Karnataka High Court temporarily restrains German company from exploiting trade secrets of Homag India

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In an interesting judgment dated 10th October, 2012 the Karnataka High Court, sitting at Bangalore, has passed an interim injunction restraining IMA AG Asia Pacific PTE Ltd. (a German subsidiary based in Singapore) from exploiting the trade secrets of Homag India Ltd. the Indian subsidiary of a German company. The injunction also extends to one of the former employees of Homag India, who is alleged to have leaked the trade secrets, through his official email account, to IMA in exchange for an offer of lucrative employment. The judgment can be viewed here. 

The Addl. City Civil Judge, Bangalore had initially passed an interim injunction on the 9th of December, 2009 restraining only the former employee of Homag India, for a period of one year, from exploiting the trade secrets that he had learned during his employment with Homag. The basis of the interim injunction was the employment contract between Homag and its former employee which clearly placed the former employee (Defendant No. 1) under a strict confidentiality clause. The trial court refused to extend the interim injunction to Defendant No. 2 i.e. IMA AG Asia on the grounds that there was no privity of contract between Homag & Defendant No. 2. The High Court however disagreed with the trial court and has ruled that the interim injunction should have been extended to even the second defendant which had induced defendant no. 1 to breach the confidence of his former employer. One of the reasons for extending the interim injunction to even Defendant No. 2 was the fact that there was prima facie evidence indicating that Defendant No. 2 had induced Defendant No. 1 to breach his duty of confidentiality to the plaintiff. 

One of the other tricky points argued in the case was whether the court could enforce a negative covenant in the employment contract between the Plaintiff and Defendant No. 1, which covenant restrained Defendant No. 1 from taking up the offer of employment by Defendant No. 2. Apart from restrictive employment contracts being inherently controversial, there is also the question of the Specific Relief Act, 1963 which prohibits the enforcement of negative covenants in contracts. 

The High Court however cited the Supreme Court judgement in the case of Best Sellers to hold that such negative covenants can be enforced during proceedings for an interim injunction which are conducted under the Code of Civil Procedure. The High Court also bolstered the basis of its judgement, on the point of enforcing confidentiality clauses in employment contracts by citing other judgements of the Supreme Court in the case of Niranjan Shankar Golikari along with the judgement of the Delhi High Court in the now famous case of John Richard Brady. 

On the basis of all the above judgements and the facts of the case the High Court restrained Defendant No. 1 from taking up the employment offer of Defendant No. 2 for the duration of the lawsuit and not just for one year. The interim injunction against exploitation of the trade secrets was also extended to Defendant No. 2. The case has been remanded to the trial court for a trial which should be completed within one year.