandatory requirement for protecting the owner’s rights in a trade secret; it is judged from the facts and circumstances of each case. 

Irrespective of contract, trade secrets are protected against misuse by the employees or ex-employees, contractors or sub-contractors, licensees or ex-licensees. The Konrad Wiedemann case states that trade secrets are protected against misuse by any party who may have a relation with the claimant, irrespective of contract, based on the broad principles of equity. 

The High Court of Calcutta in Hi-Tech Systems v Suprabhat Ray (see 1.2 What is Protectable as a Trade Secret), held that a principal – in order to protect the utilisation of a trade secret and to prevent damage, if it cannot be compensated in money – can seek for restrictions on their agents. In such a situation, equity would step in and prevent any damage being caused to the business of the principal. 

Nonetheless, it is expected of the owner of such trade secret or a licensee to take all reasonable measures to maintain secrecy and ensure that such confidential information was imparted to their employees in circumstances importing an obligation of confidence on them. 

If a discovery can be proved independent, then the existence of a previously existing trade secret having some connection with such discovery will be inconsequential. Needless to say, if the claimant shows mala fides on part of the defendant and proves that the defendant had access to the claimant’s trade secret and therefore the discovery, rather than being independent, is a product of reverse engineering, then the court will not accept the respondent’s claims and may hold the respondent guilty of misappropriating the claimant’s trade secret.

Such a process will have to stand the test of trial, and the courts will see whether the means adopted by the defendant were bona fide and honest or not. Firstly, the court will examine whether the results of such bona fide independent discovery or reverse engineering have resulted in something worthy of being recognised as a trade secret. If yes, then the plaintiff’s claim for injunction may not survive, owing to dilution of the trade secret. 

Furthermore, where it is found that the means adopted by the defendant to discover the trade secret were not independent and rather fraudulent, the court will not allow the use of the same by the defendant. The courts in John Richard v Chemical Process Equipments, AIR 1987 Delhi 372 and the Konrad Wiedemann cases have held that trade secrets are protected against misuse by any party who may have a relation with the claimant, irrespective of contract, based on the broad principles of equity. 

Computer software is eligible for the following IP protection.

  • Section 13 of the Copyright Act, 1957 states that copyright subsists in various works, including literary works, and that a computer program is a literary work. Reference may be made to the Supreme Court’s order in TCS v State of AP, Appeal(C) No 2582 of 1998.       
  • Patents can be registered in regard to a computer program only if it is attached to a physical device. Standalone computer programs are not entitled to patent protection (order of the IPAB in Ferid Allani v Assistant Controller of Patents, OA/17/2020/PT/DEL). 
  • Trade secrets are also protected through contracts and NDAs. 
  • The claimant may also approach the concerned court or police for necessary protection.

Trade secret protection lasts as long as secrecy is maintained. Once the confidential information comes into the public domain, it ceases to be a trade secret.

If the disclosure of confidential information is made to employees or agents under contractual obligation to maintain secrecy, they are duty-bound to ensure that secrecy is maintained. 

Controlled disclosure will depend on the terms and circumstances under which the disclosure was made. It will depend on what control the claimant exercises while making disclosure, how much information was given/retained and the understanding of the parties in regard to such information. 

In the event of accidental disclosure, it loses the attribute of secrecy and ceases to be a trade secret.

A right-owner of such confidential information can approach the courts in India for prohibitive reliefs against persons who acquire such information without authorisation. The courts will only pass prohibitive orders if it is shown that the defendant has obtained the confidential information fraudulently.

General principles of contract law in India govern the licensing rights of an owner of a trade secret, who may license them to any party on any agreed-upon terms, subject to the condition that the agreement should not be contrary to the law of the land. As per Section 10 of the Indian Contract Act, all agreements are contracts if they are made with the free consent of parties competent to contract, for a lawful consideration and with a lawful object.

To exercise caution, the owner may enter into an NDA with the licensee to ensure the latter is under a contractual obligation to maintain secrecy in regard to such trade secrets which have been licensed to them in confidence; such NDAs may be built into the licence agreement to make it watertight.

The main objective is to ensure that trade secrets are handed over to the licensee under circumstances implying trust or confidence in their non-disclosure or unauthorised use.   

Firstly, IP rights in India are protected under various codified statutes or Acts (see 1.1 Sources of Legal Protection for Trade Secrets). Trade secrets, on the other hand, are not protected through a codified statute but through contract law or equitable doctrine of breach of confidentiality. 

Secondly, IP rights have a specified term of protection as per the following statutes.

  • Section 23 of the Copyright Act: the term of copyright for work published anonymously is 60 years from the beginning of the calendar year following the year in which the work is first published. In the case of a work concerning a disclosed author, the period is 60 years from the death of the author. 
  • Section 53 of the Patents Act: the term of every patent granted is 20 years from the date of filing of the application for the patent. 
  • Section 25 of the Trade Marks Act: the registration of a trade mark is valid for a period of ten years and thereafter it may be renewed from time to time.
  • Section 11 of the Designs Act: a design registration is valid for ten years and may be extended for another five years.

However, in regard to a trade secret, the rights of its owner persist as long as secrecy is maintained.

Thirdly, while the owner of an IP can apply for registration of their title with the government authority concerned, the same is not available for trade secrets.

Finally, the costs associated with maintaining secrecy and protection of a trade secret can be much higher in certain cases, as compared to IP rights which are registerable. 

Trade secrets and IP rights are two different aspects, even though their genesis may be the same. 

The rights accrue to an owner of a trade secret, either by virtue of a contract or in accordance with the principles of equitable reliefs under the common law; it remains a trade secret until such time as the relevant conditions are fulfilled and it is no longer in the public domain.

However, upon registration of an IP right, such as a patent or design right which is registered with the government authority, the owner has a monopolistic right to the exclusion of others in rem for a certain time period, after which any person can use the technology.

It is possible to bring a claim for breach of fiduciary duty against an employee who steals a trade secret and against a defendant for tortious interference where it has induced an employee to breach a contractual confidentiality obligation to the owner/employer. 

As previously mentioned, trade secrets in India are protected by virtue of contractual obligations which are regulated by the Indian Contract Act, 1872. Therefore, if there is a specific agreement with the employee to maintain confidentiality of any information given in the course of business, which renders exclusivity to their employer’s business, such an employee can be injuncted by the court from disclosing such confidential information to a third party without the express consent of their employer. 

A right-holder in a trade secret can also bring an action against the defendant for tortious interference where it has induced an employee to breach a contractual confidentiality obligation to the employer. 

For claims founded on unlawful interference with the business of the claimant, or of enticement to breach of contract, it is important to show that there was a clear violation or wrongful gain that has been caused to the employee and wrongful loss caused to the employer. It should also be shown that there was some trade secret or confidential information that was taken by the employee without authorisation. However, where it is impossible to identify the reasons behind the breach of the existing contract by the employee and the reason for the employee joining a new employer, the court has opined that the claim cannot be enforced (Modicare Limited v Gautam Bali CS (Comm) 763/2016).

There is no specific offence recognising trade secret misappropriation under Indian law. Offence of criminal breach of trust, theft or cheating may apply, as per the facts of a particular case. For a detailed analysis, see 9.1 Prosecution Process, Penalties and Defences

The owner of a trade secret may simultaneously initiate civil and criminal proceedings against misuse of their trade secrets. A civil action can lead to damages (see 7.2 Measures of Damages) and injunctive reliefs (see 7.3 Permanent Injunction and 7.5 Costs).

A civil dispute concerning a trade secret claim can be brought before any civil court in India where the defendant resides, carries on business or personally works for gain or where the cause of action wholly or partly arose.

If the person who indulged in misappropriation that occurred in another country is located in India, or if a part of the cause of action arose in India, the Indian civil court concerned will have jurisdiction to entertain a claim for injunctive reliefs, damages, costs, etc. 

Furthermore, if a trade secret’s misappropriation is carried out outside India by a person located in India, or through a computer system located in India, a criminal action can also be simultaneously filed against the wrongdoer by the claimant in India; see 9.1 Prosecution Process, Penalties and Defences.

The courts in India have passed a series of judgments identifying the essential elements to be established by the right-holder to prove trade secret misappropriation. 

Section 403 of the Indian Penal Code states that a person who dishonestly misappropriates or converts the movable property of another for their own use shall be punished with imprisonment for a term which may extend to two years and/or a fine. 

The Bombay High Court in Beyond Dreams v Zee Entertainment; (2016) 5 Bom CR 266, held that in order to establish a trade secret misappropriation, the owner of the rights-holder must prove the following: 

  • the information was a secret and not known generally, or not readily accessible to persons who deal with such information;
  • the individual or owner of such information took reasonable steps to ensure and maintain its secrecy, and the information was imparted in circumstances importing an obligation of confidence; and 
  • there has been unauthorised use of that information to the detriment of the party communicating it, or there was a threat to use it. 

Section 101 of the Indian Evidence Act states that the onus to prove a claim is on the person who makes it. Hence, the burden of proving trade secret misappropriation is on the person alleging the same. 

It is not mandatory for an owner of a trade secret to prove that their confidential information has been misused by the defendant. The very fact that the defendant misappropriated the trade secret of the claimant suggests that the intention was not just to steal the trade secret but to make some unlawful gain out of it, which gives rise to credible apprehension of future misuse by the defendant entitling the claimant to take legal recourse.     

In a civil proceeding, the right-owner of a trade secret is merely required to show that the defendant has, without authorisation, accessed their trade secrets, because a prohibitory order of injunction by a civil court can be passed against the defendant, even in the absence of malice. 

The trade secret law in India does not differentiate between an employee or a third party. The essence of the law vests in the obligation to maintain secrecy in such confidential information which is not available in the public domain and which ought not be used without a licence from the right-holder. 

In the case of an employee, the terms of employment may include a non-disclosure covenant, prohibiting them from disclosing confidential information they were privy to during the course of employment.

Such a contractual obligation may not be present between the right-owner and an independent third party. However, even then, such a third party will be prohibited by courts in India from misappropriating such a trade secret. 

In Zee Telefilms v Sundial Communications; (2003) 5 Bom CR 404, the Bombay High Court held that the obligation of confidence does not only apply to the original recipient, but also to any other person who receives such information with the knowledge of obligation of confidence. 

The courts will have to see that the information sought to be protected was not available in the public domain and that it was communicated to the employee or the third party with a clear obligation to maintain secrecy, which they violated. 

Facts and information which an employee would know without any special effort cannot be termed as trade secrets, and a court may not entertain a claim to injunct the employee from using such information (Star India case – see 1.2 What Is Protectable as a Trade Secret).

No codified law recognises the existence of any obligation between joint ventures with respect to trade secrets. The parties can determine such rights and obligations concerning exchange of trade secrets. Such agreements are governed by the Indian Contract Act.   

Irrespective of the relationship between parties with respect to sharing or use of confidential information, in case of a dispute, courts are guided by principles of equity, that a person who has received information in confidence may not take unfair advantage of it.

As industrial espionage includes misappropriation of trade secrets, theft, cheating, etc, civil and criminal claims can be made by the claimant. 

Detailed analyses of civil claims are covered in 7.2 Measures of Damages, 7.3 Permanent Injunction and 7.5 Costs. Criminal claims have been set out in 9.1 Prosecution Process, Penalties and Defences

In transactions involving trade secrets, the owner of such information can take the following steps to ensure their interests are safeguarded:

  • inform the recipient that the information is confidential in nature and that the giver has all proprietary rights to the said information; 
  • expressly inform that confidentiality of information should be maintained at all times and that it should not be divulged to any third party without the consent of the giver; and
  • clearly inform that in case the information is leaked, significant prejudice and harm will be caused to the giver.

Furthermore, in cases where confidential information is involved, parties can form a confidentiality club by making a request to the court that confidential documents should only be accessible to members who are part of the club and such members should undertake not to disclose or misuse such documents or information. The concept of a confidentiality club has been discussed and upheld in various cases, for example Pfizer v Unimark Remedies, Order dated 04.05.2016 in Miscellaneous Petition (L) No 56 of 2016. 

The Delhi High Court (Original Side) Rules, 2018 introduced a rule on “confidentiality clubs” under Chapter VII Rule 17. 

The manner of conducting exit interviews will vary across industries and also across hierarchies. However, the highlights would be as follows.

  • The departing employee shall not part with the confidential information they may have received during their employment.
  • The departing employee ought not to have in their power or possession any company property that may be tangible or intangible.
  • The departing employee may be required to sign a non-compete agreement by virtue of which they would agree to not engage in a competing business themselves, or join any other person who engages in such a competing business. 
  • The court in Krishan Murugai v Superintendence Co, AIR 1979 Delhi 232 held that injunction can operate post termination of employment only if it is confined to the divulgence of trade secrets. There can be no restriction on the employee not to join a competitor post termination. However, a negative covenant operating against the employee during the period of service was held to be legal. 

Indian law on trade secrets clearly differentiates between the trade secret of an employer and the general knowledge and skill set that the employee acquires during employment. As upheld in the Star India case, employees who have been working for an employer would know certain facts and information without any special effort, and these cannot be termed trade secrets of the employer; a court may not entertain an employer’s claim to injunct the employee from using said facts and information. 

In the Bombay Dyeing v Mehar Karan case, the court relied on the judgments of the United States Court of Appeals, Tenth Circuit in Rivendell Forest v Georgia Pacific 31 USPQ 2d1472 and Kodekay Electronics v Mechanex Corporation 486 F. 2d 449 (10th Circuit, 1973) to hold that something which is known outside the business or to those inside the business (ie, the employees) and which (i) no steps have been taken to guard, and (ii) no effort or money has been extended in developing, cannot be a trade secret. 

Therefore, while an employer cannot restrain an ex-employee from joining a competing business or starting a competing business, it can certainly prohibit the ex-employee from disclosing exclusively imparted information which is not part of public knowledge and which, if divulged, will lead to adverse consequences for the former employer. 

The doctrine of inevitable disclosure is not recognised in India. However, if the employee unintentionally discloses a trade secret of their former employer to their current employer, the former employer may be able to bring a claim for damages and injunctive relief against the ex-employee and their current employer. See 2.2 Employee Relationships.

The practices followed by companies while hiring employees from competitors vary. The following precautions may be taken to reduce the chances of being subjected to a trade secret misappropriation claim:

  • obtain a written undertaking from the employee confirming that they have not retained any trade secret of their previous employer;
  • obtain a written declaration from the employee clearly stating that the current employer did not seek any trade secret of the previous employer from their employee; and
  • obtain a written undertaking whereby the employee indemnifies the current employer from any harm resulting from any act or omission of the employee in regard to any confidential information pertaining to the previous employer.

The procedure is as follows:

  • the defendant(s) need to be identified; 
  • the right-holder should collect all relevant documents such as contracts, correspondence with the defendant, etc, to show that the information in question can be considered a “trade secret”; 
  • evidence to show violation or misappropriation by the defendant needs to be tendered; 
  • one also has the option of filing a case against an unknown defendant (ie, a John Doe) and subsequently adding a party once their identity is ascertained through discovery;
  • if documents in support of the plaintiff’s case are to be taken from various other parties, appropriate requests seeking interrogatories need to be filed; 
  • if the details are to be taken from intermediaries such as domain registrars or banks, they can be made proforma defendant to the suit; and 
  • the right-holder should have an authorised representative in India to sign and file papers on their behalf – such an authorisation can be made by way of a simple power of attorney. 

A claim against a defendant would accrue on knowledge of the said wrongdoing by the plaintiff. 

The limitation in a straightforward civil case involving a trade secret is three years from the date on which the cause of action arose; the limitation for suits on tortious claims is one year. 

In certain cases, the claimant can show that the cause of action is recurring. In Bengal Waterproof v Bombay Waterproof; 1997 (17) PTC 98 (SC), the Supreme Court upheld the concept of recurring cause of action in relation to a trade mark dispute and held that each time a defendant deals in an infringing product bearing the plaintiff’s mark, they commit a recurring act of breach giving a recurring and fresh cause of action at each transaction entered by the defendant. 

See 5.1 Prerequisites to Filing a Lawsuit.

As per Section 20 of the Code of Civil Procedure (CPC), a civil dispute concerning a trade secret claim can be brought before any civil court in India where the defendant resides, carries on business or personally works for gain or where the cause of action wholly or partly arose. 

The matters involving trade secrets would fall under the definition of “commercial dispute” under Section 2(c) of the Commercial Courts Act, 2015. The timelines before the commercial courts must be followed by the book for expeditious disposal of the commercial suit. If the timeline is strictly followed, a commercial suit can be wrapped up as per the following timelines.

Filing of suit: 

  • 30 days – plaintiff’s additional documents;
  • 120 days – written statement and reply by defendant;
  • 60 days – inspection;
  • 15 days – admission denial;
  • 30 days – case management hearing:
    1. issues are framed;
    2. list of witnesses to be filed;
    3. fixing schedule for simultaneous filing of evidence;
    4. fixing schedule for trial;
    5. fixing schedule to file written note of arguments;
    6. fixing date for final arguments;
    7. fixing schedule for final arguments;
  • 180 days – closing of arguments; and
  • 90 days – judgment.

A criminal case concerning theft of trade secrets may also have the ingredients of criminal breach of trust, cheating, causing wrongful gain/wrongful loss; using IT resources for cheating can be filed before the police or the magistrate within whose jurisdiction the alleged illegal act wholly or partly took place or where the accused person is located. 

The following are the main ingredients of a trade secret claim:

  • who is the claimant?
  • claimant’s ownership of the confidential information;
  • evidence to show that the information is confidential/a trade secret;
  • who is the defendant?
  • evidence of misappropriation; and 
  • evidence of damage costs.

In a civil action, Order VI Rule 2 stipulates that every pleading must contain a concise statement of the material facts on which the party relies for their claim or defence. The evidence can be attached separately. 

Also, a civil action may be filed based on information and belief supported by an affidavit. However, post-initiation of the proceeding and discovery, if no evidence is gathered in support of the plaintiff’s claim, then the suit may be dismissed for want of cause of action against the defendants. The Supreme Court in Church of Christ v Ponniamman; AIR 2012 SC 3912, held that cause of action is a bundle of facts which, taken with the law applicable to them, gives the plaintiff the right to relief against the defendant. Every fact which is necessary for the plaintiff to prove the claims made by them against the defendant and to enable the plaintiff to obtain a final decree should be set out in clear terms.        

Even in a criminal action involving a trade secret, the complaint should be focused and to the point, containing the basic facts leading to the dispute and not provisions of law, precedents, etc. 

Finally, the standard of proof in a civil case is preponderance of probability, while in a criminal case it is beyond reasonable doubt. 

Under Order 26, a civil court has the power to appoint commissioners to:

  • seize and take into custody incriminating evidence and material; 
  • inspect/investigate;
  • examine accounts; and
  • conduct a scientific investigation, etc.

In a criminal case, summons to produce, search and seize are allowed as per Sections 91, 93, 94 of the Code of Criminal Procedure. 

While applying for the above seizure orders against the accused/respondent at an ex parte stage, the court must be convinced of the following:

  • there is high likelihood of the opposite side destroying/fudging evidence if notice is given;
  • the evidence collected through such seizure is to be secured for adjudicating dispute between the parties; and 
  • the subject matter of the dispute is preserved and not destroyed or tempered.

The powers of a civil court in this regard have been contemplated in Order 26 and Order 39 of the Code of Civil Procedure.

Evidence can be collected as follows.

  • Under Order XI Rule 2 of the CPC, 1908, a party can seek interrogatories. If certain important evidence or fact is not produced before the court, the party concerned is obliged to produce the same.
  • Under Order 26, the court has the power to appoint commissioners to:
    1. seize and take into custody incriminating evidence and material that may be found in their power and possession;
    2. inspect/investigate;
    3. examine accounts; and
    4. undertake scientific investigations, etc.
  • As per the Commercial Courts Act, 2015 both the claimants and the respondents must give an undertaking that all documents in their power, possession, control or custody pertaining to the facts and circumstances of the case have been placed on record and that they have not made any false statement or concealed any material fact or document or record and have included all information that is relevant for the purposes of adjudication of the case. If a party gives a false undertaking, it would commit perjury and invite penal consequences.

See 3.1 Best Practices for Safeguarding Trade Secrets.

The available defences are given in 9.1 Prosecution Process, Penalties and Defences.

In India, the following options are available to narrow down or eliminate a claim, completely or partially. 

Where a baseless trade secret suit is filed, the respondent can file under Order VII Rule 11 of the CPC seeking dismissal of the complaint on grounds such as non-disclosure of any cause of action, etc.

Also, as per Order VI Rule 7, the court may at any stage of the proceeding strike out or amend any pleading which may be unnecessary, scandalous, frivolous, vexatious or which may tend to prejudice, embarrass or delay the fair trial or cause abuse of the process of law/court. 

Sometimes the court exercises its power and frames the main issues to be proved through trial, thereby ensuring the matter reaches a logical conclusion (see Order XIV Rule 1). 

The approximate cost for a trade secret litigation (civil commercial suit) before the Delhi High Court from start to finish would be based on various factors such as: 

  • court fee;
  • lawyer’s fee;
  • fee of local commissioners, independent expert witnesses; and 
  • photocopying, travel expenses, mail/courier and such ancillary expenses. 

There is no specific law that bars third-party funding of litigation in India. One of the earliest cases in this regard was a judgment passed in 1876 by the Privy Council in Ram Coomar v Chunder Canto; High Court of Judicature at Fort William in Bengal, where the court held that there is no law which declares it illegal for one party to receive and for another to give funds for the purposes of carrying on a suit, however, such agreements should not be contrary to public policy. 

The Supreme Court of India in the case of BCI v AK Balaji; AIR 2018 SC 1382, held that advocates in India cannot fund litigation on behalf of their clients. However, there appears to be no restriction on third parties (non-lawyers) funding the litigation. 

In Rangadurai v Gopalan; 1979 AIR 281, the court held that the relationship between a lawyer and their client is highly fiduciary in nature, requiring a high degree of fidelity and good faith. 

Further, various provisions of the Bar Council of India Rules state as follows.

  • Rule 9: an advocate should not act or plead in any matter in which they have pecuniary interest.
  • Rule 18: an advocate shall not be a party to fomenting of litigation.
  • Rule 20: an advocate shall not stipulate a fee contingent on the results of litigation or agree to share the proceeds thereof. 
  • Rule 21: an advocate shall not buy or traffic in or stipulate for or agree to receive any share or interest in any actionable claim. Nothing in this rule shall apply to stock, shares and debentures of government securities, or to any instruments which are, for the time being, by law or custom, negotiable or to any mercantile document of title to goods.
  • Rule 22: an advocate shall not, directly or indirectly, bid for or purchase, either in their own name or in any other name, for their own benefit or for the benefit of any other person, any property sold in the execution of a decree or order in any suit, appeal or other proceeding in which they were in any way professionally engaged. 
  • Rule 22A: an advocate shall not directly or indirectly bid in court auction or acquire by way of sale, gift, exchange or any other mode of transfer either in their own name or in any other name for their own benefit or for the benefit of any other person any property which is the subject matter of any suit appeal or other proceedings in which they are in any way professionally engaged.

Section 49(1)(c) of the Advocates Act, 1961 categorically states the standard of professional conduct and etiquette to be observed by advocates. Non-compliance can invite disciplinary proceedings and even debarment from practising law.

India does not have a jury system. Cases are decided by judges who are the presiding officers.

A trade secret case does not have a special trial process – it is governed by the law pertaining to civil commercial lawsuits. The trial process can be briefly summed up as follows:

  • it commences with the court framing the main issues; 
  • thereafter, the plaintiff is directed to file evidence by way of affidavit of its witnesses, followed by cross-examination of the plaintiff’s witnesses by the defendant’s advocate;
  • the defendant then files the affidavits of its witnesses, who will be cross-examined by the plaintiff’s advocate;
  • once the cross-examination of the witnesses of both parties concludes, the matter is listed for final arguments; and
  • after hearing the final arguments, the court passes the final judgment. 

Expert witnesses appear before Indian Courts on a regular basis.

The first kind of expert witness is a private expert witness who appears on behalf of a private party (ie, plaintiff/defendant). For example, in cases involving pharmaceutical or telecommunications patent issues, parties file the evidence affidavit of an independent expert witness, who is someone of stature such as the dean of a university. Their testimony (ie, evidence affidavit) is prepared in the same way as for other witnesses. An expert witness of one party will be cross-examined by the advocate of the other party and vice versa. Independent experts charge a fee depending on their expertise, experience and stature. 

Under Section 45 of the Indian Evidence Act, when a court/judge is confronted with an issue which needs expert advice and opinion for resolution, that issue can be referred to a specific expert (eg, handwriting expert, fingerprint expert, foreign law expert). 

As opined by courts in India and the Supreme Court in Kashi Math v Sudhindra; AIR 2010 SC 296, it is well settled that in order to obtain a preliminary injunctive relief, the party who seeks the granting of such an order has to prove that they have made a prima facie case for trial, the balance of convenience is in their favour and they will suffer irreparable loss if injunction is not granted. 

The purpose of passing an injunctive relief is to ensure that evidence is not destroyed and further damage to the plaintiff is stopped.

Usually, when the court passes a preliminary injunctive relief, it is valid until such time as the matter is finally argued or until the court vacates or modifies it. Also, if the injunctive relief is contingent on certain other facts, it can vary accordingly.   

In a straightforward civil case involving trade secrets and confidentiality, under normal circumstances, there is no need for the claimant to post a bond. 

In a trade secret case, one can claim the following damages:

  • actual/compensatory – based on actual loss caused to the plaintiff and actual profits made by defendants as a result of misappropriation; 
  • punitive/exemplary – to set an example for other wrongdoers; and
  • aggravated damages – on account of the extreme mala fide actions of the defendants, especially when actual/compensatory damages are disproportionately small in comparison to the actual amount recoverable by the plaintiffs.

The principles governing proof of actual damages, aggravated damages, and punitive damages in IP disputes are enshrined in the decision of Hindustan Unilever v Reckitt Benckiser, 2014 (57) PTC 495 (Del) (DB). These principles were further upheld in Koninlijke Philips v Amazestore CS (COMM) 737 of 2016. The court also noted that the damages should be granted based on the degree of mala fide conduct. 

A permanent injunction will be granted if a claimant is successful in their civil action. 

If it is practically possible for the defendant to recall a product, then the court may pass an order directing recall. Normally, there is no limitation on the duration of a permanent injunction and the defendant is injuncted for all time to come.

It is not possible to limit an employee’s subsequent employment in normal cases. The courts in the Ambiance India case and Krishna Murgai v Superintendence Co; AIR 1979 Del. 232, held that an employee, particularly after the cessation of their relationship with their employer, is free to pursue their own business or seek employment with someone else. However, during the subsistence of their employment, they may be compelled not to engage in any other work or not to divulge the business/trade secrets of their employer to others, especially competitors. In such a case, a restraint order may be passed against an employee because Section 27 of the Indian Contract Act is no bar in such a situation. 

However, the routine day-to-day affairs of an employer which are commonly known to others cannot be called trade secrets. A trade secret can be formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.

Nonetheless, the courts in John Richard v Chemical Process Equipments and Konrad Wiedemann v Standard Castings held that trade secrets are protected against misuse by any party who may have a relation with the claimant, irrespective of contract, based on the broad principles of equity that a person who has received information in confidence may not take unfair advantage of it.

If the claimant is successful in their suit, then they may claim litigation costs, including any attorney’s fee, and not just damages. 

Once the court concludes that the claimant is entitled to costs, it may ask the claimant to file a detailed memo of costs and may then pass an order directing the defendant to pay such costs. 

The costs can include the court fee, attorney’s fee, fee of expert witness/investigator, travel expenses, fee of court commissioners, photocopying/postal expenses, etc. 

In the event of the respondent proving that the claimant’s case is without any merit and was filed to harass the former, the court may grant costs to the respondent for harassment and injury suffered. 

Section 35 of the Code of Civil Procedure gives courts the discretion to impose costs. Section 35A speaks of compensatory costs in respect of false, vexatious claims or defences. 

In the event the trade secret case is filed before the Delhi High Court, the suit will be listed and heard by a single judge. An appeal from the order can be filed before the appellate division comprising two judges (division bench). If any party is not satisfied with the order of the division bench, an appeal will lie before the Supreme Court of India.

The time period for filing an appeal as per Section 13 of the Commercial Courts Act, 2015 is 60 days. Section 14 of the Act mentions that the appellate court shall endeavour to dispose of appeals within a period of six months from the date of filing. Further, an appeal before the Supreme Court will be by way of a Special Leave Petition. As per Section 133(C) of the Schedule to the Limitation Act, 1963, the limitation for appeal is 90 days from the date of judgment or order. 

It is also possible to appeal from interim orders.   

The appellate courts in India are the Supreme Court and the various high courts (25 in total). 

As a rule, appellate courts in India deal only with points of law. However, in certain cases where a question of fact was argued before the trial court but was still not considered by the judge, the appellate court can consider the said fact.

The Supreme Court of India in Wander v Antox; 1990 Supp (1) SCC 727, held that the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, capriciously or perversely, or where the court ignored the settled principles of law. The appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by the first court was reasonably possible given the material.   

Under Indian law, review of an order is usually sought before the same judge who passed the order, and a petition seeking review of an order is allowed only if any of the following factors are proved:

  • the order had an apparent error; and/or
  • there has been discovery of a new and important matter or evidence, which, despite the exercise of due diligence, was not within the knowledge of the party seeking review and could not be presented before the court when the order was passed. 

The Supreme Court of India while exercising its review jurisdiction in Northern India v Governor of Delhi; AIR 1980 SC 674, held that a party is not entitled to seek a review of a judgment delivered by this court merely for the purpose of a re-hearing and a fresh decision of the case. 

If the court feels that a certain issue must be decided for the dispute to reach its logical conclusion, both parties can come to a common consensus, settle and thereby waive an issue; the matter can then proceed in regard to the other issues.

All appeals have to be filed physically (ie, on paper) followed by oral arguments from both sides before a final order is passed. 

The Supreme Court of India Rules, Order XLVII and XLVIII stated that certain proceedings before the apex court, such as a review petition and curative petition, do not entail a physical hearing unless specifically directed by the court.

In the case of a trade secret theft, a complaint can be filed either before the concerned magistrate or police officer for the following offences: 

  • theft – Section 379 of the Indian Penal Code (imprisonment of either description for a term which may extend to three years, or with a fine, or with both);
  • cheating – Section 417 of Indian Penal Code (imprisonment of either description for a term which may extend to three years, or with a fine, or with both); 
  • if the misappropriation is in violation of a contractual agreement, then as per Section 406 of the Indian Penal Code it is possible to claim criminal breach of trust (imprisonment of either description for a term which may extend to three years, or with a fine, or with both);
  • if computer resources were involved in the misappropriation, then it will also attract the provisions of the Information Technology Act, 2000 –
    1. Section 66B – punishment for dishonestly receiving a stolen computer resource or communication device (imprisonment of either description for a term which may extend to three years or with a fine which may extend to INR100,000 or with both);
    2. Section 66D – punishment for cheating by personation by using computer resources (imprisonment of either description for a term which may extend to three years and shall also be liable to a fine which may extend to INR100,000); or
    3. Section 72 – penalty for breach of confidentiality and privacy (imprisonment for a term which may extend to two years, or with a fine which may extend to INR100,000, or with both);
  • causing wrongful gain and wrongful loss; and/or
  • copyright infringement – Section 63 of the Copyright Act, 1957 (imprisonment for between six months and three years and a fine between INR50,000 and INR200,000).

The accused can take various defences, which may be almost the same in both civil and criminal cases:

  • the information was not confidential or proprietary; 
  • the information was in the public domain; 
  • absence of mens rea or criminal intent; and/or
  • absence of any fiduciary relation demanding exercise of duty of care. 

If aggrieved by a lackadaisical police investigation, the claimant/complainant can approach the magistrate concerned seeking orders against the police under the provisions of Section 156 (3) of the Code of Criminal Procedure. There are dedicated police departments to deal with economic offences and cyber-offences. 

In Bawa Masala Company v Bawa Masala Company Pvt Ltd, CS (OS) No 139 of 2002, the High Court of Delhi passed an order referring the parties to a panel of neutral evaluators. They were directed to go through the papers and consider each side’s position and render an evaluation of the case, thereby giving an unbiased understanding of the strengths and weaknesses of the case. 

One can apply for pre-litigation mediation before the Arbitration and Mediation Centre of the Delhi High Court under Section 12(A) of the Commercial Courts Act, 2015. Such proceedings are effective in cases with a high likelihood of settlement. Moreover, all discussions in such proceedings are confidential and conducted without prejudice. 

In a contractual agreement which has an arbitration clause, either party can seek interim orders under Section 9 and/or Section 17 of the Arbitration and Conciliation Act, 1996 in the event of a dispute.

Anand and Anand

B-41, Nizamuddin East
New Delhi 110013
India

+91 120 4059300

email@anandandanand.com www.anandandanand.com
Author Business Card

Trends and Developments


Author



Rajeshwari & Associates , a boutique IP firm, was founded in 2009 by Rajeshwari Hariharan. The firm handles the full spectrum of intellectual property matters, such as patent, trade mark, copyright, design, information technology law, plant variety, regulatory affairs, internet, entertainment, technology transfer and allied fields; in terms of prosecution as well as litigation. The firm’s young professionals include lawyers with technical expertise, which enables them to anticipate problems that might otherwise not be apparent. It is this expertise and timely advise that creates an edge in the market. The firm’s mission is to provide high quality and cost-effective service with short turnaround time. The main office of the firm is located in Delhi, with satellite offices at Bangalore, Mumbai and Chennai.

While trade secrets are a very important aspect of intellectual property, they are often confused with, and mistaken for, confidential information. Both, in fact, are different aspects of intellectual property law, where information that is not yet public, but is commercially valuable, is protected.

General Background

In India, there is no separate law to protect confidential information, and 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), it has an obligation to frame laws to prevent unauthorised disclosure and use of certain information, provided:

  • the information is secret – in that it is known only to a certain body of persons and is not known to the public as such;
  • it has commercial value; and
  • it has been subjected to reasonable steps under the circumstances by the person lawfully in control of the information to keep it secret.

The above criteria is laid out in the Bombay High Court in the case of Bombay Dyeing v Mehar Karan Singh; 2010 (112) BomLR375.

There have been several attempts to bring about legislation to protect trade secrets – however, none have matured into specific legislation. Therefore, principles of equity or common law are applicable when enforcing violation of confidential information/trade secrets. The national IP rights policy under the head “objective 3.8.4” does recognise that protection of trade secrets is pivotal for strong and effective IP laws to balance the interests of right owners with public interest.

Because there is no specific law, the courts, as well as the public in general, confuse these terms, and they are often used synonymously. The unauthorised conduct of procuring and utilising confidential information, which is misappropriation of confidential information, is protected, however through contracts and judicial precedents. It is protected under “principles of equity” and more as a tort than an enforcement of a right under a specific legislation.

There are at least two categories of cases wherein such unauthorised conduct becomes liable for legal action:

  • contracts of employers; and
  • unauthorised use by a competitor of confidential information.

Both of these will be dealt with in detail in this report. Courts have also protected trade secrets in conjunction with violation of copyright, trade mark, design or patent under the respective laws – the Copyright Act 1956, Trademarks Act 1999, Patents Act 1970, Designs Act 2000, Information Technology Act 2000, Competition Act 2000 and Contract Act 1872.

Before diving into the details of the scope of protection and the implications thereof, a word on the general landscape.

Employee Freedom – The Constitution of India and Section 27 of the Contract Act 1872

The Constitution of India guarantees its citizens several fundamental rights, one of which is Article 19(1)(g) – the right to freely practice one’s profession and trade subject to reasonable restrictions. Therefore, all other laws, including the law of contract, are subservient to this part of the Constitution, and any scrutiny of the law on trade secrets or confidential information would have to be viewed from this lens.

In line with the principle of freedom to practice one’s profession and trade, Section 27 of the Contract Act 1872 provides that: “Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Exception 1. Saving of agreement not to carry on business of which goodwill is sold”.

In other words, any agreement, to the extent that it restricts a person from carrying on his trade or profession beyond the term of the contract, is void ipso facto. Employers can, however prevent misuse of confidential information and trade secrets as illustrated below.

What is Regarded as “Confidential Information” or “Trade Secret”?

In general, any information that is not known to the public, which has commercial value and which has been generated using one’s skill and labour would be regarded as “confidential information”.

In Tata Motors v State of WB, the court adopted the definition of “trade secret” as defined in Black’s dictionary: “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”.

The case concerned disclosure of Tata’s agreement with the government of WB for production of its budget car Nano under the RTI (Right to Information) Act. Tata claimed that the information concerning the production of Nano was “commercially sensitive” and hence a “trade secret” and such information should not be disclosed to the public. The court however, held that the agreement of Tata with the government involved finances, which is public money and hence in the greater public interest, the agreement should be disclosed.

How Can an Employer Protect its Confidential Information?

The employer-employee relationship in India is entirely governed by the law of contracts. Therefore, all reasonable restrictions, such as the following, may be imposed:

  • conditions that curtail the freedom of the employee to deal with similar products;
  • conditions not to divulge the confidential information/trade secret after termination or cessation of employment; and
  • conditions not to develop, directly or indirectly, a product that uses the technology of the employer and competes with the employer for a certain period.

As such, the employer is free to incorporate all reasonable conditions to protect its interests in a contract and this includes protection of confidential information/trade secrets. Therefore, companies that are very serious about the confidential information and trade secrets owned by them, execute contracts with employees that are carefully drafted and loaded with several covenants of confidentiality and consequences for breach of confidential information. 

Other Steps

Apart from the above, the employer may use technical and security measures to ensure that access to company data is restricted, such as:

  • providing company-owned devices that have restricted access;
  • constant training and sensitising employees about what constitutes trade secrets/confidential information of the company and consequences of breach and misuse of confidential information or misappropriation of trade secrets;
  • circulating handbooks and information sheets apprising employees of the trade secrets that exist within the company and to which they may be party; and
  • keeping proper documentation of all confidential information within the company and creating proper records within the company (eg, lab notebooks, minutes of meeting, assignments of trade secrets) so that they are useful in a court of law.

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

Whenever these covenants have come up for consideration by courts, in many cases, they have been upheld, provided there is sufficient documentation to identify:

  • the exact information that is alleged to be confidential;
  • if there is some commercial utility or economic value attached to the information that is alleged to be confidential;
  • that specific steps have been taken to maintain the information as confidential and prevent it from passing into public domain; and
  • if the employee has in fact had access to such confidential information and has utilised the same for the benefit of a third party and to the detriment of the employer.

Thus, the courts [Bombay Dyeing v Mehar Karan Singh; 2010 (112) BomLR375] have set some high thresholds to be met before protection for trade secrets can be claimed.

Cases Where Trade Secrets Have Been Protected by Courts

There have been several instances in India when the courts have upheld the rights of employers to protect trade secrets. One of the first cases to test Section 27 was Niranjan Shankar Golikari v Century Spinning and Mfg Co Ltd (AIR 1967 SC1098). The case revolves around a shift supervisor (Niranjan Golikari) in a company manufacturing tyre cord yarn. The contract of employment was for five years, and it stipulated that during such period the employee could not work in a similar capacity in any other company and would maintain secrecy with regard to the technical matters that he came across or were imparted to him at work.

However, as in many cases, after his training, the employee joined a rival firm as it offered higher remuneration. Obviously, he was sued by his previous employer company, which attempted to restrain the employee from working for the rival company and particularly from revealing its trade secrets. The Trial Court granted interim relief and restrained the employee. On an appeal the Supreme Court held that negative covenants that subsisted during the contract period do not attract Section 27 of the Contract Act, and therefore the contract did not amount to restraint of trade. However, the employee was restrained from divulging trade secrets to the rival company.

This was soon followed by the case of Krishnan Murgai v Superintendence Co AIR1979Del232 wherein, under similar circumstances, the court upheld post-employment injunction, but only for purposes of protection of trade secrets.

In the case of Burlington Home Shopping v Rajnish Chibber (Air 1987 Del32) the Delhi High Court granted interim relief and restrained an employee from breach of copyright and confidentiality – in that case the court held that a compilation of addresses, phone numbers, etc, is a database prepared employing a lot of time, energy, resources and skill and thus constitutes literary work, which has to be protected. The court further held that the database and the information there is a trade secret; information which, if divulged to a competitor, would cause real or significant harm to the owner.

Yet another instance where courts have protected trade secrets is of Diljeet Titus, Advocate v Mr Alfred A Adebare, Ms Seema Ahluwalia Jhingan and Others. The plaintiff here was the owner of the law firm Diljeet Titus and Co. Some of his employees left the firm to start another firm. Diljeet alleged that the ex-employees had taken away a list of clients, legal advice and opinions that the clients were offered at the firm. Mr Adebare was alleged to have taken as many as 3,000 visiting cards from Diljeet’s office.

The argument was that all communications between client and attorney in an attorney’s office are confidential and privileged and the same cannot be divulged at any time, whether during the course of employment or otherwise. The plaintiff is duty bound to maintain the information of his clients confidential. In fact, the confidential information pertained to advice given by the plaintiff to clients as to how they may strategise their entry into India. The court held that, “there can be little doubt that the information between a client and his advocate has the necessary quality of confidence and when it is imparted there is an obligation of confidence. The defendants have not worked for the clients but for the plaintiff and thus when they take away the duplicate information, there is unauthorised use of information”.

Thus, when the employees took away such data, it constituted breach of confidentiality; first of clients and also of the attorney (Diljeet) who was the custodian of the confidential information of his clients. The court viewed the breach as a tort and held: “If the defendants are permitted to do what they have done it would shake the very confidence of relationship between the advocates and the trust imposed by clients in their advocates”.

Similarly, in the case of Hi-Tech Systems v Suprabhat Ray (AIR 2015 Cal 261) in the Calcutta High Court the employees were software engineers and 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 here held that even post-employment, a restrictive covenant can be enforced for a certain period of time from the date of resignation/termination from the company. This was because firstly, the purpose of the covenant was to prevent misuse of the confidential information of the plaintiff’s company and secondly, the covenant was time-bound and hence fulfils the reasonability test laid down in Niranjan Golikari’s case. This was also the first case that emphasised the importance of human capital as an asset.

Thus, once it is proven that there was confidential information and it fulfilled all the criteria as stated above, it is possible to protect the same in India.

In sharp contrast is the case of Navigators Logistics Ltd v Kashif Qureshi (254 (2018) DLT 307). In this case, the plaintiff was in the logistics and freight forwarding business and it alleged that the employee had left the plaintiff company with the customer list, their names and phone numbers. It was also alleged that the compilation is a literary work owned by the plaintiff – Navigators Logistics. The issue before the court was whether such compilation could be protected as trade secret or as “literary work”.

The court found that the plaintiff had failed to provide details of the list nor had it been able to name the author of the compilation. The plaintiff was unable to demonstrate that the work involves the “use of skill and judgement” and is not a mere list in the public domain. Merely using such words, in the suit, without the ability to prove the same, the court held, would not help to sustain a case of misappropriation of trade secrets. Thus, the case failed on account of lack of proper and cogent documentation.

Courts do protect trade secrets in cases outside the employer-employee relationship. A classical instance is Zee Telefilms v Sundial Communications (2003 (27) PTC 457 (Bom)), which was a case of a company that creates new, innovative concepts and one such concept was registered under the Films Writers Association and the Indian Motion Pictures Producers Association. The plaintiff came up with a concept titled “kanhaiyaa” which was later changed to “Krish kanhaiyya”. Detailed record of the notes, characters, plots of the episodes were sent to Sundial, the defendant. However, the parties could not agree on price and hence the plaintiff Zee proceeded with Sony Entertainment. Later it was learnt that Sundial was about to produce a similar series. Zee took Sundial to court. The court held that the work that is sought to be produced by Sundial bears substantial similarity to the work of Zee. And while comparing both the concepts, the court found that there was a substantial part copied and hence, there was an infringement of copyright and a breach of confidentiality. It also lays down that every recipient of the confidential information would be liable in law.

Title to Trade Secret

Specificity of the trade secret, secrecy, commercial value of the secret and measures taken to protect the trade secret are key factors that would be considered by a court of law to assume ownership in favour of the claimant of the trade secret. Thus, a person asserting rights in a trade secret would have to demonstrate the following through positive evidence.

  • What exact information is being regarded as a trade secret and how the claimant acquired ownership thereof. For example, if the trade secret was generated by an employee, then an agreement with the employee specifying that item of trade secret as being confidential and being assigned to the employer would serve the purpose.
  • A bare-bones general employment agreement may be a starting point. It would need to be supported with other collateral correspondence leading to an inference of ownership and assignment; but a more specific agreement or some internal document assigning the trade secret in favour of the employer is an ideal piece of evidence. More often than not, bad documentation is the Achilles heel of a plaintiff and exploited well by the defendant.
  • Technical drawings, for example, would bear the name of the author and principles of authorship of copyright 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 (AIR 1987 DEL 372).
  • In case the trade secret has been acquired through some acquisition or merger process, then proper documentation would be required.
  • Because most times, trade secrets are not documented, it is advisable to execute a termination agreement with employees leaving the company so that one may enlist the items that the employer would regard as trade secrets.

Exceptions to Trade Secret Protection

The main defences that may be taken in an action brought for misappropriation of trade secrets are:

  • that the information was not created by the claimant; it was in the public domain;
  • the information was created by the defendant/respondent on its own without any involvement of the claimant (either through reverse engineering or assembly from the public domain);
  • the information was never deemed confidential by the claimant and never imparted to the defendant under any obligation of confidentiality;
  • the claimant never regarded the information as confidential or as a trade secret; and
  • the information is based on pre-existing skills and expertise gained over a period of time.

Reverse engineering of a trade secret is not a defence – though there has been no case law on this aspect, reliance will be placed on common law jurisprudence.

Legal Consequences of Misappropriation

Where a case of misappropriation of trade secrets comes to light, the following steps may be considered:

  • it is best to first marshal all the evidence at hand, to ascertain that the claimant has a proper title to the trade secret and that it can be established through a proper chain; and
  • the extent of activity of the defendant must be fully ascertained.

Having all the above, it is best to file a suit for misappropriation of trade secrets and also seek damages.

There is no need to send any warning letters or prior notices as the defendant may dispose of the infringing goods or destroy evidence. Hence it is best to file a suit.

Remedies that may be sought:

  • ex parte injunction restraining use of trade secret;
  • appointment of a local commissioner – an officer appointed by the court to search and seize the infringing goods. This prayer is very important to ensure that the infringing goods are preserved; or
  • appointment of a local commissioner to make a copy of the data of the defendant’s computers/devices.

In case the court is satisfied, these reliefs may be granted. Once such prayers are granted the goods of the defendant can be seized. This also helps to preserve evidence which would otherwise be destroyed.

Further steps:

  • the defendant would be required to enter appearance and put in his defence within 120 days (failing which his right to file such defense would be forfeited); or
  • the arguments on injunction would be heard and the matter would be decided by the court.

Normally the entire process should take about one to two years. The suit itself may be disposed of within three to five years, depending on the board of the court.

Confidentiality club

During the proceeding, a confidentiality club can be constituted in order to maintain the confidential nature of the information and facilitate exchange of information/documents between parties. The members of the club may be some or all the attorneys in the matter and it may include one or more persons from the plaintiff-defendant side as well.

Such orders are passed regularly as in the case of Transformative Learning Solutions Pvt Ltd & Another v Pawajot Kaur Baweja & Others. The Delhi High Court (original Side) rules also provide rules and regulations for formation of such a club in certain cases.

Expert evidence may be used, for instance at the time of trial to support the case of either of the parties. 

Sealed cover

In case it is felt that there is some information or documents that one party would like to show the court, but not the other party, then with the permission of the court, such documents may be filed in a “sealed cover”. The sealed cover – as the name suggests – will be kept sealed and opened only in court. It is for the eyes of the court alone. With the permission of the court, it may be shown to the other party’s counsel. 

Discovery, interrogatories and production of documents

In cases involving trade secrets, one does come across a situation where the product is in possession of the defendant, and the plaintiff would need access to the same in order to better its case or lead evidence in its case. At such times, the tool of discovery can be used to compel the defendant:

  • to produce documents that are in its power, possession and control; and
  • to answer interrogatories that may be in the form of questions which the court may direct the defendant to answer.

These are useful tools as they do help to resolve a number of unsolved issues. For example, if the defendant has in fact misappropriated some confidential information or trade secret and produces a product that is partly derived using the trade secret, it may be useful to ask it a series of questions that would eventually lead to admission.

Damages and costs

In India, if a plaintiff successfully proves misappropriation of trade secrets, it would be entitled to:

  • damages and rendition of accounts; and
  • costs of litigation which includes attorney fees.

Damages are calculated based on the profit made by the defendant company as well as other attending circumstances such as market share captured by the defendant using the trade secrets, the springboard advantage gained by the defendant, etc. Actual damages would have to be proved by leading evidence. Punitive damages may be awarded; however it is entirely up to the court and the case for awarding such damages made out by the plaintiff.

Thus, there is a robust regime that could efficiently handle such litigation.

Is There any Criminality Attached to Breach of Confidence or Misappropriation of Trade Secrets?

Normally, disputes concerning misappropriation of trade secrets is a matter of civil law with injunction and damages as remedies. However, such misappropriation can amount to a “theft” and is also a punishable offence.

  • Under Section 379 of the Indian Penal Code, it may attract imprisonment of a term of up to three years or a fine, or both.
  • Under Section 420, it may amount to cheating and under Section 417 it may attract punishment of imprisonment of up to three years or a fine, or both.
  • If case of misappropriation, this would be a violation of a contractual agreement, which may amount to criminal breach of trust attracting imprisonment of a term of up to three years or a fine, or both.

In cases where a computer resource is involved in the misappropriation (eg, using data or device of employer or hacking) then the following provisions may be invoked:

  • Section 66B – dishonestly receiving stolen computer device (attracts imprisonment of a term of up to three years and/or fine of one lakh, or both);
  • Section 66D – cheating by personation by using computer resources (attracts imprisonment of a term of up to three years and/or fine of one lakh or both) ; or
  • Section 72 – penalty for breach of confidentiality and privacy attracts imprisonment of a term of up to two years and/or fine of one lakh or both).

Despite the above, there is still a need for more focused legislation to protect trade secrets.

Trends, Developments and Tips

There is no rule of thumb as to whether the courts would enforce trade secrets and grant injunction and award damages. Every case is to be tested in the laboratory of the courts, based on the evidence presented. What is to be noted is that more and more corporates are becoming aware of their rights and seeking to enforce such contracts; small entities are becoming more aware and taking steps to protect their intellectual property rights. The positive approach of the courts in entertaining such disputes and resolving the same either through ADR (alternate dispute resolution), mediation or through judgments is a silver lining in an otherwise tricky area of law without much legislative backing.

Rajeshwari & Associates

S357, Panchsheel Park
New Delhi 110017
India

+91 9910206718

rajeshwari@ralegal.co.in www.ralegal.co.in
Author Business Card

Law and Practice

Authors



Anand and Anand is a full-service intellectual property law firm, providing all-round IP solutions; its forte is developing new law and precision-navigation of grey areas. Its principal office is in New Delhi, with other offices in Noida, Mumbai and Chennai. The firm provides a comprehensive IP service encompassing protection, enforcement, advisory, licensing and litigation for patents, designs, trade marks, copyrights, trade secrets, domain names, geographical indications and more. Credited with lawsuits that have transformed the IP landscape in India, the firm’s litigation arm has decades of unmatched experience in dispute resolution. It has maintained a patent grant rate of over 93%, while its trade mark team recently recorded 1,800-plus successful trade mark oppositions.

Trends and Developments

Author



Rajeshwari & Associates , a boutique IP firm, was founded in 2009 by Rajeshwari Hariharan. The firm handles the full spectrum of intellectual property matters, such as patent, trade mark, copyright, design, information technology law, plant variety, regulatory affairs, internet, entertainment, technology transfer and allied fields; in terms of prosecution as well as litigation. The firm’s young professionals include lawyers with technical expertise, which enables them to anticipate problems that might otherwise not be apparent. It is this expertise and timely advise that creates an edge in the market. The firm’s mission is to provide high quality and cost-effective service with short turnaround time. The main office of the firm is located in Delhi, with satellite offices at Bangalore, Mumbai and Chennai.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.