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Understanding The Legal Boundaries For Competitive Intelligence In India 9th July 2009 [Compatibility Mode]

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Presentation by Harsh Sinha at Marcus Evans\' conference-Mumbai (July 2009)

Presentation by Harsh Sinha at Marcus Evans\' conference-Mumbai (July 2009)


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  • 1. UNDERSTANDING THE LEGAL BOUNDARIES FOR COMPETITIVE INTELLIGENCE IN INDIA “Competitive Intelligence India” Marcus Evans: July, 2009 (Mumbai, India) Presented By: Harsh Sinha, Partner – Kaden Boriss Partners Kaden Boriss Partners, Lawyers
  • 2. Gathering Information about competitors • Effective Competitive Intelligence (CI) plays a major role in determining what your business rivals WILL DO before they do it. • Effective gathering of information under CI can be helpful to gain foreknowledge of the competitor's plans and to plan one’s business strategy to countervail their plans. • Some common tools/methods for gathering competitor’s information: o Online Databases o Surveys and Interviews o Reverse Engineering of competitor's products o On-site Observations • While some methods/tools are ethical others may strictly not be so! ethical, 2 Kaden Boriss Partners, Lawyers
  • 3. CONTD. • No “standard” tool for all CI activities: choose the “tool” depending on factors like time, finance, priority of data, likelihood of obtaining data etc. • A competitor can foil CI of a rival: fake interviews as potential employer/job- employer/job seeker to gather information about the rival • Counter-intelligence is vital- you are being watched too!- defending one’s organization’s secrets i vital. S i ti ’ t is it l Securing computer systems, confidentiality/non- i t t fid ti lit / disclosure obligations on employees can be useful. • Requisites to be followed by Competitive Intelligence:- q y p g o Must abide by all applicable laws - whether domestic or international o Must accurately disclose all relevant information o Must M t provide h id honest and realistic recommendations and conclusions i th execution t d li ti d ti d l i in the ti of one's duties etc 3 Kaden Boriss Partners, Lawyers
  • 4. MAKING THE ORGANIZATION MORE COMPETITIVE A nexus between CI activities & corporate performance? o not always a direct cause-effect relation o benefits need not always be tangible & explicit; but there are benefits (often gradual)! o International studies have shown a link between CI & corporate performance (companies practicing higher levels of CI were able to increase their business performance) Quantitative relation of CI & Corporate Performance {study by Jawaorski & Wee,1993; McGonagle & Vella 1996} o High level of intelligence practiced →37 percent higher level of product quality and 68 p percent increase in business performance. p o High level of intelligence practiced → 36 percent higher level of strategic planning quality and 48 percent increase in business performance. o High level of intelligence practiced → 50 percent higher level of market knowledge and 36 percent increase in business performance performance. 4 Kaden Boriss Partners, Lawyers
  • 5. CONTD. • Some tangible benefits of CI o Identification of new opportunities - e.g. identify new trends before our markets and competitors o Early warning of competitor moves - enable counter measures o Minimizing investment risks - detect threats and trends early on o Better B tt customer interaction - i h it i t t i t ti inherit intensified customer market view ifi d t k t i o Better market selection & positioning - understand where your offer fits and discover untapped or under-served potential 5 Kaden Boriss Partners, Lawyers
  • 6. COMPETITIVE INTELLIGENCE VS CORPORATE ESPIONAGE Espionage is ‘spying’ and Corporate Espionage (CE) is espionage conducted for “commercial purposes”. CE is the "theft of trade secrets through illegal means such as wiretaps, bribery and cyber intrusions.“ (as per definition by Business Week Online) Going beyond browsing websites, corporate publications, market survey etc. into theft of trade secrets, bribery, blackmail, and technological surveillance. CE done to obtain information ‘outside’ public domain/’restricted’/’confidential’. CE: usage of illegal, unethical or deceptive means to obtain restricted/confidential/secret information of the rival (CI : use of ethical & legal means of obtaining information) 6 Kaden Boriss Partners, Lawyers
  • 7. CONTD. CI is completely ethical and legal; CE is exactly the opposite i e opposite, i.e. unethical and illegal. Illegal/unethical means of obtaining ‘secret’/’restricted’/’confidential’ information: i f ti o Stealing information; o Misrepresenting one’s identity to gather information; p g y g ; o Offering bribes for obtaining confidential information; o cyber crimes like ‘hacking’; o “Dumpster diving”; o Programs like “Trojan Horse” CI & CE co-exist (there is a thin, often blurred line!) CI practitioners (in general) abide by all laws & regulations; not so in CE CE: Internal (by rogue/disgruntled employees) & External (by hackers) 7 Kaden Boriss Partners, Lawyers
  • 8. CORPORATE ESPIONAGE IN INDIA ● Corporate espionage (CE) is relatively new in India, though first reported case (international) in 1943 ( a P & G employee bribed a Lever Brother worker to steal soap). ● CE per se is not defined as an offence under any statute in India. ● Use of illegal means for obtaining ‘CI’ information may constitute offences CI’ under various laws. ● Most victims of CE do not formally lodge a complaint with authorities- fearing y g p g loss of reputation {only 20% cases get reported due to sensitivity involved- KPMG study} ● It cannot h t happen t us, it only h to l happens t others! – a mistaken b li f to th ! i t k belief 8 Kaden Boriss Partners, Lawyers
  • 9. ANALYZING LEGAL ASPECTS RELATING TO COMPETITIVE INTELLIGENCE Gathering ‘information’ about the competitor- ‘Yes’; use of illegal means to g gather such information- ‘No’ The activity/process of gathering information through illegal means (CI, had the means been legal/ethical) not per se defined as an offence; the illegal means used f th purpose may constitute an offence under some l d for the tit t ff d law. ‘tool’ used for gathering information could be in contravention of a law of the land; such contraventions are dealt with under different statutes 9 Kaden Boriss Partners, Lawyers
  • 10. COMPETITIVE INTELLIGENCE & INFORMATION TECHNOLOGY ● Information T h l I f ti Technology (IT) i an i t is integral part of th competitive l t f the titi intelligence process- it is the basic technological support system for competitive intelligence. ● networks, information systems, databases, search machines, internet: IT as a tool of CI process. ● IT: invaluable tool profound potential for abuse!!! tool- ● Some provisions of Information Technology Act, 2000 (“ITA”) seek to curb misuse/abuse of IT tools for illegal collection of information 10 Kaden Boriss Partners, Lawyers
  • 11. CONTD ● Some key features of ITA: o defining ‘data’, ‘computer database’, ‘information’, ‘computer resource’, ‘electronic form’, ‘originator’, ‘addressee’ etc {Sec 2} electronic form originator addressee etc. {Sec. o creating civil liability if any person accesses or secures access to computer, computer system or computer network {Sec. 43 & 66} o creating criminal liability if any person accesses or secures access to computer, computer system or computer network {Sec. 66} o punishment for dishonestly receiving stolen computer resource or communication device {Sec. 66B} o punishment for cheating by personation by using computer resource {Sec 66D} o setting up of hierarchy of regulatory authorities, namely adjudicating officers, the Cyber Regulations Appellate Tribunal etc {Chapter X}. 11 Kaden Boriss Partners, Lawyers
  • 12. KEY PROVISIONS OF THE INFORMATION TECHNOLOGY ACT, 2000 The Act provides a complete Chapter (Chapter IX) on cyber contraventions, i.e., Section 43 (a) – (j) which cover a wide range of cyber contraventions related to unauthorized access to computer computer system computer computer, system, network or resources. Some of the activities under Sec. 43 (contravention, if done dishonestly, fraudulently & without permission of the owner) are: accessing or securing access to such computer, computer system or computer network; or computer resource -[43(a)] downloading, copying or extracting any data, computer data base or information from such computer, computer system or computer network including information or data held or stored in any removable storage medium- [43(b)] introducing or causing to be introduced any computer contaminant or computer virus into any computer, computer system or computer network- [43(c)] 12 Kaden Boriss Partners, Lawyers
  • 13. CONTD. damaging or causing t b d d i i to be damaged any computer, computer system or computer d t t t t network, data, computer data base or any other programs residing in such computer, computer system or computer network – [43(d)] disrupts or causes disruption of any computer, computer system or computer network – [43 (e)] providing any assistance to any person to facilitate access to a computer, computer system or computer network in contravention of the provisions of the ITA- [43(g)] destroying, deleting or altering any information residing in a computer resource or diminishing its value or utility or affecting it injuriously by any means- [43(i)] o Penalty (Civil): liability to pay damages by way of compensation to th person so affected- up t INR 500 000 {S the ff t d to 500,000 {Sec. 66} o Punishment (Criminal): imprisonment extending up to three (3) years {Sec. 66} 13 Kaden Boriss Partners, Lawyers
  • 14. CONTD. o Dishonestly receiving stolen computer resource or communication device {Sec. 66 B} the offence- dishonestly receiving or retaining any stolen computer resource (i l d d t ) or communication d i k (includes data) i ti device knowing or h i i having reason to believe the same to be stolen computer resource or communication device the punishment- imprisonment (up to 3 years) or fine (up to INR years), 100,000) or both o Cheating by personation by using computer resource {Sec 66D} the punishment- imprisonment (up to 3 years) and fine (up to INR 100,000) o ITA applies to offences committed outside India, if: the act or conduct constituting the offence or contravention involves a computer, computer system or computer network located in India {Sec 75} 14 Kaden Boriss Partners, Lawyers
  • 15. INDIAN PENAL CODE, 1860 (IPC) & COMPETITIVE INTELLIGENCE The method adopted to obtain information may constitute an offence under IPC. IPC prescribes the criminal liability/punishment for various illegal means that are often used to obtain information information. “Theft “: Whoever, intending to take dishonestly any movable property out of the possession of any person without that person’s consent, moves that property in order to such taking is said to commit theft {Sec 378 IPC} taking, theft. {Sec. o “The words “movable property” are intended to include corporeal property of every description, except land and things attached to the earth or permanently fastened to anything which is attached to the earth.” {Sec. 22 IPC} earth. o Data can be stored on some storage device (CD, Floppy, USB etc.)- theft of such CD/Floppy etc. can be committed. o Punishment for theft- imprisonment up to 3 years or fine ,or both {Sec 379} years, or 15 Kaden Boriss Partners, Lawyers
  • 16. CONTD. “Dishonestly receiving stolen property”- Whoever dishonestly receives or retains any stolen property, knowing or having reason to believe the same to be stolen property, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both. {Sec 411} “Criminal breach of trust”- Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes off that p p y property in violation of any direction of law prescribing the mode in which such y p g trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits ‘criminal breach of trust’ ”. {Sec 405} o entrustment of property t t t f t o dishonest misappropriation or own use or disposal of property o in contravention of direction of law or legal contract o Punishment: imprisonment up to 3 years, or fine, or both {Sec. 406} 16 Kaden Boriss Partners, Lawyers
  • 17. CONTD. “Criminal breach of trust” committed by a public servant banker merchant trust”- servant, banker, merchant, broker, attorney or agent {Sec 409} o Punishment: imprisonment for life, or with up to 10 years, and also fine o Director is not only an agent of a company, but also a trustee of the assets of the company that comes to his hand {observed by SC in Shivnarayan, 1980 CrLJ 388} “Cheating”- Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or i t ti h ll t i t intentionally i d ll induces th person so d the deceived t d or i d to do omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". {Sec. 415 } o deception of any person (dishonest concealment of facts is deception) o fraudulent or dishonest inducement- to deliver any property or a person may retain property; or, o Intentionally induce to do/omit to do something which he wouldn’t have done/omitted if not deceived o causes or likely to cause harm o Punishment: imprisonment up to 1 year, or fine, or both {Sec. 417} 17 Kaden Boriss Partners, Lawyers
  • 18. CONTD. “Cheating by personation”- cheating by pretending to be some other person, or by knowingly substituting one person for another, or representing that he or any other person is a person other than he or such other person really is. {Sec 416} o Punishment: imprisonment up to 3 years, or fine, or both. {Sec 419} “Cheating and thereby dishonestly inducing a person to deliver property ”- Whoever cheats and th b di h ” Wh h t d thereby dishonestly i d tl induces th person d the deceived any i d property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be p y y , liable to fine. {Sec. 420} 18 Kaden Boriss Partners, Lawyers
  • 19. DATA PROTECTION "data" means a representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized g manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form (including computer printouts magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the computer {S 2( ) ITA} t {Sec 2(o) Data protection- no specific statute; provisions under ITA , IPC & Copyrights Act (protection of copyrighted data) applicable. Recent incidents involving data theft: Software engineers of Brainvisa Technologies (Pune) arrested for allegedly cheating the company by stealing computer code (2009) HSBC call center employee was arrested and booked under provisions of ITA & IPC for stealing client’s details and then accessing the accounts to take over £230,000 [2006]- 19 Kaden Boriss Partners, Lawyers
  • 20. BREACH OF CONFIDENTIALITY Obligation of confidentiality- legal, fiduciary, contractual obligation. Indian Contract Act (ICA) : Section 73 - Compensation for loss or damage caused by breach of contract: party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any y y loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach. Section 74 ICA: if an amount has been specified in the contract for breach breach, the party suffering is entitled to receive reasonable compensation not exceeding such sum. Provisions of IPC & ITA , in addition to contractual remedies 20 Kaden Boriss Partners, Lawyers
  • 21. BREACH OF CONFIDENTIALITY IPC provisions: Sec. 409- criminal breach of trust by banker, merchant, broker, attorney, agent {breach of fiduciary obligation}; Sec 405- criminal breach of trust {both legal & contractual} ITA provisions: Sec. 72 A- Punishment for disclosure of information in breach of lawful contract.– Save as otherwise provided in this Act or any other law for the time being in force, any p y g , y person including an intermediary who, while providing services under the terms of lawful contract, has secured access to any material containing personal information about another person, with the intent to cause or knowing that he is likely to cause wrongful loss or wrongful gain discloses, without the consent of the person concerned, or in breach of a lawful contract, such material to any other person, shall be punished with imprisonment for a term which may extend to three years, or with fine which may extend to five lakh rupees, or with both. 21 Kaden Boriss Partners, Lawyers
  • 22. CORPORATE GOVERNANCE & COMPETITIVE INTELLIGENCE Companies are laying great emphasis on highest standards of ethics- transparency & accountability Big Companies like Infosys, WIPRO, Tata Steel have adopted strict code of ethics & conduct- discourages corporate espionage y p y , , Unlawful use by their employees of material, confidential information, intellectual property of competitors strictly prohibited Transparent accounting & payment policies- payment without supporting documents not encouraged Paying or offering bribes strictly prohibited Noble policies at times not followed in letter & spirit! – Satyam scam policies, 22 Kaden Boriss Partners, Lawyers
  • 23. INTELLECTUAL PROPERTY & COMPETITIVE INTELLIGENCE The 3 main statutes: Trade Marks Act,1999 (“TMA”); Copyrights Act, 1957 ( CA ) (“CA”) and Patents Act,1970 (“PA”). ( PA ). Information technology (computers, internet et. al.)- a major tool for stealing & misusing confidential and protected information Vital information about products, process (protected & proprietary) can be stolen, re-engineered/modified- huge losses to companies owning such information Chemical/biological formulae/structure of a vital ingredient of a product can be stolen using highly sophisticated IT tools. a specific law to protect trade secrets is imperative 23 Kaden Boriss Partners, Lawyers
  • 24. SOME PROVISIONS Section 25 PA: Opposition to Patents (1) Where an application for a patent has been published but a patent has not been granted, any person may, in writing, represent by way of opposition to the Controller against the grant of patent on the ground- (a) that the applicant for the patent or the person under or through whom he claims, wrongfully obtained the invention or any part thereof from him or from a person under or through whom he claims; ( ) (2) At any time after the grant of patent but before the expiry of a period of one year from the date y g p p y p y of publication of grant of a patent, any person interested may give notice of opposition to the Controller in the prescribed manner on any of the following grounds, namely:- (a) that the patentee or the person under or through whom claims, wrongfully obtained the invention or any part thereof from him or from a person under or through whom he claims; Section 108 PA: Relief for infringement (in a suit)- injunction & damages Section 63 CA: offence of infringement- imprisonment (6 months-3 years) & fine (Rupees 50 000 t 200 000) (R 50,000 to 200,000) 24 Kaden Boriss Partners, Lawyers
  • 25. SOME PROVISIONS Section 55 CA: Civil remedy for infringement: injunction & damages Section 29 TMA - Infringement of registered trade marks- a registered trade mark is infringed by a person who, not being a registered proprietor or a person using by way of permitted use, uses in the course of trade, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which th t d mark i registered and i such manner as t render th use of th hi h the trade k is i t d d in h to d the f the mark likely to be taken as being used as a trade mark. Burden of proof under TMA: the person alleging infringement must prove it {Supreme Court ruling in 2000 -SM Dychem ltd. v. Cadbury ltd.) 25 Kaden Boriss Partners, Lawyers
  • 26. ROLE OF SOCIETY OF COMPETITIVE INTELLIGENCE PROFESSIONALS S.C.I.P. : a non-profit global organization with a mission to develop, maintain, and promote the body of knowledge for the competitive intelligence community through research and education {formed 1986} Promoting CI as a discipline bound by a strict code of ethics and practiced by trained professionals Providing education & information about CI & its significance; spreading info on latest developments in information gathering, analysis and dissemination. Education & training for effective CI while maintaining highest ethical standards standards. SCIP prescribes a strict Code of Ethics for its members- compliance with laws, abiding by company policies & guidelines, accurately disclosing one’s identity 26 Kaden Boriss Partners, Lawyers
  • 27. THANK YOU Harsh Si h H h Sinha, Partner, Kaden Boriss Partners, Lawyers Kaden Boriss Building, 495, Udyog Vihar, Phase – V, Gurgaon, Haryana, INDIA Tel: +91 124 40404193 Mobile: +91 9650395326 Fax: +91 124 40404194 Email: harsh.sinha@kadenboriss.com Kaden Boriss Partners, Lawyers Note: Several statements contained in this presentation represent the personal views of the presenter and may not necessarily reflect the position of Kaden Boriss Partners . Accordingly, Kaden Boriss Partners should not be deemed responsible for the contents hereof.

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