In this information age, how do you go about protecting confidential information? A business would want to protect its new formula or a product, technology, customer lists, or just future plans, which gives it an edge over its competitors.

In the global marketplace, Indian corporations are often required to comply with foreign laws and are likely to be exposed to liabilities for violation of confidential information or trade secrets of its business partners or third parties. For example, US Economic Espionage Act, 1996 imposes criminal liability (including fines and prison sentences) on any person who intentionally or knowingly steals a trade secret or knowingly receives or purchases a wrongfully obtained trade secret. The standards for protection have to be tailored to address the risks associated with rapid advancement in technology and communications. The standards accepted today may become inadequate tomorrow. However, one constant factor is the presence of a corporate culture imbued with information protection values

The employees of an organisation come in possession of confidential information and trade secrets on a day-to-day basis. This article examines the processes, which could be adopted for protection of confidential information and trade secrets in the hands of the employees. In the absence of any specific Indian statute governing protection of such information in the hands of employees, recourse has to be taken to common law rights and contractual obligations.

Non-disclosure agreements: A strong and clear non-disclosure agreement and policies with the employees protecting confidential information and trade secrets is recommended so as to provide contractual remedy in addition to the one under the common law. Such agreements should define ‘confidential information’, the exceptions to confidentiality. Agreements should have clauses negating a grant of an implied license, restrictions on disclosure, use and copying; restriction on use of confidential information upon termination of the employment, return of information upon termination and right to withhold salary and emoluments till such return.

Non-compete clauses, depending upon its applicability in the Indian context, read with the confidentiality clauses would afford an organisation added protection in respect of its confidential information. Such provisions must have a clear purpose, which is to restrict the use of confidential information and trade secrets gained during employment and ensure that employee does not compete unfairly. However, non-compete provisions would need be reasonable, and courts may treat a tough non-compete provision as unenforceable. In order to ensure that the rights of third parties are not violated, the agreement should clearly impose an obligation on the employee not to integrate in organisation’s data or intellectual property, any confidential information of any third party. Employees should be required to indemnify the organisation in case of violation of this clause.If the organisation has not executed such agreements at the time of employment, subsequently executed agreements should expressly cover the confidential information obtained by the employee from the date of his employment.

Internal processes: Strong internal controls and processes to protect confidential information should be in place. Employees should be educated to identify information, which should be considered confidential or a trade secret, and hence are able to take an informed decision. They should have a clear understanding of their responsibilities to protect it and treat this as an ongoing process that is integral to their work. Data that is intended to be confidential should be clearly indicated as such in all communications. Appropriate security procedures must be established and followed by the company and access to specific sensitive areas of workplace restricted or limited to certain senior employees only.

Third-party interaction and disclosures may be channeled only through specified personnel. Wherever feasible, confidential information may only be shared with those employees who have a legitimate need to know such information, thus enabling the employee to perform assigned tasks.

An exit-interview procedure is also desirable. During such an interview, an employee should be reminded of their obligations with respect to the company’s confidential information and trade secrets and should be asked to sign a document reaffirming the obligations.

If an employment agreement was signed, the document format to be signed on termination should be attached. A copy of the signed exit-interview form, including the employment agreement, should be given to the employee. Such an interview not only serves as a meaningful reminder but can also be valuable evidence of the knowledge of such obligations.

US law: In the US, Uniform Trade Secrets Act (UTSA) was enacted to codify the common law in respect of trade secrets, quasi-contractual and fiduciary relationship theories. The UTSA also codifies the results of better-reasoned cases concerning the remedies for trade secrets misappropriations. The UTSA definition is broad enough to include: information that has potential value from being secret; information regarding one-time events; negative information, such as test results showing what will not work for a particular process or product.

Current judicial thinking in the US can be gleaned from the case of Unisource Worldwide, Inc vs Anthony Valenti, Katleen Valenti & Others (US District Court, New York, April ,’02), where the wife of one of the former employees (defendant) started a company engaged in the same business as the former employer (plaintiff), and it hired several of the former employer’s employees and did business with the former employer’s customers. The former employer sought a preliminary injunction against former employees and their employer for violations of nondisclosure agreements. The former employer was able to establish that the restrictive covenant in the employment agreement was reasonable in scope, and its enforcement was necessary to prevent disclosure of trade secrets and the release of confidential information regarding the employer’s customers.

The former employer also proved it would suffer irreparable harm if its request for injunctive relief were not granted. The preliminary injunction was granted in favour of the former employer. In Superior Consultant vs Bailey (US District Court, Michigan, August ,’00) the court granted preliminary injunction in favour of the former employer (plaintiff) since evidence showed substantial likelihood that former employee accessed confidential information about the former employer that would have been of economic value to rivals.

However, success of such suits depends upon production of satisfactory evidence to prove confidentiality of the information, act of disclosure and the damages caused thereby, as well as the reasonability of such restriction.

Presence of a strong statute for protection of confidential information and trade secrets would certainly help Indian Inc. In any event, strategies for protection of organisation’s confidential information and trade secrets have become a prerequisite to the organisation’s survival.