Monday, December 22, 2008

Discovery Dispute Clarifies Permissible Scope of Protective Order in Trade Secrets Case (Directory Concepts v. Fox)

A federal district court opinion and order rendered last week highlights the problem of conducting discovery in a trade secrets case. Normally, it is standard operating procedure for the parties to agree on a protective order to facilitate the orderly, efficient flow of discovery. Indeed, the Uniform Trade Secrets Act actually requires a court to enter a protective order to safeguard against even "an alleged trade secret."

In an Indiana dispute between administrators of yellow pages advertising, the parties were not quite so amenable to agreeing on the terms of a protective order. The defendants challenged the very entry of the protective order claiming that the trade secret information at issue was readily ascertainable in the industry. The court sensibly concluded that this argument went to the ultimate merits of the case, and that plaintiff's allegations demonstrated good cause for entry of a Rule 26(c) protective order.

However, the court addressed a number of other concerns litigants have over the terms of the order. The Seventh Circuit, which includes federal district courts in Indiana, has taken a more hands-on approach to scrutinzing protective orders so that trial judges simply are not allowed to rubber-stamp agreed orders parties place in front of them. The case of Citizens First Nat'l Bank v. Cincinnati Ins Co., 178 F. 3d 943 (7th Cir. 1999), instructs that parties can keep trade secrets out of a public court record if:

(a) the judge satisfies himself that the parties know what a trade secret is and are acting in good faith in deciding which parts of the record are trade secrets; and

(b) the judge makes explicit that either party and any interested member of the public can challenge the secreting of any particular information.

In the case before it, the plaintiff proposed a protective order that did not have a sufficiently demarcated category of confidential information. Specifically, the proposed order defined "trade secrets" as "defined by Indiana Code Section 24-2-3-2 and Indiana case law." The court demurred on plaintiff's attempt.

However, the court accepted the plaintiff's affidavit submitted in support of its motion in which plaintiff broke down categories of alleged trade secrets into sub-categories: Workflow Information, Order Information by Client, Billing Preferences by Region, Databases That Show Billing Preferences by Location and Region, Client Databases Detail by Location, Contact Databases, and Nat Reports by Region or Location. Each category contained examples and identifications of the types of data that plaintiff used to operate is business.

The court incorporated those terms and held that they were "sufficiently specific to satisfy the Court that the parties know what a Trade Secret is..." Finally, the court held that most of the information in the proposed protective order (except, oddly, for Non-Party Private Information) could be designated as "attorneys-eyes only."

Entering a protective order in federal court - especially in districts within the Seventh Circuit - requires much more work and diligence than it does in state court. Normally, defense attorneys can mitigate any concerns about agreeing to or acknowledging that certain information constitutes a trade secret. The easiest way to do this is by inserting a simple clause that states a party's mere designation of a document as "confidential", or the other party's decision not to challenge such a designation with the court, does not operate as an admission as to the trade secret or proprietary status of the document itself.

In fact, defense attorneys who challenge the propriety of a protective order in the first place will be hindering their own chances at discovery and will only add to the time and expense of litigation.


Court: United States District Court for the Northern District of Indiana
Opinion Date: 12/16/08
Cite: Directory Concepts, Inc. v. Fox, 2008 U.S. Dist. LEXIS 102192 (N.D. Ind. Dec. 16, 2008)
Favors: Employer
Law: Indiana, Federal Rules of Civil Procedure

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