Federal Court Finds Third-Party Proprietary Information May Still Fall Under Confidentiality Order

In Richards Packaging Inc. v. Distrimedic Inc. (2020 FC 1161), the Federal Court (the “Court”) allowed Richards Packaging Inc.’s (“Richards”) appeal of specific designations made in the course of a validation motion (the “Validation Motion”) brought pursuant to an underlying patent dispute. The Court also dismissed Distrimedic Inc.’s (“Distrimedic”) cross-appeal, which requested that, should the Court allow Richards’ appeal, there be a reconsideration de novo of the entire Validation Motion.

Background

Richards and Distrimedic are the only major competitors in the Canadian market for the production of medical products used to facilitate the distribution of medication to patients. Richards commenced an action against Distrimedic for infringement of three of its patents. Distrimedic denied infringement and further asserted that one of the patents in dispute was invalid.

In preparation for the patent infringement trial and corresponding production of documents for discovery, the parties entered into a confidentiality agreement which provided for the designation of confidential documents as either CI or C-CEO. A CI designation restricted the disclosure of that document to the court, the parties, and their counsel and experts. A C-CEO designation is more restrictive: the receiving party is excluded from disclosure of the document, and disclosure is only permitted to the court and the parties’ outside counsel and experts.

Richards designated 33 of its documents as C-CEO, and then brought a motion before Prothonotary Steele to validate these designations. Prothonotary Steele validated all but four of the requested designations. Prothonotary Steele justified her refusal for validation of three of the documents (the “ Technical Documents”) on the basis that these Technical Documents bore a disclaimer that the information contained within them was proprietary to a third-party supplier of Richards. According to Prothonotary Steele, the confidentiality agreement entered into by the parties provided that only the information of a producing party could be designated as C-CEO. According to Prothonotary Steele, because the information contained in the technical documents was proprietary to a third-party, the information could not be considered that of Richards. Accordingly, Prothonotary Steele did not validate Richards' C-CEO designation of the technical documents.

The remaining designation in dispute concerned a document containing information outlining, among other things, Richards’ sales volumes and prices (the “ Business Strategy Document”, and with the Technical Documents, the “ Documents”).

Richards argued that the Business Strategy Document warranted C-CEO designation because its disclosure would allow Distrimedic to determine the size of the Canadian market, Richards’ market share, and estimates of Richards’ revenues and profits for various products. Distrimedic argued that, because the Business Strategy Document did not contain dollar figures, model or client names, or discounts, no competitive advantage could be gained by its disclosure and, as such, there was no justification for it having a C-CEO designation.

Prothonotary Steele determined that there was no evidence that the information contained in the Business Strategy Document would affect the future business decisions of Distrimedic. This lack of evidence, coupled with the fact that Richards bore the burden of establishing the validity of its C-CEO designation, resulted in Prothonotary Steele finding that she was unable to validate the C-CEO designation of the Business Strategy Document.

Richards appealed Prothonotary Steele’s decision to refuse to validate the C-CEO designation of the Documents. In response, Distrimedic brought a cross-appeal requesting that the Court, if it allowed Richards’ appeal, order a reconsideration de novo of Richards’ original Validation Motion.

The Court’s Decision

On appeal, the Court first considered whether Prothonotary Steele erred in refusing to validate the C-CEO designations made by Richards.

With respect to the Technical Documents, Richards argued that Prothonotary Steele erred in concluding that the confidentiality agreement precluded a C-CEO designation for documents containing information developed by a third-party. Distramedic argued that Richards could not claim a C-CEO designation for the Technical Documents because the information contained in them was proprietary to the third-party supplier. Ultimately, the Court was not satisfied that a third-party’s claim to a proprietary interest in the information contained within a document necessarily defeated a C-CEO designation as defined in the confidentiality agreement.

In arriving at this determination, the Court emphasized the purpose and result of a third-party reserving its proprietary interests in information contained within a document and a party advancing a C-CEO designation for information contained within its documents. A reservation of a proprietary interest in information prevents parties from using that information beyond the scope of any contractual arrangements made; it is not necessarily made for the purpose of protecting a confidentiality interest. However, the purpose of a C-CEO designation under a confidentiality agreement is to protect a party’s technical and commercial interests by preventing the disclosure of confidential information.

As such, in the course of a confidentiality order, any statement claiming to retain a third-party’s proprietary interest in information must be examined to determine whether that same information would be confidential or commercially sensitive to the party producing it. If it is the case that such information can properly be considered the confidential information of the party in dispute, then a C-CEO designation can be made.

With respect to the Business Strategy Document, Richards argued that Prothonotary Steele erred in concluding that (i) the evidence before her could not support a C-CEO designation of the Business Strategy Document; and (ii) the expert evidence produced by Richards on this topic was discredited on cross-examination. Distrimedic argued that the information contained in the Business Strategy Document would not permit it to derive the strategic information Richards’ expert claimed it could.

On review, the Court noted that Prothonotary Steele erred in determining that admissions from Richards’ expert regarding the absence of specific information in the business strategy document undermined that expert’s evidence regarding the uses Distramedic could make of the information set out in the Business Strategy Document. The Court determined that the information contained in the Business Strategy Document and the evidence of Richards’ expert supported Richards’ claim that disclosure of the Business Strategy Document to Distrimedic would result in serious competitive prejudice.

On Distramedic’s cross-appeal, Distramedic argued that there would be a contradiction if the Court found that Prothonotary Steele erred in validating the designation of some of the Documents but nonetheless maintained that her analysis of the remaining Documents ought to be maintained. Richards argued that Prothonotary Steele’s errors were discrete and did not place doubt on her analysis as a whole.

The Court agreed with Richards and concluded that it could find no basis for a reconsideration de novo of Prothonotary Steele’s confidentiality order. The Court was satisfied that Prothonotary Steele correctly summarized the law surrounding, and principles applicable to, C-CEO designations.

Authors: Nargis Fazli and Mark Leonard