Protecting Or Obtaining Trade Secrets During Discovery In Federal Court (Part II)

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

Regarding third-party discovery, if a subpoena “requires disclosure of a trade secret or other confidential research, development, or commercial information,” and the party seeking discovery “shows a substantial need for the . . . material that cannot otherwise be met without undue hardship . . ., the court may order . . . production only upon specified conditions.” FED. R. CIV. P. 45(c)(3)(B). The court must balance the need for discovery by the requesting party and the relevance of the discovery to the case against the harm, prejudice or burden to the other party. Truswal Systems Corp. v. Hydro-Air Engineering, Inc., 813 F.2d 1207, 1210 (Fed. Cir. 1987). One factor to be considered in assessing the burden of complying with a subpoena is whether the moving party is a non-party to the litigation. Truswal Systems Corp., 813 F.2d at 1210. Modification of a subpoena is preferable to quashing it. Tiberi v. CIGNA Ins. Co., 40 F.3d 110, 112 (5th Cir. 1994).

Rule 45 provides that a court may place conditions upon the production of documents where the request requires disclosure of a trade secret or other confidential commercial information and the party seeking discovery shows a substantial need for the material that cannot otherwise be met without undue hardship. FED. R. CIV. P. 45(c)(3)(B). The moving party has the burden to establish that the information sought is a trade secret and that its disclosure might be harmful. Exxon Chemical Patents, Inc., 131 F.R.D. at 671. Disclosure to a competitor is presumptively more harmful than disclosure to a non-competitor. Echostar Communications Corp. v. The News Corp. Ltd., 180 F.R.D. 391, 395 (D. Co. 1998). If the moving party meets its burden of proof, the burden then shifts to the party seeking discovery to show that the requested information is relevant and necessary. Id. The court then balances the need for the trade secrets against the claim of injury resulting from disclosure. Id. Even if the requested documents are relevant, discovery will not be permitted if the party seeking discovery fails to show need or if the potential harm caused by production outweighs the benefit. Mannington Mills, Inc. v. Armstrong World Industries, Inc., 206 F.R.D. 525, 529 (D. Del. 2002).

In Cmedia, LLC v. LifeKey Healthcare, LLC, 216 F.R.D. 387, 391 (N.D. Tex. 2003), the court applied these rules and found that the third-party’s trade secrets and confidential information had to be produced, but “in such a manner as to assure confidentiality. These documents will be produced subject to a protective order which restricts disclosure of privileged documents to the attorneys involved in the litigation and independent experts, and which ensures return of all documents, including copies, to Koeppel within a reasonable time after conclusion of the litigation or certification of destruction thereof.”