Gurugram Court Bars Club Factory From Using Snapdeal Trade Secrets

IPO-Bound Snapdeal Narrows Loss By 54% To INR 125.4 Cr In FY21

SUMMARY

Snapdeal filed an appeal alleging its ex-employee is working with Club Factory

Snapdeal said they have been seeking to entice clients and business partners of Snapdeal

The court directed Club Factory to refrain from sharing Snapdeal's trade secrets, financial data and confidential information

A court in Gurugram on Monday (February 24) restrained Chinese ecommerce company Club Factory and one of its employees from sharing, divulging, using or utilising ecommerce marketplace Snapdeal’s trade secrets, financial data and confidential information.

A PTI report said that Civil Judge Suyasha Jawa has directed Club Factory and its employee, a former Snapdeal employee, to refrain from using Snapdeal’s trade secrets in approaching, contacting, soliciting, enticing, inducing the common clients, customer and business partners.

The direction came in the light of an appeal filed by Snapdeal alleging that its employee joined Club Factory and “in collusion” have been seeking to entice clients and business partners of Snapdeal. The plea sought the court to restrain Club Factory, claiming that it was being done to cause financial loss as well as a loss of Snapdeal’s goodwill.

“Appreciating the peculiar facts and circumstances of the instant case, it appears necessary to exercise the discretion in granting injunction in favour of the plaintiff to restrain defendants from sharing, divulging, using or utilising trade secrets, financial data and confidential information of plaintiff company (Snapdeal) in their access, which may cause harm to the reputation and goodwill of plaintiff company,” the court noted.

The court also said, “Such information may also be refrained from being used in approaching, contacting, soliciting, enticing, inducing the common client/customer/business partners.”

In its order, the court said as per business ethics, it was expected that ex-employees not leak or misuse information of confidential nature or disclose it to a competitor of his ex-employer. “Not only in terms of the clause during employment that restricted Defendant No 1 from using information sensitive to the business of plaintiff, but also in terms of business ethics, it is expected that ex-employee does not leak or misuse information of confidential nature or disclose it to a competitor of his ex-employer to prejudice the interest of plaintiff company,” the court said.

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“Otherwise, beyond the scope of use of this confidential information allegedly obtained and available with Singhal (Snapdeal’s ex-employee), Club Factory is free to exercise its right to freedom of trade, in a free-market economy, and as such, there is no restriction upon access to its clientage,” it said.

The court has put up the matter for further hearing on March 21.

After the last few years of liquidity issues after a failed acquisition by Flipkart, Snapdeal had geared up its performance in 2018. As of now, the online marketplace claims to operate in over 26K pin codes across all 28 states and nine union territories.

Snapdeal is reported to have grown its consolidated revenues by 73% year-over-year (YoY) to INR 925.3 Cr in 2018-19 as compared to INR 535.9 in 2017-18. At the same time, Snapdeal also managed to reduce its loss by 71% to INR 186 Cr in FY19 from INR 611 Cr reported in FY18. Revenue from operations for Snapdeal (standalone) grew by 87% YoY from INR 436.1 Cr in FY18 to INR 813.8 Cr in FY19.

The Gurugram-based company also raised an undisclosed amount of funding from the executive director of Piramal Group, Anand Piramal, in July 2019. Snapdeal claims that following the adoption of this new approach, it now delivers to all Tier 1 and Tier 2 cities and most of the Tier 3 towns of India. Notably, the company had hit the highest number of monthly transacting customers in September 2019.

Update: March 3, 2020| 11: 27 AM

After the story was published, Club Factory representatives on March 3 told Inc42 that the order was issued on February 11 by the court but was only prima facie, not having any bearing on the merits of the case. Further, the company filed an appeal against the order on February 19, as a result of which the court on February 29 granted an interim stay on the injunction order of February 11. The company said that “there are no trade secrets or any confidential information or financial data of Snapdeal in the possession of Clubfactory and/or any of its employees.”