Preserving Trade Secrets at District Court Hearings and Trials

Trade secret owners who decide to enforce their rights in court must demonstrate that they took reasonable measures to protect their trade secrets. Frequently, however, trade secret owners enforcing their rights are required to disclose their trade secrets to the court.[1] How can a trade secret owner continue to protect its trade secrets when it has to reveal them to the judge, jury, and potentially everyone else in the courtroom? Here we discuss some best practices for preserving trade secrets at federal district court hearings and trials.

I. Trade Secret Protection through Sealing Court Records

Trade secrets identified in pleadings and other documents filed with the court may be protected by sealing these filings. Many district courts have local rules setting forth procedures for filing documents under seal. See, e.g., C.D. Cal. Civil L.R. 79-5; N.D. Cal. Civil L.R. 79-5; E.D. Tex. L.R. CV-5(a)(7); W.D. Tex. L.R. CV-5.2.

To seal a filing, a party must overcome the presumption of public access to judicial records. Trial courts have discretion to decide whether to seal court records, and in making this determination, courts "balance the public's common-law right of access against interests favoring nondisclosure." 360 Mortgage Grp., LLC v. Bivona-Truman, No. 1:14-CV-847-SS, 2016 WL 7616575, at *1 (W.D. Tex. May 24, 2016); see also Hebert v. Unum Group, No. 4:18-CV-00910-SDJ-KPJ, 2020 WL 4922117, at *2 (E.D. Tex. Aug. 21, 2020) ("Ultimately, the decision whether to allow public access to court records is left to the 'sound discretion of the trial court to be exercised in light of the relevant facts and circumstances of the particular case.'" (quoting Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 599 (1978))).

Generally, "the greater the public interest in the litigation's subject matter, the greater the showing necessary to overcome the presumption of access." Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299, 305 (6th Cir. 2016). For example, the Eastern and Western Districts of Texas apply a greater burden to requests to seal dispositive filings compared to requests to seal non-dispositive filings. Because the public's interest in non-dispositive matters is relatively low, to seal a non-dispositive filing, a trade secret owner "need only demonstrate 'good cause.'" 360 Mortgage Grp., 2016 WL 7616575, at *2 (citing Pintos v. Pac. Creditors Ass'n, 605 F.3d 665, 678 (9th Cir. 2010)). To seal a filing that addresses a case-dispositive issue, however, a trade secret owner must "provide sufficiently compelling reasons to override the presumption of public access to court." Id. Courts applying both standards have granted motions to seal "when necessary to ensure that [judicial] records ... are not used 'as sources of business information that might harm a litigant's competitive standing.'" Hebert v. Unum Grp., No. 4:18-CV-00910-SDJ-KPJ, 2020 WL 4922117, at *2 (E.D. Tex. Aug. 21, 2020) (quoting Bianco v. Globus Med., Inc., No. 2:12-CV-00147-WCB, 2014 WL 3422000, at *1 (E.D. Tex. July 14, 2014) (quoting Nixon, 435 U.S. at 598)); see, e.g., Neon Enter. Software, LLC v. Int'l Bus. Machines Corp., No. A-09-CA-896 AWA, 2011 WL 2964796, at *1 (W.D. Tex. July 20, 2011) ("It is not uncommon for a court to seal documents filed in a case when those records contain trade secrets, sensitive commercial information, [or] privileged material ...").[2]

Notably, in early 2021, district courts across the country responded to "recent disclosures of wide-spread breaches of both private sector and government computer systems" by "immediately adding new security procedures to protect highly sensitive documents filed with the courts."[3] These new security procedures included entering orders that require parties to file certain "Highly Sensitive Documents" ("HSDs") outside of the courts' electronic filing systems.[4] The Eastern District of Texas General Order Regarding Procedures for the Filing, Service, and Management of Highly Sensitive Documents, for example, defines HSDs as documents containing "Highly Sensitive Information" ("HSI") and defines HSI as:

[I]nformation that is likely to be used by a hostile foreign government or its intelligence service to harm the interests of the United States, or likely to be used to commit foreign or domestic crimes, so that disclosure or use will cause significant harm; and any other information which, if disclosed, would pose a risk to national security, a clear and present danger to life and safety or result in grave or extreme harm.

The Eastern District of Texas General Order "anticipates that HSDs may also include documents that, in the judgment of the filing party, are or contain HSI that is substantially likely to adversely affect," inter alia, "nonpublic intellectual property, trade secrets, or highly confidential commercial information." The Eastern District of Texas General Order also anticipates, however, that many documents, including "most sealed filings in civil cases," among others, "do not contain HSI and are not HSDs" and therefore "will continue to be filed under existing sealing procedures."[5]

II. Closing the Courtroom to Protect Trade Secrets

A trade secret owner may be able to seal the courtroom during a hearing or trial where trade secrets are discussed, but the ability to close the courtroom varies among district courts.

Some courts are reluctant to seal the courtroom during hearings or trials where trade secrets are discussed because of the right of the public to access judicial proceedings.[6] See, e.g., 3A Composites USA, Inc. v. United Indus., Inc., No. 5:14-CV-5147, 2015 WL 11121362, at *3 (W.D. Ark. Nov. 10, 2015) (denying motion "to close the courtroom during periods of the trial where trade secret evidence is presented" because the plaintiff's "privacy interests [could] be adequately protected by sealing the exhibits that are introduced at trial for the duration of the trial"); US Investigations Servs., LLC v. Callihan, No. 2:11-CV-0355, 2011 WL 1157256, at *1 (W.D. Pa. Mar. 29, 2011) (denying motion to close the courtroom because "protection of Plaintiff's trade secrets ... [could] be attained through alternatives not as drastic as closing the courtroom for the entirety of the proceeding"); see also, e.g., Barr Labs., Inc. v. KOS Pharm., Inc., 362 F. Supp. 2d 421, 423—24 (S.D.N.Y. 2005) (in a patent infringement case brought under the Hatch-Waxman Act, denying a motion to close the courtroom during a preliminary injunction hearing because the parties could adequately argue the issues at the hearing without disclosing trade secrets).

Other courts have recognized that a trade secret owner's "right to maintain the secrecy of its proprietary information outweighs the public's right to access judicial proceedings and related documents." BP Am. Prod. Co. v. Hamer, No. 19-CV-03581-CMA-STV, 2019 WL 7049990, at *2 (D. Colo. Dec. 23, 2019) (restricting public access to a hearing in a trade secret misappropriation case regarding the trade secret owner's motion for preliminary injunctive relief); see, e.g., United States v. Zhang, 590 F. App'x 663, 667 (9th Cir. 2014) (in a criminal theft of trade secrets case, affirming district court's decision to close the courtroom for one witness's testimony "about the contents of the very documents that the government alleged to contain trade secrets"); Uni-Sys., LLC v. U.S. Tennis Ass'n, Inc., No. 17 CV 147 (KAM) (CLP), 2019 WL 3753780, at *4 (E.D.N.Y. Aug. 8, 2019) (finding that avoiding disclosure of a trade secret constitutes "good cause to maintain the confidentiality of the information, outweighing the public's presumptive right of access"); CDA of Am. Inc. v. Midland Life Ins. Co., No. 01-CV-837, 2006 WL 5349266, at *13 (S.D. Ohio Mar. 27, 2006) (granting motion to close the courtroom and seal the trial transcript only for "portions of the trial in which parties testify as to what they allege to be a 'trade secret,'" and not for "portions of the trial unrelated to testimony of Plaintiff's alleged trade secret'").[7]

III. How to Protect Trade Secrets in an Open Courtroom

If a motion to close the courtroom is denied, a trade secret owner may take other precautions to limit the disclosure of its trade secrets in the open courtroom.

Limiting Disclosure to the Judge and Jury: At a hearing, a trade secret owner may be able to limit disclosure of its trade secrets to the judge only, and during a trial, a trade secret owner may be able to limit disclosure of its trade secrets to the jury only. For example, at trial, a trade secret owner may be able to publish its trade secrets to screens that are viewable only by members of the jury, to establish that the trade secrets exist, without displaying the trade secrets on a screen that the entire courtroom can see.

Limiting Witnesses' Testimony: If a witness must testify about the trade secrets at a hearing or trial, a trade secret owner may be able to limit the witness's testimony to an appropriate level of generality. Trade secret owners should also consider moving to seal portions of the transcript before it is transcribed and filed in the clerk's record, rather than waiting until after the transcript is filed. See generally, e.g., Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 848—49 (10th Cir. 1993) (in a trade secret misappropriation case where the trade secrets were revealed during the course of a permanent injunction hearing, holding that the trade secret owner's post-hearing measures to protect the confidentiality of the trade secrets having counsel monitor the presence of observers in the courtroom during the hearing, having the hearing record placed under seal after the hearing was completed, and moving to place certain exhibits on appeal under seal—were adequate to maintain the secrecy of the trade secrets).

Sealing Exhibits: At a hearing or trial in an open courtroom, a trade secret owner may also be able to limit disclosure of its trade secrets by sealing exhibits that contain trade secrets. Trade secret owners should consider moving to seal the exhibits before they are marked or discussed. Parties may also decide to agree to a pre-admitted list of exhibits prior to a hearing or trial so that an exhibit is more likely to be admitted into evidence with limited open-court discussion. See generally, e.g., Gates Rubber Co., 9 F.3d at 848—49 (finding that moving to place certain exhibits on appeal under seal, along with other post-hearing measures to protect the confidentiality of the trade secrets, were adequate to maintain the secrecy of the trade secrets).

IV. Orders to Preserve Confidentiality Under the Defend Trade Secrets Act

For a misappropriation claim brought under the Defend Trade Secrets Act of 2016 (DTSA), a trade secret owner can seek an order to preserve confidentiality under 18 U.S.C. § 1835.[8] Section 1835 requires the court in a DTSA proceeding to "enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of ... Civil Procedure, the Federal Rules of Evidence, and all other applicable laws." 18 U.S.C. § 1835(a). Additionally, "[t]he court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential." Id. § 1835(b).

District courts applying 18 U.S.C. § 1835 have limited access to hearings to only court personnel and the parties—along with their attorneys, agents, representatives, and witnesses—and have allowed documents and exhibits containing trade secrets to be filed under seal. See, e.g., BP Am. Prod. Co., 2019 WL 7049990, at *2 (restricting public access to a hearing on the plaintiff's motion for preliminary injunctive relief, and restricting public access to exhibits containing details of the plaintiff's alleged trade secrets); ZUP, LLC v. Nash Mfg., Inc., No. 3:16-CV-125-HEH, 2016 WL 11082038, at *1 (E.D. Va. Oct. 27, 2016) (granting motion to seal several documents containing purported trade secrets).

V. Conclusion

Trade secret owners may protect their trade secrets at federal district court hearings and trials by sealing filings that contain trade secrets, closing the courtroom when trade secrets are being discussed, and/or seeking an order to preserve confidentiality under the DTSA. If a trade secret owner is unable to seal the courtroom at a hearing or trial where trade secrets are discussed, it should consider limiting the disclosure of the trade secrets to only the judge and members of the jury, limiting witnesses' testimony to an appropriate level of generality, and sealing exhibits that contain trade secrets.

For more ideas about protecting trade secrets, check out Best Practices: How to Protect Trade Secrets From Loss Through Departing Employees and Best Practices: HR Risk Management to Avoid IP Theft Liability.

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[1] See, e.g., MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 522 (9th Cir. 1993) (holding that failure to specifically identify the trade secrets at issue precluded finding that the trade secrets had been misappropriated); see also, e.g., KLA-Tencor Corp. v. Murphy, 717 F. Supp. 2d 895, 906 (N.D. Cal. 2010) (following MAI Systems, and finding that, because "Plaintiff has not specifically identified what it considers a trade secret, instead referring to broad categories of information ... the court cannot determine what is or is not a trade secret, and consequently it is impossible to render summary judgment that any trade secrets were misappropriated"); Keywords, LLC v. Internet Shopping Enters., Inc., No. CV 05-2488 MMM (EX), 2005 WL 8156440, at *17 (C.D. Cal. June 29, 2005) (following MAI Systems, and finding that, because the plaintiff "failed to identify what portions of the source codes constitute trade secrets," the court "cannot determine whether they meet the [Uniform Trade Secrets Act]'s definition of a trade secret").

[2] See also, e.g., Valley Broadcasting v. U.S. District Court, 798 F.2d 1289, 1294 (9th Cir. 1986) (recognizing an exception to the public's right of access to judicial records when a case involves trade secrets); Brown & Williamson Tobacco Co. v. FTC, 710 F.2d 1165, 1180 (6th Cir. 1983) (same).

[3] E.D. Texas General Order Regarding Procedures for the Filing, Service, and Management of Highly Sensitive Documents (Jan. 19, 2021); see also Judiciary Addresses Cybersecurity Breach: Extra Safeguards to Protect Sensitive Court Records (Jan. 6, 2021); Highly Sensitive Document Procedures and Court Orders (last updated Mar. 9, 2021).

[4] E.D. Texas General Order Regarding Procedures for the Filing, Service, and Management of Highly Sensitive Documents (Jan. 19, 2021); see, e.g., D. Mass Order Regarding Highly Sensitive Documents Filing, Service, and Management (Jan. 26, 2021) (defining HSDs as "[d]ocuments where disclosure would breach national security" and documents "that a party believes contain[] information that is so sensitive that disclosure would cause a high risk of imminent and extreme harm to an identifiable person or entity," among others, and noting that "sealed filings in many civil cases" "generally are not considered HSDs"); S.D.N.Y. Procedures for the Filing, Service, and Management of Highly Sensitive Documents (Jan. 8, 2021) (defining HSDs as documents that "contain[] classified information or information that could harm national security" or whose "disclosure could reasonably be expected to cause exceptionally grave damage or injury to any person, entity or institution"); see also, e.g., N.D. Cal. Notice Regarding Highly Sensitive Documents (defining HSDs "as only a subset of sealed documents filed by the criminal division of the U.S. Attorney's Office," and stating that "[t]here will be no official changes to court procedure, except with respect to U.S. Attorney's Office filings").

[5] E.D. Texas General Order Regarding Procedures for the Filing, Service, and Management of Highly Sensitive Documents (Jan. 19, 2021).

[6] For example, in the Third Circuit, a party seeking to close the courtroom during a hearing "bears the burden of showing that the material [that will be disclosed at the hearing] is the kind of information that courts will protect and that there is good cause for the order to issue." Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1070—71 (3d Cir. 1984). Generally, when a party seeks to protect its "interest in confidential commercial information, such as a trade secret, [ ] there is a sufficient threat of irreparable harm," however, to show good cause for issuing the order to close the courtroom. Id. (citing Stamicarbon, N.V. v. Am. Cyanamid Co., 506 F.2d 532, 539—42 (2d Cir. 1974)).

[7] See also, e.g., Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 600 n.5 (1980) ("The preservation of trade secrets, for example, might justify the exclusion of the public from at least some segments of a civil trial.") (Stewart, J., concurring); Woven Elecs. Corp. v. Advance Grp., Inc., 930 F.2d 913 (Table), 1991 WL 54118, at *6 (4th Cir. 1991) (holding that the "district court should review the entire record of the trial, including the exhibits and transcripts if any, and seal [the] portions necessary to prevent the disclosure of trade secrets," and noting that it "would have been proper" for the district court to close the courtroom at trial "during the times when trade secrets were to be exposed"); Encyclopedia Brown Prods., Ltd. v. Home Box Office, Inc., 26 F. Supp. 2d 606, 612 (S.D.N.Y. 1998) ("Potential damage from release of trade secrets is a legitimate basis for sealing documents and restricting public access during trial." (citing Nixon, 435 U.S. at 598)); Uniroyal Goodrich Tire Co. v. Hudson, 873 F. Supp. 1037, 1040 (E.D. Mich. 1994) (in a trade secret misappropriation case, noting that the court had previously granted the plaintiff's request to close the courtroom at trial), aff'd, 97 F.3d 1452 (Table), 1996 WL 520789 (6th Cir. 1996) (per curiam); Standard & Poor's Corp., Inc. v. Commodity Exch., Inc., 541 F. Supp. 1273, 1278 (S.D.N.Y. 1982) ("To have refused to close the proceedings during the testimony concerning the trade secrets would have ... put [the plaintiff] to the Hobson's choice of not suing [the defendant] for ... use of its trade secrets or suing and losing forever all the proprietary value of [its trade secrets].").

[8] Section 1835 was enacted as part of the Economic Espionage Act of 1996 ("EEA"). The EEA made the theft or misappropriation of a trade secret a federal crime. 18 U.S.C. §§ 1835—1839. The DTSA extended the EEA, creating a federal private civil action for trade secret misappropriation. Id. § 1836(b).

Authors: Esha Bandyopadhyay, Kayleigh McGlynn