Protecting Confidential Information and Trade

Secret

Breach of Confidential Information and Trade Secret by employees – Remedies

available for employers under Indian Law (Part I)

Introduction

One common issue faced by employers concerning the trade secrets and confidential information accessed or
in possession of their employees as it is directly linked with the survival of the employer and involves
economic interest of the employer in the market. Usually, the obligations are imposed in the employment
agreement or a non-disclosure agreement to protect such confidential information from being leaked to any
third party or competitor.

Let us examine the legislative framework and legal position concerning the enforcement of confidential and
non-disclosure obligations imposed upon employees in India. Unlike western countries, India does not have
separate legislation dedicated to the protection of trade secrets and confidential information but it does protect
such rights under the common law. Yet, the employer can seek legal recourse under the following acts.

Information Technology Act, 2000 (“IT Act”)

Section 43 of the IT Act – Any unauthorized access to the data stored computer and downloads, extracts, or
copies any data without the permission of employer and if such actions are committed with a dishonest
intention, such act is punishable under Section 43 of the IT with fine or imprisonment or both.

 Section 65 of the IT Act – Tampering of source documents stored in a computer is punishable under
 Section 66 of the IT Act – Hacking of Computers.
 Section 72 of the IT Act – The penalty in case of breach of confidentiality.

Indian Penal Code

Section 378 of Indian Penal Code – Unlawful possession of data stored in CD or Floppy or Pen Drive without
the consent of the lawful owner. However, the scope of the statutory provision has not been extended to cover
a case of data theft, where such data is intangible property.
Section 405 of Indian Penal Code – Criminal Breach of Trust
Indian Copyright Act, 1957 (“Copyright Act”) – The employers can protect their database which comes under
the purview of the definition of the term literary work. In the Burlington Home Shopping Private Limited v.
RajnishChibber case, the Delhi High Court imposed restriction on the ex-employee from using the database of
client list owned by the employer and held that the compilation of addresses developed by anyone by devoting
time, money, labor and skill amounts to a literary work wherein the author has a copyright. In view of the said
provision and the observation made by the Court, it may be summed up that such a database of employers
qualifying as ‘literary work’ is offered protection under the Copyright Act.

ENFORCEABILITY OF NON-DISCLOSURE CONTRACTS

The non-disclosure clauses are valid and enforceable by law. The Delhi High Court in Wipro Limited v.
Beckman Coulter International S.A. held that a non-solicitation clause does not amount to a restraint of trade,
business or profession and would not be hit by Section 27 of the ICA as being void. Similarly, in Mr. Diljeet
Titus, Advocate v. Mr. Alfred A. Adebare and Ors., the Delhi High Court clarified that confidential
information of the employer can be protected even in the post-employment period.

Whether an employer can enforce the Non-Disclosure Contracts against an employee?

Not all information is confidential in nature and may not serve the purpose of such contracts/covenants. Hence,
it is advisable that an employer must the said covenants are drafted with due diligence. In the following cases,
the Indian Courts held that such action of an employee amounts to the breach of Non-Disclosure Agreement

A trade secret is a piece of information which, if disclosed to a competitor, would be liable to cause real or
significant harm to the owner of the secret. It must be information used in a trade or business, and secondly,
the owner must limit the dissemination of it or at least not encourage or permit widespread publication. It
(trade secrets) can thus include not only secret formulae for the manufacture of products but also, in an
appropriate case, the names of customers and the goods which they buy. Lansing Linde Ltd v. Kerr

Employee’s contractual obligation to maintain confidentiality may only survive termination of his employment
and be enforceable if such an obligation does not amount to restraint of trade. Faccenda Chicken Ltd v.
Fowler,

A trade secret can be a formula, technical know-how or a peculiar mode or method of business adopted by an
employer which is unknown to others. However, the routine day-to-day affairs of the employer which are in
the knowledge of many and are commonly known to others cannot be called trade secrets. American Express
Bank Limited v. Ms. Priya Puri.

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