Federal Court Rejects Party’s Designated Representative Under Confidentiality Order
Discovery is a two-way street. In any litigation, parties are entitled to discover relevant information related to any party’s claims or defenses. This is particularly important in patent litigation where discovery often includes sensitive and proprietary technical and business information.
Discovery confidentiality orders, also known as “protective orders,” set the ground rules for discovery of sensitive information, including to whom such information may be disclosed.
A recent decision from the U.S. District Court for the District of New Jersey in Nasdaq, Inc. v. Miami International Holdings, Inc. underscores that certain employees — particularly those in highly specialized technical roles — may be barred from accessing an opposing party's confidential information, regardless of personal integrity or good intentions.
Designated Representatives
In addition to outside counsel, many patent litigation confidentiality orders allow for the designation of one or more party representatives (who may or may not be attorneys) to review an opposing party’s confidential material. This allows the designating party to review certain opposing party confidential information and thus directly consider the strengths and weaknesses of its claims and defenses as discovery progresses.
Because the designated representative will have access to the most sensitive, confidential information of the opposing party — often a direct competitor — a confidentiality order typically allows the producing party to object to the designated representative before any disclosures are made. Negotiation of a confidentiality order is therefore vitally important.
In Nasdaq, Special Master Mark Falk rejected one party’s designated representative under the negotiated confidentiality order, which included a provision that confidential material could be disclosed to up to three in-house counsel and two additional employees.
Information Cannot Be ‘Un-learned’
Nasdaq had designated its Vice President of Engineering, a senior technical position at Nasdaq. Defendants timely objected, and the Special Master barred the Vice President of Engineering from reviewing the confidential material, observing that, “as a practical matter, any information learned by Mr. Felder cannot be ‘un-learned’ or otherwise sequestered.” (citing FTC v. Exxon Corp., 636 F.2d 1336, 1350 (D.C. Cir. 1980)).
The Special Master rejected Nasdaq’s argument that it needed a technical employee to review the confidential material, noting that Nasdaq had retained five outside technical experts and “assumed that there were other Nasdaq employees who could perform the technical analysis necessary.”
The Special Master further rejected Nasdaq’s contention that its designee should be allowed because Nasdaq did not object to any of Defendants’ designated representatives, noting Nasdaq’s “failure to do so cannot form the basis for allowing its own technical employee” to access the confidential material.
The ‘Chief Architect’
On review, U.S. District Judge Zahid N. Quraishi affirmed, finding that, regardless of whether defendants needed to show “good cause” for objecting or merely “good faith,” the defendants succeeded. The Court considered the Vice President of Engineering’s role as “the ‘chief architect’ responsible for the design, development, and maintenance of all Nasdaq options trading systems,” noting that he “review[s] other people’s designs, weigh[s] in on them, and help[s] them to make progress on them.”
The Court held that “[t]he disclosure of [the] technical information to [the Vice President of Engineering], given his role at Nasdaq, would undoubtedly cause competitive harm” to the defendants even though the Court noted that “[l]ike the Special Master, this Court has no reason to doubt the integrity or character of [the designee]. Nonetheless, this Court recognizes that ‘[i]t is very difficult for the human mind to compartmentalize and selectively suppress information once learned, no matter how well-intentioned the effort may be to do so.’” (citing Exxon Corp., 636 F.2d at 1350).
The Court concluded that while the confidentiality order “expressly permits” the plaintiffs to designate up to two employees for such review, “it just cannot be” the Vice President of Engineering.
“To the extent Defendants also contend that there is ‘good cause’ or a ‘good faith’ basis to bar all of Plaintiffs’ experienced technical employees from reviewing confidential material, the Court finds that position untenable,” Judge Quraishi wrote (emphasis in original).
This decision is an important reminder of the vital role confidentiality orders play in patent litigation. Parties must negotiate discovery confidentiality orders carefully and consider case-specific facts and circumstances, including which in-house counsel and employees to whom a party may share the other party’s confidential information. Mechanisms for objections should also be carefully reviewed, both at the outset and throughout litigation.
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