[Swrang Varma is a 4th Year BB.A. LL.B. (Hons.) student at the University School of Law & Legal Studies, Guru Gobind Singh Indraprastha University]
Introduction
More than a century has elapsed since the establishment of the theory of the separate juristic personality of a corporation. Be that as it may, a corporation still functions through human innovation. The unique competitive edge that corporations wield in the market as against other similar players is by virtue of certain ideas or information pertaining to a particular ingredient of an edible product, method of conducting business or the list of certain suppliers or customers that a company may hold on to very closely.
This competitive edge can be diluted or gained by the acts of unauthorized disclosure by the human actors who get acquainted with the idea, information, or method during the period of employment by the company. The law on trade secrets in India stands previously discussed on this Blog, so I shall focus my efforts on the lessons one can learn from a recent case.
The Technology at Issue
The recent Waymo v. Uber (Waymo LLC v. Uber Technologies, Inc., 3:17-cv-00939) settlement is yet another lesson for innovation intensive industries, especially in a field as nascent as self-driving vehicles, to implement best practices in order to prevent dominant firms from, maliciously or otherwise, diluting competition in the market by unconscionably acquiring trade secrets from smaller firms. The present case concerned the alleged theft of sensitive Waymo business information including the manufacture, sampling, calibration and testing of the sensors, Waymo’s highly confidential proprietary design of a LiDAR circuit board, a laser-based scanning and mapping technology that uses the reflections off objects around it to create a real-time 3D image of the world.
It also enabled LiDAR, when mounted onto a car, to help the car navigate even in pitch dark and without the need for any steering wheels or pedals, thus effectively giving Waymo a first mover advantage in the field of driverless cars. Waymo manager Anthony Lewandowski, who subsequently left the company along with the SD card containing all the data in tow to start his own self-driving truck company, that was later acquired by Uber, was the principal defendant charged with unjust enrichment, misappropriation and infringement of Waymo’s intellectual property.
The Shifting Burden of Proof on Both Parties
While many were shocked that Uber and Waymo settled mid-way through the trial despite the weak case that Waymo brought against Uber, it has been noted that Waymo would have probably received less from the settlement than it sought due to the onerous burden to prove the third party was actually aware of the tainted origin of the trade secrets and intentionally hired Lewandowski from that point of view.
The protection of trade secrets has more to do with the confidential information that a departing employee carries in their head because of a fiduciary relationship (or one of trust). As a result, the information disclosed attracts an obligation of confidence, even if there might not be actual documents to prove unjust enrichment from stolen trade secrets. (Diljeet Titus v. Alfred A. Adebare, 2006 (32) PTC 609, 130 (2006) DLT 330). This obligation need not be express; it can even be implied (Margaret, Duchess of Argyll (Fame Sole) v. Duke of Argyll, [1965] 1 All ER 611, [1965] 2 WLR 790. In India, common law protection is accorded through actions in equity and tortious liability such as breach of confidence as well as non-compete clauses in contracts of service (tested against the plank of section 27 of the Indian Contract Act). Thus, corporations only have exorbitant legal fees and damage to their reputation to account for if they do not carry out diligent vetting of the employees and their files. Any trade secrets’ origins need to be traced when hiring an employee, especially from a competitor.
Although Waymo did have standard security measures in place, such as dual authentication processes for access to all documents, encrypted and password-protected communication, or having separate vendors for supply of different parts, these measures are inadequate when the vulnerabilities are within. Companies need to have mechanisms in place that monitor the behaviour of employees both before they leave for new opportunities as well as when they have joined from a competitor. Critical information should only be disclosed on a “need-to-know” basis. For employees with access to critical information, an investigation into whether the employee has ever downloaded or copied this information en masse should be carried out. At the end of the day, when the line between confidential information and trade secrets blurs, it is the degree of sensitivity of the information that the employer impresses upon the employee that counts (Faccenda Chicken Ltd. v. Fowler, [1986] 1 All ER 617).
A non-disclosure provision that applies when the employee departs and joins another competitor should be added as a matter of practice, subject to reasonableness and specific enumeration of geographical extent of application, scope and duration. Companies should take note that not all information or ideas are trade secrets if they are not the subject of transformation into a protected work (Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber 61 (1996) DLT 6), and something that was learned in course of the previous employer’s business after application of due skill and knowledge.
In American Express Bank Ltd. v. Priya Puri [(2006) III LLJ 540, (2006) 110 FLR 1061], the Court refused the plaintiff’s request for an injunction against the defendant for using mere names and addresses of the customers of a bank at her new workplace as she had only used knowledge in the public domain to further her own career prospects. As was held in the case of Ambiance India Pvt. Ltd. v. Naveen Jain (122 (2005) DLT 421), business acumen, ways of dealing with the customers or clients, or routine day-to-day affairs of the employer in the knowledge of many cannot be considered trade secrets or confidential information. Thus, section 27 of the Indian Contract Act, 1872 has been used to balance the interests of both trade secret owners as well as employees even after the termination of service of an employee.
Conclusion
It is not enough to simply prove that the employee had access to important trade secrets, and any limitation has to be narrowly and specifically tailored. In fact, this issue goes beyond the legal sphere, as smart management and constantly keeping up to date with industry best practices in safeguarding intellectual property can cement a company’s first mover advantage that matters greatly in industries that go through rapid shifts in technological progress, as well as save companies an enormous amount of money by way of future profits and legal disputes. As has been noted, Silicon Valley’s high rate of technological innovation lies in “talent mobility”, or the refusal to enforce noncompete clauses. However, this comes with the caution to make sure one is acquiring talent and know-how, not trade secrets.
The law of confidentiality imposes a strict burden on companies alleging breach of confidentiality against a previous employee lest they disproportionately impinge on the employees’ fundamental right to freely conduct their trade or profession once they leave the company.[1] What we can learn from Uber v. Waymo is that best practices have not been evolved even in the talent and ideation heavy tech industry, which should be zealously protective of innovation. The case should act as a wake-up call for development of context-specific security measures where currently the extent of active legal safeguards are the minimal, rarely enforced, non-disclosure and non-compete agreements.
– Swrang Varma
[1] Article 19(1)(g), The Constitution of India, 1950.
