From Ashes to Dust – War at the Nets…

For more background information, Vestergaard Frandsen is a developer of leading products to prevent the spread of such diseases as malaria, diarrhoea and HIV. The company’s home page reads as follows:
“…an international company specializing in complex emergency response and disease control products…. Our products are designed to prevent waterborne, vector-borne and neglected tropical diseases. We have turned our commitment into action by innovating technological breakthroughs for the most vulnerable people on earth, with our PermaNet®, LifeStraw®, ZeroFly® and CarePack™ products. These products have the potential to revolutionize health management as we know it, fighting preventable diseases and saving lives…”

Irrespective of the veracity of these claims, what is important is that Vestergaard
 Frandsen’s trade secrets concern complex and highly effective technology 
which form the basis of their business.

A trade secret can be defined as information having commercial value, which is not in the public domain, and for which reasonable steps have been taken to maintain its secrecy. The most concise definition of a trade secret has been given by Megarry VC in Thomas Marshall Ltd v. Guinle wherein the Court identified four factors that are to be considered: (i) the owner must believe that the release of the information would be injurious to him or of advantage to rivals or others; (ii) the owner must believe that the information is confidential or secret, that is, not already in the public domain; (iii) the owner’s belief must be reasonable; and (iv) the information must be judged in the light of the usage and practice of the particular industry or trade concerned. The formula for Coca-Cola and the Hyderabad fish cure for asthma are well-known examples of trade secrets.

(For greater discussion on the law relating to trade secrets refer to V. Pai et al., “Legal Protection of Trade Secrets”, available at http://www.ebc-india.com/lawyer/articles/2004v1a3.htm;
R. Chaudhary et al., “Can your firm keep its secrets?” available at http://www.managingip.com/Article.aspx?ArticleID=1969118)

In the present case trade secrets basically consist of test results and information about the best chemical mixes to be used in their products.

Before the English High Court, Vestergaard
 Frandsen alleged breach of confidence and misappropriation of its trade secrets by its former employees, Torben Holm Larsen and Trine Sig. Interestingly, the two former employees seem to have a history of committing such breach and undertaking illegal actions. In 2004, after they left Vestergaard Frandsen, they formed their first company, Intection A/S in Denmark. This company was injuncted by
 the Danish Courts (on grounds of breach of confidence). They later moved to the UK as Bestnet, together with another partner, Ole Skovmand.

As mentioned earlier, the judge held in favour of Vestergaard Frandsen and found Bestnet and its executives guilty of misappropriation, misuse of trade secrets and breach of confidence. In terms of costs, the Court ordered Bestnet to pay Vestergaard Frandsen’s
legal costs which are in the region of £4.5 million. Further, Bestnet must
 pay an additional sum of £1.5 million to Vestergaard Frandsen as an interim payment. Final damages payable by Bestnet are still to be determined.

THE INDIAN CASE

This case is of interest to us as there is a similar case involving Vestergaard Frandsen being heard in the Delhi High Court. A report gives us the following information:

“…In May 2007 Vestergaard Frandsen obtained a preliminary injunction 
from the High Court in Delhi, prohibiting the defendants from manufacturing
 or marketing NetProtect until further orders. In October 2008 Vestergaard Frandsen also obtained a further preliminary injunction from the High Court
 in Delhi restraining the manufacture, offer for sale, sale, distribution, advertising, marketing, export and/or import of long lasting insecticidal
 mosquito nets using its confidential information including but not limited
 to such nets sold under the brand name IconLife….”

I wasn’t successful in tracing these orders of the Delhi High Court. However, I did come across the decision of Justice Mukul Mudgal and Justice Valmiki J. Mehta on an interim application involving the same parties, concerning the following question:
“The issue which requires to be addressed is, where two parties are claiming exclusive ownership rights in a product and its confidential/proprietary information along with related copyright material, then in such a case whether one party is entitled to seek production of documents with respect to the product of the other party…. The related issue is if the production of the documents is to be allowed, then, what precautions are to be observed to protect the rights of the party against whom production of documents is ordered.”

The plaintiffs in this case, Vestergaard
 Frandsen, contended that the defendants, i.e., the erstwhile employees of the plaintiff mentioned earlier in the post, M/s Bestnet Europe Ltd. and their other concerns, had illegally taken away the confidential information and trade secrets, proprietary data, etc of the plaintiffs with respect to its products and were now carrying out the operations of manufacture and sale of the disputed products in India.

It is pertinent to note that the application for discovery and production of documents was originally made by the plaintiffs, Vestergaard 
Frandsen, and was allowed by a Single Judge of the Delhi High Court. The defendants appealed against the order of the Single Judge and the matter at hand was heard was an appeal before the two judge bench.

THE DECISION

On appeal, the Delhi High Court concluded that the parameters based on which discovery and production of documents will be ordered are:
(i) The documents sought to be discovered and produced have to be relevant to the matter in controversy viz matters in question.
(ii) The documents have to be in the possession and power of the person against whom discovery and production is sought.
(iii) Discovery and production of the documents which are sought for are necessary at that stage of the suit;
(iv) The discovery and production is necessary for fairly disposing of the suit or for saving costs.
(v) The discovery and production may be general or limited to certain classes of documents as the Court in its discretion deems fit and the production will only be ordered if the Court considers it just.

It should be noted that the points of relevance of documents and judicial discretion become extremely significant when one is dealing with trade secrets. If documents relating to trade secrets are produced before court and are made accessible to a third party without due cause and caution, it could essentially end the business of the company which relies on these trade secrets as the secrets would become open knowledge. The Hon’ble High Court paid heed to this fact and stated that, “the power to order production of documents is coupled with discretion to examine the expediency, justness and the relevancy of the documents to the matter in question. These are relevant considerations, which the Court shall have to advert to and weigh…”

At the same time one has to acknowledge the fact that trade secrets per se cannot be legally protected, as they are secrets; what will be enforceable are the consequential effects of breach of trust or legal contracts. Thus, the protection is negative as opposed to being preemptive in nature. For instance, if an employee has left to join a competitor and there is evidence to show that trade secrets have been revealed, then the aggrieved party can apply for an injunction against the ex-employee and the competitor, preventing them or stopping them from using the confidential information. Hence, the crux isn’t the maintenance of secrecy so much as the need for proper remedy once the secrecy is breached.

Coming back to the case at hand, based on this need to maintain confidentiality of secret documents and the delicacy of the matter at hand the Court modified the order made by the Single Judge for production of documents and ordered that steps must be taken to ensure that the confidential information so released remains confidential.

THE RELEVANCE

Given the global spread of this litigation, this case is probably going to be one of the most important cases concerning trade secret law in India. Interestingly, as our readers would be aware, India does not have any legal regime dedicated to protection of trade secrets, in spite of the fact that Article 39 of the TRIPs mandates the same.

Legal protection of trade and business secrets in India is derived from many diverse sources of law such as contract law, tort law, and laws governing employee/employer relations and fiduciary obligations amongst others. The normal practice is to depend on the employment contract, which elaborates on the nature of the proprietary material and its ownership. Moreover, it imposes an obligation on the employee to maintain confidence and stipulates heavy damages in case of any breach. An example of use of an employment agreement to enforce confidentiality is the decision of the Supreme Court in Niranjan Shankar Golikari v. Century Spg. & Mfg. Co., Ltd.

The problem is that these modes of protection are not necessarily ideal or effective. In fact, it is this amorphous nature of trade secrets law often presents a challenge to protection of trade secrets. Moreover, India also being a signatory to the TRIPS is under an obligation to amend its laws or create a new law in order to safeguard the trade secrets of various businesses. (See M. Nair, “India: Protection of Trade Secrets”, available at )

Most importantly, the absence of a specific legal regime defining the concept of trade secrets, clarifying related rights and corresponding illegal actions creates scope for bad decisions. This has been seen in the cases of American Express Bank Ltd. v. Priya Puri, Diljeet Titus v. Alfred A. Adebare and Ors. and Ms. Seema Ahluwalia Jhingan and Ors. v. Titus and Co. and Ors. These cases have been discussed on SpicyIP by Shwetasree Majumdar.

Thus, the issue is whether the hit or miss approach to trade secret law will continue or will the legislature move in to put in place a more comprehensive legal regime.