Clients who opt for the privacy of alternate dispute resolution to resolve business differences are sometimes chagrined to learn that designating an ADR does not by itself guarantee confidentiality of trade secrets. The usual challenge of guaranteeing confidentiality can be compounded by virtual arbitration proceedings.
Set forth below are tips on best practices to protect trade secrets in such proceedings, particularly where such information represents the focal point of the dispute.
Preserving confidentiality commences with the drafting of the arbitration agreement. Practitioners should not overlook the need for trade secret protections at the outset—especially when the agreement is part of an all-encompassing contract (whether an employment contract, a nondisclosure agreement, or a purchase and sale contract)—if the contractual relationship subsequently collapses into adversity.
Protecting Confidentiality at the Outset of the Proceeding
There are three early stages in any arbitration proceeding: initiation of the process; response to the claims; and preliminary (or initial) management conference (PMC).
Agreement at Commencement of the Proceeding
The practitioner should evaluate previously formalized contractual obligations to assess the sufficiency of existing trade secret protections. If these are sufficient, the practitioner should simultaneously initiate the arbitration process and (in an administered proceeding) alert the Case Manager of the importance of maintaining confidentiality of materials submitted as part of claim administration, and also request that the Respondent be notified that such a process is in place to curtail unwanted revelations of trade secrets in responsive pleadings.
Seeking Emergency Measures
If a court has not been involved in the dispute before initiation of the arbitration process, and the confidentiality proponent is unable to reach agreement with the adverse party about safeguarding confidentiality prior to the first formal meeting of the parties (described below), the proponent should consider requesting “emergency relief” from the tribunal, as described in American Arbitration Association Commercial Rule 38 and International Chamber of Commerce Arbitration Rules 28 and 29, bearing in mind that such a preliminary proceeding will likely be conducted virtually, that a protocol for trade secret protection should be established in advance of such a proceeding, and that securing interim relief may necessitate posting “appropriate security.”
Triggering an emergency hearing is only the start of the process.
Once the issue has been joined in the proceeding and the tribunal has been appointed, the parties typically conduct a PMC to establish a schedule for the proceeding. At this stage, if not sooner, the practitioner should engage opposing counsel and the tribunal about adopting procedures for trade secret protection. Also, if the practitioner successfully obtains an interim order effecting such protection, the practitioner must recognize that such an order usually expires before the PMC concludes.
The practitioner should alert the tribunal, either by agreement or request, of the importance of ongoing trade secret protection and of the issuance of a protective order governing the proceeding going forward.
Protecting Confidentiality During the Pre-Hearing Phase of the Proceeding
In a virtual proceeding, a crucial component of maintaining trade secrets is how the pre-hearing phase will be conducted, especially as to discovery. Accordingly, the practitioner should address the protocols to be followed with the tribunal at the PMC, especially considering that in the virtual dispute resolution world, the absence of in-person, or face-to-face, meetings restricts a practitioner’s visual (and comprehensive) access to:
- those occupying other virtual spaces;
- what documentary information the person(s) in the other virtual spaces have access to; and
- what additional information such person(s) may have.
The best practice for trade secret protection includes appropriate restraints on unfettered trade secret disclosure to opposing corporate representatives, to witnesses (particularly expert witnesses), or to non-parties. The zenith of documenting trade secret protection is execution and delivery of acknowledgements by all concerned confirming receipt of the protective order, and accompanied via a comprehensively worded agreement to comply strictly with the dictates of such order.
Protecting Confidentiality During the Hearing
The practitioner should take steps to ensure all confidentiality protocols have been observed at the outset of the hearing. Once the hearing starts, the practitioner must acknowledge any potential breach of existing protocols and immediately seek relief from the tribunal.
Once the hearing has closed, the practitioner must remain vigilant about maintaining trade secret confidentiality until the award is issued, including requesting at the hearing or as part of the post-hearing briefing that all previously established protections remain in effect and that all trade secrets accessible by the opposing party be returned with a signed acknowledgement from all counsel, corporate representatives, and expert witnesses demonstrating their strict compliance with the protocols.
Protecting Confidentiality During Post-Award Proceedings
Finally, the practitioner must be vigilant during any post-award proceeding, such as when a motion to confirm or a motion to vacate or modify the award is submitted. The practitioner should notify opposing counsel in advance of the requirement to maintain trade secret confidentiality and, if appropriate, to effect some acceptable process for presenting to the court the parties’ positions regarding the award without compromising confidentiality. Such an agreement should be memorialized and presented to the court, or if no such agreement can be achieved, then the practitioner should seek advance protection from the court to ensure maintenance of trade secret confidentiality in any materials submitted to the court as part of the award review process.
As the above discussion indicates, maintaining confidentiality of trade secrets in an arbitration is an ongoing effort, requiring vigilance at every stage of the proceeding and beyond.
Lionel M. Schooler is a management-side employment lawyer and recognized authority on employment law, federal appellate practice, and arbitration. Lonnie’s employment practice focuses on counseling clients and litigating, on a nationwide basis, claims under all employment laws, workers’ compensation coverage issues, wage and hour claims, and investigations by the Equal Employment Opportunity Commission, the U.S. Department of Labor, and the Texas Workforce Commission. Lonnie is also experienced as an arbitrator on the Commercial and Employment Panels of the American Arbitration Association and as an advocate.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.