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Peter Toren | Experienced Intellectual Property Lawyer

Defending Trade Secrets with Protective Orders

This article was first published in on October 27, 2020.

“Plaintiffs must require the entry of a detailed stipulated protective order that adequately addresses the handling of trade secrets during pre-trial but also covers the trial and post-trial proceedings, including any appeal.”

Plaintiffs in trade secret cases are often faced with the difficulty of protecting their trade secrets, especially during trial, when different rules apply than during the pre-trial proceedings. It certainly makes little sense for a party to seek to prevent a defendant from disclosing their trade secrets only to have them disclosed to the public during discovery or trial. In recognition of this dilemma, Congress included Section 1835(b) (“Rights of Trade Secrets Owners) in the Defend Trade Secrets Act, which seeks to address this issue by requiring district courts to permit the trade secret owner the “the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.” The subsection further provides that the provision of such information “shall not constitute a waiver of trade secret protection, and the disclosure of information relating to a trade secret in connection with a prosecution . . . shall not constitute a waiver of trade secret protection unless the trade secret owner expressly consents to such waiver.” The legislative history also states: “The provision is also intended to ensure that in a prosecution for conspiracy related to the alleged theft of a trade secret, the actual trade secret itself is not subject to disclosure to the defense, because the actual secrecy of the information that is the object of the conspiracy is not relevant to the prosecution of a conspiracy charge.”

In addition, 18 U.S.C § 1835(a) provides: “the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws. An interlocutory appeal by the United States shall lie from a decision or order of a district court authorizing or directing the disclosure of any trade secret.”

Balancing Public and Private Rights

The issue arises, especially in the criminal context, because a court must balance closed trials against the public’s right to attend a trial “because closed proceedings breed suspicion of prejudice and arbitrariness which in turns breeds suspicion of prejudice which in turn spawns disrespect for the law.” Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 595, 100 S. Ct. 2814, 65 L. Ed 2d 973 (1980). However, courts have also recognized that trade secret trials are no different than any other type of trial; it should be conducted in public, to the maximum extent consistent with respecting trade secrets and other facts that should be held in confidence. One district court held that, even in trade secrets cases, “[t]he determination of good cause to seal materials cannot be elided by allowing the parties to seal whatever they want” and “[a] party hoping to file materials in secret must justify the claim of secrecy and “analyze the applicable legal criteria or contend that any document may legitimately may be kept from public inspection despite its importance to the resolution of the litigation. Motorola Solutions, Inc. v. Hytera Communications Corp. 367 F.Supp.3d 813, 816 (N.D. Ill. 2019 (citation omitted). Based on this understanding, the court concluded that “[s]imply asserting, as [plaintiff] does with frequency, that something should be filed under seal is not enough. Even the agreement of the parties will not justify the entry of a protective order that ought not otherwise be entered.” Id.

The court also compared the plaintiff’s redaction of portions of the documents based on alleged confidentiality in claiming attorney-client privilege for the existence of a conversation with an attorney, which is not privileged, as opposed to the substance of that conversation, which is privileged. Id. The court found that while “there are some actual quotes from [plaintiff’s] trade secrets which remain redacted…. But in the main the brief must be filed without redactions other than the actual trade secret information. It’s not up to the court to sift through these materials to determine which is actually a trade secret or confidential … If [plaintiff] really thinks in good faith, that any of the other types of redactions exemplified herein are truly confidential, they must file a brief explaining why, on a page by page basis. Simply put indiscriminate designations of confidentiality are not permissible.” Id. (citation omitted).

The Consequences of Getting it Wrong

Despite the amended section 1835, plaintiffs should be aware, especially in non-DTSA cases, that the value of lost trade secret protection during trial can be catastrophic if proper measures not instituted, as illustrated, for example, in Title Source v. Housecanary, Inc.. 2019 WL 2996974 (Tex. 4th Cir. Ct of App. July 10, 2019). There, the parties entered into a stipulated protective order that outlined the procedures for sealing materials in court but did no address filing or keeping trade secrets under seal at trial. After a seven-week trial, the court granted the disclosing party’s motion to seal certain exhibits containing trade secrets that had been openly displayed during trial. The appellate court, however, reversed this decision finding that while the Stipulated Protective Order generally applied to the trial, the court failed to consider that the SPO also required a court to consider a Texas rule of civil procedure that created a comprehensive scheme with presumptions against sealing [] requiring notice and procedures. According to the court, “the trial court abused its discretion by sealing the exhibits without applying [the Texas state rule’s] standards and procedures, as agreed and ordered in the SPO.” The concurrence noted that the trial court also erred by sealing exhibits that had been publicly disclosed in open court, and that when the disclosing party used the exhibits at trial, it was required under the Texas Uniform Trade Secrets Act to take reasonable measures to keep information secret and it failed to do by obtaining a separate order or agreement, as required by the stipulated protective order. This highlights the importance of a executing a well-drafted and comprehensive protective order.

In addition to using Section 1835(b), victims of trade secret theft should not overlook Rule16(d)(1) of the Federal Rules of Civil Procedure, which provides that a court may, at any time “for good cause, deny, restrict or defer discovery or inspection or grant other appropriate relief.” During the discovery phase of the litigation, a comprehensive protective order is perhaps the most valuable tool in protecting trade secrets. This means that during discovery the trade secrets are disclosed on an attorney’s-eyes-only basis to a select group of persons who are able to view the trade secrets and are required to sign nondisclosure agreements.

Further, in order to avoid the situation described in Housecanary, plaintiffs should be careful that the protective order covers both the discovery stage of the litigation and the trial phase or at the parties should, at the very least be ready to address the protection of trade secrets at trial, for example, by making use of redacted documents, sealed exhibits, the use of courtroom video monitors to display documents to the court and jury but not to the public, and the sealing of the courtroom when a witness is testifying about the specifics of a trade secret.

It should be noted, however, that the treatment of trade secrets during a trial presents a number of challenges as compared to other trials, even those involving confidential information. In a trade secret case, whether information constitutes a trade secret goes to the central issue of the case and courts have to be sensitive to take steps that could suggest that such information is a trade secret. In other words, from the defendant’s standpoint, courts should avoid limiting access to certain information during trial would unfairly suggest to the jury that the documents constituted trade secrets, thus, in one case, the jury was asked to retire to the jury room before an application for sealing was made and at the conclusion of a witness’ cross-examination in an effort to create a seamless transition between the public and non-public portions of the trial testimony. In addition, the court may also wish to consider requiring witnesses to be questioned about trade secrets at the beginning and end of the examination process, which makes it far easier to seal those portions of the transcript.

In at least one criminal case under the EEA, United States v. Roberts, 2010 WL 1010000 (E.D. Tenn. Mar. 17, 2010), the court rejected defendant’s request to hold a “mini-trial” to determine whether certain documents constitute trade secrets under the EEA. First, the purpose of the EEA is to protect trade secrets, and if Congress had intended that a court should hold a pre-trial hearing it could and should have included language in the statute requiring this. Second, the EEA provides no guidance to what standard of proof should be applied even if the court were inclined to hold such a hearing. This could lead to inconsistent results from court to court. Third, it could also result in inconsistent determinations between the court and the jury. Fourth, holding a “mini-trial to determine if the information was a trade secret would not solve the problem because it still would have to be held in secret. Fifth, a mini-trial would create more problems than it would solve. On the one hand if the court were to find that the information is a trade secret, the court would have to institute the very measures opposed by the defendants, i.e., not displaying the trade secret information to the public during trial and sealing it. On the other hand, were the court to determine that the information was not a trade secret, the court would be faced with the question of whether the case should be dismissed or what, “if any preclusive effect such a decision would have on the prosecution. Thus, this procedure could also permit the defendants a backdoor method of seeking dismissal of the charges without having filed a motion to dismiss or other motion challenging the terms as trade secrets and could reverse the burden of proof.” Based on this understanding, the court determined that the proper standard to determine whether to issue a protective order is whether good cause exists. This is the standard in a civil case and should be applied in a criminal case.”

It is not clear what remedies the plaintiff in a civil case may have if the court fails to adequately consider its interests. There is no discussion of this in the legislative history, and the use of the term “opportunity to file a submission” in § 1835(a) suggests that a victim may be without redress if a court does not take into account of the victim’s interests in fashioning a plan as to how to protect the trade secrets at-issue. The plaintiff could, of course, file an interlocutory appeal but most interlocutory appeals are unsuccessful. In contrast, Section 1835(a) specifically provides that “[a]n interlocutory appeal by the United States shall lie from a decision or order of a district court authorizing or directing the disclosure of any trade secret.” Further, because Congress failed to include a similar provision for civil plaintiffs when amending Section 1835, this suggests that a plaintiff does not have an easy path to a successful interlocutory appeal.

Take the Right Steps

In short, plaintiffs should make every effort to safeguard trade secrets during litigation. This means that plaintiffs must require the entry of a detailed stipulated protective order that adequately addresses the handling of trade secrets during pre-trial but also covers the trial and post-trial proceedings, including any appeal. It should ensure that at the end of the litigation that defendant must return all trade secrets in its possession and certify under penalty of perjury that it has done so. Finally, the plaintiff in the pre-trial order should seek to include detailed provisions as to how the trade secrets are handled during trial. This is an extremely important issue: it makes little sense for plaintiff to seek to protect its trade secrets by litigating if such litigation leads to the disclosure to the public at large of such trade secrets.