Protecting trade secrets in India

With recent advances in technology, as well as the ease of sharing, copying and storing information in the digital world, one of the biggest challenges that businesses face is the protection of their confidential business information. This information can include business strategies, proposals, client databases and information, compilations, designs, programmes, drawings, devices, formulae or compositions. Not all types of information qualify for protection under the patent and copyright laws; further, certain data arises out of a company’s day-to-day operations for which formal protection is not sought, but which remains valuable.

Many businesses are finding it challenging to safeguard their crucial information, due to the various online and physical tools available to ease the transfer of data. The threat they face is not only external, but can also come from internal sources such as employees and contractors who have access to important business information.

It is increasingly common for employees to switch jobs. When they do, they sometimes take confidential information with them or even set up competing businesses based on their previous employer’s stolen data, including technical information, business methods and strategies.Contractors sometimes infringe on drawings, designs, recipes and compositions that have been shared with them by a client (or produced under a client’s technical guidance), by offering the same or similar products at a cheaper price and under a different label.

Protection under various laws

Although India has no specific trade secrets law, Indian courts have upheld trade secrets protection under various statutes, including contract law, copyright law, the principles of equity and – at times – the common law action of breach of confidence (which in effect amounts to a breach of contractual obligation). Section 72 of the Information Technology Act 2000 also provides certain protection, although this is limited to electronic records.

The remedies available to the owners of trade secrets are:

• an injunction preventing a licensee, employee, vendor or other party from disclosing a trade secret;
• the return of all confidential and proprietary information; and
• compensation for any losses suffered due to the disclosure of trade secrets.

Contract law

In India, a person can be contractually bound not to disclose information that is revealed to him or her in confidence.

However, in Richard Brady v Chemical Process Equipments P Ltd (AIR 1987 Delhi 372) the court went further by invoking a wider equitable jurisdiction and awarding an injunction in the absence of a contract. The plaintiff had invented a fodder production unit and, for indigenous production of the same, had sought a supply of thermal panels from the defendant. The plaintiff shared technical material, detailed know-how, drawings and specifications concerning the fodder production unit with the defendant. An agreement was set out between the parties for the supply of specialised thermal panels; however, the plaintiffs later discovered that the defendants were unable to supply the required thermal panels and did not place an order. After learning about the defendant’s own fodder production unit, the plaintiff filed suit for misappropriation of know-how, drawings, designs and specifications disclosed to the defendant.

Copyright law

In some cases, the courts have recognised client information stored in the form of databases as copyrightable material.

During the course of their operation, businesses regularly collect data which they arrange systematically or methodically and can be accessed electronically – for example, in order to analyse business profitability or customer behaviour, or simply to maintain an inventory of goods. Thus, databases are an important tool for businesses, allowing them to run smoothly and plan their future development. Databases are protectable under copyright law. Section 2(o) of the Copyright Act 1957 defines compilations, including computer databases, as “literary works”.

In Govindan v Gopalakrishna (AIR 1955 Mad 391), which concerned a compilation, it was held that although the amount of originality in a compilation is small, it is still protected by law. Hence, no party may steal or appropriate the result of another’s intelligence, skills or labour, even in such works.

The present legal position mandates that every effort, industry or expense of skill results in copyrightable work, but only those works are protectable which:

• are somewhat different in character;
• involve some intellectual effort; and
• involve a minimum degree of creativity.

Interface between trade secrets and copyright law

In theory at least, the treatment of databases as trade secrets can be a stronger form of protection, since it helps to protect the underlying or inherent data rather than the mere form of expression or layout protected by copyright law.

In Burlington Home Shopping Pvt Ltd v Rajnish Chibber (61 (1995) DLT 6), the Delhi High Court observed that although trade secrets protection applies to a wide range of business data, customer lists and other compilations of business data may be copyrightable as works of fact. In theory, copyright and trade secrets law protect different elements of compiled business data, with copyright protecting the expression in these compilations and trade secrets law protecting the underlying data. However, copyright and trade secrets protection for compilations of business data in fact frequently converge: copyright protection for business directories often extends to the underlying data and trade secrets protection may extend to particular expressive arrangements of data.

In Burlington Home Shopping, the court dealt with an application for interim relief in a suit by a mail order service company against its employee for an injunction restraining “breach of copyright and confidentiality”. The court held that although its sources may be commonly situated, a compilation of addresses developed by devoting time, money, labour and skill amounts to a literary work in which the author has a copyright. Finding that the defendant’s database was substantially a copy of the plaintiff’s database, the court granted the interim injunction.

Proving confidentiality of information

In Ritika Pvt Ltd v Biba Apparels Pvt Ltd (DelHC DE 0784 2016), where a suit was filed for infringement of the plaintiff’s clothing designs, the court took the view that if an injunction order were sought with respect to trade secrets, the specific trade secrets would have to be mentioned, as well as how the plaintiff had ownership of them; only then would the court consider granting an injunction order. A general order in respect of an unspecified trade secret could not be passed against the defendant. Further, no relief under the Copyright Act could be granted, since Section 15(2) of the act provides that once a drawing, sketch or design has been used for creation of more than 50 garments, no copyright can subsist in it.

In Genetics India Pvt Ltd v Shailendra Shiv (2011 (47) PTC 494), the court observed: “Pleadings of the nature and quality of information which is confidential are crucial and in the absence thereof there is no question of confidentiality.”

Thus, a trade secret suit should make amply clear that the subject information is confidential. Apart from pleading that the information is confidential, the plaintiff must prove that reasonable efforts have been made to keep it confidential. If the owner of the information cannot prove as much, the information risks losing the quality of confidentiality.

Further, if the information and technique are neither unique nor novel, and the database is merely a documentation or compilation of existing material or techniques which are freely available or widely practised, there is no question of confidentiality. Thus, the mere fact that information is documented in the form of a database does not make it confidential: it must also have the requisite exclusivity. If a court were to accept, uncritically and without any statutory regime, a plaintiff’s blanket assumption that it possessed confidential information in something which was plainly part of the public’s material resources, that court would overstep the mandate of the Constitution – specifically, the rights to occupation (Article19(1)(g)) and livelihood (Article 21).

Breach of confidence

In Diljeet Titus, Advocate v Alfred A Adebare (130 (2006) DLT 330) it was held that the courts must step in to restrain a breach of confidence independent of any right under law. The court held that in the context of a law firm, copyright existed in a list which had been specially designed by an advocate and contained details of the firm’s clients, along with the nature of work and contact person for each one. Notably, this obligation need not be expressed, but need only be implied.

Future of trade secrets in India

Since India is a signatory to the Paris Convention, it is relevant to mention that Article 1(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) states that intellectual property shall include protection of undisclosed information. Further, Article 39 of TRIPs states concerns ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention, with respect to information which:

• is a secret not generally known or readily accessible;
• has commercial value by virtue of secrecy; and
• has been subjected to reasonable steps for ensuring its secrecy.

Article 39 states that member nations must ensure that natural and legal persons have the “possibility” of preventing such information, within their control, from being disclosed, acquired or used by others without their consent, in a manner contrary to honest commercial practice. It can be inferred that the “possibility” referred to here implies that trade secrets should be accorded protection within the legal system and not necessarily in the IP legislative framework of the member nation.

The 1989 General Agreement on Tariffs and Trade discussion paper on India establishes that trade secrets cannot be considered IP rights, because the fundamental basis of an IP right rests in its disclosure, publication and registration, while trade secrets are premised on secrecy and confidentiality. The paper goes on to state that the observance and enforcement of secrecy and confidentiality should be governed by contractual obligations and the provisions of appropriate civil law, not by IP law.

On May 12 2016 India approved the National IP Rights Policy, which has seven objectives. One of these objectives is to ensure an effective legal and legislative framework for the protection of IP rights. The steps to be taken towards achieving this objective include the identification of important areas of study and research for future policy development; one such area identified was the protection of trade secrets.

In a discussion paper on IP rights at the subsequent US-India Trade Policy Forum held on October 20 2016 in New Delhi, India’s representatives noted that India protects trade secrets through a common law approach and reiterated the country’s commitment to the strong protection of trade secrets. It was agreed that a toolkit would be prepared for industry, especially small to medium-sized enterprises, to highlight applicable laws and policies that may enable businesses to protect their trade secrets in India. A training module on trade secrets for judicial academies may also be considered. A further study of various legal approaches to the protection of trade secrets will also be undertaken in India.

Conclusion

At present, Indian trade secrets law is a judiciary-made law, based on the principle of equity and common law actions against breach of confidence, with the jurisprudence as a whole revolving around an employee’s obligations and duties towards the employer regarding confidential information gained during the course of employment. Indian jurisprudence regarding trade secrets is unclear on a number of important aspects, including:

• the scope of damages in the case of a breach of confidential information;
• theft of trade secrets by business competitors; and
• procedural safeguards during court litigation.

Further, in the absence of a specific trade secrets law, the courts have ruled in favour of the proprietor of information as literary work as defined under copyright law.

The recent creation of the National IP Rights Policy has raised hopes for the enactment of a trade secrets law, since this is one of the objectives of the policy. Although no timeframe has been provided for the achievement of this objective, one can be certain that there will be a trade secrets law in the near future.

Practical tips to protect trade secrets

• Label the information to be protected as “confidential”, so that employees are aware that they are dealing with sensitive business information.
• Restrict access to databases, servers and computer programs that store trade secrets.
• Ensure that access to servers is password protected and that a suitable notice is displayed on computer screens when accessing sensitive areas.
• Educate employees on why protecting trade secrets is important for business.
• Sign non-disclosure agreements with any third parties with which commercial business information is shared.
• Use a combination of technical and legal solutions to protect databases.

RNA, IP Attorneys

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Gurgaon-122005, Haryana

India

Tel +91 124 2841222

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Web www.rnaip.com

Ranjan Narula
Managing partner
[email protected]

Ranjan Narula founded the technology and IP law firm RNA in 2004 and is now its managing partner. He has 25 years’ IP experience, having worked in-house at the legal department of Burmah Castrol (now BP) and as a partner of leading international IP consultancy Rouse for 10 years, heading its India practice.

Mr Narula advises technology and fast-moving consumer goods companies on IP management issues, providing strategic advice in relation to IP clearance, acquisition, protection, exploitation and enforcement. He has been ranked as a leading IP practitioner by publications including the WTR 1000, IP Stars, Who’s Who Legal and Asia IP Experts. He is also a panellist for the ‘.in’ domain registry.

Rachna Bakhru
Partner
[email protected]

Rachna Bakhru is a partner with RNA. She currently heads the dispute resolution team and is heavily involved in IP enforcement, including civil and criminal litigation. She has over 17 years’ extensive experience in managing contentious IP matters in India, ranging from risk assessment to alternative dispute resolution. She advises clients on issues related to data protection, software piracy, domain disputes and online infringement.

Ms Bakhru has been highly recommended and ranked by publications including the IAM Patent 1000, IP Stars and the Managing IP Top 250 Women in IP. She speaks at various IP forums and is an arbitrator for ‘.in’ and ‘.co.in’ domain disputes. She has been appointed as a patent facilitator for start-ups by the government of India.