Unlike intellectual property protection offered by statute such as the Patents Act, 1960, protection for a trade secret or confidential information is only as good as the effort and success at protecting the character of secrecy or confidentiality through an effective trade secret policy and its implementation. Furthermore, without an objective definition of a trade secret/confidential information provided by a statute, what qualifies as such is often subjective and contextual to each case, rendering the role of the aforesaid policy and practice even more important and critical to the cause of trade secret protection. The result is that the burden of proof is often on a plaintiff to establish what it seeks to protect as Confidential Information or Trade Secret, qualifies as such. The foundational step in the plaintiff's efforts to meet its burden of proof, is the pleading or the plaint1.

This can often present a dilemma for the plaintiff counsel. After all, if the trade secret/confidential information is disclosed with a considerable degree of detail in the plaint, then by virtue of the lawsuit itself, the secrecy and the confidentiality is compromised rendering the suit counter productive towards the objective of protecting the very trade secret sought to be enforced. On the other hand, describing the trade secret or confidential information inadequately enables the Defendant to argue that the plaint is vague or does not make out or disclose a cause of action2. In this article, we examine how one strike a balance between saying too little and saying too much while describing a trade secret/confidential information in the plaint. To this end, two broad categories of trade secrets/confidential information are addressed- a) Technical Information and b) Business Information.

General Practice Notes

In drafting the plaint for a lawsuit involving trade secrets or confidential information, one would be tempted to identify the trade secret or confidential in terms as abstract as possible and consistent with the definition of the term “confidential information” in the relevant non-disclosure agreement. If one were to succeed on the strength of a lawsuit premised on an abstract definition of a trade secret, the scope of any injunctive relief would be expansive and overarching. However, the jurisprudence reveals that injunctive relief can just as often be refused when the trade secret is defined in such abstract terms. As an illustration, a high end engineering company may have developed an excellent computer aided engineering software, the technical infrastructure of which, is a trade secret. In addition, the very same company probably defines information of its customers as confidential in its standard employee non-disclosure agreement.

If the employee has stolen details of the technical infrastructure, but the lawsuit is drafted to protect “trade secrets” in general instead of being specific to the technical infrastructure of the software, all it takes is for the defendant is to find some sales brochure of the plaintiff distributed in some convention in some part of the world, where it has published the names of its customers as part of a marketing pitch, to discredit the entire lawsuit of the plaintiff as one intended to protect information that the plaintiff itself has leaked to the whole world. In an effort to achieve the maximum scope of protection for his client in the trade secret lawsuit, presumably with the good intent of protecting both the technical infrastructure as well as the customer information, the lawsuit compromised the protection for the technical infrastructure, trying to salvage the customer data base, which was not confidential.

Therefore, it is imperative to arrive at the precise scope of the protection sought to be achieved for the plaintiff. Undoubtedly, this will be challenging. After all, this will require a plaintiff to undertake a thorough investigation and find the evidence that demonstrates precisely, the specific confidential information or trade secrets retained by the Defendant. However, it is likely to avoid the pitfalls associated with a trade secret plaint that is drafted in abstract terms. On the strength of such background investigation, the plaint will have to describe broadly, whether the lawsuit is intended to protect a) technical confidential information/trade secret such as recipes, technical data, design of products, etc. or b) business information such as identity of customers, price at which products and services are sold, etc., or both. If the plaint introduces the precise scope of the protection being sought, it will naturally enable the Advocate to then introduce the averments specific to each category of confidential information to justify protection under the law of confidence.

The second pitfall is to assume that a contractual admission as to what is confidential information, in the form of a non-disclosure agreement defining what qualifies as “Confidential Information” would itself discharge the burden on the plaintiff to prove, by way of pleadings and evidence, that the subject matter of its lawsuit does in fact involve a trade secret or confidential information. Nothing could be further from the jurisprudence on the subject. In the case of Bombay Dyeing Manufacturing Company v. Mehar Karan Singh 3, though the plaintiff's lawsuit was premised on a confidentiality agreement describing business information as confidential, the Defendant successfully established that notwithstanding the said agreement, business information of the plaintiff generally accessible or available or acquired independently or retained by unaided memory of the Defendant, cannot be protected as trade secrets.

The Hon'ble Bombay High Court further held that in the absence of a statutory definition of “trade secret” or “confidential information”, court(s) are to assess whether the subject matter of the plaintiff's law suit involves a trade secret or confidential information or not by analysing the following parameters- 1) The extent to which the information is known outside the business, (2) The extent to which it is known to those inside the business i.e. by the employee; (3)The precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) The savings effected and the value to the holder in having the information. as against competitor; (5) The amount of effort or money expended in obtaining and developing the information; and (6) The amount of time and expense it would take for others to acquire and duplicate the information.

Therefore, whether the plaint describes technical information or business information, the plaint must describe to a reasonable degree, all of the six criterion laid down in the said judgement. This would entail for example, an averment that the Defendant, while an employee of the plaintiff, was precluded from using his personal computers to store and work on confidential information or describing the annual costs of maintaining and practising the trade secret policy of the organisation. A prospective plaintiff would also be wise to formulate and implement trade secret policies which can aid its Advocate's efforts to establish the six principles laid down in the aforesaid judgement.

Describing Technical Information

The challenge in describing technical trade secrets or confidential information, is likely to be in describing the technical information in the plaint, without compromising its confidential character while at the same time being able to clarify to the court, the precise technical trade secret that is sought to be protected. A balance between the two extremities can be achieved by describing the function and the utility that the technical trade secret achieves, the uniqueness of such function and utility which its competitors in the industry are unable to provide (such as better accuracy and speed for software or elevated taste and health benefits for a food product by virtue of a secret recipe) and how intricately, the secrecy or the confidential character of the technical information is linked to the plaintiff's success.

Additionally, the Plaintiff may have invested in tangible and intangible resources to develop the technical trade secret. This could, for example, involve subscribing to a high end design software to develop engineering designs. The plaint should set out the costs of subscribing to the software or make references to any certifications that the technical trade secret has received. The plaint should also plead and provide some material to show how reverse engineering the technical trade secret without access to the associated confidential information is either impossible, or would entail significant costs, effort and time. In describing the utility of the technical trade secret, the unique competitive advantages that the subject matter of the technical trade secret provides and the link between the secrecy and the financial success, it is not necessary to set out the corresponding microscopic details.

To explain these principles as an illustration, in a case where the plaintiff pleads that the proprietary algorithms and code enables it to achieve better accuracy in the output of its software, the plaintiff need not describe the algorithm or the code itself or the percentage of accuracy improvement or speed improvement or the technical details of how such accuracy improvement or speed improvement is achieved. Those “nuts and bolts” of the technical trade secret may be subsequently disclosed, if the need arises, during trial under the strength of a “Confidentiality Club” arrangement4. At the stage of filing the plaint, it is important to lay the foundation for discovery under the strength of the confidentiality club arrangement, by describing the trade secret with reference to what it does, what utility it provides as a result of the technical trade secret and how much the secret contributes to the Plaintiff's success, as opposed to disclosing the specific algorithms or the code..

Business Information

Business information in the context of trade secrets or confidential information generally refers to the identity and details of a plaintiff's customers, information of the price at which plaintiff may sell or actually sells its products to its customers, price discrimination practices, etc. Loss of secrecy or confidentiality of business information or disclosure of thereof may entail debilitating consequences for the plaintiff. For example, if word were to leak that an aviation fuel company sells its fuel at substantially lesser prices to Customer A as opposed to Customer B who is buying it at a premium, it may cause significant embarrassment and loss of goodwill and business to the plaintiff with Customer B. Therefore, the law does not shy away from granting protection to such business information.

However, as the judgements in India and abroad demonstrate, business information are not easy to enforce as trade secrets or confidential information as often, the court(s) have held that employees in the course of their employment are likely to remember identities of customers they have worked with without the aid of any external devices and are thus free to use such information retained by them in their unaided memory on account of their fundamental right to freedom of trade and occupation under Article 19 (1) (g) of the Constitution of India5.

While describing business trade secrets such as customer information, the plaint must exhaustively set out the effort and the cost undertaken to compile and store the information. A resulting database may also qualify for separate protection under the Copyright Act, 1957. In addition, the plaintiff should be mindful that in the day and age of internet search engines, identities of its customers are often easily available or can be discovered online. Therefore, the plaint must disclose how the business information is not publicly available and steps taken to distinguish the business information retained as proprietary, versus the information that is in the public domain. These elements can be established by referring to the industry or the market that the plaintiff operates in. Additionally, the plaint should also demonstrate the extent of damage to the plaintiff's business if such customer information is misused or disclosed to a third party or publicly.

For example, in the Fast Moving Consumer Goods (FMCG) industry, it is likely to be a matter of public knowledge that a popular retail chain is the customer of a shampoo brand. In such a scenario, what is likely to be a trade secret is information about the identity of the retail chain employee who is in charge of sourcing, the specific considerations of the retail chain customer while they negotiate the contracts to purchase the FMCG products, etc. A further averment that the contact information of the sourcing manager can be used to solicit business, secure sensitive information about the prices at which plaintiff sells its products and thus not only cause loss of business, but also reveal the plaintiff's price discrimination policies to its other buyers, would enable the court to understand why the confidential character of the business trade secret is so critical to the plaintiffs business.

The plaint must set out the distinction of the customer information that it has compiled as a trade secret versus what is publicly available, without having to disclose the intricate details of the aforesaid distinction. Thus, the plaint can set out that the plaintiff's repository of confidential business information consists of information about the purchase manager, his/her email, phone number etc., in the retail chain customer, the maximum and the minimum lee way for negotiations that is typically followed by the retail chain in concluding purchase contracts, without describing the actual email address, phone number or the negotiating bandwidth.

Especially where the plaint seeks to protect pricing information as confidential information or trade secrets, it is not sufficient to argue that the pricing information is per se confidential but to demonstrate that the Defendant knows or has knowledge of the plaintiff's tolerance for reducing its profit margins6. To put it differently, a chocolate manufacturer may be willing to reduce prices of its products so long as its profit margins are at least 5%, but is unwilling to reduce the price of its products that results in a profit margin less than 5%. This tolerance for loss of profit margin is often not in public domain and stands a better chance of being protected as a trade secret, as opposed to the bald information about the price at which the chocolates are sold.

Conclusion

As the discussion above demonstrates, the most elaborate non-disclosure agreement or confidentiality agreement can fall apart when tested in a law suit, if the plaintiff's conduct does not demonstrate the exercise of sufficient care to preserve the confidential character of its confidential information or the secretive character of its trade secrets. This will require the plaintiff to firstly put in place and implement a reasonably diligent trade secret policy and the plaintiff Advocate to describe the policy and its practice in good and sufficient detail. The plaint can succeed in demonstrating the element of secrecy and confidentiality, not just by referring to the confidentiality agreement, but by being specific in describing what is sought to be protected. However, any concerns about compromising confidential character while being specific can be addressed by referring to the broader conceptual description of the technical or business trade secret and employing techniques to paraphrase and describe the trade secret without compromising its secrecy. This will ensure not only, the maintainability of the suit, but also the ease of enforcement of injunctive relief as an injunction that is specific and precise is easier to enforce as opposed to an injunction that is generic and abstract.

Footnotes

1 Refer to Diodes v. Frances, where the California Court of Appeals held that the complaint must describe the trade secret with sufficient particularity

2 See “Every trade secret complaint therefore, should specify the identity secret(s) the Plaintiff initially claims to be in issue, even if additional secrets turn out to have been stolen. This provides a fixed target for trade secret discovery. But insisting on pleading trade secret identity with specificity does more: it prevents Plaintiff from using vaguely described secrets as a means to bully competitors through baseless litigation and lays down a marker to measure plaintiff's shifting description of its trade secrets for sanction purposes”- On Equipose, Knowledge and Speculation: A Unified Theory of Pleading Under the Defend Trade Secrets Act- Jurisdiction, Identification, Misappropriation and Inevitable Disclosure, by William Lynch Schaller Schafer Law Lectures, LLC, Journal of Intellectual Property Law, Volume 27, Issue 2, Article 2, University of Georgia Law.

3 2010 (112) BOM LR 3759

4Interdigital Technology Corporation vs Xiaomi Corporation, I.A. 6441/2020 and IA 6447/202 in CS (COMM) 295/2020 and CS (COMM) 296/2020

5 Refer to the judgement of the Hon'ble Delhi High Court in American Express Bank Ltd. v. Priya Puri, where the courts denied the Plaintiff injunctive relief to restrain the Defendant from utilising confidential information by holding that under the guise of confidentiality, the Defendant was being restrained from exercising her freedom of trade in violation of Section 27 of the Indian Contract Act, 1872.

6 See the judgement of the Illinois Court of Appeals in the case of Archer Daniels Midland Company v. Lane D. Single Docket No. 4-18-0714

Originally Published by Factum Law, April 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.