Is there some business information so sensitive that your opponent in litigation can prevent your general counsel from seeing it? It seems that the answer is yes.
High stakes business litigation often requires one party to disclose trade secrets, confidential research and development, and other sensitive commercial information. In such cases, courts impose protective orders — decrees limiting the scope of discovery and controlling the use of information that may be disclosed in litigation. Common forms of protective orders employed in patent, trade secret, anti-trust, and other litigation involving competitive information recognize three categories of information: 1) information that requires no protection; 2) information designated as “confidential” that cannot be used or disclosed except in connection with the litigation in which it is produced; and 3) information that is so highly confidential that it is designated “attorneys eyes only,” meaning that it can be used only by counsel, but not shown to their clients without judicial permission.
This third category of protection boils the blood of in-house counsel because it can bar them from reviewing and assessing such information and from advising their employer. And it begs the question why in-house counsel, bound by ethical confidentiality rules, cannot be trusted to honor a court order that requires them not to use information designated as “attorneys eyes only,” except in connection with the litigation.
Balancing Act
Courts that have addressed the proper scope of such an order routinely struggle to harmonize a litigant’s right to understand the evidence for and against it and the adversary’s right to protect truly confidential information from competitive use or disclosure. In striking the right balance, courts frequently rely on the Federal Circuit’s 1984 decision in U.S. Steel Corporation v. United States.
In U.S. Steel, the court set aside a decision of the Court of International Trade denying U.S. Steel’s corporate in-house counsel access to confidential information. In so doing, the court endorsed a so-called “competitive decision making” test to evaluate whether counsel’s role created an unacceptable risk of inadvertent use or disclosure of an opposing litigant’s information.
Under this “competitive decision making” analysis the court does not question whether in-house counsel can be trusted; it assumes that they can. Instead, it asks whether counsel’s employment responsibilities place him or her in the untenable position of making or participating in business, strategy, or tactical decisions, and having to compartmentalize and ignore relevant information about one’s competitor when making those decisions.
Thus, where in-house counsel participates in pricing, marketing, product design, product labeling, hiring, or research and development decisions, he or she will likely be relieved of any access to, or review of, information designated as “attorneys eyes only.” Under this set of circumstances, “attorneys eyes” will be limited to the eyes of the litigant’s outside litigation counsel.
Plain Lawyering
On the other hand, where in-house counsel provides only typical in-house counsel services, i.e., addressing legal issues as they arise, drafting and receiving contracts, and retaining and managing outside lawyers, there is a greater likelihood that disclosure will be permitted, particularly if in-house counsel is viewed as critical to advising and directing the litigation in which the information is produced. In these situations there is no reason to fear that the in-house lawyer cannot fully perform his or her job responsibilities while honoring the terms of a protective order. Indeed, in this context, there is no reason to distinguish between in-house counsel and outside litigation counsel.
Naturally, the notion that in-house counsel should be barred from access to information related to the litigation in which his or her client is involved is abhorrent to the lawyer so restricted. These restrictions necessarily interfere with the very attorney-client relationship that forms the basis for employment, and make it exceedingly difficult, if not impossible, to provide sound legal advice to the client.
But the notion that a business should have to hand over its most coveted and sensitive information to a competitor in litigation is equally abhorrent. And so, these orders are reserved for those litigation matters where information that has the potential to upset the competitive balance must be disclosed. When trade secrets, research and development information, pricing information, marketing strategies and confidential customer information is at issue, these orders seek to strike a balance between the need for discovery in litigation and the need for confidentiality in business.
In truth then, it is not at all about the trustworthiness of in-house counsel. It is about maintaining a healthy competitive balance without putting in-house counsel in the impossible position of having to suffer a lobotomy before participating in his or her employer’s competitive decisions.
Thomas J. Rechen is an attorney in the Hartford-based business law firm of Pepe & Hazard LLP. He was assisted in this article by attorney David W.Case. This column is offered for informational purposes only, and is not legal advice. E-mail editor@hbjournal.com to suggest a questions.
