Discussing the Delhi High Court’s clarification regarding the economic value of the information to qualify as confidential information, SpicyIP Intern Bharathwaj Ramakrishnan explains the Court’s finding in Cigma Events v. Deepak Gupta. Bharathwaj is a 3rd year LLB Student at RGSOIPL, IIT Kharagpur, and loves books and IP. His previous posts can be accessed here.
Trust Issues- When Secrets Come with a Commercial Price: Analyzing Cigma Events Private Limited v. Deepak Gupta & Ors
By Bharathwaj Ramakrishnan
In a recent case (Cigma v. Deepak Gupta) involving Trade Secrets/confidential information, the Delhi High Court denied the grant of an interim injunction to the plaintiff. The order stands out for two reasons. Firstly, in contrast to a previous order discussed by Prashant, this order displays a cautious approach towards granting an interim injunction. Secondly, the Court’s emphasis on the requirement that the information should have commercial value for it to be protected as trade secret/confidential information. This is an interesting divergence from the understanding of the doctrine of confidence. The doctrine of confidence, in other words, allows the Courts to impose an implied duty on the receiver of any information (implied because it applies in the absence of a contract) to maintain confidentiality over information and not use it in any manner without permission. The existence of this implied duty is based on the ability of the plaintiff to satisfy the four-fold test explained here. I will briefly explain the arguments of the parties and the decision of the Court. I’ll undertake some theoretical discussion on trade secrets with an emphasis on this shift to economic value as an additional requirement for information to qualify as trade secrets.
Vague Claims and Ambiguous Assertions:
Cigma Events had approached the Court seeking an ex-parte interim injunction against the defendants. As summarized in the judgement, the plaintiffs alleged that the defendants infringed their “intellectual property, breach confidentiality and non-compete agreements, and divert the Plaintiff’s business and clientele“. The claim that the plaintiff’s intellectual property is being infringed is a very vague claim to make in the first place since what constitutes an infringement and the defences against infringement vary based on the IP statute in question. At the moment there is no specific Trade secret legislation (a draft Trade secret bill has been drafted by the Law Commission) and Trade Secret/confidential information in India has been protected under the Contract Act, breach of confidence claims and even criminal law. So it makes one wonder, if Cigma seeks to protect its Confidential information/trade secret then why is it vaguely alluding to infringement of its intellectual property?
When claiming Trade Secret Protection, Precision Matters:
The Bombay HC, in a series of judgements, has clarified that a petitioner in clear and precise terms must specify the confidential information/trade secret he seeks to protect. (see here for a discussion on Bombay’s HC ruling in the Saregama, see also the Law Commission Report on Trade Secrets for more discussion on this). Similarly, the Delhi HC has struck down vague terms in a contract pertaining to confidential information as violative of Section 27 of the Contract Act as such vague terms in turn act as a restraint on trade. Unfortunately, such clear and precise terms are absent in Cigma’s allegations against the defendants as they pertain to misappropriation of Trade secrets.
Can a Claim for Breach of Confidence and Breach of Contract be Made Together?
Likewise, it is curious to assert both a breach of confidence and breach of non-compete and confidentiality agreements in the same vein. As was discussed by Prashant and Kaustubh in their previous posts and by the Law Commission report on page 101, there are two possible paths available for a plaintiff in a trade secret/confidential information case. In case of misuse/misappropriation of confidential information/trade secret when the parties in question have a contract with a specific clause that requires confidentiality then it would be a breach of contract claim. In the absence of an explicit contract that prevents misuse/misappropriation a breach of confidence claim is available assuming that the information in question has the quality of confidence or in other words there is an implied duty on the receiver of information to keep it confidential and not disclose or use it in any way without permission from the person who shared the information in question. It has to be noted here that usually, plaintiffs make both a breach of confidence claim and a breach of contract claim, even though the existence of a contract that has a clause that deals with confidentiality issues must preclude a breach of confidence claim (see Prashant’s paper discussing this aspect). Contrary to this, the defendants have argued the opposite by asserting that confidential information is not really confidential and that the non-compete clause is overly broad and falls foul of Section 27 of the Indian Contract Act which declares that any agreement in restraint of trade to be void. Thus, it is slightly unclear whether there was a contract that dealt with confidential information as both plaintiffs and defendants argued as if it existed even though the said contracts were not produced before the Court.
The Decision of the Court:
The Court initially in the judgement clarified that the defendant failed to discharge his burden under the three-step test which is required to be fulfilled when seeking an interim injunction. In the present case, the Court held that it was unclear whether the customer lists in question were confidential information/trade secrets. (See also Kaustubh’s discussion on a recent trade secret/confidential information case, where the question of confidentiality of customer lists was raised)
Secondly, the Court clarified that for information to become confidential, there is an additional criterion of showing the economic value that needs to be safeguarded from competitors. The Court held that Cigma did not overcome this threshold, it is important to note that under the breach of confidence doctrine economic value is not a relevant criterion as the focus is on the conduct of parties and whether the information was shared in confidence and whether there was any misuse of such confidence. None of the four factors referred to above mandate the requirement of economic/commercial value. Cigma also did not produce any evidence on the existence of non-compete or confidentiality agreements as this would have been relevant to determine whether it was a breach of contract or a breach of confidence claim. In conclusion, the Court denied the grant of interim injunction. Overall, the judgement’s reasoning on the interim injunction was on point, even though the Court might have introduced some tension in the area of what constitutes a Trade secret/confidential information.
Getting a bit Theoretical with Trade Secrets:
To understand what constitutes a trade secret or confidential information and how the Court, in this case, might have introduced tension, one must look into the historical and theoretical basis for Trade secret protection. Prashant, in his paper, provides a brief on Trade secret protection and how Indian Courts have adopted the English position. Prof. Amy Kapczynski, in her paper (see also here for Swaraj’s interesting discussion of another one of Prof. Amy’s papers), notes in great detail how trade secret protection had different purposes at different times. She notes the shift in purposes behind Trade secret protection, with an initial emphasis on preserving the moral economy or commercial morality where conduct is the relevant factor to the neo-liberal turn with an emphasis on incentives, efficiency, and giving an intellectual property spin to Trade Secret doctrine. Thus, the focus shifted from penalising immoral or unacceptable conduct (preserving the moral economy) to creating incentives to generate information that has commercial/economic value, enabling optimal investment in secrecy and creating clear property rights (efficiency and incentives), with conduct not a relevant factor.
Indian position on the doctrine of confidence and the question of whether information has the quality of confidence has its roots in UK law. As Prashant notes, for information to have a quality of confidence, it is not necessary for it to have economic value. But then this makes sense, as the doctrine of confidence, as emphasized in Saregama, seeks to preserve the moral economy with the emphasis on penalizing unacceptable or dishonest conduct of individuals/entities. The Court’s emphasis on economic/commercial value in this instance while placing reliance on Manipal Business Solutions Private Limited vs Aurigain Consultants Private Limited might reflect the neo-liberal turn wherein the requirement of economic value became a criterion to make information eligible for trade secret protection. Likewise, the Law Commission report’s draft bill on Trade secrets, which modeled its definition of Trade secrets on Article 39 of TRIPS, also emphasizes the requirement of commercial value/economic value as a criterion for any information to qualify as a trade secret. Are we thus embracing the neo-liberal position with regard to trade secret law? Or is it that we are merely following the precedents and rulings laid out in foreign jurisdictions without the intellectual baggage that accompanies it? Likewise, should we abide by the old principle of promoting morality and good practice in business, or should we also embrace the neo-liberal turn? Irrespective of your answers to these questions, it is useful to read Prof. Amy’s critique of this shift, which inevitably leads to the privileging of private value above all else.