With the growing importance of data and intangible
assets, the adequate protection of a company’s trade
secrets is now atop the list of priorities for many legal
departments and corporate counsel alike. A trade secret is
a piece of confidential information that holds commercial
value and gives its owner a commercial
edge. It can be a process, a formula, an algorithm or a
customer list. Unlike other intellectual property rights such as a
patent or copyright, a trade secret does not expire as long
as it remains secret.
What does that mean for parties involved in arbitral
proceedings and the practice of international arbitration?
Arbitration offers the possibility of resolving disputes behind
closed doors and often involves highly sensitive information
relating to the identity of the parties, the underlying
transaction or the subject matter of the dispute. Not all
documents will remain confidential though. Arbitration documents
produced or generated in an arbitration may become public if they
form a part of the records of court proceedings ancillary to the
arbitration, including enforcement and annulment
actions.
Arbitral awards, which may or may not refer to
the sensitive information in question, are particularly
prone to unavoidable disclosures of this sort.
Yet, these situations are typically recognised as exceptions to the
duties of confidentiality attached to an arbitration, and the
protection of trade secrets, by way of a seal for example,
may not be available in the relevant court.
Further, in spite of the fact that many arbitrations are held in
private, there remains the risk of an inadvertent or malicious
leak. Ultimately, whether the result of a cyber-attack or
misconduct of an opponent, trade secret owners should be mindful of
the ramifications of a potential breach of confidentiality. Any
confidentiality breach may result in irreparable harm and
affect their ability to enforce a trade secret,
notwithstanding steps having been taken to protect such trade
secret.
In addition to protecting sensitive information from entering
the public domain, parties involved in arbitral proceedings may
need to avoid disclosure of such information in the arbitration
altogether. In some instances, this may be for the
preservation of wider trade secrets that a disputing party
holds, as a matter of internal company policy. Further,
there may also be legitimate concerns that another party involved
in the proceedings may make use of the valuable piece of
information for a purpose other than the arbitration and the
resolution of the dispute. It is not uncommon for parties involved
in arbitral proceedings to operate in the same industry or to
compete directly with each other. Similarly, witnesses of
fact and experts alike may have an interest in the trade secret in
question.
Trade secret controversies can arise at different points during
the course of an arbitration. These junctures include the initial
phase of the arbitration, when the parties and the arbitral
tribunal may discuss confidentiality and put in place measures in
the form of a protective order or a cybersecurity
protocol. Voluntary disclosure of sensitive information
for the purpose of particularising a party’s case or bringing
evidence required to meet that party’s burden of proof may also
be a consideration.
Issues relating to the protection of trade secrets more
frequently arise during document production, following a document
request made by one party against another. In international
arbitration, parties generally have the right to request documents
from the other side. Arbitral tribunals tend to uphold requests as
long as the documents sought are relevant to an issue in the case
and material to its outcome. Before the arbitral tribunal makes a
finding, the party on the receiving end of the request generally
has an opportunity to put forward reasons as to why the request is
not appropriate or should otherwise not be upheld by the arbitral
tribunal. One of the grounds on which a party may resist a request
and an arbitral tribunal may reject such request is for reasons of
‘commercial or technical confidentiality’.
This is reflected in Article 9.2(b) of the IBA Rules on the
Taking of Evidence in International Arbitration
(2020).
To the extent that they relate to sensitive information
or trade secrets, the rulings of an arbitral tribunal
nearly always involve a protective order setting out the terms
under which the information alleged to be sensitive or
confidential is to be shared. Protective orders including
those implementing a ‘confidential club’ or an
‘attorneys’ eyes only’ limitation are
important tools for preserving trade secrets in international
arbitration. Arbitrators’ powers to enter a protective order
form part of their general procedural powers, but some arbitration
rules expressly refer to this solution. For example,
Article 22(3) of the ICC Rules (2021) provides
“[U]pon the request of any party, the arbitral tribunal may
make orders concerning the confidentiality of the arbitration
proceedings or of any other matters in connection with the
arbitration and may take measures for protecting trade secrets and
confidential information.” Further, Article 54(c) of
the WIPO Rules of Arbitration (2021) provides that
“[i]f the Tribunal so determines, it shall decide under which
conditions and to whom the confidential information may in part or
in whole be disclosed and shall require any person to whom the
confidential information is to be disclosed to sign an appropriate
confidentiality undertaking”.
It is also possible for arbitral tribunals to appoint a
third-party expert who determines whether the
documents or data alleged to be confidential should be produced
and, if so, under which terms. By way of example, Article
54(d) of the WIPO Rules allows, “in exceptional
circumstances” for a “confidentiality advisor” to
“determine whether the information is to be so
classified, and, if so, decide under which conditions and to whom
it may in part or in whole be disclosed.”
Article 54(e) of the WIPO Rules also allows for
the arbitral tribunal to “appoint the confidentiality advisor
as an expert in accordance with Article 57 in order to report to
it, on the basis of the confidential information, on specific
issues designated by the Tribunal without disclosing the
confidential information either to the party from whom the
confidential information does not originate or to the
Tribunal.” Further, Article 3.8 of the IBA
Rules provides that the arbitral tribunal may, after
consultation with the parties, “appoint an independent and
impartial expert, bound to confidentiality” to review a
document which is subject to an objection on the grounds of
commercial or technical confidentiality.
Another practice aimed at striking the right balance between
allowing disclosure of relevant information and upholding bona fide
trade secret claims has emerged from arbitrations involving
intellectual property issues. This practice consists of subjecting
production of documents or data to a condition
that the requesting party establishes a prima facie case of
infringement or breach.
There may be instances where the strategy of the relevant
litigant in respect of a particular arbitration collides with other
big picture considerations. This can happen if there is a tension
between steps necessary to win a case and those required to
preserve a trade secret. Disclosing the information in
question may be required to strengthen a party’s position in
the arbitration, but may also be harmful to the company in terms of
its market position, its performance, or its value. In
these instances, not only the confidentiality of arbitration, but
also its flexibility can prove beneficial. As there is scope to
adapt the arbitral procedure to the parties’ specific needs,
arbitration has the potential to serve other overarching
considerations for the parties, such as the preservation of their
trade secrets, while continuing to provides a confidential,
efficient and fair means to resolve cross-border disputes.
Originally published by The Impact Lawyers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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