IP monitor - Federal Court of Canada revisits the test for protective orders

Until recently, it was common practice for the Federal Court to issue protective orders when the motion for such an order was brought jointly or unopposed. Beginning in 2017, this practice was called into question by a series of decisions that resulted in parties being unable to obtain protective orders — even on consent. However, recent cases suggest the court may be returning to its former more liberal approach of granting protective orders.

Distinction between protective orders and confidentiality orders

Documents and information produced by a party during the discovery process in an action are subject to what is commonly referred to as the “implied undertaking rule.” That is, such information and documents may not be used by the receiving party for purposes other than the specific action in which they were disclosed.

However, the Federal Court has the power to issue orders that provide additional restrictions and protections for confidential information exchanged through the discovery process (e.g., limiting the number of people at the receiving party who may review confidential information disclosed by the producing party, providing restrictions and limitations on disclosing confidential information to third-party experts, etc.). These types of orders are typically referred to as “protective orders.” Prior to 2017, protective orders were routinely issued by the court on consent and were not typically subject to stringent tests.

The Federal Court may also issue orders that permit parties to file confidential information under seal with the court. Orders that contain these ‟sealing” clauses are typically referred to as “confidentiality orders” or “sealing orders.” The test for obtaining a confidentiality order was set out by the Supreme Court of Canada in Sierra Club of Canada v Canada (Minister of Finance) (Sierra Club) and requires showing, inter alia, that:

• such an order is necessary to prevent a serious risk to an important interest, including a commercial interest, because reasonably alternative measures will not prevent the risk; and
• the salutary effects of the confidentiality order outweigh its deleterious effects, including the public interest in open and accessible court proceedings. (Sierra Club Sealing Order Test)

The shift toward a more restrictive approach on protective orders

The call for a more restrictive approach to granting protective orders was first reported in Live Face on Web, LLC v Soldan Fence and Metals (2009) Ltd., where the court dismissed a joint motion for a protective order. In reaching her conclusion, the prothonotary found that, unless there were highly unusual circumstances, a protective order would not add anything to the implied undertaking rule and could cause unnecessary confusion. As we previously reported, an example of ‟highly unusual” circumstances justifying a protective order under this new paradigm arose in Arkipelago Architecture Inc v Enghouse Systems Ltd.

The new, more restrictive approach was reinforced when the court declined to grant an unopposed motion for a protective order in Seedlings Life Science Ventures LLC v Pfizer Canada Inc. (Seedlings). In Seedlings, the prothonotary rejected the defendant’s concerns about the limitations to the implied undertaking rule and concluded that a protective order was unnecessary. In reaching her conclusion, the prothonotary addressed arguments that two factors raised in Sierra Club (which are not part of the Sierra Club Sealing Order Test) ought to be considered when assessing the need for a protective order:

• the information in question has been treated at all relevant times as confidential and on a balance of probabilities the applicant’s proprietary, commercial and scientific interests could reasonably be harmed by the disclosure of the information; and
• the information is of a confidential nature in that it has been accumulated with a reasonable expectation of it being kept confidential. (Sierra Club Protective Order Factors)

The court ultimately disagreed and held that these factors do not apply when considering whether to grant a protective order.

Uncertainty in the Federal Court regarding the correct test

In September 2018, the Seedlings decision was reversed on appeal by a Federal Court judge (Seedlings Appeal). This marked the first in a series of orders issued by Federal Court judges that have wrestled with whether and how Sierra Club may apply to issuing protective orders. In the Seedlings Appeal, Justice Ahmed held that the court below failed to consider the correct legal test and should have issued a protective order based on the Sierra Club Protective Order Factors.

Shortly thereafter, a different Federal Court judge declined a request for a protective order and concluded that the court in the Seedlings Appeal had misidentified the test applicable to protective orders. Instead, Justice Locke found that the more stringent Sierra Club Sealing Order Test is applicable to requests for protective orders. This decision is currently under appeal to the Federal Court of Appeal.

However, in two recent decisions, dTechs EPM Ltd v British Columbia Hydro & Power Authority (dTechs), and Paid Search Engine Tools, LLC v Google Canada Corporation (Paid Search), the Federal Court reverted to the approach taken by Justice Ahmed in the Seedlings Appeal and applied the Sierra Club Protective Order Factors in granting protective orders on unopposed motions. The judges in both decisions noted that there is a distinction between protective orders and confidentiality orders justifying the application of different tests. In both cases, the court also highlighted limitations in the implied undertaking rule that prevent it from protecting sensitive commercial information in particular situations, while also describing the benefits of protective orders.

Next steps

Both dTechs and Paid Search may signal a return to a more liberal approach to granting protective orders. In both cases, the court recognized the need to protect sensitive commercial information, which is almost always a part of intellectual property proceedings, while streamlining litigation. In dTechs the court noted that the parties need not first attempt to reach a protective agreement before seeking a protective order and even encouraged parties to seek protective orders by way of letter when there is consent or when such a request is unopposed.

Meanwhile, the Federal Court of Appeal has yet to weigh in on this issue, creating the potential for further evolution and clarification of the law in this area.