A recent High Court case under English law
Smith & Nephew Plc v Convatec Technologies Inc  EWHC 146
Who does this case affect?
This case is highly relevant for those:
- Involved in litigation in sensitive areas, including intellectual property infringements and breaches of competition law.
- Defending or pursuing public procurement challenges where the terms of competing tenders can be of crucial importance.
- Engaged in research and high-tech manufacturing, including pharmaceuticals, automotive and industrial engineering, or involved in sensitive sectors such as defence and security.
The recent case of Smith & Nephew Plc v Convatec Technologies Inc  EWHC 146involved an application for a permanent order prohibiting the use after trial of certain documents that had been disclosed during patent infringement proceedings relating to silverised wound dressings. Those documents contained commercially sensitive information (trade secrets) relating to Smith & Nephew’s manufacturing processes, its dealings with regulatory authorities and its commercial strategy, but which were crucial to determining the case. A confidentiality scheme existed between the parties to deal with confidential disclosure.
Consistent with the Court’s general approach of imposing only the minimum possible interference with the principle of open justice, the High Court granted the application, but only in part. The Court granted a permanent order under CPR 31.22(2) in respect of documents containing details of Smith & Nephew’s manufacturing and testing processes and its commercial strategy. However, the Court found that disclosure of documents demonstrating an insight into Smith & Nephew’s dealings with regulatory authorities and its approach to gaining approvals would not reveal its “know-how”, nor would it damage Smith & Nephew in any way. Accordingly, the Court refused to grant a permanent order prohibiting the use of those documents.
Protecting confidential information in litigation
As the case illustrates, a significant concern for many parties to litigation is the risk that confidential or commercially sensitive information will be revealed, either to the opponent, or to the public at large. Such a concern can deter a party from pursuing litigation and, therefore, it is important to consider the different approaches which may be adopted when dealing with such disputes.
The general rule under the Civil Procedure Rules applying to litigation in the English Courts (CPR 31.22(1)) is that documents disclosed to an opponent must be used only for the purpose of the proceedings, unless the document has been read or referred to at a public hearing (although an application can be made to restrict or prohibit the use of such a document), the Court gives permission, or by agreement of the parties.
However, when disputes arise, it is always advisable to consider whether and how important, sensitive information can be protected further. Potentially, a range of measures can be put in place:
- “Sealing the Court file”
The general rule under CPR 5.4C is that third parties can obtain copies of statements of case (such as the claim form, particulars of claim, defence etc), but not the accompanying attachments. Under CPR 5.4C(2) copies of other documents can be obtained with the permission of the Court. Litigants sometimes attach a “confidential schedule” to a statement of case, however it is unclear whether ultimately this approach would withstand challenge. The safer option is to make an application to the Court to restrict access (under CPR 5.4C(4)). The Court may then order that documents cannot be released, impose restrictions upon who documents are released to, and/or order that documents are redacted prior to being released.
- Confidentiality clubs
Confidentiality “clubs” or “rings” are a common feature in particular types of litigation and impose restrictions on the disclosure process by stipulating who on the opposing side can have access to the documents being disclosed, how documents may be copied, where they may be viewed and how the information they contain may be disseminated. Sometimes, the terms may even see access to disclosed sensitive information restricted to named members of an opponent’s external legal team only, excluding the opponent’s employees and directors.
For example, in IPCom GmbH & Co KG v HTC Europe Co Limited  EWHC 52 (Pat), members of IPCom’s internal management team were denied access to certain disclosed documents that Nokia relied upon as part of its case, namely licences of Nokia’s own technology. However, this was at an interim stage of the proceedings – as trial approaches, it may become increasingly difficult to convince the Court that wholesale exclusion of clients from the confidentiality club is justified and often the parties will manage to agree more practical arrangements as the case progresses.
- Hearings in private
The Court can depart from the general rule that hearings should be held in public where certain factors apply (CPR 39.2), allowing part or all of the hearing to take place in private – a step taken in Smith & Nephew. These grounds include where confidential information is involved and “… publicity would damage that confidentiality”. However, only the minimum possible interference with the principle of open justice will be imposed and hearings held in private are regarded as the Court’s option of last resort.
An application to Court for an injunction prohibiting the use of confidential information can be made at any stage, including before proceedings have commenced and after judgment has been given. However, it is crucially important to act quickly. In cases of extreme urgency, hearings can be conducted by telephone and out of court hours. Injunctions are available only where no other form of remedy (such as damages) can provide an adequate solution. Applicants will almost certainly be required to provide an undertaking in damages, essentially a promise to compensate the other party for harm suffered if it is later found that the injunction was granted incorrectly.
Occasionally, where confidentiality must be protected at all costs and all other measures are simply considered too risky, a party may decide it is necessary to settle the dispute before disclosure becomes an issue. Disclosure usually takes place after all statements of case have been served, though this can be required at an earlier stage where a party has sought pre-action or early specific disclosure.
A different approach? Arbitration
Finally, where the nature of the industry or products are of such particular sensitivity or the parties are keen to keep any disputes that may arise private, parties will often opt for their disputes to be determined via arbitration. The parties’ contract may already contain an arbitration provision as part of the dispute resolution mechanism or the parties may elect to arbitrate after the dispute has arisen.
Confidentiality is often seen as an advantage of dealing with disputes by arbitration, rather than litigation. Arbitral proceedings are held in private, so non-parties cannot attend hearings (absent the consent of the parties) and there are no public records of the procedure.
In English law, (though the Arbitration Act 1996 does not specifically address the issue of confidentiality) there is an implied duty requiring the parties to maintain the confidentiality of information disclosed during the arbitration process including details of the award itself and reasons for it. However, this duty is subject to some broad exceptions, namely where disclosure is (i) permitted by agreement of the parties; (ii) ordered by the Court; (iii) necessary for the establishment or protection of a party’s legal rights; and (iv) necessary in the interests of justice or the public interest. A party may therefore consider whether further steps are necessary and specific requirements may be set out in the arbitration agreement or in a subsequent protocol agreed with or ordered by the arbitrator. Equally, where the “seat” of the arbitration is outside of England and Wales, it is essential to check for any relevant provisions of the applicable foreign arbitral law.
The European Commission has recently adopted a proposal for a directive on the protection of trade secrets. This is intended to harmonise the relevant law across the EU, which currently varies widely. As well as dealing with the substantive law, it also provides for the confidentiality of the relevant information to be maintained during litigation, and afterwards insofar as court documents are available to the public. The precise implementation of the Directive will be determined by each Member State, but it should substantially improve protection for businesses which wish to take court proceedings to protect their trade secrets in the EU.