201812.07
8

Challenges of Protecting Database as confidential Information

In a hard hitting judgement, the Delhi High Court dismissed the case of a logistics company (Navigators Logistics Ltd) that sought to restraint its ex employees and an independent contractor working in logistics sector from using confidential data, customer database, accounts information, airway drawings, airway bills templates, plans, reports, taxes and other financial information. The decision highlights courts reluctance in protecting routine compilation of data in the garb of it being a trade secret.

Facts and contentions

Navigators Logistics (hereinafter Navigator) in support of its case alleged:

  1. the confidential data and information constitute their trade secrets. These are stored in digital format on computers, computer systems, computer networks, computer resources and communication devices of company.
  2. that information, data and other related material are their original artistic and literary works within the meaning of Section 2(c)and (o) of the Copyright Act, 1957.
  3. they are the first owner of the copyright in the said information, data and other related materials.
  4. the employees (who have now resigned) were given official e-mail IDs for the purpose of official communications and access to the official cloud of computer resources of the company. The electronic devices contained the confidential data, customer data, member’s accounts information airways, airway bills, plain reports, taxes and other confidential information and trade secrets.
  5. that the defendants in conspiracy with each other resigned from their respective position. Further analysis of their laptop and on data recovery being undertaken, deleted Skype chats between the defendants inter se were recovered which showed a conspiracy having been hatched to use Navigator’s confidential data information and trade secrets.
  6. the defendants have acted contrary to the terms of their employment. The Skype chats also showed the defendants have entered into a conspiracy to divert the existing business of the Navigators company to Carex Cargo Express Pvt. Ltd (defendant no 12)

The Defendants (ex employees) on the other hand argued

  • that the Navigator has failed to plead or disclose the author of the copyrighted works or having acquired such copyright from the authors of the copyrighted works;
  • No particulars of the copyright had been given. Allegations made are only in regard to data of the clients which primarily includes names, address, contact numbers etc. of the clients and which are neither any original literary work nor has any artistic rendering which could be capable of acquiring any copyright;
  • that the Navigator has not pleaded or disclosed as to what constitutes the database, the allegations are highly vague and lacks material particulars;
  • that no particulars of any trade secret or confidential information which have been alleged to have been misused have also been furnished;
  • that the suit being in restraint of trade is barred by Section 27 of the Contract Act and the reliefs claimed are violative of the fundamental rights of the defendants under Articles 19(1) (g) and 21 of the Constitution of India;
  • that the Navigator, in the garb of confidentiality, is seeking to create a monopoly to deal with its customers. The details of customers are neither trade secrets nor exclusive property of the Navigator
  • that an original literary work would imply a proof as to putting in a skill, judgment, work and expertise of the author of such work and cannot be a mere collection of information.

The court crystallized the issues as:

  1. Whether there can be any copyright in a list of customers/clients with their contact persons/numbers maintained by the service provider. In other words whether all compilations are literary work in which copyright can subsist.
  2. Whether clauses in the employment contracts which prohibited the defendants from divulging confidential information of the Navigators are enforceable.
  3. Whether breach of clause claimed in the employment Contract where under the defendants had agreed not to compete with the Navigators for a period of one year after leaving the employment of the Navigators either by carrying on the same business themselves or by joining employment of any competitor of the Navigators is enforceable.

Court Decision

  • On the issue of copyright, the court took the view that not all compilations qualify as literary work in which copyright can subsist.
  1. The author must produce the material with exercise of his skill and judgment which may not be creativity in the sense that it is novel or non-obvious but at the same time it is not a product merely of labour and capital; and, (ii) that the exercise of skill and judgment required to produce the work must not be so trivial that it could be characterized as a purely mechanical exercise.

The court concluded the claims in this case are vague and there is no averment (in the plaint) of the technique/criteria in compiling the list of customers.

  • On confidential information, the court took the view not every customer list can qualify as confidential information or a trade secret unless the confidentiality around such a list is of economic value/business value/commercial value. The court relying on an earlier judgment quoted In a business house, the employees discharging their duties come across so many matters but all these matters are not trade secrets or confidential matters or formulae, the divulgence of which may be injurious to the employer and if an employee on account of employment has learnt some business acumen or ways of dealing with the customers or clients, the same do not constitute trade secret or confidential information, divulgence or use of which should be prohibited. 
  • On non compete clause that imposed prohibition on Defendants from taking up employment with a competitor, the court took the view that such condition was restrictive to employees and void as per clear prohibition in the section 27 of the Indian contract act.

OUR COMMENT:

It is time, India enacted specific statue to enforce its obligations under Article 39 of the TRIPS, to protect confidential information that has commercial value. In particular, there is a growing clamour to introduce specific law to protect trade secrets – specifically, for sui generis database protection.