Thursday, May 17, 2018

Formal Protective Orders Largely Unnecessary in Light of the Strength of the Implied Undertaking Rule

Seedlings Life Science Ventures LLC v Pfizer Canada Inc 2018 FC 443 Tabib J

While I do not normally blog on procedural decisions, Tabib J’s opinion in Seedlings Life Science v Pfizer is an important decision on an important point, namely the exchange of commercially sensitive information in litigation.

In her decision in Live Face on Web, LLC v Soldan Fence and Metals (2009) Ltd, 2017 FC 858 Tabib J held that, given the existence of the implied undertaking rule, the Court ought no longer to routinely issue consent protective orders [4]. In this case, Pfizer nonetheless sought a formal protective order. Pfizer did not attempt to distinguish Live Face on Web, but in effect asked Tabib J to overrule her own recent decision [6]. Unsuprisingly, Tabib J refused to do so, and consequently she refused to grant the order sought. But Pfizer nonetheless largely achieved its purpose. Pfizer’s concern was that notwithstanding Live Face on Web, there remains such uncertainty as to the scope, application and enforceability of the implied undertaking rule, that the clarity and certainty provided by an express protective order is necessary [37]. Tabib J acknowledged the merit of Pfizer’s “thoughtful and helpful” submissions, which “highlighted the specific areas where intellectual property practitioners may have had concerns as to the scope and certainty of application of the implied undertaking rule” [66]. Rather than issuing a protective order for clarification, Tabib J clarified the law itself.

Tabib J reviewed the history and meaning of a variety of mechanisms which can be used to protect sensitive information. These include the implied undertaking rule, “pursuant to which a party to whom documents or information are transmitted in the course of pre-trial discovery is taken to have given an undertaking to the Court that he or she will not disclose or use them for any purpose other than the litigation in which they are produced. Any collateral or ulterior use constitutes a contempt of court” [3]. Tabib J explained the distinction between a protective order, relating to information that the parties will exchange between themselves in the pre-trial phase of an action, and a confidentiality order, which allows information which would be filed with the court, and so would otherwise be available to third parties, to be filed under seal. In addition, she noted that private agreements between the parties can also be used to supplement these other mechanisms.

The gist of Tabib J’s decision is that generally, the implied undertaking rule, supplemented by a private agreement between the parties, will provide adequate protection, so routine protective orders are no longer useful or necessary, and absent special circumstances they should be avoided as wasteful of the Court’s time and resources [67], [73], [74].

As to the scope and application of the implied undertaking rule, Tabib J emphasized that the sanctions for breach of the implied undertaking rule are every bit as clear and immediate as for breach of a formal protective order [60]. Further, she reiterated her holding in Live Face on Web, to the effect that [34]

an express agreement between the parties, whereby they recognize that such measures constitute undertakings given to the Court as additional protection to their privacy interest for the purposes of the litigation, is amenable to enforcement by this Court, including by way of contempt proceedings, without the need to be first acknowledged by the Court or enshrined in an order:

(See also [75].) This is very important to her broader conclusion that protective orders are generally not needed, as she held that, given that an express agreement between the parties is enforceable by the Court, many of the specific concerns raised by Pfizer could be addressed in that manner rather than by a protective order. For example, limits on the number or categories of people who can access designated information can be addressed by supplementary undertakings.

Tabib J further clarified that the implied undertaking rule binds third parties, such as experts, consultants and service providers:

[40] Discovery information is primarily disclosed to and controlled by the parties and their solicitors. Pursuant to the implied undertaking, they have no right to disclose that information to anyone, including third party experts, consultants or service providers, unless it is necessary for the conduct of the litigation. In that role, these third parties act as agents or sub-contractors for the parties. It would be unthinkable that these agents would not be bound by the same obligation as their principals. To entertain the contrary would be to accept that the important protection intended to be afforded by the implied undertaking could be defeated and rendered nugatory simply by allowing a party to act through an agent.

She further held that the law is clear that:

[49] A person who is aware of the application of the implied undertaking rule or of any order issued by this Court, whether or not they have given an express undertaking to attorn to the Court’s jurisdiction, is under a duty to this Court not to interfere with justice by acting in such a way as to breach the intent and purpose of the rule or order

She acknowledged that it may be difficult to enforce the implied undertaking rule on persons outside the Court’s jurisdiction, but she noted that that difficulty stems from the fact that it may be difficult to enforce a contempt judgment in a foreign jurisdiction. But that difficulty is not addressed by granting a formal protective order, which is also ultimately enforceable through contempt [50]. She suggested that consequently “a party may be more likely to obtain effective relief against breach of protective measures by asking the foreign court to recognize and enforce the underlying obligation” [50].

She also held that “the case law has clearly recognized that the implied undertaking does not prevent use of information that was obtained from other [non-confidential] sources [59].

She did leave open the question of whether protective orders should be issued in proceedings other than actions, in which the implied undertaking rule might not be applicable [58].

In concluding, Tabib J suggested that some misconceptions about the nature of the implied undertaking rule may stem from the “climate of uncertainty” as to the nature of the rule up to the 1990s, before clarifying jurisprudence had developed, and as a result of familiarity with US practice. Tabib J emphasized the distinction from US practice, “where the concept of the implied undertaking does not exist and where, as a result, protective orders are routinely issued” [67]. She emphasized the need for lawyers dealing with clients who are familiar with US practice to educate those clients “of the existence of the implied undertaking rule, of the restrictions on the use of this information and of the penalties they may face if the restrictions are breached, even in the absence of a formal order or agreement” [69].

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