Federal Court Clarifies its Position on Protective Orders

Federal Court Clarifies its Position on Protective Orders

Seedlings Life Science Ventures LLC v Pfizer Canada Inc, 2018 FC 956

The Federal Court (“FC”) reinstates the long-standing practice of issuing protective orders; confirms that protective orders are governed by the test set out in Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41 [Sierra Club].

Justice Ahmed of the FC reversed Prothonotary Tabib’s (“Prothonotary”) decision, who had dismissed Pfizer Canada Inc’s (“Pfizer”) motion for a protective order. [1, 5] The FC found that the Prothonotary failed to follow and apply binding jurisprudence. The FC substituted the Prothonotary’s decision for its own, ordering that the protective order negotiated by the two parties in the action be issued. [29]

Background

The motion was brought within an action for patent infringement. Seedlings Life Science Ventures, LLC (“Seedlings”) alleges that Pfizer infringed it Canadian Patent No. 2,486,935. [1] The parties are about to start the discovery process and have negotiated a protective order (“Draft Protective Order”) to determine the way in which the information will be exchanged. Pfizer filed a motion (unopposed by Seedlings) to have the Draft Protective Order issued. [2] The Draft Protective Order set out which information may be designated as confidential and which information cannot be considered confidential. The agreement further provides that parties retain the right to modify or vacate the restrictions on their disclosures. Finally, the agreement restricts who may view the designated confidential information, and states that the termination of the proceedings does not relieve the parties of their confidentiality obligations. [7-8]

The Prothonotary dismissed Pfizer’s motion, stating that the issuance of a protective order “is a matter of discretion and is to be viewed in the particular circumstances of each case.” The Prothonotary noted that there is a rule in common law that affirms that documents and information submitted or exchanged in the context of a pre-trial discovery “constitutes an undertaking to the Court that such information will not be used by the parties for purposes other than the litigation. As such, misuse or collateral use of that information would constitute contempt of court.” [3] The Prothonotary noted that although the terms “protective order” and “confidentiality order” have been used interchangeably, there is a distinction to be made between the two: “[t]he modern understanding is that a protective order governs the way in which parties may designate information as confidential and handle such information during the pre-trial disclosure phase of an action. A confidentiality order, on the other hand, allows parties to file confidential information under seal with the Registry.” The jurisprudence has also seen some “hybrid orders”, when parties would file materials under seal at the Registry and have a provision to govern the exchange and treatment of information between the parties. [9-10]

The Prothonotary commented that Pfizer had not provided any rule of practice to receive a protective order and that the case law presented are non-binding routine practice in the FC. The Prothonotary then stated that a “well-entrenched and long-standing practice does not constitute a rule of law that the Court is obliged to follow”. [12-13] In the end, the Prothonotary concluded that the issue could be easily resolved by way of private agreement within the parties and dismissed Pfizer’s motion. [15]

The Prothonotary Failed to Apply Binding Jurisprudence

Pfizer’s appeal of the Prothonotary’s decision was unopposed by Seedlings. [4] Pfizer argued that the Prothonotary applied the incorrect legal test and failed to apply and follow binding jurisprudence. Pfizer contended that applicable test is the one established by the Supreme Court in Sierra Club: “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.” [24] Pfizer adds that Sierra Club applies to protective orders, confidentiality orders, as well as “hybrid” orders, and that it has been applied consistently by the FC; except in the Prothonotary’s own previous decision in Live Face on Web, LLC v Soldan Fence and Metals (2009) Ltd, 2017 FC 858 [Live Face]. Moreover, in Juman v Doucette, 2008 SCC 8, The Supreme Court recognized that “disputes about trade secrets and intellectual property may involve exceptional prejudice that is not resolved by the implied undertaking rule alone.” [16] Pfizer also submitted that a private agreement is not the appropriate mechanism to protect confidential information, and that the Prothonotary did not cite any rule, statute or case law that affirms the FC’s jurisdiction to enforce a private agreement by way of contempt proceedings. [18]

The main issue before the FC was to determine whether the Prothonotary erred in law by applying the wrong test. [19] Justice Ahmed indicates that the Prothonotary did not explain why the test in Sierra Club must be understood to exclusively apply to confidentiality orders, as there is no indication in that decision that supports the Prothonotary’s contention. Justice Ahmed writes: “The rationale behind the Sierra Club test, whether one is considering a confidentiality order, a protective order, or a hybrid order, is the same: that is, the protection of sensitive information – whether from the general public or other business adversaries – from abuse or use in activities collateral to the litigation. In this sense, the Prothonotary’s attempt to read Sierra Club as exclusive to confidentiality orders is effectively an exercise in splitting hairs.” [26] The FC found that the parties’ Draft Protective Order meets the test set out in Sierra Club, and that the Prothonotary failed to apply the correct legal test. Justice Ahmed substituted the Prothonotary’s decision with his own; ordering that the Draft Protective Order be issued. [28-29]

Commentary

This was the second decision in which the Prothonotary tried to change the FC’s approach to protective orders. Live Face was a decision that surprised many, and culminating with the Prothonotary’s conclusion in this decision, many thought the death of protective orders had arrived at the FC. The Canadian Bar Association sent a letter to the FC, outlining their concerns for the consequences the Prothonotary’s decision may bring. For instance, one of the concerns listed was whether the FC has the jurisdiction to enforce a private agreement governing the handling of confidential information. Another concern is that some parties might refuse to enter any kind of out-of-court agreement. Justice Ahmed’s decision put to rest these concerns by confirming that Sierra Club applies to both protective orders and confidentiality orders. He further mentioned “it is not appropriate […] for a fundamental shift in longstanding practice to arise from the jurisprudence of this Court”. [30]

CSP