The “Stellar” Case (DHC) – Copyright and Confidential Information

M/S Stellar Information Technology Pvt. Ltd. v. Rajesh Kumar and Ors. deals with two areas:
1. Copyrightability of compilations.
2. Extent to which a contract can determine the boundaries of “Confidential Information”.

But before we get to these questions, let us get acquainted with the facts.

Relevant Facts

The defendants were former employees of the plaintiff.
The defendants left the Plaintiff and set up their own company.
The defendants’ company works in the same field as the plaintiff’s i.e. Data Security.
The defendants entered into a few contracts with the plaintiff during their time as employees.

We need not go into detail regarding what the contracts say, but the following are the key points:
a. The contracts define “Confidential Information” (CI) to include almost everything.
After listing out a large swathe of examples, the contracts go on to state that any information, used to the detriment of the Plaintiff, would be deemed to be CI.
If you were to accept the average nutritionist’s definition of “unhealthy food” and further assume that the average nutritionist avoids his conception of “unhealthy food”, thorough analysis and usage of deductive logic would help you come to the conclusion that the average nutritionist is a vampire. The contract defines CI in a similarly broad fashion.
b. The contracts prohibited the usage of any information that would constitute CI. It is pertinent to note that the contract allowed for any activity that did not involve the usage of CI. But, given the broad definition of CI, a literal interpretation of the contract would effectively prohibit former employees from carrying out any business in the same field as that of the Plaintiff.

Now that we have considered the key points of the contracts, let us look at the nature of the information that was allegedly misused by the defendants:
The Plaintiff alleged that the defendants utilized a client list to poach its (plaintiff’s) customers.

The plaintiff sought to enforce the contract and prayed that the court will pass an injunction restraining the defendants’ from carrying out their business activities, as they had used “confidential information”.

Analysis

As I have stated earlier, there are two areas that we will be dealing with:
1. Scope of protection of a client list under copyright law.
2. Scope of protection of a client list under contract law.

Scope of Protection of a client list under copyright law.

The first question is:
Is a client list copyrightable?

The judge bypasses this question and does not engage with it at all.
Which is alright, because he held that there was no evidence of the defendants having copied the database, electronically or otherwise. So, even if the material were to be deemed to be copyrighted, no infringement could have occurred on account of the defendants not having copied the data.

Prior to concluding this section, I shall point an ambiguity within the current judgment.

Though the current judgment has largely been well drafted, I would have preferred it if the judge had been a little more clear as to whether he is using the public domain argument to say that the information was not copyrightable, or whether he is using that argument exclusively for saying that the contract would be void under Section. 27 (restraint of trade).

I am reproducing the relevant part of the judgment for your convenience:

“21. The decision in the case of Diljeet Titus (supra) is wholly inapplicable in the facts of this case. In that case the issue was whether the copyright in the database – which included a client list and was admittedly copied by the defendants – vested with the defendants as they had worked on it or whether the same belonged to the plaintiff. The court held that “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” and therefore, restrained the defendants from using the same. Even so, the court clarified that “it is possible that 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”. The decision in Vogueserv International Pvt. Ltd. (supra) also turned on the issue of copyright. There is no dispute that the Defendants could be restrained from using the copyright material, but clearly, they cannot be restrained from using the material which is in public domain and from carrying on competing business after their employment with the Plaintiff has ceased.”

The significance of the last line is ambiguous.
Is the judge only saying:
* That one cannot be restrained from using information in the public domain on account of S. 27?
OR is he also passingly saying:
* That material that is in the public domain (e.g. a client list) cannot be copyrighted.

After reading the judgment for the umpteenth time, I am inclined to say that Justice Bhakru only said the former. As stated earlier, he avoids the entire copyrightability question by holding there wasn’t a copy made (for infringement to occur) in the first place .
Yet, it is significant for us to note the slight ambiguity.

Scope of Protection of CI under contract law

“The learned counsel for the Plaintiff had submitted that the expression ‘confidential information’ is very wide and thus, it would not be practically impossible for the Defendant to establish that they were not using the confidential information in the context of their business. Consequently, the Defendants could not be permitted to carry on any competing business. In my view, this contention is also bereft of any merit as by expanding the width of the expression ‘confidential information’ to include information which is in public domain, the Plaintiff is not seeking protection of proprietary or confidential information, but is essentially seeking a restraint on trade. Plainly, if the expression of ‘confidential information’ is read in the manner as suggested by the Plaintiff, clause 4(b)(ii) of the Confidentiality and Invention Assignment Agreement for the Employee would in effect work as a covenant in restraint of trade and, therefore, would be void by virtue of Section 27 of the Indian Contract Act, 1872.”

First, the court held that if the broad literal interpretation of the contract was given effect to, then the contract itself would be void on account of being in restraint of trade. Therefore, in order to maintain the validity of the contract, the court chose to read “Confidential information” in a narrow fashion and as a consequence, the subject matter in the case was deemed to not constitute CI.

Plaintiffs argued that the restrictions imposed (time period of restriction) was reasonable, and therefore the defendants should be restrained from working in the same field.

In order to understand the courts response to this, let us first look at the bare text of S. 27 of the Contracts Act:

“27. Agreement in restraint of trade void-Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is to that extent void.

Exception: One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer or any other person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.“

According to case law, a contract cannot prevent a former employee to any extent, whatsoever, after the termination of the employment contract, except in two cases:

1. Where there is sale of goodwill, or
2. For the protection of proprietary information (Confidential Information or patents, copyrights).

“14. The expression ‘Confidential Information’ and ‘Proprietary Information’ is defined in very wide terms in the Confidentiality and Invention Assignment Agreement. However, information which is otherwise available in public domain cannot be considered as confidential information and no injunction restraining the use of such information can be issued.”

It is only when these exceptions arise that courts are required to look into the question of reasonability of the restrictions. In the current case, J. Bhakru held that the fact scenario did not fall within the exceptions and was therefore, not required to look into whether the restrictions were reasonable or not. Hence, the Plaintiff had no right to place any restrictions on the Defendant in the current case.

Conclusion

Though well drafted, J. Bhakru’s judgment commits the common error of conflating the two different issues of copyright and confidential information. I would have liked it better if he dealt with the two issues in a more distinct manner. That way, I could clearly understand the relevance of arguments with respect to the issues under discussion.

Otherwise, the analysis is rather simple. Firstly, no claims of copyright infringement can arise because there has been no copy and further, the alleged infringed upon material does not constitute “confidential information” as it is a part of the public domain. Hence, no remedy exists and no contract can validly restrain former employees from using (not copying) such information.

Also, though the information was in the public domain, I believe it is incorrect to say that such information is not in the nature of confidential information. For instance, if a toy manufacturer painstakingly compiled the contact information of households with children, would that not be CI? Irrespective of whether it is copyrightable or not, I believe it should be considered to be CI Though the court deals with this matter summarily, I would have preferred it if J. Bhakru had dealt with this in greater detail.

Anyway, I intend to write a two part theoretical post dealing with the following questions:
a. What determines the copyrightability of a compilation?
b. What are the boundaries of “Confidential Information”?

Image from here