Protection of Trade Secret and Confidential information under the Indian law-

by Durai on April 26, 2009

Under the TRIPs Agreement ‘trade secrets’ are referred to as ‘undisclosed information’. The Agreement defines trade secret as-

“An information is a trade secret if-

(1)   it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question:

(2)   has commercial values because it is secret, and

(3)   has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”

Even though India has an obligation to comply with TRIPs Agreement unlike the US and other developed countries India has no legislation dealing with trade secrets. In India, protection of trade secrets is common law based[1].

The primary statutory protection of trade secrets comes from section 27 of the India Contract Act 1872 and basic principles of common law.  Courts have interpreted this Section 27 of the Contract Act to include agreement which can protect trade secrets and nondisclosure agreements has not against restraint of trade, granting relief to injured parties in the form of enforcing nondisclosure agreements between employer and employee.  However, courts have been less willing to enforce agreements relating to post employment restraints on the employee.

The Supreme Court in Gujarat Bottling case[2] asked a relevant question that how Pepsi may ask Coca Cola to part with its trade secrets to its business rival by supplying the syrup etc for which Coca Cola holds the trade marks to GBC which is under effective control of Pepsi. The recent Delhi High Court decision in Diljeeth Titus[3] case also further vouches for the fact that confidential information of the employer can be protected.

In Escorts case[4] the Delhi High Court restrained from manufacturing, selling or offering for sale of the Pick-N-Carry Mobile Cranes that are substantial imitation or reproduction of the industrial drawings of the plaintiffs or from using in any other manner whatsoever the technical know-how. In Burlington[5] case the Delhi High Court again restrained carrying on any business including mail order business by utilising the list of clientele/customers included in the database of the petitioner. In Manjunath [6] the Supreme Court went to affirm that “The disclosure by an employee of trade secrets and other confidential information obtained by him in the course of his employment is a “breach of trust””

Protection of Trade Secrets and Confidential information under Indian IPR laws-

The issue of Copy right protection to confidential information was discussed by the Delhi High court in Diljeeth Titus[7] case and the Court held “Thus the real test was the degree of employment control to determine whether it was a contract of service. There may not be employment in the strict sense of employment of a workman or a labourer but the degree of control would determine the obligations of the parties” by pronouncing this the Court upheld the Copy right in database. The employee shall not during his employment nor at any time afterwards divulge nor communicate to any person corporation or firm any information which he may receive or obtain in relation to the company’s affairs and customers and all instructions drawing notes and memoranda made by the employee or which may come into his possession while engaged as aforesaid shall be the exclusive property of the company’[8]

In Zee Tele film case[9] the Bombay High Court approved triple test that where a plaintiff sues, relying upon breach of confidence, he must establish three elements. These are: (1) that the information was of a confidential nature; (2) that the information was communicated in circumstances importing an obligation of confidence; and (3) that there has been an unauthorised use of the information to the detriment of the person communicating it.

Where it was undertaken by the parties “not to publish or cause to be published any work on the same subject at or about the price of sale which might reasonably be regarded as conflicting or likely to conflict with the sale of copyrighted works” this kind of confidentiality clause was held not to be violative of Section 27 of the Indian Contract Act[10].

 Remedies for protection of Trade Secrets and confidentiality under the Indian Law-

Injunction preventing the third party from using trade secrets, return of confidential information and Compensation for damages are the common remedies which are available under the Indian Jurisdiction.

Section 72 of the Information Technology Act 2000 deal with breach of confidentiality and privacy and any breach will attract imprisonment upto 2 years, fine upto 1 lakh.

The Bombay High Court in Urmi Juvekar [11] held that action of breach of confidence succeeds only if Plaintiff could identify clearly what was the information he was relying on and has to be shown that it was handed over in the circumstances of confidence and could be treated as confidential.

Non-compete clause and the law regulating it in India-

If there is negative covenant restricting the employee from taking any other employment, and the employee leaves the service, the negative covenant can be enforced to the extent that the unexpired part of the term of service would be essential for the fulfillment of the contract.[12] In Gujarat Bottling[13] Case the Supreme Court said any Non disclosure clause shall be applicable only during the period of service and any restraint beyond the service is violative of sec. 27 Indian Contract Act.

A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other manner or whom he would perform similar or substantially similar duties, it is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one sided [14].

A contract which is in restraint of trade cannot be enforced unless (a) it is reasonable as between parties; (b) it is consistent with the interest of the public.[15] In BLB Institute case[16]the Court reiterated that under Section 27 of the Contract Act: (a) a restrictive covenant extending beyond the term of the contract is void and not enforceable, (b) the doctrine of restraint of trade does not apply during the continuance of the contract for employment and it applies only when the contract comes to an end, (c) as held by this Court in Gujarat Bottling v. Coca-Cola this doctrine is not confined only to contracts of employment, but is also applicable to all other contracts.

Non-Solicitation Agreement-

Generally negative covenant during the period of the agreement is considered not to be hit by law but there are certain non-solicitation agreement which is prima facie negative in nature and still stand as an exception and are enforceable even after the conclusion of the agreement and are held by the Courts to be valid in law. The Delhi High Court in Wipro case[17] held “the non-solicitation clause does not amount to a restraint of trade, business or profession and would not be hit by Section 27 of the Indian Contract Act, 1872 as being void”.

In Pepsi Co[18] case, where an attempt by one company to induce the employees of Competitor Company to join the employment of inducing company contrary to the contract of employment prohibiting such employment was not permitted by the Court and the Court said Non-Solicitation clause is not hit by the provisions of Section 27 of the Indian Contract Act, 1872.

[1] Gaurav Wahie, Evaluating Trade Secrets under the IPR Paradigm. CLJ 03 (01), 2005; 17-23.

[2]Gujarat Bottling Company Limited (GBC) vs. Coca Cola Company AIR1995SC2372, (1995)5SCC545

[3]  Mr. Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors.130 (2006) DLT 330,  2006 (32)PTC 609 (Del)

[4] Escorts Const. Equipment Ltd v. Action Const. Equipment P. Ltd S.No. 533/98 Decided On: 16.10.1998 MANU/DE/0185/1999

[5] Burlington Home Shopping Pvt. Ltd.v. Rajnish Chibber 61(1995)DLT6

[6] Manju Bhatia (Mrs) v. New Delhi Municipal Council  (1997)6SCC370

[7] Mr. Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors.130 (2006) DLT 330,  2006 (32)PTC 609 (Del)

[8] Herbert Morris Ltd v Saxelby 1916 1 AC 688

[9] Zee Telefilms Ltd. V. Sundial Communications Pvt. Ltd  2003(3)MhLj695, 2003(27)PTC457(Bom)

[10] The Chancellor Masters and Scholars of the University of Oxford v. Orient Longman Private Limited 103(2003)DLT139

[11] Urmi Juvekar Chiang v. Global Broadcast News Limited  2008(2)BomCR400

[12] Niranjan Shankar Golikari v Century Spg and Mfg Co Ltd [1967] 2 SCR 397

[13]Gujarat Bottling Company Limited (GBC) vs. Coca Cola Company AIR1995SC2372, (1995)5SCC545

[14] Niranjan Shankar v. Century Spg. Mfg. Co Ltd. AIR 1967 SC 1098

[15]Vancouver Malt and Sake Brewing Co. v. Vancouver Breweries Ltd., 1934 PC 101

[16] BLB Institute of Financial Markets Ltd v. MR. Ramakar Jha  154(2008)DLT121

[17] See Wipro Limited v. Beckman Coulter International S.A. 131(2006) DLT 681

[18] Pepsi Foods Ltd. v. Bharat Coca-cola Holdings Pvt. Ltd 81(1999)DLT122

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