First Publication Date: 7th December 2010.
Trade Secrets form an important part of intellectual property owned by most knowledge driven companies. Infact, patents and others are just the tip of the intellectual property ice berg of a company, the rest being trade secrets. Most countries including India do not have legislations protecting trade secrets and the law with respect to their protection emanates from court decisions.
Agreements have been recognized by Indian courts to be valid measures to protect secrets. Some of the decisions have been provided hereunder for your reference.
Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd
Mr. Niranjan Golikari was employed as a shift supervisor in the Century Spinning and Mfg. Co. The Company was involved in the manufacture of tyre cord yarn. For one of its projects, the company was in agreement with an overseas company which was transferring its technical know how to the spinning company. Mr. Niranjan was employed for the particular project and signed a Non- Disclosure and Non- compete agreement with the company. After serving for less than a year in the company, after the training period, he without any notice joined a competitor company and sent a resignation letter after a month.
Aggrieved by Mr. Niranjan’s action, the Company filed a suit asking the court to restrain him from using the trade secrets of the company. The court held that Mr. Niranjan had availed the training imparted by the respondent company and that he was made familiar with their know-how, secrets, techniques and information and granted injunction restraining the Appellant from divulging any of the secrets, processes or information obtained by him in the course of and as a result of his employment with the respondent company.
Krishnan Murgai v. Superintendence Company of India (P) Ltd.
Superintendence Company of India was carrying out the business of inspecting merchandise with a view to assess their quality and developed techniques for quality testing and control, which are protected as trade secrets. Mr. Krishnan was employed as a manager by the company.
After the termination of service with company, Mr. Krishnan started carrying on business on lines identical with the business of the Superintendence Company in a different style. Mr. Krishnan collaborated with the competitors of the company, was soliciting customers and business from the company’s clientele and was also using and employing the secret techniques of the Superintendence Company, which he had learnt during his employment.
Aggrieved by Mr. Krishnan’s action, the Superintendence Company brought a suit for a permanent injunction to restrain him from his activities as per the agreement signed with them during the course of employment. The Superintendence Company also sought a temporary injunction restraining him from continuing with new business or employment. The Court held in this case that Mr. Krishnan can only be restrained from disclosing trade secrets of the company and that he cannot be prevented from carrying out any business or employment in competition with the company.
Merit Scada Automation Pvt. Ltd. v. Sanmar Industrial Systems Ltd.
Sanmar Industrial Systems Ltd. was engaged in providing software solutions to the terminal loading automation. The proprietor of Merit Scada Automation was initially working with the Sanmar as senior engineer under a secrecy agreement. During the course of employment, the the employee incorporated a company Merit Scada Automation Pvt. Ltd and then resigned from Sanmar Industrial Systems Ltd.
The appellant’s company was dealing with the business which was similar in nature and also dealt with few clients of Sanmar Industrial Systems. They filed a suit and prayed for an injunction against the appellant from carrying on the competing business and using trade secrets of the Respondent. The Court granted an injunction in favour of Sanmar Industrial Systems.
Mr. Diljeet Titus Vs Mr. Alfred A. Adebare and Ors,
Mr. Diljeet Titus, Mr. Alfred Adebare and others were working together as associates in a law firm. After some time Mr. Alfred and others decided to move out of the law firm. The defendants while moving out took with them all the client contacts made during their association with Mr. Titus.
Aggrieved by their action, Mr. Diljeet brought a suit against them.
After hearing the parties, the court held that Mr. Alfred and others are free to carry on their profession, utilize the skills and information they have mentally retained and that they will be restrained only from using the copied material of Mr. Titus in which he alone has a right.
Despite the lack of an agreement, Mr. Alfred and others would not be entitled to utilize the material of Mr. Titus to which others had access in a confidential manner. As per the court, Mr. Alfred and others having worked with the plaintiff cannot utilize the agreements, due diligence reports, list of clients and all such material which had come to their knowledge or had been developed during their relationship with Mr. Titus and which was per se confidential.
The following principles may be gathered from the cases:
a. Agreements play an important role in enabling companies protect trade secrets and are considered by courts as valid measures;
b. Confidentiality obligations generally survive the termination of employment;
c. Non-compete clauses that prohibit employees from working with competitors or starting competing businesses are only partially valid;
d. Confidentiality obligations may be ascertained from the nature of relationship of an employee or associate even if a confidentiality agreement does not exist; and
e. Client lists, business techniques, work processes and so on learned from an employer may be considered as trade secrets even if appropriate notice is not provided.
[i] AIR 1967 SC 1098
[ii]AIR 1980 SC 1717
[iv] 2006(32) PTC 609
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