Foreign companies that produce documents to a U.S. company should be aware that, under a recent court decision, In re: Grand Jury Subpoena, No. 10-4815 (4th Cir. June 15, 2011), the government may be able to obtain those documents by way of a grand jury subpoena to the U.S. company. In this case, decided by the Fourth Circuit, the documents were obtained by the grand jury even though the foreign company produced the documents to the U.S. company pursuant to a protective order issued by a federal court — and even though there was substantial evidence that the government had solicited the U.S. company’s assistance in obtaining the documents through the grand jury subpoena.

In light of this ruling, foreign companies facing discovery of sensitive information in U.S. civil litigation should consider negotiating a protective order that would make confidential not only the content of the documents, but also the fact of their existence or production. Doing so could thwart the type of open cooperation with the government that occurred in the Fourth Circuit case. A provision making certain confidential documents available for review only, to avoid providing placing actual copies of sensitive documents in the possession of the U.S. entity may also be advisable.

Background and Ruling

In re: Grand Jury Subpoena involved two companies, Company 1 and Company 2, whose identities were protected by the court. Company 1 (a foreign company) had hired a former employee of Company 2 (a U.S. company). After he began working for Company 2, the employee pled guilty to theft of trade secrets from Company 2. Company 2 sued Company 1 for misappropriation of trade secrets by way of Company 2’s former employee. In that litigation, Company 2 sought and obtained a number of sensitive documents from Company 1.

The parties signed a protective order before the documents were produced. Pursuant to that order, the subpoenaed documents were marked “confidential” or “confidential - attorney’s eyes only” and “shall not be used or disclosed for any purposes other than the litigation of this action.” The protective order also provided that if the protected material were the subject of a subpoena or legal process, the subpoenaed party would be required to object to production of that material, and inform the party that had produced the subpoenaed information of the subpoena.

Government attorneys, who had investigated the former employee of Company 2 and had also investigated Company 1 for wrongdoing in connection with Company 2’s trade secrets, were in contact with employees at Company 2 throughout the civil litigation. Company 2 informed the government of their receipt of confidential documents in discovery from Company 1 and the government subsequently subpoenaed the confidential information. Company 2 alerted Company 1 to the subpoena, and also notified the government that it was required, under the protective order, to object to disclosure of Company 1’s confidential materials. Company 1, for its part, filed a motion to quash in the district court.

Company 1 argued that the government improperly used the civil litigation between the two companies to circumvent the general principle that the government may not bring civil proceedings to obtain information in discovery for use in a future criminal proceeding. Despite this cooperation, the Fourth Circuit concluded that because the government did not actually “direct” Company 2 to request documents from Company 1 in discovery, there was no improper collusion involved. The court also held that the grand jury subpoena trumped the civil protective order.

The Ninth Circuit recently decided a factually similar case, and came to the conclusion that the documents were subject to a grand jury subpoena: “By a chance of litigation, the documents have been moved from outside the grasp of the grand jury to within its grasp. No authority forbids the government from closing its grip on what lies within the jurisdiction of the grand jury.” In re: Grand Jury Subpoenas, 627 F.3d 1143, 1144 (9th Cir. 2010).