Amended Rule 26: Protecting Against Competitively Sensitive Disclosures

by Cozen O'Connor
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Hundreds of billions of business e-mails are sent per day.  That number may not come as a shock to many, but once a company is involved in litigation, e-discovery can be quite burdensome.  Even the mention of the phrase “e-discovery” can keep in-house counsel up at night.  While e-discovery continues to be an unavoidable aspect of litigation, a recent decision interpreting amended Federal Rule 26 by the United States District Court for the Southern District of Florida offers a reasonable basis to withhold the disclosure of highly confidential, yet irrelevant, competitive information.

In In re: Takata Airbag Products Liability Litigation, multidistrict litigation arising out of Takata’s allegedly-defective airbags, the court was faced with the question of whether the defendants could redact irrelevant information from otherwise responsive documents.  The court acknowledged the defendants’ concern that disclosure of certain types of irrelevant information could severely prejudice defendants because the information may be “competitively sensitive.”  To that end, the court ordered that the defendants could redact competitively sensitive information relating to seven categories—including, among other things, pricing, parts and suppliers, design, development, engineering, and marketing and business strategy—provided, however, that the information did not concern airbags. 

In support of its holding, the court referred to the recently-amended Rule 26(b)(1) which provides, “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in 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.”  Because a party “is not entitled to receive every piece of relevant information,” the court explained, it “is only logical, then, that a party is similarly not entitled to receive every piece of irrelevant information in responsive documents if the producing party has a persuasive reason for why such information should be withheld.”

In further support of its holding, the court explained that the defendants provided a sufficient reason for the redactions, to wit, that disclosure of competitively sensitive information could ultimately detriment the defendants.  The court found an appropriate balance was reached whereby the defendants could redact the competitively sensitive business information, but only if same did not relate to the central issues in the case.

In re: Takata Airbag Products Liability Litigation can provide some comfort to companies which, in certain circumstances, may be able to shield competitively sensitive information from disclosure.  While this comfort may come at a cost in the form of a heightened review, careful discovery planning and clarity of the businesses’ interests can offset any such increase.  For example, companies should retain and communicate early with outside counsel regarding precisely what information requires heightened protection.  Doing so will allow the issue(s) to be spotted in the initial intake review of potentially-responsive information and then addressed with opposing counsel and the court early on.  If possible, prepare and agree to a protocol that will govern the case which spells out the information and documents the business wants protected.  Be certain that protocol expressly retains the ability to withhold irrelevant, competitively sensitive, information contained within otherwise responsive documents.  A court is more likely to approve an order the parties stipulate to out front.  A cohesive, consistent approach to discovery in this manner from the outset will best benefit the business – and ultimately help protect its bottom line.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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