As a special feature of our blog –special guest postings by experts, clients, and other professionals –please enjoy this blog entry about trade secrets in India by technology and corporate attorneys Sajai Singh and Soumya Patnaik of J. Sagar Associates in Bengaluru, India. Sajai serves as the President of ITechLaw, a leading technology law organization.  This entry is part two of a two part series on non-competes and trade secrets in India.

-Robert Milligan, Editor of Trading Secrets

By Sajai Singh and Soumya Patnaik

Of all the intellectual property generated by a company, its trade secrets are perhaps the most important. However, unfortunately, in India, they are also the most neglected and vulnerable. This vulnerability is due to the fact that India offers no statutory recognition to an establishment’s trade secrets. Unlike other jurisdictions, trade secrets are not covered within the purview of Intellectual Property law in India. Companies therefore, have to rely on contractual and common law mechanisms to protect and prevent their proprietary information from falling into the hands of third parties, especially, competitors. Recognising the intrinsic value and vulnerability of trade secrets, courts in India, have generally upheld trade secret protection. This note sketches the broad outline of trade secret protection law existing in India, and examines some of the principles laid down by Indian courts  in that regard.

 Protection of Trade Secrets in India

The law protecting a company’s trade secrets is derived from principles of the law of torts, restitution, agency, quasi-contract, property and contracts. In the absence of statutory regulation, companies have sought protection for their confidential information under two main heads, contractual obligations and equitable/implied confidentiality obligations.

a.      Contractual Protection

Non-disclosure agreements remain the primary mechanism for protection of proprietary information in India. Indian courts have recognised the right of an employer to prevent disclosure of classified information by an employee or ex-employee, through covenants in the employment agreement. In one case[1], the Bombay High Court, while considering a confidentiality clause in an agreement, stated that if such clause prevents the employee from divulging any secret information of a specific nature after termination of his service, an injunction in accordance with the terms of such clause, would be reasonable and justified in law.

Similarly, courts have also upheld the validity of restrictive clauses in agreements such as technology transfer agreements, which impose negative covenants on parties, not to disclose or use the information received under the agreement, for any purpose other than that agreed to.

b.      Equitable protection

Courts of law in India have not restricted the ambit of trade secret protection to relationships governed by contracts. In the case of John Richard Brady v. Chemical Process Equipments P. Ltd.[2] the Delhi High Court invoked a wider equitable jurisdiction, and awarded an injunction even in the absence of a contract, based on an implied obligation to maintain confidentiality on the part of the employee. Similarly, in the Homag India case[3], the Karnataka High Court held that the non-existence of an actionable right would not be assumed, merely due to the absence of a contract between the parties, as long as the petitioner could establish the wrongful disclosure of its proprietary information by the defendant.

Need for Legislation

In India’s increasingly competitive environment the protection of proprietary information often foretells the success or failure of a business. Indian companies are keen on protecting their intellectual property under the label of trade secrets rather than patents, as it affords them greater autonomy and secrecy. Therefore, there is a pressing need for a concrete legislation recognising and protecting trade secrets in India. In 2008, the Ministry of Science and Technology, published a draft legislation titled the National Innovation Act, 2008 (‘Innovation Bill’) that sought to codify and consolidate the law of confidentiality and aid in protecting confidential information, trade secrets and innovation. However, the Parliament, till date, has not directed its attention to the Innovation Bill, and consequently, trade secrets in India, remain unregulated.

[1] VN Deshpande v. Arvind Mills AIR 1946 Bom 423

[2] AIR 1987 Delhi 372

[3] Homag India Pvt. Ltd. vs. Mr. Ulfath Ali Khan and IMA AG Asia Pacific PTE. Ltd  MANU/KA/1569/2012