With the growing importance of data and intangible assets, the adequate protection of a company's trade secrets is now atop the list of priorities for many legal departments and corporate counsel alike. A trade secret is a piece of confidential information that holds commercial value and gives its owner a commercial edge. It can be a process, a formula, an algorithm or a customer list. Unlike other intellectual property rights such as a patent or copyright, a trade secret does not expire as long as it remains secret.
What does that mean for parties involved in arbitral proceedings and the practice of international arbitration?
Arbitration offers the possibility of resolving disputes behind closed doors and often involves highly sensitive information relating to the identity of the parties, the underlying transaction or the subject matter of the dispute. Not all documents will remain confidential though. Arbitration documents produced or generated in an arbitration may become public if they form a part of the records of court proceedings ancillary to the arbitration, including enforcement and annulment actions.
Arbitral awards, which may or may not refer to the sensitive information in question, are particularly prone to unavoidable disclosures of this sort. Yet, these situations are typically recognised as exceptions to the duties of confidentiality attached to an arbitration, and the protection of trade secrets, by way of a seal for example, may not be available in the relevant court. Further, in spite of the fact that many arbitrations are held in private, there remains the risk of an inadvertent or malicious leak. Ultimately, whether the result of a cyber-attack or misconduct of an opponent, trade secret owners should be mindful of the ramifications of a potential breach of confidentiality. Any confidentiality breach may result in irreparable harm and affect their ability to enforce a trade secret, notwithstanding steps having been taken to protect such trade secret.
In addition to protecting sensitive information from entering the public domain, parties involved in arbitral proceedings may need to avoid disclosure of such information in the arbitration altogether. In some instances, this may be for the preservation of wider trade secrets that a disputing party holds, as a matter of internal company policy. Further, there may also be legitimate concerns that another party involved in the proceedings may make use of the valuable piece of information for a purpose other than the arbitration and the resolution of the dispute. It is not uncommon for parties involved in arbitral proceedings to operate in the same industry or to compete directly with each other. Similarly, witnesses of fact and experts alike may have an interest in the trade secret in question.
Trade secret controversies can arise at different points during the course of an arbitration. These junctures include the initial phase of the arbitration, when the parties and the arbitral tribunal may discuss confidentiality and put in place measures in the form of a protective order or a cybersecurity protocol. Voluntary disclosure of sensitive information for the purpose of particularising a party's case or bringing evidence required to meet that party's burden of proof may also be a consideration.
Issues relating to the protection of trade secrets more frequently arise during document production, following a document request made by one party against another. In international arbitration, parties generally have the right to request documents from the other side. Arbitral tribunals tend to uphold requests as long as the documents sought are relevant to an issue in the case and material to its outcome. Before the arbitral tribunal makes a finding, the party on the receiving end of the request generally has an opportunity to put forward reasons as to why the request is not appropriate or should otherwise not be upheld by the arbitral tribunal. One of the grounds on which a party may resist a request and an arbitral tribunal may reject such request is for reasons of 'commercial or technical confidentiality'. This is reflected in Article 9.2(b) of the IBA Rules on the Taking of Evidence in International Arbitration (2020).
To the extent that they relate to sensitive information or trade secrets, the rulings of an arbitral tribunal nearly always involve a protective order setting out the terms under which the information alleged to be sensitive or confidential is to be shared. Protective orders including those implementing a 'confidential club' or an 'attorneys' eyes only' limitation are important tools for preserving trade secrets in international arbitration. Arbitrators' powers to enter a protective order form part of their general procedural powers, but some arbitration rules expressly refer to this solution. For example, Article 22(3) of the ICC Rules (2021) provides "[U]pon the request of any party, the arbitral tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information." Further, Article 54(c) of the WIPO Rules of Arbitration (2021) provides that "[i]f the Tribunal so determines, it shall decide under which conditions and to whom the confidential information may in part or in whole be disclosed and shall require any person to whom the confidential information is to be disclosed to sign an appropriate confidentiality undertaking".
It is also possible for arbitral tribunals to appoint a third-party expert who determines whether the documents or data alleged to be confidential should be produced and, if so, under which terms. By way of example, Article 54(d) of the WIPO Rules allows, "in exceptional circumstances" for a "confidentiality advisor" to "determine whether the information is to be so classified, and, if so, decide under which conditions and to whom it may in part or in whole be disclosed."
Article 54(e) of the WIPO Rules also allows for the arbitral tribunal to "appoint the confidentiality advisor as an expert in accordance with Article 57 in order to report to it, on the basis of the confidential information, on specific issues designated by the Tribunal without disclosing the confidential information either to the party from whom the confidential information does not originate or to the Tribunal." Further, Article 3.8 of the IBA Rules provides that the arbitral tribunal may, after consultation with the parties, "appoint an independent and impartial expert, bound to confidentiality" to review a document which is subject to an objection on the grounds of commercial or technical confidentiality.
Another practice aimed at striking the right balance between allowing disclosure of relevant information and upholding bona fide trade secret claims has emerged from arbitrations involving intellectual property issues. This practice consists of subjecting production of documents or data to a condition that the requesting party establishes a prima facie case of infringement or breach.
There may be instances where the strategy of the relevant litigant in respect of a particular arbitration collides with other big picture considerations. This can happen if there is a tension between steps necessary to win a case and those required to preserve a trade secret. Disclosing the information in question may be required to strengthen a party's position in the arbitration, but may also be harmful to the company in terms of its market position, its performance, or its value. In these instances, not only the confidentiality of arbitration, but also its flexibility can prove beneficial. As there is scope to adapt the arbitral procedure to the parties' specific needs, arbitration has the potential to serve other overarching considerations for the parties, such as the preservation of their trade secrets, while continuing to provides a confidential, efficient and fair means to resolve cross-border disputes.
Originally published by The Impact Lawyers.
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.