By Akshay Maheshwari & Anjali Bhatt, UPES
Editors Note: After an extensive comparative analysis, the paper tries to throw light on the law as developed by English Court and also evaluates the protection afforded to confidential information in India by way of equitable relief in the absence of a specific legislation.
Information refers to know-how transmitted “orally, by letter or by demonstration”. The maintenance of secrecy is pertinent for securing to owner of an invention the uninterrupted proprietorship of marketable know-how so that it remains at least a form of property and it can be enforced by law.[i]
Confidential information can be defined as information that can be legally protected and provides a business advantage to the owner of that information by virtue of the fact that it is kept secret. The two underlying requirements are that the information must have value by virtue of being kept secret and it must be capable of being legally protected. The word confidential information and trade secrets are synonymous. It can also be defined as that type of information which is privileged information, classified information, or specific information of a type for which there is a clear and compelling need to withhold from disclosure. It was remarked in the case of Stephen John Coogan v News Group Newspapers Limited and Glenn Michael Mulcaire that while confidential information might not be “property” as a matter of law, it is often treated as part of intellectual property[ii]
People ought to keep secrets if they have. From the nineteenth century, the courts have developed this simple moral percept into the form of legal liability which is of considerable breadth. This development has run counter to the traditional reluctance of judges to adopt broad proposition as ground rules for the imposition of liability, and they have added to face some of the difficulties inherent in their unusual course. The passing of Human Rights Act 1998 and recognition of states obligation to confer a right of privacy, has caused the breach of confidence action to spin off a satellite that is establishing its own orbit. On a different front, the flexibility of breach of confidence has allowed many issued to which it is germane to be dealt with in the civil courts.
Confidential information as property
The willingness of the courts to hold indirect recipients responsible shows that the obligation to respect confidence is not purely personal to the initial giver of the undertaking; which raises a question “Whether is it than in any meaningful sense property?” Clearly, those who deal in technical know how often treat it as such. Lord Upjohn, the then judge of Court of Appeal never the less denied that confidential information was “property in any normal sense but equity wills restraint its transmission to another if in breach of some confidential relationship[iii]”. This predominant view has been used by judges to support consequential conclusions in a variety of situations. It suggests the wisdom of shaping the obligation by reference to the requirement of conscientious behavior rather than by disposing of issue simply by attaching a property label.
First, the property right characteristically gives the owner the power not only to license but also to transfer ownership and engage in other transaction with respect to the subject matter. For established type of intellectual property such as patent, trademark, copyright etc. these basic powers are defined in the governing statutes. In case of assignment of know-how, the assignor by itself remains the only person entitled to sue an outsider for misuse of it, which makes a crucial aspect of property lacking.
Secondly, if confidential information is per se classified as equitable property, when it is misused the profits ought to be recoverable not just by the personal remedies of account or damages but by the remedy of a constructive trust in any traceable asset constituting a property. Thirdly, the central significance given to the undertaking to respect the confidence makes liability turn to an initial personal obligation. This means that information otherwise obtained will not be protected just because it is in some sense private and so respect for freedom of information and expression is maintained. It means that if the person with technical know-how assigns it or licenses it exclusively to two different people in an inconsistent manner the recipients are each left to their rights against the provider of the know-how subject to any remedy which may independently arise in law or equity directly against the other. Instead of the rule that the as between owners of equitable interests the first in time prevails, the courts are compelled to reach a resolution of a three-cornered dispute taking into account all of the particular circumstances.
Patent, copyright, and confidential information
Due to the far-reaching range of subject matter, it becomes imperative to compare the protection of confidential information with that provided by patents and copyright. In the realm of technical ideas, confidence cannot play any long term role unless the information can be put to commercial use without at the same time becoming public. The mechanical device will always reveal in working to experts once it is marketed and importantly reverse engineering by a purchaser is not a breach of confidence, but a process of manufacture may not be similarly detectable. In the latter case, an inventor may secure a patent that gives him monopoly protection against independent divisor of the same invention but for a limited period. Accordingly, it is for him to decide to keep his invention secret through obligation as an alternative and not an additional form of protection which stands good only against those who receive the information directly. A person who chooses to keep an idea confidential during his own exploitation of it runs the serious risk of someone else discovering and patenting it[iv].
In particular, the need to protect trade secrets is not just an aspect of contractual obligation but even infractions by direct and indirect recipients in non-contractual relationships have not infrequently been neglected even in legal systems which have the usual panoply of specific intellectual property rights. Responding to this interest of creators and investors the TRIPS agreement contains a broad provision requiring that persons who have secret information lawfully in their control be able to prevent its unauthorized disclosure, acquisition or use in a manner contrary to honest commercial practices[v].
In principal copyright is capable of helping to resist invasion of privacy but the intrusion must take the form of making at least one copy or of doing any other act specified as constituting infringement. Coupled with this there must be copying of manner of expression and not merely use of information contained in the copyright act. The proceedings, moreover, must be brought by those with the title to copyright. Breach of confidence protection resembles copyright in that the information which the defendant seeks to deploy must derive from that which the plaintiff seeks to protect. But confidence protection is not generally tied to a particular way of using the material. It is concerned with the information in substance and not in form[vi], and only the person to whom the obligation of confidence is owed are be entitled to sue[vii]. Thus if a secret society has rules written for it by persons who do nothing to dispose of their copyright and a member with the intent to expose the society to the public discloses it; he may have committed breach of confidential obligation towards the society. But there will be infringement of copyright in the rules only if he substantially reproduces their content.
The scope of the modern law began to be settled around 1850 with Prince Albert v. Strange[viii] and Morrison v. Moat[ix]. In both, the cases injunction were granted against indirect receipt of confidential information and the jurisdiction was set to arise by virtue of property, agreement, confidence, trust, and bailment. But it was uncertain then and is now in what circumstances direct and indirect receipts of information would have liability imposed on them. More recently contract has seized to be treated as the universal touchstone of liability, though its role in determining what obligations of confidence may exist is still crucial.
Starting with Saltman v. Campbell[x] the Court recognized a wider equitable jurisdiction and said “not so much on property or on contract but on good faith” and this approach is now reasonably well ingrained among the judiciary. But if the true measure is this simple moral yardstick the courts have been imprecise in the matter on how it is calibrated.
This has excited jurists in favor of working out the implications of good faith more exactly in accordance with the percept of restitution in favor of a new tort of a breach of confidence, in favor of equitable property as the true basis of protection[xi]. In this account, the following points must be isolated at which these differences begin to matter. They concern in particular:
- The liability of those who in some sense act innocently.
- The circumstances in which the damage may be awarded for breach.
- The possibility of awarding damages for injury to feelings as distinct from economic loss.
- The effects of dealing that treat the information as property.
- The liability of indirect recipient.
Requirement of Liability
Following are the requirement that constitutes an actionable breach of confidence. “First, the information itself must have the necessary quality of confidence about it. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorized use of that information to the detriment of the party communicating it[xii].”
Subject matter capable of protection
The breach of confidence action lies in respect of technical, commercial, personal and other information without distinction by subject. It has been accepted that scandalous or immoral material may be disqualified from protection just as it is not accorded copyright. An idea for something yet to be elaborated may attract legal protection as confidential information where there is nothing that generates copyright. It is enough that the content of the idea is clearly identifiable, original, of potential commercial attractiveness and capable of being realized in reality.[xiii] It is perfectly possible to have a confidential document; be it formula or something of a kind which is the result of work done by the maker on material which may be available for the use of anybody. But what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be reached who goes through the same process[xiv].
If the information has been made freely and entirely public, either before it was given to the defendant in confidence or else in the interval between the time and trial of the action then nothing protectable remains. If not all the relevant information has been made public, the rest, if it can be adequately satisfied, remains capable of protection. If the information has been given to some of those interested and not to others there may remain some relative secrecy. Whether the court will grant any form of relief in such cases seems to depend on the circumstances as a whole. In this context the “springboard” metaphor has been in trend, according to which a person who has obtained information in confidence is not a allowed to use it as a springboard for activities detrimental to the person who made the confidential communication and it remains springboard even when all the features have been published or can be ascertained by actual inspection by any member of the public[xv]. This is not an invariable rule which takes no account of subsequent development and other circumstances; therefore the springboard does not last forever.
It is well settled that there can be no confidence which can be relied on to restraint a disclosure of iniquity and in this context, iniquity covers criminal, tortious and other legally wrongful conduct if it is serious and is likely to occur in future. Some courts consider that where the information concerns misdeeds of a serious nature which are of importance to the country they should intervene to preserve confidential obligation. One way of expressing this inclination is by holding that public interest is nothing other than the consideration of the extent of the obligation to respect confidence itself[xvi].
There is now a broader approach which treats iniquity as merely one instance of just cause for allowing for confidence to be broken in the public interest by limited publication, to an appropriate person to take action on matters of public safety and administration of justice. In every case whether the basis in iniquity or some other ground the court has to balance the competing interest taking account of the proportionality of the restraint upon freedom of expression.
A prima facie case of liability is established when; one person supplies information to another on the condition that he will keep it secret. Equally the obligation to do so may arise where the first person employs or requests another to acquire information and hold it in confidence for him. But the whole case rests on the requirement of good faith. Whether the recipient or the acquirer is bound only if he accepts that the information is to be treated confidentially is to be tested objectively. If the circumstances are such that any reasonable man standing in the shoes of recipient of the information would have realized that upon reasonable grounds the information was given to him in confidence, this should suffice to impose upon him the equitable obligation of confidence[xvii].
Once the obligation is assumed it may be breached by conduct that is neither ill-motivated nor deliberate. Also, the relationship between two persons may be such that equity imposes a duty upon one to act in the interest of others rather than him. The moral impulse from which the fiduciary duty emerges is very similar to that which requires confidence to be respected and often there is an overlap between the principles. But the difference is that fiduciary responsibility may be a source of duty to preserve confidence. An employee who removes confidential report from his employer’s desk will break the confidence that already exists. An outsider who did the same thing would commit trespass, but he would probably not be in breach of confidence. The fiduciary duty may be in a wider scope than a simple obligation to observe confidence. For example, a recipient may be expected to continue using the information for his beneficiary’s advantage only, even if it has become public. Equally, he may be obliged to hold the profits for breach of trust for his beneficiary. Equities intervention is to prevent the fiduciary from taking a personal advantage from the possible conflict of interest and duty.
Where the relationship between the supplier and recipient of the information is that of employer and employee a distinct policy has been pursued by the judges. They have struck a balance between the desire to accord every worker the freedom to dispose of his labor where and when he pleases and the wish to give protection to valuable pieces of information that a particular employer may possess over his competitor and which an employee might give to competitor or which he might use him in competition.
While he remains in employment he must observe his duty of fidelity. Once he leaves his employment the balance rests largely in favor of employee who is entitled to make use of all the skill and knowledge that any employee of his kind would have acquired. He is obliged to respect two specific interest of his employer i.e. in secret processes and goodwill. The above position is applicable only in the presence of an express covenant.
A person in India can be contractually bound not to disclose any information that is revealed to him in confidence. The courts have upheld a restrictive clause imbibed in a technology transfer agreement, which imposed negative covenants on licensee not to disclose or use the information received under the agreement for any purpose other than that agreed in the said agreement. The courts have invoked a wider equitable jurisdiction and awarded injunction even in the absence of a written contract[xviii].
In VFS Global Services Private v Suprit Roy[xix], the defendant was employed under a contract wherein his services could be brought to an end by either party with one month’s notice or salary. Though later additional terms were added, restraining the defendant from interacting with a competing company during employment and two years after. The appellant employer filed a suit seeking damages and for enforcing the negative covenant. D.Y. Chandrachud J. held that a clause prohibiting an employee from disclosing commercial or trade secrets is not in restraint of trade; however, it was observed that the relief sought was considered to be extremely vague and not simply non-disclosure of confidential information. Eventually, the defendant had claimed that the information in question was not a secret, but he agreed to maintain confidentiality subject to the information not being in the public domain.
The High Court had to rule on claims of confidentiality in Bombay Dyeing and Manufacturing v Mehar Karan Singh[xx], where the defendant was alleged to have disclosed confidential information to a competitor whilst in the employment of the plaintiff and apprehension was expressed that confidential information gathered was divulged. It was observed that information that is within the public domain cannot relate to confidentiality. Any person in employment for some period would know certain facts which would come to his knowledge without any special efforts. The mere use of words such as strategy and crucial policies would not give it a character of secrecy, as these could be anticipated by any individual with foresight.[xxi]
In Desiccant Rotors International v Bappaditya Sarkar[xxii], an employee entered into an agreement, accepting that he was dealing with certain confidential material such as trade secrets technology, know-how, methods, and processes. Upon resignation, he entered into a non-compete agreement for a term of two years and agreed to deliver official property. Within three months, the delinquent employee joined a direct competitor of the plaintiff. In the injunctive proceedings instituted for violation of the terms of the agreements, including the confidentiality and non-compete, the Delhi High Court reiterated the principles embodied in the Indian Contract Act, which holds that any agreement in restraint of trade is void, and recognized an individual’s fundamental right to earn a living by practicing any trade or profession of his or her choice conferred by the Article 19 of the Constitution of India.
Without giving any consideration to the plaintiff’s arguments that the restrictive covenants were principally intended to protect its confidential and proprietary information, the High Court ruled that in a clash between employers wishing to protect themselves from competition and the right of employees seeking employment wherever they choose, employees’ interests and rights must prevail. Notwithstanding, to safeguard the interests of the plaintiff, the Court restrained the employee from approaching the employer’s suppliers and customers for soliciting business.
The recent Delhi High Court decision in Diljeeth Titus case[xxiii] also further vouches for the fact that confidential information of the employer can be protected post-employment period. In Escorts case[xxiv], the Delhi High Court restrained from manufacturing, selling or offering for sale of the Pick-N-Carry Mobile Cranes that are substantial imitation or reproduction of the industrial drawings of the Plaintiffs or from using in any other manner whatsoever, the technical know-how. In Burlington case[xxv] the Delhi High Court again restrained carrying on any business including mail Order business by utilizing the list of clientele/customers included in the database of the petitioner.
Undertakings by the employee that he will not upon leaving the employment to disclose or use trade secrets are enforceable only if reasonably necessary to protect the employer. Otherwise, it is undue restraint to trade and is void. Such covenant by employees is scrupulously tested so that they must be no wider in scope then is reasonably necessary to give employer protection of the relevant interest.
The deliberate or reckless recipient would be in many circumstances be liable under the general law of tort for inducing or procuring breach of contract, unjustifiably interfering with business relations or conspiracy; if not his bad faith would justify equity’s intervention. Other recipients who at most have only been negligent are not themselves usually regarded as acting in bad faith. However, obligations of confidence are apparently imposed on direct recipient under an objective test and it is justified to say that it is too much to expect from the plaintiff to establish fraud always. The same approach can be equally applied to indirect recipient. But if the non-negligent recipient is to be held liable it can only be done when the confidential information has been dignified with the status of property or else the court’s intervention is to secure the information against the breach of the obligation of good faith originally assumed by the first recipient[xxvi].
The need to show that the information must have been imparted in the circumstances importing an obligation of confidence does not confine action to cases where there was prior undertaking to keep the information secret. It is enough that the person acquiring the knowledge ought to have known that he ought not to disclose it.
The acts that constitute infringement of a patent or copyright are in different ways, limited by précised criteria. In the case of patents by confining infringement to certain kinds of industrial use and commercial information within the scope of claims defining the monopoly. In the case of copyright by the requirement of reproduction or performance, copying of manner in which the ideas are expressed and the taking of a substantial part of the work. The notion of breach of confidence, by comparison, is loosely defined. It may consist of any disclosure or use which contravenes the limited purpose of the revelation. If the question is one of misuse it does not matter that the user will not disclose the information to further recipient. The information used must come from that disclosed in confidence and not form some other source.
The liability of the defendant may turn upon his state of mind both at the time when he receives the information and when he uses or discloses it. When it comes to breaching it appears not to matter that the defendant acts out of some misguided or well-meaning motive, that he does not appreciate the confidentiality of the document form which he takes information or that he has forgotten the source of information and thinks that he has thought of it himself.
The range of information that may be the subject of confidence makes the question of whether the plaintiff must show that he has or will suffer detriment by the breach of confidence has been a difficult issue. The motive for protecting the technical and commercial information is normally to protect its economic value for the plaintiff. The motive for protecting personal information may prevent distress or embarrassment. It is tempting to say that liability ought to follow simply upon the breaking of confidence without looking also for detriment[xxvii]. But it must be remembered that a very wide range of subject matter is involved, likewise, there is some public interest in the freedom to use information. Restriction of that freedom accordingly requires sufficient reasons.
In this connection it can be said that most economic torts are actionable only upon proof of damage and the tort of defamation is confined to statements which tend to lower the plaintiff in the eyes of right thinking members of the public which is an objective standard approach[xxviii]
In India, only civil or equitable remedies are available for an action of breach of confidence. The remedies available include the award of an injunction “preventing the third party from disclosing the trade secrets,” the return of all “confidential and proprietary information,” and compensation or damages “for any losses suffered due to disclosure of trade secrets The court may also order the party at fault too “deliver-up” such material[xxix] . Criminal prosecution can be launched, only against a person who, in pursuance of any of the powers conferred under Information Technology Act, 2000 has secured access to any information and discloses it without the consent of the person concerned. A maximum punishment of 2 years and a fine which may extend to Rs. 1, 00,000 has been prescribed
Injunctions may be interlocutory, ad interim or permanent. The information may remain confidential only for a limited period in which case the injunction will not extend beyond that period. Moreover, “since the information alleged to be confidential may be of value to the plaintiff only for a specified period, interim injunction will ordinarily be granted only for a specified period depending upon the circumstances and the nature of the confidential information The rules that the courts use to determine, whether to award an interim or permanent injunction were summarized as follows in the Gujarat Bottling Co. Ltd. case:
The grant of an interlocutory injunction during the pendency of legal proceedings is a matter requiring the exercise of discretion of the Court. While exercising the discretion the Court applies the following tests –
(i) whether the plaintiff has a prima facie case,
(ii) whether the balance of convenience is in favor of the plaintiff, and
(iii) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed.
The decision whether or not to grant an interlocutory injunction has to be taken at a time when the existence of the legal right assailed by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. Relief by way of interlocutory injunction is granted to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved.
The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favor at the trial. The need for such protection has, however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated. The Court must weigh one need against another and determine where the “balance of convenience” lies[xxx]
The jurisprudence surrounding confidentiality obligations is still in its infancy in India. It appears that confidentiality obligations, whether expressed or implied, will be enforced against any disclosure or apprehension during and after the tenure of the agreement, provided information exists independently, is not in the public domain and reasonable precautions to preserve its secrecy and sanctity have been taken.
After an employee’s termination, onerous provisions camouflaged as maintaining confidentiality can be struck down and deemed unenforceable. Without doubt, courts have endeavored to adopt a balanced outlook, and have promoted a case by case approach. This has led to slight inconsistencies and resulted in uncertainty in the interpretation of confidentiality provisions in agreements. Even the TRIP’s mandates the member countries to prevent undisclosed information from being disclosed to, acquired by, or used by others without consent.
Legislation in intellectual property, such as the Copyright Act and the Designs Act, have been used to prevent the use of purported confidential information. Of course, the courts have upheld such strategies only when the subject matter crosses the threshold of rights protectable under the statutes. The courts have recognized the common law relating to confidential information, and not wavered to hold certain agreements to be contracts of trust and faith. It has been suggested that the right to prevent the use of confidential information is broader than the copyright law, though the law of confidence is different. There is no whisper of confidentiality in Indian criminal jurisprudence, however, there are analogous provisions such as offenses` of theft, fraud, criminal breach of trust which has been used to fill the vacuum and attract imprisonment or fines (sections 379, 420, 406 of the Indian Penal Code). Furthermore, the Information Technology Act envisages the disclosure of any material containing personal information by a service provider without the consent of the person concerned or in breach of lawful contract punishable.
With increasing globalization, the sanctity of well-defined commercial principles cannot be undermined, especially for a burgeoning economy such as India’s. Precise and effective definition of confidential information and related obligations are necessary for success in this increasingly competitive world. An enactment may not be a panacea, but will certainly add teeth to the existing laws. Ignoring this need will result in the country underperforming, by discouraging innovation and impeding progress.
Formatted on 3rd March 2019.
[i] John Richard Brady V Chemical Process Equipment AIR 1987 Del 372, 381
[ii] Stephen John Coogan v News Group Newspapers Limited and Glenn Michael Mulcaire 392 All ER 74 (2012, Court of Appeal)
[iii] Boardman v. Phipps 2 A.C. 46 (1967, House of Lords)
[iv] Ananth Padmanabhan, Intellectual Property Rights: Infringement and Remedies, 627 (1st e.d., 2012)
[v] Trade Related Aspects of Intellectual property Rights, Article 39 1994
[vi] Fraser v. Thames Television 2 AII E.R 101 (1983, Queens Bench)
[vii] Fraser v. Evans 1 AII E.R 8 (1969, Queens Bench)
[viii] Prince Albert v. Strange 2 De G & Sm 293 (1849, Chancery Court)
[ix] Morrison v. Moat 9 HARE 241 (1851, Court of Appeal)
[x]Saltman v. Campbell 65 RPC 203 (1948, Court of Appeal)
[xi] VK Ahuja, Intellectual Property Rights in India, 1179 (1st ed. 2009)
[xii] Diljeet Titus V Alfred A. Adebare 2006 (32) PTC 609. The Court relied on the decision of Chancery Division in Coco V A.N Clark Engineer Ltd 1969 RPC 41 and evolved this triple test. Similarly in Urmi Juvekar Chiang v Global Broadcast News Ltd 2008 (36) PTC 377, The Bombay High Court has enunciated a fourfold test which are not much different from tests articulated by Delhi High Court and held that in a suit for breach of confidence a plaintiff has to establish the following (i) Identify clearly the information he was relying on (ii) show that it was handed over under circumstances implying trust or confidence in their non-disclosure or unauthorized use (iii) show that it was information of a kind which could be treated as confidential and (iv) show that it was used without license or there was a threat to use it.
[xiii] Supra: refer Note 6
[xv] Potters v. Weston (1977) R.P.C. 202 (Court of Appeal, Civil Division)
[xvi] Beloff v. Pressdram 1 AII E.R. 241 (1973, Chancery Division)
[xvii] Coco v. Clark (1968) F.S.R. 415 (1969, Chancery Division)
[xviii] John Richard Brady And Ors v. Chemical Process Equipment P. Ltd. and Anr AIR 1987 Delhi 372
[xix] VFS Global Services Private v Suprit Roy 2008 (2) Bom CR 446
[xx] Bombay Dyeing and Manufacturing v Mehar Karan Singh 2010 (112) BomLR 3759
[xxi] Vikram Goel and Sanyam khetarpal, Legislation Needed on Confidentiality in India, 1 Aug 2013 http://www.managingip.com/Article/3243279/Legislation-needed-on-confidentiality-in-India.html
[xxii] I.A. No.5455/2008, I.A. No.5454/2008 & I.A. No.5453/2008 in CS(OS) No.337/2008, Delhi High Court
[xxiii] Mr. Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors 130 (2006) DLT 330
[xxiv] Escorts Const. Equipment Ltd v. Action Const. Equipment P. Ltd S.No. 533/98 Decided On: 16.10.1998 MANU/DE/0185/1999
[xxv] Burlington Home Shopping Pvt. Ltd.v. Rajnish Chibber 61(1995)DLT 6
[xxvi] Dr G.B Reddy’s, Intellectual Property Rights and the Law 278 (1st e.d. 2005)
[xxvii] Federal Bank v. Hadkinson (2002) 2 A.E.R 375 (1999, Chancery Division)
[xxix] Tariq Ahmed, Protection of Trade Secrets, Aug 2013, http://www.loc.gov/law/help/tradesecrets/india.php
[xxx] Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 S.C.C. 545, para. 43.