India is also a signatory of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs).

Under article 39(2), TRIPs allow members the flexibility to frame laws that prevent the unauthorized disclosure and use of certain information, provided this ‘information’ meets the following criteria:

• it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;
• it has commercial value because it is secret; and
• it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

A trade secret:

• is information that has either actual or potential independent economic value by virtue of not being generally known,
• has value to others who cannot legitimately obtain the information, and
• is subject to reasonable efforts to maintain its secrecy. 

All three elements are required; if any element ceases to exist, then the trade secret will also cease to exist. Otherwise, there is no limit on the amount of time a trade secret is protected.

However, this definition overlooks “trade secrets,” meaning confidential business information, including any business practice or process, which is generally not known to others and gives the company an economic advantage over its competitors.

Generally, a patent permits its owner to determine who can make, use or sell an invention.

Trademarks permit their owner to market or promote a mark as the source or origin of a product or service to consumers.

Copyrights protect the form of a literary or artistic work and provides the owner with the ability to determine who can reproduce or distribute a work, perform or display a work or prepare derivative works.

Trade secrets protect confidential business information that generally provides a competitive edge to its owner.

• the information was a secret and not known generally, or not readily accessible to persons who deal with such information;
• the individual or owner of such information took reasonable steps to ensure and maintain its secrecy, and the information was imparted in circumstances importing an obligation of confidence; and
• there has been unauthorized use of that information to the detriment of the party communicating it, or there was a threat to use it.

LET’S CONSIDER SOME IMPORTANT QUESTIONS

CAUSES OF ACTION

What causes of action are available and commonly asserted against misappropriation and unauthorised disclosure of trade secrets in your jurisdiction (e.g., statutory and common law claims such as breach of confidence where applicable and breach of contract)?

Causes of action that are commonly asserted against misappropriation and unauthorised disclosure of trade secrets are: breach of confidence; breach of contract; tort of misappropriation; and criminal offences, such as theft and criminal breach of trust. In certain cases, depending on the subject matter involved, copyright infringement may also be relevant.

COURT JURISDICTION

What criteria are used to establish the courts’ jurisdiction over trade-secret disputes? Are there any specialist courts for the resolution of trade-secret disputes?

There are no specialist courts for resolution of trade-secret disputes. A court’s jurisdiction over such disputes is governed by the general statutes governing civil and criminal disputes, namely the Code of Civil Procedure 1908 (CPC) and The Code of Criminal Procedure, 1973

For civil disputes relating to trade secrets, a court’s jurisdiction (for institution of a suit) is determined by section 20 of the CPC. A civil suit shall lie before any court within whose jurisdiction the defendant resides, carries on business or personally works for gain, or where the cause of action arises (whether in whole or in part). Further, the relevant pecuniary jurisdiction of courts will also be relevant in determining where a suit shall lie.

Having said that, disputes relating to trade secrets, similar to suits relating to other intellectual property, may fall within the category of commercial disputes, which are governed by the Commercial Courts Act 2015. It should be noted, however, that under the term ‘intellectual property’ in this Act, the terms ‘trade secrets’ and ‘confidential information’ are not set out specifically, unlike other types of intellectual property such as trademarks, patents, copyrights, etc. Only designated commercial courts shall be provisioned to adjudicate commercial disputes. Section 20 of the CPC is applicable to commercial disputes as well.

In the event a trade-secret dispute arises out of a contract that has an arbitration clause, the arbitral tribunal will have jurisdiction to adjudicate such disputes.

PROCEDURAL CONSIDERATIONS

What is the typical format and timetable of proceedings?

Commercial disputes and civil suits follow the format prescribed under the CPC and the Commercial Courts Act 2015. After a suit is initiated before the relevant court having jurisdiction, a summons is issued by the court to the defendant, who is required to answer the suit within 30 days of the date of service of the summons, extendable up to 120 days. Timelines have been provided under the Commercial Courts Act 2015 for various stages of the suit, including inspection of documents by the parties, filing of affidavits of admission and denial of documents, filing additional documents (if any), holding case management hearings for framing of issues, fixing a trial schedule by the court, etc.

The pleadings (that is, the plaint and the written statement and counterclaim, if any) are followed by framing of the key issues in the dispute by the court (assisted by the parties), and thereafter, by the trial. The trial consists of the examination-in-chief (which may be oral as well as written by way of affidavits) of both parties, followed by cross-examination of the respective witnesses of the parties. After the trial, the court takes up the matter for final hearing and disposal.

In the interim, parties may choose to file applications for discovery, interrogatories, interim relief such as injunctions, appointment of court commissioners for search and seizure, etc.

LIMITATION PERIODS

What limitation periods apply for trade-secret misappropriation claims?

There is no specific limitation period for trade-secret misappropriation claims. However, limitation of suits is governed by the Limitation Act 1963 and depends on the cause of action agitated in the suit. For breach of contract or a claim of tort, the limitation period is three years, from the date of breach or infringement. However, in trade-secret misappropriation cases, as there is a continuing breach, the cause of action will be of a recurring nature.

SECONDARY LIABILITY

To what extent can someone be liable for inducing or contributing to trade-secret misappropriation?

Can multiple parties be joined as defendants in the same suit?

Multiple parties can be joined as defendants in the same suit. Common law principles of liability applicable to claims of torts and breach of contract would apply in cases of trade-secret misappropriation as well. Typically, a person contributing to the misappropriation of a trade secret, through any act or omission, may be directly and jointly liable for such misappropriation. Principles of agency and vicarious liability may also apply depending on the facts and circumstances of the case. Contributory infringement is also recognised under the Copyright Act 1957 and, therefore, if the subject matter is protected under copyright laws, such principles will apply.

In cases of criminal breach of trust or theft, any person aiding or abetting such offence would also be liable to be punished under the Indian Penal Code 1860

OBTAINING AND PRESERVING EVIDENCE

What mechanisms are available to obtain and preserve evidence from defendants and third parties in trade-secret litigation?

During the course of a trade-secret litigation, a plaintiff can employ multiple strategies to obtain and preserve evidence, including an application for appointment of a local commissioner for search and seizure of infringing materials, an application for discovery and interrogatories, and an application for temporarily injuncting or restraining the infringing activities of the defendant or maintaining status quo. If there is a high risk of the evidence being destroyed by the defendant or third parties, courts may also be moved to issue such orders without notice to the defendant (that is, on an ex parte basis).

What avenues of appeal are available following an adverse decision in a civil suit? Is new evidence allowed at the appeal stage?

An appeal lies against those orders of a court in civil suits that are specified under Order 43 of the CPC. This is also applicable to commercial disputes, with some modifications. These orders include: orders returning a plaint; orders refusing to set aside dismissal of a suit; orders refusing to set aside an ex parte decree; and orders passed in relation to interim relief (Order 39), including grant or rejection thereof, contempt of interim relief and vacation of interim relief, etc.

Depending on the court of first instance, the first appeal may lie before the single judge of a high court or a division bench (two-judge bench). A second appeal shall lie only where a substantial question of law is involved or if the lower court passes an ex parte order or decree.

The commercial appellate court is required to endeavour to dispose appeals within six months of the date of filing of the appeal.

As a rule, additional evidence is not permitted in appeals, and appellate courts typically evaluate whether the lower court has properly appreciated the evidence already on record. Parties are, however, permitted to file an application before the appellate court to request admission of such additional evidence subject to certain conditions (under Order 41 Rule 27 of the CPC), including necessity in the interest of justice or the inability of the appellant to do so before the lower court, or because the evidence was not within the knowledge of the appellant before the lower court despite reasonable due diligence or other substantial cause. The court has discretionary powers to allow or reject such a plea.

1. INJUNCTIONS

Under what circumstances can a rights holder obtain a preliminary or final injunction in a civil suit for trade-secret misappropriation?

The relief of an injunction, both at the preliminary and final stages in a suit, to restrain the defendant from using or disclosing the trade secrets, is available to plaintiffs or rights holders in India.

These injunctions are granted at the discretion of the court, primarily by applying the following tests (established in Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 5 SCC 545):

• whether a prima facie case has been made out by the plaintiff; · whether the balance of convenience is in favour of the plaintiff; and · whether the plaintiff would suffer irreparable injury if the injunction is not granted.

Courts have also held that the object of an interim injunction is to protect the plaintiff against injury by violation of its rights, where such injury cannot be adequately compensated by damages. This holds especially true for trade secrets whose value is derived from their secrecy.

Therefore, the need for such protection of the plaintiff must be weighed against any injury that may be caused to the defendant from being prevented to exercise its legal rights.

To satisfy each of the above requirements, the plaintiff must at the outset clearly set out the trade secrets sought to be enforced (even if details are not provided). The plaintiff must also plead facts that disclose the commercial value of the trade secret and its importance to the plaintiff. Statements relating to competitive advantage offered by the trade secret will also be relevant. The nature and extent of use of the trade secret, both in scale and duration, is important to establish balance of convenience, as well as potential injury.

In cases relating to employer–employee relationships, an additional consideration of section 27 of the Indian Contract Act 1857 must be kept in mind. Any contracts or terms in restraint of trade are void and unenforceable under this provision. Therefore, if the plaintiff, being an employer, is seeking to enjoin the alleged defendant from securing a job with a competitor or elsewhere, on the basis of a confidentiality provision in an employment contract, such terms may not be enforceable.

2. DAMAGES

What rules and criteria govern the award and calculation of damages for trade-secret misappropriation?

Litigants can seek damages and rendition of accounts of profit as a remedy in trade-secret misappropriation cases. Damages must be quantified and proved during trial before being awarded by the court. Damages may be liquidated damages, actual damages or punitive damages.

Liquidated damages, if not specifically quantified, will be required to be quantified as per the terms of the contract between the parties.

Actual damages will need to be proved through evidence (in relation to which witnesses may also be cross-examined). This will likely be a quantification of losses incurred due to disclosure of trade secrets or a valuation based on the notional market value of the trade secret itself. This can be supported by the report of an expert.

Lastly, punitive damages are typically based on the prerogative and discretion of the court, and granted in cases where the infringement or tort is egregious.

3. OTHER CIVIL REMEDIES

 Are any other civil remedies available for wilful trade-secret misappropriation?

There are no additional civil remedies available in cases of wilful trade-secret appropriation.

However, apart from injunction and damages, other civil remedies available to a plaintiff or rights holder include orders granting return of trade secrets or delivery of materials containing trade secrets, and appointment of court commissioners for taking stock of the materials misappropriated by the defendant (for assistance in quantification of damages). Courts may even direct local police to assist court commissioners in carrying out appropriate search and seizure orders of the court.

CRIMINAL REMEDIES

What criminal remedies are available for trade-secret misappropriation? Under what circumstances will they be awarded, and what procedural issues should be considered when seeking them?

The Indian Penal Code 1860 (IPC) and specific subject-matter legislation, such as the Copyright Act 1957 (governing copyrights) and the Information Technology Act 2000 (governing electronic records), contain provisions setting out specific offences that may be punishable by imprisonment or a fine. There is no specific offence of trade-secret misappropriation. However, offences such as criminal breach of trust, theft or cheating may be applicable, in the facts of the case.

The penalty for criminal breach of trust is imprisonment of up to three years or a fine. A person is said to commit a criminal breach of trust if he or she dishonestly misappropriates or converts for his or her own use any property that has been entrusted to him or her, or dishonestly uses or disposes such property in violation of a contract (express or implied) or applicable law, or permits any other person to do so. Therefore, at the outset, the dishonest intention of the infringer or accused in misappropriating, converting, using or disposing of the property must be established by the complainant.

The procedural law relating to criminal proceedings is set out in the Code of Criminal Procedure 1973. An offence can be brought to the attention of the police through a complaint. If the offence is a cognisable offence under the IPC (having the penalty of imprisonment of more than three years), a police officer is mandated to register a First Information Report, and can initiate investigations and arrest without warrants. However, if it is not cognisable, the police are not obligated to initiate action and all action must be taken based on the orders of a metropolitan magistrate, who is required to evaluate a criminal complaint in the first instance, and order investigations, arrests, etc, as relevant.

The criminal justice machinery in India is marred by delays and is not the preferred enforcement option for rights holders, unless strategically beneficial, where the offence is egregious and merits such action and concomitant penalties, or the identity of the offenders is unknown and needs to be investigated.

ADMINISTRATIVE REMEDIES

What administrative remedies are available for trade-secret misappropriation? Under what circumstances will they be awarded, and what procedural issues should be considered when seeking them

In the absence of a specific legislation governing trade secrets, there are no administrative remedies for trade-secret misappropriation in India, as it is governed entirely on the basis of common law principles (evolved through judicial precedent) and Indian contract law.