Agreements on trade secrets and confidential information – Enforceable in India?

It is not the answer that enlightens, but the question.

This is rather apt for the India IP scenario where many individuals and companies have been approaching the Courts with rather interesting questions (ones that we have always wanted answers to) and Courts have been very liberal, and cautious at the same time while interpreting these provisions of the intellectual property laws. With specific reference to the confidentiality clauses, non-disclosure agreements and trade secrets, there have always been a lot of questions but very few answers. Two recent cases decided by the Calcutta High Court and Delhi High Court shed some light on the enforcement of such clauses.

Recently, my colleague had written about an injunction granted against use of confidential information (marketing information and customer details) by the Calcutta High Court. Two weeks ago, the Delhi High Court heard a dispute concerning sharing and disclosing of trade secrets, confidential data and intellectual property rights. Though the Court did not grant an injunction in this, the judgment recognized the importance of this clause and directed the other party to adhere to the terms of the agreement.

Shareholdings of a company engaged in the business of travel was distributed between the plaintiff (40%) and the defendant (60%). The defendant appointed two managers and also made arrangements with a certain person to source business from Italy. Later, the plaintiff found that the managers and person sourcing business from Italy had started their business which also included a travel agency and therefore they exited the company.

In 2012, the plaintiff agreed to buy the shareholding of the defendant in the company and they signed an agreement. Based on the terms of the agreement, the defendant agreed not to share and disclose trade secrets, confidential data, IPR or works of the plaintiff and also to intimate his disassociation from the plaintiff to the public at large and also existing clients. However, it came to the knowledge of the plaintiff that the defendant along with the person who had exited from the company continued to engage to pursue their business as travel agents.

As per the agreement, the defendant was to abide by clause 4 which stated that,

• The defendant shall not to share and disclose trade secrets, confidential data, IPR or works of the plaintiff
• The defendant will not run a business within the definition of Inbound Tours and/or any business construed as being similar business of the plaintiff for a period of three years
• The defendant will not initiate, maintain or engage into any business dealings of commercial nature with the existing clients for a period of three years

It is interesting to note that the defendant stated that they have no objection to comply with the provisions of this clause, however, since that none of these words were defined it and therefore it was bound to lead to needless litigation. Thereafter, the plaintiff disclosed the scope of trade secrets and confidential to include,

• Contact information of plaintiffs’ clients, other partners, hotels, restaurants, shopping complex, transportation providers, guides etc.
• Commercial terms offered by the plaintiff to its clients, other partners, hotels, restaurants, shopping complex, transportation providers, guides, routes etc.

However, the defendant argued that even this clause cannot hinder them for carrying on business since facts and figures available to all persons who are dealing in the travel trade.

The Court partially agreed with the arguments of the defendant and stated that the terms were not clearly defined in the agreement and that all the information put forth by the plaintiff could not be subject matter of injunction. Further, that since such information would be in public domain and travel agents would be aware of it, the defendants cannot be restrained from using such information. However, the Court directed the defendants to abide by the terms of the agreement for a period of 3 years, which is surprising because the 3 year period expired on February 5, 2015.

This case reaffirms the point that the Courts are willing to enforce agreements for trade secrets and confidential information if the agreement in unequivocal terms states so. So two key take away points from this case:

• It is important to define the scope of trade secret and confidential information since that is the very basis of the agreement
• Understanding the extent and nature of information that is in public domain and ensuring that the agreement only includes information that is not publicly available