Breach of Confidentiality – taking a few steps back?

A few days ago someone in the Delhi High Court drew my attention to the decision of the Single Judge in American Express Bank Ltd. v. Priya Puri (CS(OS) No. 1442/2005). This was a case that essentially involved a breach of confidentiality/ trade secrets action against a former employee of American Express Bank.

My first reaction was “Given that the Plaintiff was seeking to enforce several expressly worded confidentiality clauses in the contract of an ex-employee, coupled with actual evidence of violation of express codes of conduct, breach of confidentiality and disclosure of confidential information to third parties, it is not surprising that the bank managed to restrain her.” Imagine my surprise at being corrected. Apparently, the bank did manage to restrain her ex parte, which was set aside by a detailed order, which is presently under appeal.

Briefly, the Defendant was the Head of Wealth Management for the plaintiff in northern India when she submitted her resignation to the Plaintiff and was serving her 30 day notice period thereunder. At this juncture, the Plaintiff alleges that she had disclosed confidential information to persons which was not in connection with the business of the company; used confidential information and trade secrets for her own benefit; violated the American Express customer privacy policy; revealed customer lists to a competitor and violated the intellectual property rights of the plaintiff.

The reliefs sought were straightforward – a perpetual injunction restraining the defendant “from using or disclosing any …confidential information and trade secrets relating to the business and operations of the plaintiff and from endeavouring to solicit or induce away any of the customers of the plaintiff and from doing any acts which would breach the confidentiality terms as in letter of appointment/code of conduct including the Customers Privacy Principles/Policies of the plaintiff and for a mandatory injunction directing the defendant to deliver up all confidential information, data, trade secret including customer’s list in particular the customer’s list of Wealth Management Operations and/or Wealthview program/operations of the plaintiff.

The defendant in turn contended that “the names of customers, their phone numbers and addresses are well known and can easily be ascertained by anybody and everybody and such information cannot be characterized as trade secrets or confidential information… (and) that defendant has built relationship with all her clients and the bank does not have any proprietary rights on these relationships and the clients are not bound by any arrangement of exclusivity with the plaintiff bank. …(the ‘confidential information’) is general knowledge and experience which the defendant gained while in service of plaintiff bank and which would have been gained by any other person or persons who worked or who are working in place of defendant and she cannot be directed not to use her work experience.

The judgement dwells essentially on questions of fact – on whether there was actual evidence of disclosure of confidential information or not and whether the defendant had a ‘motive’ to disclose confidential information – both of which are strictly not relevant to arrive at a prima facie finding as to the protectability of confidential information.

The Learned Single Judge interestingly observes, “If the defendant knows the customers, can she be restrained from approaching them and if they are willing to disclose their financial details to her, can she be restrained from taking it because such details have already been given by the customers to the Plaintiff bank already. Will this constitute confidential information …

The parameters of what constitutes “in the course of employment” and what falls outside such scope remains curiously undefined in a case where the a finding on this issue should have ideally determined the outcome.

And then again, the Learned Judge goes on to remark, “The defendant was the relationship manager got appreciation and awards on account of her exceptional performance and integrity. The defendant had given record-breaking sales in Delhi and contributed 60 per cent of the total balance sheet for Northern India region for the plaintiff bank. Her knowledge of the customers and even their financial portfolios cannot be denied in the facts and circumstances. During the year 2004 defendant gave sales amounting to 90 crores for the plaintiff. This is not the case of the plaintiff that the defendant was not concerned with any of the customers and their portfolios and have stolen the details of the customers and their financial portfolios. If the defendant gave the business and sales amounting to rupees 90 crores in 2004 and also performed similarly in earlier years, it cannot be inferred that she did not have the information which is touted as confidential and sacrosanct. If the defendant had this information, why would she force other employees to get the password and then give that password to yet another employee to download the data from the computer and take the file from her running into 40 to 50 pages. If the defendant had built a substantial customer’s base, can she be restrained from approaching those customers again in the facts and circumstances’ If it is presumed that the defendant had taken data of the customers and their financial portfolios, this itself will not give any advantage to the defendant, because merely having this data will not convince the customers and make them shift their business from the plaintiff bank to some other bank. All these factors points to an inevitable probable inference that the defendant did not obtain any information from the plaintiff bank as has been alleged. Prima facie, therefore, the defendant did not obtain any such data as has been alleged by the plaintiff…

On the issue of trade secrets the Learned Judge observes, ” It is also to be added that a trade secret is some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However, routine day-to-day affairs of employer which are in the knowledge of many and are commonly known to others cannot be called trade secrets. A trade secret can be a formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.

And in conclusion…”The injunction as prayed by the plaintiff will have direct impact on curtailing the freedom of the defendant in her future prospects and service. Rights of an employee to seek and search for better employment are Page 2131 not to be curbed by an injunction even on the ground that she has confidential data in the present facts and circumstances. Such an injunction will facilitate the plaintiff to create a situation such as ‘Once a customer of American Express, always a customer of American Express’. In the garb of confidentiality the plaintiff can not be allowed to perpetuate forced employment with American Express. Freedom of changing employment for improving service conditions is a vital and important right of an employee which cannot be restricted or curtailed on the ground that the employee has employer’s data and confidential information of customers which is capable of ascertainment on behalf of defendant or any one else, by an independent canvass at a small expense and in a very limited period of time. Such a restriction will be hit by Section 27 of the Contract Act and common law and equitable doctrine of English Law will not be applicable in the fact and circumstances. An injunction can be granted for protecting the rights of the plaintiff but at the same time cannot be granted to limit the legal rights of the defendant…Needless to mention, the views expressed above are tentative and prima facie conclusions which will not be expression of any final opinion on the final merits of the case.

While the factual position as to whether the plaintiffs had indeed managed to make out a good prima facie case or not is a different issue, the legal stand as to the protectability of confidential information, or at the more basic level, a determination as to the boundaries of confidential information, takes several significant steps back when compared to the decision in “Diljeet Titus Vs. Alfred A. Adebare and Ors. and Ms. Seema Ahluwalia Jhingan and Ors. Vs.Titus and Co.and Ors.” reported in 2006(32)PTC 609(Del) curiously passed in the same month as the American Express order.

In the latter case, there were two counter suits filed by the two set of parties (both being advocates) aggrieved by the conduct of each other. The plaintiff in the first suit claims that the defendants were only working for him and were paid remuneration in the form of fee while he remained in control of the professional business of the organization. On the other hand the defendants in the said suit, in the new organization set up by them, claim to have worked more in the nature of partnership with Mr. Diljeet Titus, the plaintiff.

The latter case eventually also boils down to an identical point as the former, on which the Learned Single Judge reaches a diametrically opposite conclusion – “The important aspect is that the defendants worked for the clients of the plaintiff, the client engaged the plaintiff’s services, the billing was done in the name of the plaintiff and the amount used to be remitted to the plaintiff. It is in the plaintiff that the clients had trust and faith and his services were engaged. It is possible that during the course of working the clients may have also developed faith in the defendants. It is also possible that after the termination of the relationship between the plaintiff and the defendants some of the clients may of their own free will decided to engage the services of the defendants. There is nothing wrong in such a practice.

And then again,
I am in agreement with the submissions of the learned senior counsel for the plaintiff that in such matters great importance has to be attached to any breach of trust or confidence. This is not merely an ethical issue but also a legal matter. It is in furtherance of this that Section 16 of the Copyright Act while providing that no copyright would exist except as provided in the Act goes on to stipulate that nothing provided in the said Section would be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence. If an advocate permits his associate or colleague to either assist him or handle the matter of his client there is an implicit obligation on such an associate to maintain the trust and confidence reposed on him by his superior. Thus any breach of the same must result in a legal remedy.

The information about clients and solicitors also to some extent is in public domain where it appears in printed directories and everyone can use the same. However, as an advocate or a law firm develops its work and relationship with other law firms or clients, the details about the particular persons in such law firms handling certain nature of work or as to which officer in a client’s company is material for getting the work becomes of great importance. Such a list is of great importance to an advocate or a law firm. The mere fact that defendants would have done work for such clients while being associated with the plaintiff would not give them the right to reproduce the list and take it away. It may again be emphasized that it is possible that Page 1904 a part of this information is retained in the memory of the defendants and if that is utilized no grievance can be made in this behalf. This would, however, be different from a copy made of the list.

It cannot be expected that the plaintiff would be doing the complete work himself. The plaintiff may be doing some work himself, may be assigning some work to the defendants as a part or as a whole. The work done by the defendants in such a case would be on behalf of the plaintiff for the clients of the plaintiff.

And it was finally held…”The plaintiff has clearly established a prima facie case in respect of the rights in the material taken away by the defendants. In my considered view, the balance of convenience lies in favour of the plaintiff and against the defendants. The defendants are free to carry on their profession, utilize the skills and information they have mentally retained and they are being restrained only from using the copied material of the plaintiff in which the plaintiff alone has a right.

In conclusion, I can only say that I find it intriguing that the latter order relates to the relatively hazy sphere of the inter-se relationships of lawyers in a law firm which treads the fine line between contracts of service and contracts for services, while the former relates to the distinctly black and white scenario of an employer-employee relationship.

Where then does Indian jurisprudence on trade secrets and breach of confidentiality stand?

The answer my friend is not blowing in any wind at the moment!

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4 thoughts on “Breach of Confidentiality – taking a few steps back?”

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  3. A blawg on the Indian IP scene — good. I’m pretty interested in IPR too, but aren’t the posts too long (and too detailed) for a non-lawyer.

    And what’s with the “Learned Judge” — sarcasm or convention?

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