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January 31, 2013

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Trade Secrets and Confidentiality


- Manizeh Mistry, Associate [ LawQuest ]
- Aditi Mohoni, Associate [ LawQuest ]

Manizeh Mistry & Aditi Mohoni

"Protecting trade secrets and preparing confidentiality contracts has gained utmost importance in recent times. Every innovation merits protection and even existing trade secrets need enhanced protection in an environment of easy access to information in electronic media."

Today, competition and the desire to succeed are rampant. All businesses come with certain valuable secrets, certain information and trade secrets, which the employers do not wish to disclose. Even in the field of media and entertainment, ideas and concept notes are immensely valuable and are guarded jealously.

A trade secret could be a formula, practice, process, design, instrument, patterns and concept note, proposal for a new business venture or show, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. They are referred to as "confidential information" under certain jurisdictions and are often vital to the survival and existence of a company.

In other words, trade secrets refer to information that an individual or entity intentionally wishes to keep from his employees and the public at large. Examples of trade secrets would include: hardware design, software, business plans and strategies, cost and pricing information, sales data, etc. Thus safeguarding trade secrets is vital in the field of entertainment and business.

It is pertinent to note, in order to be classified a trade secret, the information at hand must be highly confidential. In deciding whether information amounts to as a trade secret, the following factors are relevant:

  1. the status of the employee and the nature of his work;
  2. the nature of the information itself;
  3. whether the employer impressed the confidentiality of the information on his employees;
  4. Whether the information could be easily isolated from information which the employee was free to use;
  5. The precaution taken to protect the secrecy of the information.

Employment law permits employers to protect their confidential information through non-compete and non-disclosure contracts with their employees. Trade secrets stand the test of time and, unlike other intellectual property rights, do not expire. The lack of formal protection, however, means that a third party is not prevented from independently duplicating and using the secret information once it is discovered or available freely.

In exchange for an opportunity to seek employment, an employee is generally asked to enter into an agreement not to reveal the prospective employer’s proprietary or confidential information. It is important to note however, that although an employer can protect his trade secrets or other confidential information by placing restrictions on its use, he cannot prevent the use of the employee’s own knowledge, skill or experience, even if this is acquired during the course of employment.

Confidentiality clauses form an important part of employment agreements. Unfortunately, they are often ignored and not properly framed. It is only when the dispute arises that confidentiality clauses are studied and dissected. Confidentiality clauses should be drafted diligently and with utmost prudence.

Protecting trade secrets and preparing confidentiality contracts has gained utmost importance in recent times.Every innovation merits protection and even existing trade secrets need enhanced protection in an environment of easy access to information in electronic media.

In the Bombay Dyeing and Manufacturing Co. Ltd vs Mahar Karan Singh, Justice Roshan Dalvi restrained the former director (Singh) from utilising certain intellectual property and divulging any information about the software and a manual prepared by Bombay Dyeing. However, the judge refused to pass an order of general injunction against him to stop the former from letting out business plans that were discussed in the meeting where Singh was present. The defendant cannot be barred from utilising his skills, which he has gained through experience on the ground of protection of Bombay Dyeing’s trade secret.

In Universal Thermosensors Ltd vs Hibben case, it was held that the information stored in an employees head may be used, but if the employee takes copies, or even memorises lists of customers or similar information, it may amount to a breach of the employee’s duties even in the absence of an express covenant.

In Anil Gupta vs Mr. Kunal Dasgupta, the plaintiff had conceived the idea of ‘Swayamvar’, a reality television show concerning match making. The plaintiff shared his concept with the defendants. The plaintiff discovered an article in the newspaper wherein he learnt that the defendants were planning a big budgeted reality matchmaking show. The plaintiff moved the court for an injunction against the defendants. Protection of trade secret also extends to ideas, concepts conjured by an individual. The court held that the concept developed and evolved by the plaintiff was a result of the plaintiff’s effort. It was unethical and improper for the defendants to claim credit for the plaintiff’s creation. Further, the Court granted an injunction.

Protecting trade secrets and preparing confidentiality contracts has gained utmost importance in recent times for every innovation merits protection and existing trade secrets need enhanced protection in an environment of easy access to information in electronic media.

Disclaimer–The contents of this article are personal views of the author and are not a comprehensive consideration of the subjects discussed and are designed to provide preliminary, general information. Readers should not conclusively rely on the information as legal advice and should seek independent counsel before any action is taken with respect to these or other specific issues.

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