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].

EWCA on Ex Turpi Causa

Les Laboratoires Servier v Apotex Inc [2012] EWCA Civ 593  rev'g [2011] EWHC 730 (Pat)

In earlier installments of the log-running perindopril saga, Servier obtained an interlocutory injunction preventing Apotex from marketing perindopril in the UK, on the basis of a European patent which was ultimately held to be invalid. Apotex sought damages on the undertaking, but Servier pointed out that the perindopril which would have been sold in the UK, but for the interlocutory injunction, would have been manufactured in Canada and would have infringed a valid Canadian patent. Arnold J, in a decision blogged here, held that ex turpi causa prevented Apotex from recovering damages on the undertaking  The EWCA has now reversed; but while Apotex will be able to claim on the undertaking, its damages will be reduced by the amount which Servier could recover under Canadian law for the infringing manufacture. My post on IPKat discusses the EWCA decision in more detail.

International Ex Turpi Causa as a Defence to an Undertaking in Damages

Les Laboratoires Servier & Anor v Apotex Inc & Ors [2011] EWHC 730 (Pat) Arnold J

In the latest decision in the perindopril litigation, Arnold J applied the maxim ex turpi causa non oritur actio in exercising his discretion to decline enforcement of an undertaking in damages given by a patentee who had obtained an interlocutory injunction.1 The issue arose because the product in question was patented in the jurisdiction of manufacture (Canada), but not in the jurisdiction of sale (the UK). It is thus one aspect of the larger problem of territorial limits to patent protection, and ultimately Arnold J’s decision turned on principles of international comity.

Servier obtained a compound patent for perindopril in both Canada and Europe. The European compound patent expired in 2001. The corresponding Canadian patent, which was governed by the old Act, was delayed in conflict proceedings. It was not granted until 2001, and will not expire until 2018. Servier was granted a further European patent for a crystalline form of perindopril in 2004. In 2006 Servier commenced an infringement action against Apotex based on the European crystalline form patent. Servier obtained an interlocutory injunction from Mann J [2006] EWHC 2137 (Pat), subject to the usual undertaking in damages. Servier’s European patent action ultimately failed as the crystalline form patent was declared invalid: [2008] EWCACiv 445 aff’g [2007] EWHC 1538 (Pat).

Apotex sought damages on the undertaking for the loss of UK sales. This was heard in June of 2008 and Norris J held that Servier was liable for £17.5 million: [2008] EWHC 2347 (Ch). Apotex’s loss was calculated on the basis that the perindopril would be manufactured at its facility in Canada and exported to the UK. However, at the same time Servier and Apotex were litigating the compound patent in Canada. On July 2, 2008 Snider J held that the Canadian patent was valid and on June 30, 2009 the FCA affirmed: Laboratoires Servier v. Apotex Inc./ perindopril, 2009 FCA 222 affm'g 2008 FC 825. Thus it became clear that manufacture in Canada of the product which Apotex would have sold in the UK but for the injunction, would have infringed the Canadian patent. Consequently Servier sought and ultimately obtained permission to amend its pleading to raise the defence that Apotex could not claim damages on the undertaking for lost sales when the manufacture of the product would have been illegal: [2010] EWCA 279 (Civ).