Canada: Sedona Conference 2022: Practical Recommendations On Protecting Trade Secrets In Litigation

The Sedona Conference Working Group recently issued some practical recommendations in their publication "Commentary on Protecting Trade Secrets in Litigation About Them".¹  The purpose of this article is to provide a brief overview of the guidelines developed by this group and which we recommend you consider in your current and future litigation.

In litigation before the courts, several reasons may oblige one party to disclose trade secrets to another. Methods are available to frame and limit the scope of such disclosure but without these the consequences for a company could be significant.

1. Negotiate and present to the court a protective order before disclosing any trade secrets

A protective order is an agreement between the parties to the dispute regarding management of confidentiality for the entire file. In this agreement, which will be presented to and approved by the court, the parties explain how documents will be classified and who will be allowed access to the various classes of documents. The protective order is the central pillar of trade secret protection and is usually the result of substantial negotiations between the litigants' counsel. Its purpose is to ensure that all scenarios involving the disclosure of sensitive information are covered. These negotiations also seek to establish a precise definition for the classification applicable to each level of document sensitivity, according to the circumstances of the case (e.g., "Confidential" vs. "For Lawyers' Eyes Only").

The Federal Court of Canada may issue a protective order under its general power to issue any order.

• It is therefore imperative to negotiate and have a protective order in place before any trade secrets are disclosed in the context of litigation since the key to the effectiveness of such a measure lies in its timing.²

2. Request that the court issue a confidentiality order before producing any document containing trade secrets

The fundamental open-court principle requires that all exhibits and proceedings filed in a court record be made accessible to the public. The public may include competitors of either of the parties involved. If these competitors consult the court record, this could mean the end of a company's competitive advantage. To prevent this from happening, a party can ask the court to issue a confidentiality order to limit public access to certain documents in the court record.

As distinct from a protective order, a confidentiality order is issued, upon application by one party, by the Federal Court of Canada under sections 151 et seq. of the Federal Courts Rules.³ In short, under a confidentiality order, documents classified as confidential in the court record are not made available to the public. Before granting such an order, the court must be convinced of the need to maintain the confidentiality of the documents or material elements, considering the public interest in court openness⁴

When litigation involves trade secrets, such an order is very important to ensure that sensitive documents are sealed and removed from publicly available records. It is important to select and identify in advance the documents subject to the confidentiality order. For example, rather than including all of the evidence in the confidentiality order, a screening exercise must first be carried out to determine which documents actually contain sensitive information.

• Before sensitive information relating to trade secrets is filed in the court record, a confidentiality order should be issued to prevent it from being accessible to the public.⁵

3. Regulate access to trade secrets by representatives of the other party

Although a protective order provides a framework for the disclosure of trade secrets to the other party, and a confidentiality order restricts public access to certain documents in the court record, the Sedona Group recommends additional precautions with respect to certain agents of the other parties, including lawyers, in-house counsel, experts and employees.

i. Other party's lawyers and litigation counsel

In the majority of trade secret disputes, one party's litigation lawyers must have access to the other party's trade secrets to ensure the right to make full answer and defence. Even with a strict oath of office and the strongest of wills, the cognitive biases of a lawyer who has had access to trade secrets may influence the strategic decisions of the company to which the trade secrets are disclosed.

• It is therefore recommended that all protective orders clearly stipulate that any of the other party's counsel or legal advisers wielding influence over the company's strategic decisions not be granted access to any trade secrets that will be disclosed.⁶

Moreover, the possibility cannot be ruled out that a lawyer employed by the opposing party at the time of the litigation, and therefore privy to some of the other party's trade secrets, may decide to change employment and work for another employer, who may turn out to be a competitor. As a non-party to the litigation, the lawyer's new employer is not subject to the protective order in place between the parties, and the parties to the litigation are vulnerable to involuntary (and unintentional) disclosures of trade secrets due to labour mobility.

• Thus, it is recommended that confidentiality agreements be established between the disclosing company and the lawyers of the party who will have access to trade secrets.⁷

ii. Other party's experts

In the context of a dispute, and more particularly a dispute over the appropriation of trade secrets, the opposing party's experts will request disclosure of trade secrets to ensure a full and complete defence. Although they are labelled "experts" in this particular dispute, these individuals are generally in the same business as the disclosing company and may have direct links to its competitors.

Thus, it is recommended that a confidentiality agreement be established with the experts for the other party before disclosure of trade secrets.⁸

iii. Employees of the other party

There are very few circumstances where the disclosure of trade secrets to employees of another litigant is required. Such disclosure might be permitted in a rare situation where very specific knowledge is required, no independent outside expert is available, and the employee agrees to abide by the terms of a protective order.

• Before authorizing the disclosure of trade secrets to employees of another party, ensure that such exceptional disclosure is indeed warranted.⁹

Conclusion

The Sedona Conference Working Group reminds us of the basic principles needed to ensure trade secret protection in civil litigation.

Footnotes

1. The Sedona Conference, "Commentary on Protecting Trade Secrets in Litigation About Them", (March 2022).

2. The Sedona Conference, supra  note 1, Guideline No. 10 & Guideline No. 11.

3. Federal Courts Rules, SOR/98-106.

4. Id., sect. 151(2).

5. The Sedona Conference, supra note 1, Guideline No. 12.

6. The Sedona Conference, supra note 1, Guideline No. 1 & Guideline No. 2.

7. The Sedona Conference, supra note 1, Guideline No. 3.

8. The Sedona Conference, supra note 1, Guideline No. 4.

9. The Sedona Conference, supra note 1, Guideline No. 5 & Guideline No. 6.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.