Trade secret litigation presents a variety of procedural and practical complexities at every stage of the proceeding. One of the most important—yet often overlooked—issues in these cases can be summarized by the following question:
“How do I prove my company’s trade secrets have been misappropriated without disclosing the very trade secrets at issue to the public?”
While the question is posed from a plaintiff’s perspective, trade secret defendants are just as likely to find themselves in a similar quandary. Consider, for example, asserting a defense of independent or reverse engineering. Affirmative proof likely requires disclosing sensitive business information, research and development, or corporate strategy. The issue is further exacerbated because adverse litigants in trade secret cases are frequently industry competitors. But even if they are not, savvy competitors who are not parties to litigation will frequently comb the publicly-available dockets of industry rivals’ litigation to try and gain an edge.
For many trade-secret litigants and their counsel, the solution lies in simply drafting and agreeing to a protective order governing the treatment of any ‘confidential’ material. After all, both parties likely want their sensitive documents protected from disclosure. And many protective orders contain language allowing either party to seal exhibits—or even entire pleadings—that contain documents designated ‘confidential’ or ‘attorneys’ eyes only’. Litigation moves forward, sensitive documents sealed, everybody wins. Right? Not necessarily, at least not in the Fifth Circuit.
Last year, the Fifth Circuit Court of Appeals affirmed summary judgment against a terminated employee/plaintiff in an action for breach of contract and fraud. While the case, Binh Hoa Le v. Exeter Finance Corp., did not involve trade secret claims, its practical ramifications for trade secret cases in the Fifth Circuit are significant. 990 F.3d 410 (5th Cir. 2021).
In Le, the parties co-drafted an agreed protective order (“APO”), which the District Court entered without modification. Among other things, the APO authorized the sealing—in perpetuity—of any documents the parties marked confidential in discovery. “Confidential” material, under the APO, was that which the parties believed was “not generally known” or would only be revealed in confidence—if at all. Additionally, if any “Confidential” information appeared in “any affidavits, briefs, memoranda of law, or other papers filed” the APO mandated the entire document be filed under seal. As a result, nearly three-quarters of the record—3,202 of 4,391 pages—were permanently sealed from the public by agreement.
In its opinion affirming summary judgment, the Fifth Circuit chose to spend nearly half the page count on what it described as a “peripheral point”; the APO and sealing documents generally. The Court of Appeals severely chastised the APO and warned litigants—and district courts—that document sealing of this kind was impermissible. Noting that the “public’s right of access to judicial records is a fundamental element of the rule of law”, the Fifth Circuit lamented that “increasingly, courts are sealing documents in run-of-the-mill cases where the parties simply prefer to keep things under wraps.”
The Fifth Circuit noted with importance the distinction between agreeing on the treatment of documents produced in discovery, on the one hand, and documents filed in the public record, on the other. In the first instance, the standard to be applied is only one of “good cause.” That is, the district court may enter a protective order upon a mere showing of good cause, ensuring the parties and their representatives keep confidential any materials that are exchanged between them—but not filed.
But the second situation—filing documents in the record under seal—demands a much higher bar. Specifically, it requires the district court perform a thorough balancing test; weighing the strong presumption of open courts and the public’s right of access against the party’s interest in keeping the documents hidden. And, the Fifth Circuit noted, it is improper for a district court to simply ‘rubber stamp’ sealing based on language in a protective order. In describing the duty of the district courts when reviewing sealing requests, the Court of Appeals put it this way:
[L]itigants sometimes have good reasons to file documents (or portions of them) under seal, such as protecting trade secrets or the identities of confidential informants. But most litigants have no incentive to protect the public’s right of access. That’s why judges, not litigants must undertake a case-by-case, document-by-document, line-by-line balancing of the public’s common law right of access against the interests favoring nondisclosure. Sealings must be explained at a level of detail that will allow for this Court’s review. And a court abuses its discretion if it makes no mention of the presumption in favor of the public’s access to judicial records and fails to articulate any reasons that would support sealing.
Le, 990 F.3d at 419 (citations and quotations omitted) (emphasis added).
The Fifth Circuit’s clear antipathy towards broad document sealing—even when based on an APO—has important implications for trade secret litigants and their counsel. In short, parties cannot merely rely upon protective orders to ensure that their confidential and proprietary information, when filed in the record, is kept from public view. Rather, counsel must have a deep understanding of the applicable legal standards, burdens of proof, and procedures when attempting to file materials under seal. And a blanket reference to some ‘agreed’ procedures in a protective order will not do.
Trade secret litigants have been made painfully aware of this fact in the wake of Le. For example, a month after Le was decided, a district court in the Northern District of Texas denied a trade-secret plaintiff’s motion to file documents under seal—documents the plaintiff claimed contained its trade secrets and proprietary information. Blackwell v. C. R. Bard, Inc., No. 2:19-CV-180-Z, 2021 WL 1088439, at *2 (N.D. Tex. Mar. 22, 2021). Citing Le, the court in Blackwell held the plaintiff did not sufficiently “expound upon [the] assertion” that the documents were, in fact, trade secret or proprietary. Id.
The Fifth Circuit’s closing remarks in Le should serve as a stark warning to both litigants and counsel in any case where sensitive, trade secret, and proprietary information may be a necessary part of the record (emphasis in original):
At the discovery stage, when parties are exchanging information, a stipulated protective order under Rule 26(c) may well be proper. Party-agreed secrecy has its place—for example, honoring legitimate privacy interests and facilitating the efficient exchange of information. But at the adjudicative stage, when materials enter the court record, the standard for shielding records from public view is far more arduous. This conflation error—equating the standard for keeping unfiled discovery confidential with the standard for placing filed materials under seal—is a common one and one that over-privileges secrecy and devalues transparency.
Le, 990 F.3d at 419 (citations omitted).
Ultimately, trade-secret litigants cannot rely upon the all-too-easy solution of agreeing with opposing counsel to a protective order that requires the parties seal anything marked ‘confidential.’ Rather, counsel must understand and carefully navigate the court’s sealing procedures and, when the time comes, provide all justifications required by the applicable sealing standard. Further, parties and their counsel should think very carefully about what documents and materials—especially those that potentially contain proprietary material—need to be made part of the record at all.