The recent High Court judgment in Smith & Nephew Plc v Convatec Technologies Inc [2014] EWHC 146 is a timely reminder of the steps that can be taken to protect businesses from having to disclose sensitive and confidential information as part of the litigation process. This case is highly relevant for any business in the retail sector, but particularly 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; or 
  • engaged in research and high-tech manufacturing, such as developing consumer technologies.

The facts

This case related to certain documents that had been disclosed during patent infringement proceedings relating to silverised wound dressings. The 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. Smith & Nephew applied to the Court for an order prohibiting the use of those documents after the trial concluded.

The High Court granted the application, but only 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 this case illustrates, a significant concern for many parties to litigation is the risk that confidential or commercially sensitive information may subsequently be revealed to the opponent, or to other third parties such as customers or competitors. Such a concern can deter a party from pursuing litigation even though it may have a strong case, so it is essential to consider what steps may be taken to protect from subsequent disclosure.

Under the English civil litigation process, the default position is that documents disclosed to an opponent must be used only for the purpose of those proceedings, unless the document has been read or referred to at a public hearing, 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 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. Other documents can only 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, in which case 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 an increasingly seen feature of 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. In some cases, the sensitive information may even be restricted to named members of an opponent’s external legal team only, excluding the opponent’s own employees and directors.

  • Private court hearings

The Court is able to depart from the general rule that hearings should be held in public where certain factors apply. This was 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. 

  • Injunctions

An application to the 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 vital to act quickly, and if necessary, an application could be made out of hours. Injunctions are available only where no other form of remedy (such as damages) can provide an adequate compensation. 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. 

  • Settlement 

If confidentiality must be protected at all costs and all other options 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.

Arbitration - A different approach?

Finally, where the nature of the products or the information to be relied on 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 an arbitration process. 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 already 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 process or the outcome. 

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.

New proposals from the EU

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 that wish to take court proceedings to protect their trade secrets in the EU. This is an area to keep an eye on if your business operates on a pan-European level.