Minimizing Disclosure of Trade Secrets in Civil Litigation

Minimizing Disclosure of Trade Secrets in Civil Litigation

Civil litigation is a critical tool for companies seeking to protect their trade secrets, prevent future disclosure of trade secrets, and remedy wrongs occasioned by past disclosures of trade secrets. Ironically, employing that tool risks the very sort of public disclosure it aims to prevent and remedy.

Courts fortunately have become more permissive of under-seal filings, minimizing the risks of publicly disclosing trade secrets that would otherwise be fully accessible to the public through paper and electronic files. Rules and local procedures vary, but they generally require the court’s permission to file under seal, either through an order granting a motion for leave to file under seal or through an order adopting a stipulation among the parties.

Stipulations among the parties entered into during early stages of fact discovery and adopted by the court as a protective order are the most efficient way to secure the court’s permission without having to move for leave as to each court filing containing trade secret information. But many courts and judges are leery of protective orders, perhaps due to the American tradition of public trials or to an unwillingness to self-impose burdens associated with segregated sealed and unsealed records or with any duty to protect trade secret information.

Courts and judges are not alone in their apprehension. Parties may not always agree as to the confidentiality of certain information. A party’s reluctance often stems from unwillingness to credit information as confidential or trade secret or unwillingness to restrict employees or witnesses from accessing the information during litigation. Defendants also may withhold consent to incite second-guessing as to the plaintiff’s election to pursue litigation. Without consent as to the treatment, use and filing of confidential and trade secret information, parties usually must seek court intervention to restrict access to information and authorize filings under seal.

Risks of disclosure are not isolated to discovery and will ultimately come to a head at trial. Public access to courts is a hallmark of the American legal system, yet the foundation of trade secrets litigation is protecting the confidentiality of information and proving that a defendant has wrongfully acquired, disclosed, or used that information. So even if parties have entered into a confidentiality agreement and even if a court has adopted their agreement as a protective order, what happens when any member of the public, the media and potentially competitors sit down behind the bar to observe the trial?

In Gates Rubber v. Bando Chemical Industries, 9 F.3d 823 (October 19, 1993), for instance, the defendant argued that the trial court’s injunction was erroneous because the trade secrets at issue were disclosed publicly during the proceedings. The U.S. Court of Appeals for the Tenth Circuit recognized that disclosure of trade secrets during public proceedings may risk waiver but emphasized the plaintiff need only “exercise reasonable efforts” to maintain secrecy. The court credited the plaintiff’s measures to protect the confidentiality during the proceedings, including monitoring courtroom observers and having the record placed under seal after trial. The court observed that there was no showing that a competitor had learned the trade secret information or that the information had been published outside the proceedings before the record was sealed. The court also contrasted the plaintiff’s efforts with those in Littlejohn v. BIC, 851 F.2D 673 (3D CIR. 1988), in which the Third Circuit held that a party’s failures to seek an order sealing the record and to object to the admission of exhibits containing confidential information constituted a waiver of the party’s confidentiality interests.

Besides moving to seal the record and carefully monitoring the individuals attending trial, some commentators and courts have discussed closing trials to the public as an additional barrier to the disclosure of trade secret information, provided parties can meet a hefty burden. Courts have also advocated a public-notice requirement accomplished through docketing of the request well in advance of the court’s consideration of a request to close proceedings. (See, e.g., U.S. Tobacco v. Big South Wholesale of Virginia, Civ. Action No. 13-527 (E.D.N.C. Nov. 21, 2013).)

In In re Iowa Freedom of Information Council, 724 F.2d 658 (8th Cir. 1983), for instance, the appellants argued the trial court erred in closing the courtroom without first concluding that the information constituted trade secrets. The Eight Circuit held that “no reasonable alternative existed to closure, sufficient to protect the property rights” in the trade secret information, observing that the trial court need only determine if the interests of a trade secret owner would be harmed with proceedings open to the public and if there is any reasonable alternative to closing the proceedings. The Eight Circuit cautioned, however, that courts cannot simply accept a plaintiff’s word that information constitutes “trade secrets” and that trial courts must determine if trade secrets are involved through in camera hearings “as strictly limited as possible” to testimony or evidence on “the issue of the existence of trade secrets and the damage that disclosure of those secrets might cause.” Additionally, the court cautioned that “the presence of trade secrets” in a lawsuit will not “in every case and at all events justify the closure of a hearing.”

The timing of requests to seal is also critical, and the recent decision in Carnegie Mellon University v. Marvell Technology Group, Civ. Action No. 09-290 (W.D. Pa. Mar. 29, 2013), confirms the necessity of protecting a party’s confidentiality interests at every stage of the litigation without waiting until after trial. There, the court found that the party waived its interests in trade secret information by failing to move to seal the records during trial and with in camera submissions, by failing to seek a protective order, and by failing to request a closed proceeding despite the court’s warnings. The court stressed the public’s interest in the litigation and the extent of public attendance, including press and business and patent lawyers who “were free to see the [information at issue], listen to the relevant testimony, and record any and all information contained therein.” The court also observed that the party failed to present specific evidence of harm that currently would result with disclosure of the information. Parties should be encouraged to address the sealing of trade secret evidence to be offered at trial and the sealing of the trial itself during pretrial conferences rather than after the fact.

Private arbitration is another useful tool to maintain confidentiality of trade secret information in litigation. Courts recognize that private arbitration provides parties greater latitude than in courts and may permit closing the arbitration to the public. (See AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1749 (2011) (“The point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute. It can be specified, for example, that the decision-maker be a specialist in the relevant field, or that proceedings be kept confidential to protect trade secrets.”).) A word of caution, however: the Third Circuit recently held in Delaware Coalition for Open Government v. Strine, 733 F.3d 510 (3d Cir. 2013), that state-run arbitration cannot provide the same latitude. In that recent decision, Judge Dolores Sloviter dismissed the concerns expressed in Judge Jane R. Roth’s strongly-worded dissent, distinguishing state-run arbitrations from private arbitrations and going so far as to say that “the interests of the state and the public in openness must be given weight, not just the interests of rich businesspersons in confidentiality.”

Faced with these risks, parties engaged in trade secret litigation must be as vigilant during litigation initiated to protect trade secrets as they are in the competitive marketplace, and they must exercise that vigilance at every phase of the litigation and as early as possible given the inevitable and necessary disclosures of trade secret information during the prosecution of their claims. But even with those efforts, parties in trade secret litigation should not assume that courts will ultimately seal the records in the case or close the trial to the public.

Kevin M. Passerini is a member of the corporate litigation practice group in the Philadelphia office of Blank Rome, an international law firm, and also serves on the firm’s trade secret protection, employee defection, and unfair competition services group. Passerini can be contacted at 215-569-5466 or passerini@blankrome.com.

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