Trade Secrets: Constitution Of 'Confidentiality Club' Depends On Showing Prima Facie Case For Grant Of Ad-Interim Relief: Madras High Court

Madras High Court has recently refused to grant an interim injunction to Amica Financial Technologies, restraining the respondents including Hip Bar and Dreaming Technologies Pvt Ltd from undertaking any business in connection with the pre-paid instruments license (PPI License). While vacating the ex-parte order of status quo from December, 2021, the court observed that there is not even a semblance of prima facie case made out by the applicant for grant of interim injunction.

"To claim such protection, the applicant must, at least prima facie, establish through some material that such information was communicated or imparted to the 1st (Hip Bar) and 2nd respondents. The applicant must also, prima facie, establish that the information in question is confidential in nature. Further, the applicant must also show that the confidential information is under a threat of being unauthorizedly used by the respondents for wrongful gain", the court noted at the outset before examining the case on its merits.

The matter pertains to the trade secrets, including business plans and objectives, in respect of the proposed PPI business by Amica which was allegedly shared with Hip Bar. The plaintiff/applicant submitted before the court that Dreaming Technologies Private Limited is in the process of acquiring Hip Bar.

The applicant apprehended that the vital information involving trade secrets that were already shared with Hip Bar during a failed acquisition attempt, pursuant to a binding term sheet, will now be within the reach of Dreaming Technologies Private Ltd. Fearing that the trade secrets so shared will be utilised by the respondents in breach of confidentiality clause and other clauses of the binding term sheet in light of an allegedly hurried acquisition process undertaken by Dreaming technologies, the applicant approached the High Court.

The bench of Justice N. Anand Venkatesh also discarded the request of the plaintiff to constitute a confidentiality club by noting that it cannot be done in a hasty manner merely based on the ipse dixit of the plaintiff. First of all, the Court must be satisfied based on materials and the plaintiff must necessarily lay a foundation before making such a request, the bench added. The plaintiff sought the constitution of confidentiality club for the reason that it cannot divulge the nature of trade secret either in the plaint or in the interim application for injunction; it further added that such an act would expose the sensitive confidential information to everyone and detrimentally affect the uniqueness of the business model followed by the applicant. 

The plaintiff/ applicant, therefore, sought the constitution of a confidentiality club in line with the Delhi High Court order in Telefonaktiebolaget LM Ericsson (PUBL). v. Xiaomi Technology & Ors. (2017). This was a case where the Delhi HC constituted a confidentiality club, drawing inspiration fro from Section 103(3) of the Patents Act, 1970. In this case, the club comprised of advocates of either side and independent experts mutually agreed upon by both parties.

While rejecting the request made by the applicant, the court noted:

"The court has carefully examined... and is not able to satisfy itself that the applicant has established the fundamental requirements for the grant of an ad-interim injunction. Except stating that a trade secret/confidential information was shared with the 1st (Hip Bar) and 2nd respondents, there is not a whisper as to when, where and how such information was shared. Faced with this insurmountable difficulty, the applicant came up with a request to constitute a confidentiality club, and that too after the respondents had taken a specific stand that no confidential information had been divulged. It is all too apparent that the request to constitute a confidentiality club is a red herring intended to deflect the real issue in this application i.e., the existence or non-existence of a prima facie case for the grant of an ad-interim injunction.

The triple test for the grant of injunction, i.e, prima facie case, irreparable loss/ hardship, and balance of convenience are not satisfied by the pleadings made and documents submitted before the court by the applicant, concluded the Bench. The court reached the above conclusion since the applicant did not even indicate in the pleadings about the confidential information nor did it present to the court such sensitive information in a sealed cover.

"It is seen from records that the 2nd respondent has shared the business plan of the 1st respondent (Hip Bar)  with the applicant(Amica) and the same is evident from the e-mail dated 27.08.2021. This was the business plan which was submitted to the RBI on 21.09.2021, while seeking for extension of license. If the applicant had anything unique to contribute to the business plan, they should have at least informed the 1 st and 2 nd respondents by means of a reply to this e-mail communication. It is seen that the PPI business is regulated by RBI and while considering the extension of license, a business plan is in fact submitted to the RBI for consideration. Under such circumstances, it is not known as to what unique business model was proposed by the applicant as an improvement to the business model formulated by the 1st and 2nd respondents", the court noted in the order.

Other Court Observations

The court has elaborately discussed the circumstances in which a confidentiality club can be constituted in the judgment. Quoting from the English judgment in Lilly Icos Limited v Pfizer Limited [2002 1 WLR 2253], the court clearly laid down what a confidentiality club (generally used in antitrust and intellectual property cases)  is i.e, "...an agreement that during the proceedings documents designated as confidential shall be seen only by a strictly limited number of people on each side, almost entirely professional advisers, who are bound by undertakings of confidence in relation to them."

Before deciding if a confidentiality club is warranted in the case at hand, the court remarked that its inherent jurisdiction under Clause 37 of the Letters Patent and Section 151 of the Code to regulate its own procedure would allow it to constitute such a club, even in the absence of express provisions in the High Court Original Side Rules.

"...The requirement of showing a prima facie case for grant of ad-interim relief cannot be circumvented by seeking for the constitution of a confidentiality club. This Court is also of the considered view that there must be some basis or materials which should establish that such a confidential information/trade secret was in fact exchanged between the parties. The safest way to find out this fact is to see if there is any material as to when such confidential information was shared and/or where it was shared and/or to whom it was shared. Once this foundation is laid, this Court can go to the next step of considering the formation of a confidentiality club."

After noting the above rule, the bench opined that the applicant has failed to establish the fundamental requirements for the grant of ad-interim injunction. Though it was said that trade secrets were shared with Hip Bar, there is no clarity about 'when, where and how' such information was shared with the respondents.