The world of literature draws liberally on secrets; who keeps them and, most importantly, who disloyally reveals them. The corporate world, too, depends on those entrusted with secret information, whose betrayals can damage entire businesses. Unlike the contents of books, identifying a business secret can be contentious. Getting this wrong may work to a company’s detriment if it accuses someone of stealing its commercial secrets.
Managing partner
Obhan & Associates
The usual situation is that those working in research and development and technical roles in organisations often have access to sensitive and confidential information. When such employees join competitors or set up their own firms, their former employers are often concerned about the misuse of such confidential information. However, setting up a business or joining a competitor does not necessarily mean that ex-employees are exploiting confidential information, and such claims should be asserted with care. Companies must especially realise that people are free to use their skills and knowledge, even if their new roles compete directly with previous ones, as long as they use information in the public domain.
The Bombay High Court recently had cause to examine similar facts in Rochem Separation Systems (India) Pvt Ltd v Nirtech Pvt Ltd and Ors, in which it explained principles of confidentiality and suppression of material facts. In doing so it affirmed the fundamentals of integrity, transparency, and ethical conduct in legal proceedings. The defendants were able to show that what was alleged to be confidential had in fact been published in US patents that had since expired.
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Obhan & Associates
The plaintiff, Rochem, alleged that the defendants, who were the company’s ex-employees, had breached confidentiality by sharing proprietary information with a third party. The defendants had received the information in their employment with Rochem. The breach had caused Rochem significant financial loss. In its defence, Nirtech claimed that Rochem had concealed the fact that the alleged confidential information was already in the public domain and that the plaintiff had not followed due procedure in submitting confidential records to the court. The case turned on whether the defendants, as former employees, could engage in a trade or business that directly competed with the plaintiff and exploit confidential information acquired previously.
The court affirmed that the principles of confidentiality are sacrosanct, as laid down in decisions such as Narendra Mohan Singh and Ors v Ketan Mehta and Ors, in which the Bombay High Court held that confidentiality does not live because of statute, but ends when it comes into the public domain. The court in Rochem held that a cause of action alleging breach of confidence will succeed when the confidential information is clearly identified; the defendants have received the information in confidence; the information is capable of being treated as confidential and is not in the public domain, and the information was used or sought to be used without the authority or consent of the plaintiff.
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Obhan & Associates
The court held that the plaintiff must prove all these elements to found a breach of confidentiality. Establishing only some of them is not sufficient.
The court further determined that the practice of submitting information under sealed covers with specific details is mandatory; only when followed can the court draw comparisons in assessing the claims.
The decision in Rochem emphasised the principle of approaching the court with clean hands. Parties must present their case with honesty, in good faith, and without fraudulent intent. The court found that Rochem had knowingly concealed the crucial fact that the alleged confidential information was already in the public domain in a US patent. This eroded its credibility and cast doubt on the truth of the plaintiff’s claims.
In retrospect, the plaintiff could have used one fact to its advantage, but did not: its drawings, while very similar to the US patent drawings as published, were not identical. Had the plaintiff clearly identified the differences between the two sets of drawings, the outcome may have been quite different. Clearly, broad and general statements such as, former employees have used our drawings to make the same products, will not satisfy a court. A more detailed and robust case has to be put forward in order to succeed.
Essenese Obhan is managing partner, Sumathi Chandrashekaran is a consultant and Ayesha Guhathakurta is an associate at Obhan & Associates.
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