Protecting commercial secrets in court proceedings

The English court system is regarded as one of the safest when it comes to protecting confidential information during court proceedings, which is one of the reasons why international companies often opt for English jurisdiction in their contracts. 

A recent High Court ruling in a dispute involving competitors in a highly specialised chemicals market illustrates the English court’s commercial approach where sensitive information is at stake.

Small field, high risk

The parties were active on the small and highly competitive market for raw materials used in catalytic converters. Following a successful patent infringement action by the claimants, Anan Kasei Co and Rhodia Operations (Rhodia), against the defendant, Neo Chemicals and others (Neo), Rhodia opted for an inquiry[i] to establish the level of damages to be paid. This included an assessment of the loss of profit suffered by Rhodia as a result of Neo’s dealings in the infringing products, and the conditions and prices under which the parties supplied their products to a small number of customers were key to this assessment. Disclosure of this highly sensitive information by one party to the other for the purposes of the assessment could potentially destroy the disclosing party’s competitive position in relation to that customer while also damaging the customer itself.

External eyes only

Rhodia argued that certain highly confidential information relating to its sales, profit margins and capacity to supply a specific customer should be subject to an “external eyes only” arrangement whereby the information would be disclosed only to Neo’s external lawyers and not to anybody at Neo itself. Such arrangements are exceptional, not least because they make it difficult for the company (in this case Neo) to instruct its lawyers properly. However, the judge accepted that such an arrangement was appropriate here: Neo was a very small company and the CEO to whom the information would need to be disclosed was unable to give a wide enough confidentiality undertaking to protect Rhodia because the restrictions involved would leave him unable to do his job within the company.

Comment

Commercial information relating to customers and sales is sometimes assumed to be of lesser sensitivity than secret technical information. This case provides an example of commercial information of the highest sensitivity and of the court’s openness to employing special measures to protect it. Claimants in breach of confidence cases are usually primarily concerned about seeking swift injunctive relief to prevent damage being suffered; and it is relatively rare for a party to pursue an inquiry for damages as Rhodia did here. Even in cases that run through to the conclusion of a trial on liability, it is more usual for the parties to settle the issue of quantum. However, this case highlights the need to bear in mind the potentially difficult commercial issues that an inquiry of this kind can present.