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While there are many factors which result in the success of business organizations, their ability to use sensitive procedures and advanced technology, thereby protecting their confidential information, can be another crucial aspect of remaining competitive in the market. Companies are therefore required to take extreme caution while sharing technical know-how, confidential information, designs, concepts, innovative formulas, business strategies, drawings etc. As a result, employers are eager to take the necessary safety precautions to protect such confidential data and information from being misused.
In the Indian context, since there is no specific legislation for safeguarding confidential information in employer-employee relationships, it becomes difficult to ascertain what amounts to confidential information. However, it is commonly accepted that for information to be construed as confidential, the said data must possess the requisite element of confidence, must have some commercial value and cannot be in the public domain. Additionally, reasonable measures need to be taken to maintain this confidentiality. A few days ago, while discussing the Markets and Markets Research Pvt case, I had mentioned the Bombay High Court’s order in Rochem Separation Systems (India) Pvt. Ltd. v. Nirtech Private Limited & Ors, wherein the Court dealt with some of these issues.
A Brief Overview of the Case: –
Recently, in the case of Rochem Separation Systems (India) Pvt. Ltd. v. Nirtech Private Limited & Ors., the plea made by the plaintiff was regarding the breach of confidentiality on the part of the defendants, who were ex-employees of the plaintiff and were allegedly using the acquired knowledge, expertise and skill gained in confidence to cause loss to the plaintiff. The primary issue for consideration was whether the defendants, who are ex-employees of the plaintiff, could be in a trade which is in direct competition with the plaintiff and, during the course of such trade, utilize confidential information acquired during their course of previous employment.
The Court noted that the plaintiff had not placed on record the specifics of the confidentiality stating, “There has to be clear-cut, specific description and data with the Court pertaining to the information in which the plaintiff claims confidentiality. In the absence of such clear-cut information and material, furnished by the plaintiff before the Court, there would be no basis for examining the allegations leveled against the defendants.”
The Claim of Misuse of Confidential Information: –
Although it cannot be expected that every single aspect of the confidential information be presented before the Court, but every single aspect of the relevant Confidential Information (i.e., that the plaintiff wants to protect), surely should. The plaintiff was required to produce the confidential information in a sealed envelope which could enable the Court to ascertain the veracity of the claims made by them. In this case, the plaintiff had merely mentioned the confidential aspects which were allegedly breached by the defendant, including ‘technical drawings, designs, inventions, products, machines’; and details of the same were not placed before the Court. Extrapolating from Para 11 of the order shows that the Court pointed out at least 4 pieces of evidence required to proceed with the case:
a) details of the information allegedly received in confidence by the ex-employees,
b) proof that the information was handed over in confidence,
c) that it was to be treated as confidential; and
d) that the ex-employees had not used the said information with the plaintiff’s consent.
This follows from the Bombay High Court’s reference to Zee Telefilms Ltd. and Ors. v. Sundial Communications Pvt. Ltd. and Ors., and Narendra Mohan Singh and Ors. v. Ketan Mehta and Ors., which mentioned the principles set out in the UK’s CMI Centers for Medical Innovation GMBH and Anr. v. Phytopharm PLC, regarding what the plaintiff must address to claim breach of confidence. The same are as follows: –
(i) clearly identifying the information relied upon
(ii) establishing that the information was handed over in confidential circumstances
(iii) establishing that the information could be treated as confidential
(iv) demonstrating that the information was used, or sought to be used, without the plaintiff’s authorisation.
Additionally, in this case, the Court also laid down that the procedure of providing the “information in sealed covers with material particulars” is mandatory and would not amount to the diluting of the information since it would check the veracity of the claims made by the plaintiff. Moreover, the Court noted that reliance is placed not only upon confidential information as defined in employment contracts but also on what was specified in the plaint and produced in a sealed envelope while seeking ad-interim order in the context of a quia timet action.
Use by Ex-employee of Gained Expertise and Skill?
Confusion also arises regarding an ex-employee’s right to use the acquired knowledge, expertise and skill gained over a period of time. While one can argue that ex-employees who indulge in using their acquired knowledge gained in confidence to benefit their present employers cause losses to their ex-employees, there ought to be few, if any, situations wherein the use of skills or expertise gained by virtue of that confidential information can be restricted as that would likely be a violation of Section 27 of the Indian Contracts Act. However, what about the situation wherein it becomes possible to reverse engineer a proprietary technology that was considered confidential based on such skill or expertise? That is not a direct use of leaking of confidential information, however, in effect, it may lead to a similar outcome. Does this lead to more fair competition, or should this be within the ambit of restricted activity? This seems a more difficult situation to resolve, and it will be interesting to see how courts handle these grey area questions in the future.
While confidential information can be potentially damaging and detrimental to businesses if obtained by competitors, it can also be difficult to adequately ascertain whether the defendants have acted in a way that breaches such confidential data. There can also be some complications in ascertaining the loss pertaining to confidential data caused to the ex-employers when ex-employees have joined competitor companies. If in cases where the plaintiff is required to wait till the actual damage is caused, then the respondents might gain an unfair advantage in first procuring a breach of contract and secondly by making unlawful gains and unjust enrichment by making use of the confidential information and therefore, the damage that the plaintiff would likely suffer cannot be compensated in terms of money. However, temporary injunctions under Order XXXIX, in the nature of a quia timet actions, can be undertaken if the plaintiff can prove that there is an imminent danger of a substantial kind or that an apprehension of injury that could occur will be irreparable and the subsequent monetary compensation would not be adequate.
If any readers know about more cases that could provide some guidance in this discussion, please let us know in the comments below!