It has been a year since a new federal law was enacted that further helps to protect trade secrets. Still, there are continuing concerns about the need to keep trade secrets private during e-discovery. The Defend Trade Secrets Act (DTSA) of 2016 provides two new protections to owners of trade secrets: A court may require affirmative actions to protect a trade secret, and in criminal proceedings, the court may not authorize or direct the disclosure of any information the owner says is a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential. The DTSA has been applied in many ways, particularly as a source for litigation in the tech industry.
But many counsel are seeking to extend those protections to e-discovery. To further encourage secrecy, David Stanton, an attorney at Pillsbury Winthrop Shaw Pittman, told Legaltech News that for the most sensitive data, “we are advising clients to consider hosting it themselves, and allowing it to be inspected rather than producing and losing control to a third party.”
He pointed out that during e-discovery, increasingly the standard protective order “[takes] on more rigorous requirements, including notifications of any type of cyber intrusion or unauthorized access, and detailed requirements on what kind of systems will be used, with what sorts of security protections, to host trade-secret data.”
Moreover, Edward Jacobs, an attorney at Baker & Hostetler, told Legaltech News that confidentiality is important for trade secrets because “disclosure can cause irreparable harm” for individual owners and company employees.
“Usually, confidential discovery materials, if produced, should automatically be afforded an ‘attorneys eyes only’ level of protection under any standard confidentiality order, but even this may not prevent the inadvertent disclosure of such materials to the client-competitor or beyond,” Jacobs said.
One option is to “insist upon a stipulated order asking the court to mandate remedial measures or penalties in instances where disclosure prohibitions have been violated,” Jacobs said. He further advised litigants to ensure that court orders address how confidential information will be treated and disposed of at the end of the case if the production of the material is anticipated, Jacobs said, adding that orders should be “specific and complete.”
Jacobs said that courts will not order disclosure unless there is a “compelling discovery need that goes to the heart of the claims or defenses.” He pointed out that under the 2015 amendments to Federal Rule of Civil Procedure (FRCP) 26, courts must look to see if disclosure of the trade secret is proportional to the needs of the case. The analysis may include such factors as: the importance of the issues, the amount involved in the controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.
He explained that the analysis of these factors should lead to a “fair resolution of any dispute in most cases.”
In addition, for those cases where trade secrets are discoverable, the court-endorsed confidentiality agreement should govern how those secrets will be protected and treated during proceedings, and govern “the boundaries of further disclosure and disposition at the end of the case,” according to Jacobs. So, attorneys and the judge may agree to accept filings under seal and to close the courtroom when trade secrets are presented and discussed in the courtroom.
Another key question is whether the protection of trade secrets in litigation should be the subject of new rule making. Stanton said that it should.
“Although courts had no difficulty imposing onerous and costly e-discovery requirements on producing parties, they seem in general less willing to impose the same requirements on requesting parties,” Stanton said. “Companies spend millions of dollars on cybersecurity. In an era where their opponents are prime hacking targets, they have every right to expect a comparable level of protection, and without rules making this a requirement, courts will adopt disparate approaches and leave parties, who are already defending their trade secrets, that much more exposed.”
Similarly, Robert Milligan of Seyfarth Shaw said, “It may be useful to have a more uniform standard on what information qualifies for protection, and more flexibility with the courts to actively try to protect such information.”
For example, he recommended the adoption of more model protective orders in courts and flexibility with the courts and clerks in filing alleged trade secrets under seal.
Jacobs, however, said that judges and attorneys should take “better … advantage of the rules already afforded them.”
He said courts could now apply the “appropriate standard governing what is discoverable under FRCP 26. The proportionality factors should help protect against the unnecessary production of trade secrets in discovery. In cases where the trade secret itself is the subject of the dispute and production is unavoidable, there is little protection that anyone can afford the production of a trade secret to an … [attorney] beyond a well-drafted and comprehensive stipulated order endorsed by … [a judge] that governs the terms of any further disclosure.”
“Litigation has risks,” Jacobs added. “Zealously protecting the confidential nature of your client’s information is inherently the responsibility of counsel, and those protections will always need to be weighed against the need for the information in resolving the dispute.”
“There is an inherent tension between protecting genuine trade secrets and the interest in having public access to the courts and court records,” added Milligan.