According to the World Intellectual Property Organization (WIPO), trade secrets are intellectual property rights on confidential information which may be sold or licensed. In a layman's perspective, a trade secret is a secret of any trade or business that is known to a limited group of persons and has a commercial value. Ex – Recipe of Coca-Cola beverages etc.
Essentials of a Trade Secret:
- It should have a commercial value.
- It is known by a limited group of people.
- Reasonable steps to be taken by the owner to keep the information secret.
After the liberalisation in 1991, India became a member of the World Trade Organisation (WTO) and subsequently, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was also signed by India in 1994. As per TRIPS Agreement, it was mandatory for all the member states to protect the Trade Secrets/undisclosed information in accordance with Article 39 of the TRIPS Agreement.
No specific law was enacted for the protection of Trade Secrets and Confidential Information in India, and it is still not there. It is based on equity and common law.
How Trade Secret law is governed in India:
Trade Secret law in India is mostly governed via common law such as:
- Section 27 of the Contract Act - Law that bound the parties not to disclose information contrary to the terms of the contract between the parties i.e., Non-Disclosure Agreements.
- Section 405-409 of the Indian Penal Code, 1860 deals with the cases when there is a Criminal Breach of trust.
In 'John Richard Brady & Ors. V. Chemical Process Equipment P. Ltd. & Anr1.', the Plaintiff sought permanent injunction to restrain the Defendants from infringing copyright of the Plaintiff after acquiring confidential information w.r.t. an idea of growing fresh green grass as basic food for livestock in a compact unit capable of producing grass irrespective of external climatic conditions. The principles of secrecy were discussed for the first time in this case as: -
"24. Patrick Hearn, in his Book has dealt with this subject under the heading Secrecy.
He also dealt with the principles laid down in, Saltman's case 1948 RFC 203. It is pertinent to extract the portion from his book from page 112 to 115. It reads: -
Secrecy
The maintenance of secrecy which plays such an important part in securing to the owner of an invention the-uninterrupted proprietorship of marketable know-how, which thus remains at least a form of property, is enforceable at law. That statement may now be examined in the light of established. rules making up the law of trade secrets. These rules may, according to the circumstances in any given case, either rest on the principles of equity, that is to say the application by the Court of the need for conscientiousness in the course of conduct, or by the common-law action for breach of: confidence which is in effect a breach of contract.
In considering these alternatives there are three sets of circumstances out of which proceedings, may arise:
(a) where an employee comes into possession of secret and confidential information in the normal course of his work, and either carelessly or deliberately passes that information to an unauthorised person;
(b) where ah unauthorised person (such as a new employer) incites such an employee to provide him with such information as has been mentioned above; and
(c) where, under a license for the use of know-how, a licensee is in breach of a condition, either expressed in an agreement or implied from conduct, to maintain secrecy in respect of such know-how and fails to do so..."
"25. With regard to confidential information, Roskill J. in Cranleigh Precision Engineering Ltd. v. Bryant and Anr., 1966 RPC 81 ".........the possessor of such information must be placed under a special disability in the field of competition in order to ensure that he does not get an unfair start." Lord Denning, M. R. clarified in Seager v. Copydex Limited 1967 RFC 349 that "the law on this subject does not depend on any implied contract. It depends on the broad principles of equity that he who has received information in confidence shall not take unfair advantage of it."
In the above case, the Defendants were restrained from manufacturing, selling, offering for sale, advertising, directly or indirectly dealing in Machines that were substantial imitation and reproduction of the drawings of the Plaintiffs' FPU or from using in any other manner whatsoever the know-how, specifications, drawings and other technical information about the FPU disclosed to them by the Plaintiff.
In 'Dr. Sudipta Banerjee v. L.S. Davar & Company & Ors.2', an injunction order against the former employees of a law firm was passed by the Hon'ble High Court of Calcutta for disclosing trade secrets and confidential information gathered in the course of their employment. In this case the Appellants were restrained from disclosing; divulging or sharing confidential information gathered during the course of their employment in any manner whatsoever till the disposal of the injunction application on merits. Further, the Court held that the Respondent as a professional body may not have any trade secrets per se but the persons who were/are in employment of the Respondent would certainly be privy to privileged information and any sharing of such information and communication would not only be unethical but also a breach of the confidentiality clause which may result in serious prejudice and harm that may be caused to the clients of the Respondent firm and may expose the Respondent firm to civil and criminal consequences. The Court also held that: -
"16. There is no specific legislation in India to protect trade secrets and confidential information. Nevertheless, Indian Courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation. The remedies available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the trade secret, return of all confidential and proprietary information, and compensation for any losses suffered due to disclosure of such trade secrets."
"17. In India, a person can be contractually bound not to disclose any information that is revealed to him/her in confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreement, which imposes negative covenants on the licensee to not disclose or use the information received under the agreement for any purpose other than that agreed to in the said agreement."
In 'M/s Lifecell International Private Limited v. Vinay Katrela'3 the Hon'ble Madras High Court held that the restriction can only be in relation to Trade Secrets which are developed and suitable to the prospects of the company and hence, cannot be divulged. The court also held that: -
"16. From the foregoing ratio laid down by the Hon'ble Supreme Court and other High Courts, it could be seen that there cannot be absolute restraint of breach of trade against an employee or franchisee. The franchisee who is well versed in his trade shall be permitted to carry on his avocation otherwise he will be erased and his livelihood will be at risk. There is significant difference in enforcing the restraint against the agent or franchisee. The knowledge acquired by a person during his employment as agent, due to his efficiency and intelligence is personal to him. His ability to persuade or canvas or communicate with the parties cannot be said as a property of his Principal. Nor there would be any restraint from using his individual skills after termination of relationship. On the other hand, if for a particular purpose, a specialized training is imparted at the cost of the company, with regard to the trade secrets, it is a special knowledge given in confidence by the employer to its employee or agent. The special secrets regarding the trade shall not be divulged to rival parties as it will be detrimental to the future prospects of the Principal. Therefore, the restriction can be only in respect of the trade secrets or the business dealings which is developed suiting the prospects of the company cannot be divulged. In that view of the matter, it has to be seen as to whether the restriction seek to be enforced by the applicant is reasonable or not.
19...the trade secrets or business secrets which may relate to financial arrangement, if divulge, will potentially cause damages. Similarly, business information, such as cost and pricing, projected capital investments, inventory marketing strategies and customer's list may also qualify as trade secrets.
20. In the instant case, the e-mail communications
produced before this Court would
reveal that there are communications with regard to pricing,
customer's list and also
other confidential information through files attached to the
mail conversation. In such
circumstances, this Court is of the considered opinion that
there can be reasonable
restriction at least for a shorter period till the arbitration
gets over. It is also made clear
that whether the restraint is reasonable or not and whether
there is breach of agreement
or not? are the subject matters to be decided in arbitration.
But on prima facie grounds,
to prevent irreparable damage, which may be caused to the
applicant, this Court grants
the order of interim protection as prayed for. The arbitral
proceedings shall be
completed within the statutory time limit."
In 'Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber' 4 the defendant was a former employee of the company (the plaintiff) who utilised the plaintiff's contacts database in a similar business started by him after leaving the company. The Hon'ble High Court of Delhi protected Plaintiff under the law relating to Trade Secrets and Confidential Information and held that the contacts database was developed through skill and labour by the plaintiff.
In 'Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh5' though Defendant attended the Board meetings of the Company would have amassed the information and knowledge with regard to the Plaintiffs plans of operation, the Defendant cannot be injuncted from disclosing those plans, except for what would cause injury or damage to the Plaintiff by such disclosure. The Hon'ble High Court of Bombay while relying upon multiple definitions of trade secret held as follows: -
"51...Considering these definitions, the elements which could be identified as a trade secret, although the exact definition may not be possible, was laid down as the following factors:
(1) The extent to which the information is known outside the business.
(2) The extent to which it is known to those inside the business i.e. by the employees.
(3) The precautions taken by the holder of the trade secret to guard the secrecy of the information.
(4) The savings effected and the value to the holder in having the information as against competitors.
(5) The amount of effort or money expended in obtaining and developing the information; and
(6) The amount of time and expense it would take for others to acquire and duplicate the information."
In 'Prof. Dr. Claudio De Simone & Anr. vs Actial Farmaceutica & Ors.6' the Plaintiff was the inventor of a formulation known as the De Simone Formulation ("Formulation"). The Formulation was protected by a patent in the US. The US patent expired in 2015. The plaintiffs never filed a patent in India for protection of the Formulation. The Hon'ble High Court of Delhi held that no trade secret protection will be granted if know-how is disclosed in a patent abroad.
In 'Ambiance India Pvt. Ltd. vs Shri Naveen Jain7' the defendant was employed by the plaintiff-Company as a Fabric Technologist. Vide an Agreement dated 30th August 2003, he was appointed as a Client Executive considering his efficiency and work. According to the plaintiff, the Agreement between the plaintiff and defendant provided that during the continuance of his employment, the defendant shall not engage directly or indirectly in any other occupation, business or employment or any similar business or occupation and would not divulge anything which may adversely affect the business of the plaintiff-Company. It was also provided that during his tenure and for three years thereafter, the defendant shall not reveal any trade information of the plaintiff and for a period of two years after the termination of the service, he would not directly or indirectly take any employment or deal with the plaintiff's present or past customers, vendors, importers, agents, prospective customers, etc. That on 19th June 2004, the defendant left the plaintiff's Company terminating the Agreement but on 10th of June, 2004, itself, he had joined one of the customers of the plaintiff, namely, M/s. Indigo Orient Limited of U.K. with whom the plaintiff had an agreement to supply goods from 17th July, 2001 for a period of three years. This act of the defendant was alleged to be in violation of the Agreement dated 30th August 2003. The Hon'ble High Court of Delhi dismissed the prayer of the Plaintiff and held as follows: -
"8. After considering the pleadings of the parties and particularly Clauses (6),(7) and (8) of the Agreement dated 30th August, 2003, this Court is of prima facie view that the Agreement between the parties prohibiting the defendant for two years from taking employment with any present, past or prospective customer of the plaintiff is void and hit by Section 27 of the Indian Contract Act. This stipulation was prima facie against public policy of India and an arm-twisting tactic adopted by an employer against a young man who was looking for a job..."
In 'Mr. Diljeet Titus & Ors. vs Mr. Alfred A. Adebare & Ors8.' the defendant, an advocate, was working at the plaintiff's law firm. On termination of employment, the defendant took away important confidential business data, such as client lists and proprietary drafts, belonging to the plaintiff. The defendants contended that they were the owners of the copyright work as it was done by them during their employment since the relation between parties was not that of an employer and employee. The Delhi High Court rejected this contention and ruled that the plaintiff had a clear right in the material taken away by the defendant. Accordingly, the Delhi High Court restrained the defendant from using the information taken away illegally. It should be noted that the Delhi High Court did not prohibit the defendants from carrying on a similar service. The defendants were only restrained from using the information they took, as this was necessary to protect the interests of the plaintiff.
In 'Beyond Dreams Entertainment Pvt. Ltd. & Ors. vs. Zee Entertainment Enterprises Ltd. & Anr.9 the Hon'ble Bombay High Court had to determine whether a new show created by Zee Entertainment based on the concept notes shared by Beyond Dreams Entertainment was a breach of confidence. The Hon'ble Court inter alia ruled that to prove breach of confidence, the owner or rights holder must establish that:
- The information itself is of a confidential nature.
- 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.
- The information shared is actually used or threatened to be used unauthorizedly.
By
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
LinkedIn: https://www.linkedin.com/in/vpdalmia/
Facebook: https://www.facebook.com/vpdalmia
X (Twitter): @vpdalmia
AND
Ankush Mangal, Advocate
Email id: ankushmangal@vaishlaw.com
Mobile No. +91 7999673998
Footnotes
1 MANU/DE/0586/1987
2 MANU/WB/0653/2022
3 MANU/TN/4323/2020
4 MANU/DE/0718/1995
5 MANU/MH/0955/2010
6 CS(OS) 576/2019
7 MANU/DE/0385/2005
8 MANU/DE/1875/2006
9 MANU/MH/0488/2015
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