Abstract:
Knowledge assets have a profound impact on the successes of business in the 21st
century. From an economic point of view, the rights associated with any undisclosed
information or trade secrets provide its owner an important advantage over other
competitors. The term ‘trade secret’ refers to information that is maintained in secrecy and
has a commercial value.1 Trade secrets may include formulas, business methods, recipes,
designs, processes and customer lists. It is undeniable that trade secret rights are easier to
acquire and lose than any other form of intellectual property (IP) rights.2 Interestingly, in
many cases, business firms rely on contractual obligation to protect their trade secrets and
treat such agreements as an effective instrument to prevent their employees walking away
with trade secret and joining other competitors. These covenants generally take the form
as either non-disclosure agreements or not to compete agreements.
The issue which then arises is whether such restraint of trade agreement is enforceable or
not. According to case law jurisprudence of Sri Lanka, the legal position of such
agreements is neither very clear nor well settled. This has, of course, triggered certain
misconceptions creating clouds of uncertainty in the business environment. In Sri Lanka,
Contract Law is a fine blend of the Common Law and the Roman Dutch Law legal
principles. English Law recognizes this category of agreements as illegal and void,
whereas under the Roman Dutch Law there is no principle that invalidates such contracts.
As a result, contracts of restraining trade would be valid as the Common Law of the
country is the Roman Dutch Law. Nevertheless, due to the English influence, there is a
tendency in Sri Lankan judiciary to recognize these contracts as being unenforceable. In
reality though, most employers who own confidential information tend to protect such
information through contractual obligations despite the fact that present Intellectual
Property Law provides a sound protection for confidential information. In this context,
this research aims to investigate whether and to what extent the Contract Law helps
businesses to protect their valuable trade secrets.
