IP monitor: Federal Court raises the bar to grant protective orders – consent of the parties is not sufficient



Canada Publication March 2019

Canadian National Railway Company v BNSF Railway Company adds to recent case law that has seen the Federal Court refuse to issue routine protective orders because the implied undertaking rule and an agreement between the parties are sufficient to protect confidential information exchanged during litigation. While Justice Locke did not rule out the future issuance of protective orders, it would require satisfying the court that reasonable alternative measures are unavailable or insufficient.

Both parties argued a protective order should be granted

The Canadian National Railway Company (CN) commenced a patent infringement action against the BNSF Railway Company (BNSF). CN discontinued its main claim but BNSF maintained its counterclaim of invalidity of the patents in suit. The parties agreed on the terms for a draft protective order that contained two levels of confidentiality (“Confidential Information” and “Confidential Information – Counsel’s Eyes Only”). BNSF moved for a protective order, including the draft order with its motion record. CN submitted its own motion record in support of BNSF, and BNSF submitted further written argument prior to hearing of the motion. Despite the parties taking the same side, the Federal Court dismissed the motion.

The same test for both protective and confidentiality orders

Justice Locke held that the two-part test in the Supreme Court of Canada’s decision Sierra Club of Canada v Canada (Minister of Finance) (Sierra Club) applies to both protective and confidentiality orders. The first part of this test has three elements: 1) a real and substantial risk to the commercial interest; 2) the commercial interest can be expressed in terms of a public interest in confidentiality; and 3) the judge must consider reasonable alternatives. He did not expect that the second part of the test, which balances salutary rights against deleterious effects, would be a challenge for protective orders because they do not provide for filing documents with the court under seal and would thus not have an effect on the principle of open and public courts.

Accepting that harm would result from disclosure of information that the parties reasonably expected to be kept confidential, Justice Locke’s reasons gave particular weight to the third element. He disagreed with the test adopted by Justice Ahmed in granting a protective order in Seedlings Life Science Ventures LLC v Pfizer Canada Inc because it did not consider whether an order is necessary because reasonable alternative measures will not prevent the risk to the commercial interest at issue. Justice Locke found that the implied undertaking rule, supplemented by the terms agreed to by the parties, is a reasonable alternative measure that will protect the confidential information just as well as the requested protective order would.

Not persuaded by concerns about relying on alternatives to a protective order

Justice Locke was not persuaded by the parties’ concerns with relying on the implied undertaking rule and a protective agreement as an alternative to a protective order;

  • The court has the jurisdiction and the ability to enforce a protective agreement;
  • A protective order would be no more effective than a protective agreement in preventing misuse of confidential information by third parties involved in the litigation;
  • The scope of the implied undertaking does not lack precision and certainty that cannot be filled by a protective agreement;
  • Parties should not be uncomfortable because protective orders are routinely issued in other jurisdictions that do not have the implied undertaking rule; and
  • A court order would not give added heft because the implied undertaking rule already prevents participants from using the information for purposes outside of the litigation.

Justice Locke noted the strongest argument for issuing a protective order was to avoid changing the longstanding practice of issuing protective orders on consent without a corresponding amendment to the Federal Court Rules, but held that he was bound by the test in Sierra Club.

Do not expect automatic protective orders

This decision adds to the case law indicating that the court is now reluctant to routinely or automatically issue protective orders, even when all parties take the same position and highly sensitive information is involved. While Justice Locke did not rule out protective orders, such as to cover terms where the parties cannot agree, the court prefers the parties to work out a confidentiality agreement that will supplement the implied undertaking rule.

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