Protective Orders Clarified

Canadian National Railway Company v. BNSF Railway Company 2020 FCA 45
Boivin JA: Gleason, Rivoalen JJA rev’g 2019 FC 281 Locke J

As discussed here, the law relating to protective orders has recently been in ferment. Traditionally, the court would grant protective orders essentially routinely, particularly on consent or when unopposed, but a series of decisions developed a more restrictive approach, and a split developed in the jurisprudence. In a short decision that will be required reading for all litigators, the FCA has now provided a definitive resolution, largely returning the law to the status quo ex ante, though with considerable clarification of the law. In brief, the FCA held that: the AB Hassle test applies to protective orders and the Sierra Club test applies to confidentiality orders; the two are distinct and the former is much less stringent; and there is no reason why protective orders should not be granted more or less routinely.

There are two key questions. First, what is the test for granting a protective order? A protective order governs the way parties designate and treat confidential information that they exchange between themselves in the pre-trial phase of the action, while a confidentiality order governs the filing of confidential documents and information on the court record. As noted by the FCA at [20], the test applicable to confidentiality orders is set out in Sierra Club 2002 SCC 41 at [53]. This is a relatively stringent test, which requires consideration of the open court principle, weighed together with the commercial interests of the parties in maintaining confidentiality of sensitive material. Protective orders were traditionally granted on the basis of the test set out in AB Hassle (1998) 83 CPR (3d) 428 (FCTD) aff’d [2000] 3 FC 360 (CA) [14]. This test is less stringent than the Sierra Club test, as it focuses on the confidential nature of the information at issue, without consideration of the open court principles.

Confusion had arisen because the Sierra Club decision referred to the AB Hassle decision in a way that was somewhat unclear, and some of the recent FC caselaw had held that the Sierra Club test applies to both types of orders, or that Sierra Club had modified the AB Hassle test. The FCA affirmed that the AB Hassle test and the Sierra Club test are indeed distinct. The former is applicable to protective orders [14] and the latter to confidentiality orders [19]. Sierra Club solely concerned confidentiality orders, and it did not in any way alter the AB Hassle test for protective orders [23].

The confusion arose because the first prong of the Sierra Club test refers to considerations of confidentiality, which are at the core of the AB Hassle test. The FCA explained that the SCC’s reference to AB Hassle was solely in the context of the first branch of the Sierra Club test:

[23] [Sierra Club] does not in any way extend the AB Hassle test, applicable to protective orders, to include a consideration of necessity, alternative measures, or the scope of the order to ensure that it is not overly broad. It follows that the necessity element of the Sierra Club test cannot be said to apply in the context of protective orders, notwithstanding the reference to the AB Hassle test. . . .

The reason for this is straightforward: the open court principle is not implicated by protective orders:

[25] [T]here is no justification for applying the same onerous Sierra Club test that is applied to confidentiality orders to protective orders. Confidentiality orders are squarely meant to circumvent the open court principle, while protective orders are instead used in instances where the open court principle is not engaged.

It was therefore an error of law in this case for the motions judge to conflate the AB Hassle test for protective orders with the more onerous Sierra Club test for a confidentiality order [26].

The second and distinct issue is whether protective orders should be granted more or less routinely, as was the traditional practice, or more sparingly, as some recent cases had held. The FCA clearly signaled that the traditional practice is appropriate (my formatting):

[31] Although the Federal Court is in no way obliged to grant a protective order, I am of the view that there has been no significant and compelling changes to the law that justify the refusal to grant a protective order on consent (or not) if

(i) the AB Hassle test is met and

(ii) the protective order submitted to the Federal Court is in accordance with the protective order template jointly developed over the years between the Intellectual Property Bar and the Federal Court.

[32] Protective orders undoubtedly remain pertinent and useful for intellectual property litigants and there is no justification, legal or otherwise, for stifling this long-standing practice.

The more restrictive approach was driven by concerns about wasted court resources in reviewing protective orders. The FCA remarked that to facilitate the Court’s review the parties should [31] (my formatting):

• provide sufficient evidence in support of their motion for a protective order.

• identify[] the portions of their draft protective order that have been added to the template or removed from it.

The Court also addressed hybrid orders, which contain provisions that govern both confidential information exchanged between parties during the discovery process and confidential information filed with the Court [8]:

[30] The test for granting a hybrid order, in the form I endorse below, remains the same as the test for granting a protective order. As noted, hybrid orders also address materials that might be filed with the Court with a confidential designation. As such, a party who wishes to have the Court treat documents subject to the hybrid order as confidential must bring a motion pursuant to Rule 151 of the Federal Courts Rules forthwith after filing the documents. It is at this juncture, when the Court is being asked to seal documents, that the Sierra Club test set out at paragraph 20, above, is engaged. The motion for a confidentiality order should not automatically be left for the trial judge to determine, but should be filed at the first opportunity.

Much Ado About Protective Orders

dTechs EPM Ltd v British Columbia Hydro & Power Authority 2019 FC 539 Lafrenière J

Paid Search Engine Tools, LLC v. Google Canada Corporation 2019 FC 559 Phelan J

Canadian National Railway Company v. BNSF Railway Company 2019 FC 281 Locke J

The law relating to protective orders has been developing rapidly. Until recently, the Court would grant protective orders more or less routinely, particularly on consent or when unopposed. A recent series of decisions has indicated a more restrictive approach: see Live Face on Web 2017 FC 858 Tabib J; Seedlings Life Science 2018 FC 443 Tabib J rev’d 2018 FC 956 Ahmed J (blogged here and here); and CNR 2019 FC 281 Locke J. The even more recent decisions of Lafrenière J in dTechs and Phelan J in Paid Search, in contrast, seek to turn the wheel back, holding that protective orders should normally be granted when sought on consent or when unopposed. Thus there is presently a split in the FC case law, which will no doubt be resolved by the FCA in CNR, which has been appealed [539-39]. No matter the outcome, the journey will not have been in vain, as a number of issues relating to protective orders will have been clarified.

A confidentiality order governs the filing of confidential documents and information on the court record. A “protective order” governs the way parties designate and treat confidential information that they exchange between themselves in the pre-trial phase of the action [559-19], [539-32]. The two are distinct — “The designation of a document as confidential under a protective order does not permit the document to be filed confidentially with the Court” [539-32] — but the distinction between the two has not always been as clear as it is now, in part because the terminology was used loosely until quite recently, and in part because of hybrid orders which combine features of both [443-8], [539-23], [559-27], [539-35], [281-10].

Sierra Club Test Governs Protective Orders

Seedlings Life Science Ventures LLC v Pfizer Canada Inc 2018 FC 956 Ahmed J rev’g 2018 FC 443 Tabib J

In the decision under appeal, Tabib J refused to issue a protective order, essentially on the basis that the implied undertaking rule, supplemented by a private agreement between the parties, would provide adequate protection: see here. In so holding, Tabib J held that the test set out in Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41 was not applicable. In her view [15], Sierra Club was applicable only to confidentiality orders, which allow parties to file confidential information under seal with the Registry, and not to protective orders, which govern the way parties may designate as confidential, and must thereafter treat, information that they will exchange between themselves in the pre-trial phase of an action. On appeal, Ahmed J held that Tabib J erred in distinguishing Sierra Club, and that the test set out in Sierra Club is applicable to both confidentiality orders and protective orders [26]. He noted that nothing in the text of Sierra Club itself supports the distinction [26]. Further, since the rationale for a protective order, a confidentiality order, or a hybrid order, is the same — namely “the protection of sensitive information – whether from the general public or other business adversaries – from abuse or use in activities collateral to the litigation” — there was no basis for applying different tests to the different types of orders [26].

Aside from the issue of the binding nature of Sierra Club, Ahmed J noted that Tabib J had been motivated by “a desire to respond to a problem in contemporary patent litigation. In her view, routine motions for protective orders do not add substantial protection above and beyond what is already available under the implied undertaking rule or achievable through private agreements, and the judicial processing of these orders constitutes a substantial burden to the Court” [30]. Ahmed J was sympathetic to this concern: “Surely those observations are not without merit and it may well be the time for change” [30]. But in his view, it is not appropriate to implement “a fundamental shift in longstanding practice” through the jurisprudence of “this Court”: “That is the role of the legislature, or perhaps the courts above” [30]. I’m not sure I agree with that observation. The law must evolve to meet changed circumstances, and some of that evolution must come at the hands of the courts, as the legislature simply does not have the capacity to address every desirable change, no matter how minor. The same is true of the Supreme Court. Moreover, even if the Supreme Court could deal with every issue, it is arguably preferable to have some changes initiated by a lower level of court, which may, as in this case, have more practical expertise on the issue. Ahmed J stated that “in my view, it would be unjust to the litigants in the case at bar to have the so-called ‘rules of the game’ changed partway through these proceedings” [30]. That is an important point, but it is not determinative. It is the nature of the common law that the law evolves in light of decisions on the facts of particular cases, and the rules of the game are changed mid-course whenever an appeal to the SCC results in a change in the law. It is no more or less fair to have the rules changed simply because it is the SCC that changes them. To be sure, it is important to respect the settled expectations of the parties, and courts should therefore be more reluctant to change the law or practice, the more firmly it is established. But that is a matter of balancing the need for change against the importance of the settled expectations.

The test set out in Sierra Club [60] has two branches: 1) the information has been treated as confidential and that on a balance of probabilities its proprietary, commercial and scientific interests could reasonably be harmed by the disclosure of the information, and 2) it is of a confidential nature with a reasonable expectation that it be kept confidential [23]. [24]. Ahmed J held that in matter at hand, both criteria were met [28], and he therefore allowed the appeal and order the protective order be issued [29].

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].

Protective Order and Executive Access to Confidential Information

Novopharm Limited v. Nycomed Canada Inc. / pantoprazole (NOC) 2011 FC 109 Mandamin J

When I started this blog I told myself that I would not comment on procedure cases, but I couldn’t help but notice that this case goes to the point I made in last week’s post that difficulties in discovery may arise in the context of lost profits damages, as well as in an accounting of profits.

In the action underlying this order, Novopharm is seeking damages against Nycomed under section 8 of the NOC Regulations. Novopharm brought a motion for a protective order restricting access to certain confidential financial material that Novopharm would have to produce in order to establish its damages. In particular, Novopharm was concerned that its financial information would be indirectly disclosed to Ranbaxy, with whom Nycomed had an authorized generic agreement for the drug in question. Novopharm requested that access be restricted to Nycomed’s designee who were not involved in the Ranbaxy agreement. Prothonotary Milczynski’s order granted access to several of Nycomed’s senior executives, including Nycomed’s CEO. Novopharm appealed.

While the decision was understandably brief, the points of principle relied on by Mandamin J suggest a strong presumption against restrictive access excluding the party’s executives, on the basis that it is the corporate executives who must make the key litigation decisions on the company’s behalf, and a client must be fully informed in order to properly instruct counsel: [36]-[37]. However, the more fully reasoned decisions appear to be more nuanced than Mandamin J’s brief discussion suggests. For example, while Warner-Lambert Co. v Glaxo Laboratories Limited, [1975] RPC 354 (CA) does state that “it is the corporate decision-makers who are authorized to make decisions on the company’s behalf,” the decision as a whole reflects a concern for the legitimate interests of both parties. According to Buckley LJ:

“the court is, in my opinion, confronted with a balance or conflict of expedients. . . .How can justice be done and at the same time effect be given to the rights of each party to the greatest possible extent? . . .In such a case a controlled measure of disclosure seems best calculated to serve the interests of justice. . . . His advisers are his agents in the matter, and strong grounds must be required for excluding the principal from knowledge which his agents properly acquire on his behalf.  But this principle must be subject to some modification if trade secrets are to be protected from disclosure to possible competitors.”

In Warner-Lambert the Court of Appeal did grant access to the plaintiff’s CEO, but only after having explicitly considered whether the CEO could be properly advised without access to that information. The Court indicated that in a case, for example, where the evidence was of a technical nature such that the executive would take advice rather than form his own opinion, it would not be necessary to disclose to him the underlying facts. This principle was applied (without citing Warner-Lambert) in Automated Tabulation Inc. v. Canadian Market Images Ltd., 1995 CanLII 7073, 24 OR(3d) 292(ON SC) in which the plaintiff’s principal officers were precluded from access in part because “there were many available experts who were familiar with the relevant computer language who could be retained to assist the plaintiff” [4]. Conversely, where the technical nature of the information means that counsel cannot be properly instructed without input from the client, access is necessary: Murphy Oil Co. Ltd. v Predator Corp. Ltd., 2002 ABQB 992 [16]. Note that in Kimberly-Clark of Canada Ltd. v. Proctor & Gamble Co. et al (1989), 25 C.P.R.(3d) 12 (FCA), the Court of Appeal approved a very restrictive order that granted access to litigation counsel and “one designated representative of the receiving party . . . who is working directly on this litigation and to whom it is necessary that the material be disclosed for purposes of this litigation and who shall not be employed in research, development, or production of diaper products at the time of disclosures and for two (2) years after disclosure of such confidential information.” The Court varied this order by giving access to a patent agent who had been a member of the litigation team from the outset. However, the exclusion of executive officers was not challenged and the facts justifying the order as a whole were not given. A very helpful discussion of a range of authorities is found in the decision of the High Court of Ireland in Koger Inc v James O’Donnell [2009] IEHC 385. Kelly J concluded that a restriction that denying access to persons in the plaintiffs’ organisation “can be ordered but it is unusual. If such a restriction is to apply, there must be exceptional circumstances which would justify it.” On the facts, Kelly J held that “[t]he case is a finely balanced one,” and he consequently ordered limited disclosure of the material in question.

On the whole, it appears that a restrictive order of the type sought by Novopharm is exceptional, but the judicial analysis is not generally as one-sided as Mandamin J's general statements of principle might suggest.

With that said, on the facts Mandamin J’s decision is consistent with a more balanced approach. The factor he cited as most important [40] was that Nycomed is a small company in which all executives were involved with both strategic planning and the Ranbaxy agreement. The financial information on which damages are calculated are analogous to technical information at issue in an infringement action, and this implies that some executive from Nycomed would have to have access to the information if counsel were to be properly instructed. Novopharm acknowledged as much in that its proposed order would only have excluded designees involved in the Ranbaxy agreement. But on the facts, it was essentially impossible for Nycomed to satisfy that requirement while still providing proper instruction. A second significant point relied on by Mandamin J at [33]-[35] was that the documents Novopharm designated for restricted access were defined in very general terms, such as “commercial strategic planning materials for Novopharm’s or Nycomed’s pantoprazole products.” This is both broad and imprecise, and Mandamin J no doubt envisaged an endless series of motions seeking clarification.

Similarly, Murphy Oil Co. Ltd. v Predator Corp. Ltd., 2002 ABQB 992, relied on by Mandamin J, stated at [7] that "[t]he burden of justifying the need for an order precluding inspection of records by the parties themselves lies in the party seeking the order. Such an order is rarely given and the applicant’s burden is heavy." Despite this strong wording, it too is readily justified on a more balanced approach, as the plaintiff did not seek the order protecting its information until it had almost completed discovery of the equivalent information held by the defendant [14], and, as noted above, the information was technical and required input of the client to instruct counsel.