By Nihit Nagpal and Akif Abidi
Spring boarding, in the context of business and intellectual property, refers to the practice where an individual or company uses confidential information, trade secrets, or proprietary knowledge obtained from a previous employer or business partner to gain a competitive advantage. This could involve using insider knowledge to develop similar products, replicate business strategies, or poach clients, often leading to unfair competition and economic harm to the original holder of the information. Terrapin Ltd v. Builders Supply Co (Hayes) Ltd[1] is the landmark case of the English court which restrains spring boarding. In this case the plaintiff was a designer of portable building and defendant was the manufacturer. The plaintiff shared its designs, details, technical information and know how. After their contract, however, the defendant offered for sale prefabricated buildings that had many of the features of the plaintiff’s original design as well as modification, and the plaintiff moved for an interlocutory injunction.[2] It is in this case that the springboard doctrine was reiterated by Justice Roxburgh: “the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it even when all the features have been published or can be ascertained by actual inspection by any member of the public Therefore, the possessor of the confidential information still has a long start over any member of the public. It is, in my view, inherent in the principle upon which the Saltman case rests that the possessor must be placed under a special disability in the field of competition in order to ensure that he does not get an unfair start.”[3]
Section 27 of Indian Contracts Act, 1872 can be a contentious issue under to discuss elements to prevent spring boarding. Given that Section 27 invalidates agreements restraining trade, businesses face difficulties in enforcing non-compete clauses and other restrictive covenants designed to prevent spring boarding. Section 27 states that “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” This provision embodies the principle that an individual should have the freedom to engage in any profession, trade, or business. However, it also raises challenges in the context of preventing unfair competition and protecting business interests from practices such as spring boarding.
Trade Secrets and Spring Boarding
Trade secrets in India is at a very nascent stage as it does not have any standalone legislation like other intellectual property protected by different legislations. But trade secrets can be enforced in court of law through various other laws, common law doctrines and principles of equity such Indian Contracts Act, The Companies Act etc. Now spring boarding is a type of phenomena against which protection can be sought through the principles established under trade secrets. In the case of Bombay Dyeing and Manufacturing Co. Ltd. v. Mehar Karan Singh[1] the Hon’ble Bombay High Court has upheld the common law doctrine and stated that spring boarding is a common law doctrine and protection against spring boarding will be applicable on any type of information which is even in the public domain of the company.
Recently, the 289th report by law commission of India has proposed a draft for Protection of Trade Secrets Bill, 2024 in India. The bill provides a robust mechanism for the protection of trade secrets as a form of IP. This bill helps Indian IP laws to comply with TRIPs. This bill aims to provide a comprehensive legal framework to safeguard proprietary business information, thereby curbing the practice of spring boarding—where former employees or competitors unfairly leverage confidential information to gain a competitive edge. By clearly defining trade secrets and establishing robust enforcement mechanisms, the bill seeks to counter misappropriation and ensure that businesses can protect their valuable intellectual assets. This legislative initiative not only aligns India with global standards but also enhances the business environment by fostering innovation and trust.
Legal Protections against Spring Boarding
To safeguard businesses from the detrimental effects of spring boarding, various legal provisions are in place. These include:
- Non-Disclosure Agreements (NDAs): NDAs are legally binding contracts that prohibit individuals from disclosing or using confidential information outside the scope of their employment or business relationship. Breaching a NDA can result in legal action, including claims for damages and injunctions to prevent further misuse of information.
- Trade Secrets Protection: Under laws like the Defend Trade Secrets Act (DTSA) in the United States, trade secrets are protected from misappropriation. This federal law allows businesses to take legal action against individuals or entities that unlawfully acquire, disclose, or use their trade secrets. Similar protections exist in other jurisdictions, such as the European Union’s Trade Secrets Directive.
- Non-Compete Clauses: Non-Compete Clauses are included in employment contracts to restrict employees from joining competitors or starting similar businesses for a specified period after leaving the company. While the enforceability of non-compete agreements varies by jurisdiction, they serve as a deterrent against spring boarding.
- Intellectual Property (IP) Laws: IP laws, including patents, copyrights, and trademarks, provide a framework to protect innovations, creative works, and branding from unauthorized use. Companies can take legal action against former employees or competitors who infringe on their intellectual property.
- Unfair Competition Laws: These laws aim to maintain fair business practices and prevent deceptive or unethical conduct in the marketplace. In cases of spring boarding, businesses can file claims under unfair competition laws to seek remedies for economic losses and reputational damage.
- Garden leaves clause: A garden leave clause, also known as “gardening leave,” is a provision in an employment contract that requires an employee to stay away from work during their notice period while still being paid by the company. This period is used to prevent the employee from immediately joining a competitor or using confidential information and trade secrets obtained during their employment.
Spring Boarding and Section 27: Legal Challenges and Interpretations
Given that Section 27 of Indian Contract Act, 1870 invalidates agreements restraining trade, business face difficulties in enforcing non-compete clauses and other restrictive covenants designed to prevent spring boarding. In Judicial Interpretations Indian courts have navigated the balance between freedom of trade and the need to protect legitimate business interests through various rulings. While Section 27 broadly invalidates restraints on trade, certain exceptions have been recognized:
- Reasonableness of Restraint: Courts have occasionally upheld restrictive covenants if they are reasonable in scope, duration, and geography, and necessary to protect the legitimate interests of the business. However, this is more the exception than the norm.
- Doctrine of Restraint of Trade: In landmark cases like Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd. (1967), the Hon’ble Supreme Court held that negative covenants operative during the term of employment are not in restraint of trade and thus valid. This offers some leeway to employers to impose restrictions while the employee is in service.
- Trade Secrets and Confidential Information: The courts have distinguished between general restraints on trade and those specifically aimed at protecting trade secrets and confidential information. In cases like Gujarat Bottling Co. Ltd. v. Coca Cola Co. (1995), the Hon’ble Supreme Court recognized that agreements preventing the misuse of trade secrets and confidential information are enforceable even under Section 27.
Landmark Judgments upholding the validity of section 27 of ICA
- Percept D’mark (India) (P) Ltd. V. Zaheer Khan & Anr.[5]– In this case it is the clear view of the court that a restrictive covenant extending beyond the term of contract is void and not enforceable u/s 27 of ICA.
- VFS Global Services Pvt. Ltd. v. Mr. Suprit Roy[6] The Hon’ble Bombay High Court upheld an agreement that included non-solicitation and confidentiality clauses, emphasizing the protection of confidential information and customer databases. The court ruled that these clauses were necessary to protect the business’s legitimate interests and did not constitute a restraint of trade. This decision affirms that non-solicitation and confidentiality agreements that are specific and reasonable are enforceable. It provides legal support for businesses to prevent ex-employees from using confidential customer information to gain a competitive advantage.
Authors Note
The concept of spring boarding poses significant challenges to businesses seeking to protect their confidential information and trade secrets. The law related to trade secret isn’t a codified law in the most jurisdictions globally yet, but with the changing dynamic in protection of intellectual property the courts have recognized the concept of trade secret for example in a recent case of Dr. Sudipta Banerjee V. L.S. Davar Company & Ors.[7] The Hon’ble Calcutta High Court stated that “There is no specific legislation in India to protect trade secrets and confidential information. Nevertheless, Indian Courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation. The remedies available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the trade secret, return of all confidential and proprietary information, and compensation for any losses suffered due to disclosure of such trade secrets.” In the context of Indian law, Section 27 of the Indian Contract Act, 1872, which broadly invalidates agreements restraining trade, complicates efforts to impose non-compete clauses and other restrictive covenants aimed at preventing such practices. Businesses can mitigate the risks associated with spring boarding by implementing robust confidentiality agreements, garden leave clauses, and thorough exit procedures, all crafted to comply with the legal constraints of Section 27. Regular training and awareness programs can further ensure that employees understand the importance of protecting confidential information.
Lakshit Rajdev, Intern at S.S. Rana & Co. has assisted in the research of this article.
[1] Terrapin Ltd v. Builders Supply Co (Hayes) Ltd [1960] RPC 128.
[2] Nam Youn Kim, Into the Crucible: Considering the Springboard Doctrine in CFAA Litigation.
[3] ibid
[4] Suit No.3313 of 2008
[5] (2006) 4 SCC 227
[6] 2008(2)BOMCR446
[7] FMAT 735 of 2021