Recently, the Delhi High Court (DHC) issued an interim injunction in a lawsuit concerning trade secrets and confidential information. In this context, Prashant Reddy T briefly touches upon the essential factors required to protect trade secrets in India and explains how the DHC’s order goes overboard by not only disregarding these factors but also granting vaguely worded and overly broad reliefs to the plaintiff. Prashant is an advocate and one of our most prolific bloggers (His posts can be accessed here). He is also the co-author of two books- “Create, Copy, Disrupt: India’s Intellectual Property Dilemmas” (OUP, 2017) and “The Truth Pill: The Myth of Drug Regulation in India” (Simon and Schuster India, 2022).
A Baffling Judgment from the Delhi High Court in a Trade Secrets Case
By Prashant Reddy T.
Recently, in July, the Delhi High Court in the case of HT Process Controls v. Ankur Gupta & Anr. delivered an interim order in a lawsuit filed by a company against its former employee and his new employer, who was also the plaintiff’s competitor. The technology in question appears to be in relation to automation of a system for loading and unloading of gas cylinders from transport vehicles. The Court, passed an interim order, restraining both defendants from disclosing or misappropriating the trade secrets at dispute and also appointed a local commissioner to raid the defendant’s property and secure evidence.
Trade secrets can typically be protected in one of two ways in India. The first, is if there is a contract between both parties that contains a specific obligation to protect confidential information. However, if there is no contractual relationship between both parties, it may still be possible to protect confidential information by invoking the equitable duty of confidence. To succeed in an action under the equitable duty of confidence, the plaintiff must first establish that the information must have the necessary quality of confidence, that it was imparted in circumstances importing an obligation of confidence and lastly, it should have been used in an unauthorised manner to the detriment of the party which shared the information.
From a reading of the Delhi High Court’s judgment, it is not at all clear as to whether this lawsuit was one for contractual violation or a breach of duty under equity to maintain confidence of information shared by the plaintiff. This is important because if this was a lawsuit for a contractual violation, it could not lie against the plaintiff’s competitor since there was no contractual relationship between them. It would lie only against the former employee (who was found emailing to his personal email account, confidential information).
On the other hand, if this lawsuit was for breach of a duty to maintain confidence, it should have failed at the first step i.e. an examination of whether the information has the necessary quality of confidence. I say this because the interim order itself discloses that there is an ongoing patent dispute between the plaintiff and defendant no. 2 who has filed oppositions against the former’s pending patent applications for the disputed technology. If the technology in question has been published in the patent journal, it would be in the public domain and hence lacking in the “quality of confidence” essential for a lawsuit enforcing a duty to maintain confidence. Surprisingly, the Delhi High Court does not engage with this very basic issue.
Even presuming that some of the other information in the lawsuit was confidential, the question is whether defendant no. 2 owed the plaintiff a duty of confidence under equity when he did not receive any information from the plaintiff. This issue has not received enough attention in Indian courts. I think if there is sufficient evidence to indicate that confidential information travelled from the plaintiff to defendant no. 1 who then shared it with defendant no. 2 there may be a case to argue that defendant no. 2 should be restrained. Except, in this judgment, there is no discussion about these legalities and little evidence to demonstrate the type of confidential information which has flown from the Plaintiff to defendant no. 2.
The last problem with the judgment and this is significant, is the remedy granted by the Court. The interim injunction is very vaguely worded, leaving the defendants clueless on the business and manufacturing that they can no longer engage in until final judgment. More worrying is the order appointing local commissioners to raid the defendant’s establishment to seize and seal “mobile phones, laptops, desktops and laptops which might contain the plaintiff’s confidential information, trade secret, and proprietary information”. But how exactly are the local commissioner supposed to know which of the devices have proprietary information of the defendant, when the order itself is so vague on the confidential information in dispute.
The more troubling aspect of this order is that it can have the effect of crippling the defendant’s entire business especially since we live in an era where computers and mobile phones are used in every aspect of a business, including payment of taxes. How is the defendant to continue its business with all these devices “sealed”? Instead, the Court could have ensured a “mirroring order” where copies of the hard-disks were made and sealed until a confidentiality club was created to assess the contents of the electronic evidence. That way the defendant could continue its business pending trial, while evidence was preserved. I am aware that in the larger scheme of the Delhi High Court, such orders are par for the course but it bears repeating that such vague orders are manifestly unfair to small and medium businesses who are usually on the receiving end.