PROTECTING YOUR CUSTOMER LISTS AND DATABASES

Customer lists and databases form the heart and soul of several businesses and considerable amount is expended to prepare such lists and databases. Customer lists may not just be a simple list of the customers and their contact details but may also include certain details which may not be freely available in the public domain. Several businesses employ various tools to compile and study their customers’ data such as their social media activity, their purchasing habits, the amount the customers usually spend, etc. which play a significant role in maintaining the current customer relations and building new ones. Thus, customer lists and databases falling into the wrong hands or misused may cause significant damage to the proprietors’ business and it is essential that appropriate steps be taken to protect them.

Position in the United States

In the United States, a customer list may be protected as a trade secret. There are both state and federal laws governing the protection of trade secrets. As per the federal law, Defend Trade Secrets Act of 2016, a trade secret includes all forms and types of financial, business, scientific, technical, economic, or engineering information, including compilations etc., whether tangible or intangible, if

· The owner thereof has taken steps to keep such information as a secret; and

· The information has some economic value from not being known generally and is not readily ascertainable through proper means by others who can obtain economic value therefrom.[1]

Thus, as per the above definition, for a customer list to qualify as a trade secret in the United States and for its owner to sue for misappropriation thereof, it is necessary that the owner of the customer list should have taken steps to keep the list a secret. Further, the list must not be a mere compilation of the customer data such as their names, addresses which may be readily available in the public domain. As observed in one of the cases[2], “… a client list entitled to trade secret status typically includes not only the name of the business but information not available to the public, such as the name of the contact person, a non-public telephone or cell phone number, an email address, and other pertinent business data known only because of the client relationship. Indeed, such information is the value in a client list. The company typically has spent many hours of labour and interaction to develop the information reflected in the list, and disclosure to a competitor grants the competitor a tremendous advantage in not having to spend the time and money to develop that same information.”

Position in India

In the absence of any statutory law protecting trade secrets, any action against misuse of the customer lists may be based on infringement of copyright and breach of confidentiality.

As per the Copyright Act 1957, a literary work includes computer programmes, tables and compilations including computer databases.[3] Thus, customer lists shall come within the realm of literary works. However, in order for a literary work to be entitled for a copyright protection, it is necessary that it must be an original creation.

Earlier, the Courts in India, followed the ‘sweat and brow’ principle in order to determine the originality of a work. With respect to customer lists, the Delhi High Court in the case of Burlington Home Shopping Pvt. Ltd. vs. Rajnish Chibber[4] held, “(12)… compilation of addresses developed by any one by devoting time, money labour and skill though the sources may be commonly situated amounts to a `literary work' wherein the author has a copyright.”

However, after the pronouncement of the Indian Supreme Court’s judgement in the case of Eastern Book Company Vs. D.B. Modak[5] (the EBC case), the Courts have moved away from ‘sweat and brow’ test to determine the originality of a work. In the EBC Case, the Court held that “To claim copyright in a compilation, the author must produce the material with exercise of his skill and judgment which may not be creativity in the sense that it is novel or non- obvious, but at the same time it is not a product of merely labour and capital.” Thus, for a customer list, which is essentially a compilation of information which already exists, to be copyrightable must result in something more than a straightforward compilation. It may involve a distinct technique of compilation rendering the list originality for it to be copyrighted. This stance makes it difficult for customer lists to cross the threshold of originality.

In order to succeed in a claim for breach of confidentiality with respect to revealing the customer list, it is essential for the plaintiff to expound how the data in which confidentiality is claimed is different from the data which the other entities in the same business also possess, the secret in the list and what steps did the plaintiff take to keep such information as a secret. This analogy is in line with the definition of trade secrets as per the federal law in the United States.

The High Court of Bombay in one of the cases held that something already known to the members of the trade and the employees, and for guarding which no steps have been taken and for developing which no effort or money has been extended, cannot be a trade secret.[6] Further, the Delhi High Court, in Stellar Information Technology Private Ltd. Vs. Rakesh Kumar[7] held that the names of the customers seeking data recovery services of the plaintiff were well known and in public domain and the defendants could not be restrained from approaching the customers only on the allegation that the defendants are aware of the names of the plaintiff's customers. It was reasoned that the plaintiff, in the name of confidentiality, was seeking a restraint on trade. In this case, the plaintiff alleged that the defendants, who were the former employees of the plaintiff, had stolen customer lists of the plaintiff and set up a competing business. Thereby infringing the copyright of the plaintiff in the customer list and breaching confidentiality.

In the case of Navigators Logistics Ltd. vs Kashif Qureshi & Ors[8], Justice Endlaw delivered a succinct judgement on the aspect of customer lists being the subject matter of copyright and confidential information. In this case, it was upheld that no copyright can subsist in a compilation in the absence of any employment of any skill or judgment. The plaintiff in the instant case did not reveal in its plaint any technique/criteria in compiling the list of customers. As regards confidentiality, it was held that every customer list cannot qualify as confidential information or a trade secret unless the confidentiality around such a list is of economic value/business value/commercial value.

Conclusion

As can be inferred from the various judgements delivered by the Courts in India, the threshold of originality in customer lists and databases is generally higher than other kinds of literary works in order to be copyrightable. Further, for the customer lists to be considered as confidential, they must hold an intrinsic economic value and must consist of data which is not available in the public domain and if comes into the hands of a competitor would enable them to obtain an advantage, which it otherwise would not have been able to obtain.

Neetika Gandhi

Senior Associate

neetika.gandhi@iprattorneys.com

[1] 18 U.S.C. § 1839. Definitions (3)the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information; [2] Columbus Bookkeeping & Business Services v. Ohio State Bookkeeping, Case No. 11AP-227 [3] Section 2(o) [4] 61 (1995) DLT 6 [5] (Civil Appeal No. 6472 of 2004) [6] Bombay Dyeing & Manufacturing Co. Ltd. v. Mehar Karan Singh, 2010 (112) BOM LR 3759 [7] (2016) 234 DLT 114 [8] CS, (COMM) 735/2016