AS THE OUTSOURCING MOVEMENT TO India gains momentum, we can see a situation where hundreds of thousands of Indians will be working in the back office of the world, doing not just typical software development, call center and BPO work but more sophisticated work, such as financial analysis, entire product development projects, and so on. What this means is that the world would be entrusting the valuable technology know-how and confidential information of its companies, including personal information of their customers to India.

A key concern would be the extent to which confidential information and intellectual property can be protected in India. Clearly, India’s intellectual property laws are reasonably advanced, but concern remains about the extent to which the laws can be enforced in India. The concern stems partly from the fact that this issue is just terribly important and partly from the high software piracy levels in India. Of course, the latter may not be a proper indicator, given the high cost barriers to home users and small business in India—similar to a Napster/Kazaa like situation.

The question often on the mind of a company wishing to outsource to India would relate to the kind of protection available in case of a breach of confidentiality, for example, an employee running away with confidential information of the company and starting his own venture using the same knowledge. Can the previous employer really prevent this through legal measures?

There has been little litigation in this area but clearly, there would appear to be a sufficient legal basis for obtaining protection in this sort of situation. For this, one could turn to the experience of software companies who have carried out raids on companies using pirated software.

The knowing use of copyright is a criminal offence in India. Depending upon the circumstances, one could obtain an injunction against such a company with reasonable effort. Further, if sufficient evidence is not available for the injunction to issue, one could obtain what is called an “Anton Pillar” order, directing the appointment of a court commissioner to go to the facility of the alleged infringing party and collect evidence in this regard.

One problem though relates to the sophistication of the courts that one would approach for this sort of remedy. A typical Indian civil court may not be experienced enough in this kind of litigation for this to be a smooth experience. India’s copyright laws provide some flexibility, permitting jurisdiction of a court where the plaintiff is located, rather than just where the defendant is located or where the cause of action arises.

This affords some possibility of forum shopping and the international software companies have generally opted for the Delhi High Court, which is considered the most IP-friendly and sophisticated court in India. This means that a company that may need to engage in this kind of litigation may need to engage in some form of structuring, particularly if its operations are located in—lets say—Bangalore or Hyderabad. Though not impossible, some effort may be required before the jurisdiction of the forum of choice can be invoked.

Several other problems exist in this kind of litigation. For one, Indian courts are so slow that it would take several years for the litigation to conclude. Consequently, most of the software companies regard the issuance of an injunction as the main objective and thereafter, these cases tend to be settled. Taking the case to its conclusion can pose several challenges—for example, if evidence has to be adduced by witnesses, its can be a tough task flying a witness to the place where the court is located several years afterwards, when the individual may have moved on in his career, perhaps even moved overseas.

Clearly then, the company needs to strategize on what kind of litigation it wishes to initiate, whether based on copyright law or confidentiality, whether criminal or civil in nature, the forum to be approached and the objective to be achieved. Despite all these problems one could conclude that there is a reasonable level of protection that would be available to a company in this sort of situation.

Retention of employees is a key issue for high tech companies, even more so when they are located in a place where strong competition exists for highly skilled employees with niche skills. Obviously, typical business approaches need to be implemented, such as creating the right atmosphere in which employees would work, offering employee stock options, etc. Some legal measures, such as non-compete provisions, employees bonds, and so on may also be considered.

A non-compete clause in an employee contract would suffer from a difficulty in enforcement as is the case under the laws of many countries. Indian courts have stated before that a company cannot restrict the right of an employee to find employment of his choice. Such a provision would probably be struck down as being in restraint of trade and therefore void under Indian contract law.

Nevertheless, certain situations may call for a deeper analysis, such as where there is a strong intellectual property element involved. What happens when an employee—say the head of product development in one company—leaves to join a competitor as head of product development and the competitor is developing a similar product? What protection could be afforded to the former employer when clearly the employee cannot perform his role at his new job without revealing the knowledge gained while working with the former employer?

This would lead a court to deal with what is a troubling issue—drawing a thin line between what is legitimately that of the employee—the learning curve that he has gained through his career which he is entitled to exploit and the intellectual property owned by the company, which it has the legal right to protect. Though there is little precedent in India for this kind of situation, one could perhaps conclude that given the level of IP awareness in some Indian courts, there would be a reasonable opportunity for the former employer to obtain protection, provided the above distinction is carefully drawn out.

Companies often spend a lot of money on training employees such as sending them abroad to obtain third party training or training at the facility of the holding company. Clearly, there is a substantial cost involved that can be quantified. In India, some companies require employees to sign “employee bonds”. The question arises as to the legal validity of these employee bonds.

Obviously, if an employee quits, a company cannot hold him back, but it certainly can claim reasonable compensation. Often, these contracts are written in such a way that an employee is required to remain within the company for a specified period in order for the company to reap the benefits of his training. If he leaves earlier, he has to pay back the cost incurred.

Such an obligation can be enforced; however, the terms of such obligation must be reasonable—the period during which he must continue to work in the company must be commensurate with the costs involved and the perceived benefits. The damages payable would largely relate to the costs involved and probably could not cover indirect losses, such as opportunity costs.

Recently, we have also witnessed some friction among companies in poaching each other’s employees. It is not unusual for a company to systematically focus on another company’s employees, doing what is referred to as “employee poaching”. In most situations, this is difficult to protect. The way out could possibly be to file an action for “inducement of breach of contract”. Even this is difficult since an employee who leaves is not breaching his contract, he is merely terminating it as he is entitled to do so.

In certain situations, the current employer may have some muscle to stop the poaching through legal measures. For example, if there is a clear case of a competitor inducing employees who are on fixed term contracts or have signed employee bonds, the effect of employee termination may take the color of a breach rather than that of a legally acceptable termination. Depending upon the conduct of the company seeking to poach the employees, an injunction may issue. This area has witnessed a favorable court ruling recently, though the judgement has perhaps not involved a deep enough analysis of the legal issues involved.

Another concern—particularly among European countries—relates to the fact that India does not have a law relating to data protection. India probably does need one, since common law principles on protection of confidentiality may not go far enough to protect certain situations. There have been a few rumblings within the central government as well as several state governments about drafting such a law.

Nothing has resulted from this so far. One may caution though against developing a strict, European style data protection and privacy law. Many U.S. companies take the view that a stringent European-style law may actually be a hindrance for U.S. companies outsourcing to India and some U.S. lawyers even believe that not having such a law gives India an advantageous status similar to that which Delaware enjoys as a corporate law haven.

Taken together, all these issues would lead us to conclude that the conceptual basis for protection largely exists under India law, though precedents are perhaps scarce. Nevertheless, using a practical approach and marshalling the facts of a situation carefully, a legal case can be made out, at least in more perverse situations of infringement. This means that for a company that seeks to protect its intellectual property, a careful structuring of employee contracts and its operations and a practical approach could provide reasonable protection against these situations.

Stephen Mathias co-chairs the Technology Law Practice of Kochhar & Co, a leading law firm in India. He is one of the most renowned information technology lawyers in India and cited by Global Counsel as the Leading Lawyer in India for Information Technology and E-Commerce legal work. He can be reached at stephen.mathias@bgl.kochhar.com