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When Are Trade Secrets Not Trade Secrets?

When are trade secrets no longer allowed to be kept secret?  According to the Southern District of New York, when you try to obtain a preliminary injunction and temporary restraining order in federal court you also appear to waive your right to trade secrets.

In Barr Laboratories, Kos Pharmaceuticals filed a motion for a preliminary injunction and temporary restraining order against Barr Laboratories.  Barr was about to begin selling a generic version of the drug Niaspan, used to help lower cholesterol.  Barr was subject to a 30-month stay from selling the new generic version, issued by the Food and Drug Administration after it approved Barr’s application.  Since that stay was about to end, Kos filed the motion on March 7, 2005, and Barr opposed the motion and filed an opposition on March 14, 2005. 

The district court scheduled a hearing on the preliminary injunction and temporary restraining order for March 18, 2005.  The day before the hearing, Kos filed a motion to the court to close the courtroom to the public for the entire hearing; Barr did not oppose this motion.  Kos requested the court be closed because both parties would present confidential business and trade secret information during the hearing.  However, the court was not persuaded by this and denied the motion.

The court stated that the First Amendment secures the right of the public to access civil proceedings.  In order to have the courtroom closed to the public, the court cited a criminal law case, stating that the party moving for closure has to prove a substantial likelihood of prejudice to a compelling interest to the parties.  Even though this principle comes from a criminal case, the Second Circuit has applied this approach to civil cases as well. 

When a party requests limited closure, then the prejudice does not need to be very great; but as the moving party tries to close the courtroom for a large portion of the proceeding, the court stated that the prejudice must be overwhelming.  Since Kos requested the entire hearing to be closed, and presumably would also want closure on any proceedings going forward, the prejudice to the parties would need to be very great.

The court made three primary observations with regards to potential prejudice.  First, this case dealt with patent rights.  Since the government grants patents, information about Niaspan’s composition and production is already present in government archives and the public domain.  This shows that the need for confidentiality is not strong since so much information about Niaspan is already publicly available in patent archives.

Second, the court stated that the interest in confidential trade secrets have, at best, a questionable constitutional basis.  Furthermore, the interest in keeping trade secrets confidential has to be weighed against the right of free speech and the right of the public to observe court proceedings.  The court stated that Kos and Barr chose to bring this litigation in court, which is a public forum.  If the parties wanted to keep their trade secrets confidential, then they should have avoided bringing an action to such a public forum.

Finally, the court considered what the two parties were seeking to protect.  Here, trade secrets could include things like lost profits or how a company may need to fire employees because it loses the case.  However, far more sensitive personal information is released to the public in court every day, like people charged with sexual crimes or the identities of witnesses to horrible crimes.  By allowing the parties to close the courtroom for common litigation like the kind in this case, “the courthouse would be turned into a private secret chamber, and make a travesty of the public’s right to open judicial proceedings.”

So, what is a party to do if it does not want its trade secrets or other confidential information released into the public during litigation?  The parties can request that written submissions to the court be sealed, which took place here.  Because those documents were sealed and already before the court, the parties do not have to bring up trade secrets during the hearing if they believe that public disclosure would be damaging.  The parties can always file a written submission after the hearing as well that incorporates confidential information.  When trying to decide what sort of information it wants to be in the public domain, companies need to carefully decide whether a trade secret is of more use in a single case, or if it is better to keep protecting it.

Thomas Moran is a third year law student at Seton Hall University School of Law (Class of 2013).  He is an associate editor of the Journal of Sports and Entertainment Law.  He graduated from Loyola University Maryland in 2008 with a B.A. in Political Science, and worked in financial services prior to coming to law school.

Comments (3):

  1. This is a surprising outcome, given the comparison made by the court between a constitutional concept often implicated in criminal trials rather than civil litigation. I would think in this case, some kind of in camera review would be preferable. If this is referring to trade secrets, I would think a court would consider not just the prejudice to the parties but also the potential the public disclosure of trade secrets could have on this entity from a business perspective.

    [Reply to this comment]

  2. This hardly seems like a fair outcome. It is my understanding that the protection of trade secrets can sometimes be instrumental for a company, especially when they choose not to seek (or cannot seek) other IP protection. The revelation of some types of trade secret information can destroy a company, so I’m not sure exactly where a court can draw the line as to what it feels should and should not be revealed.

    [Reply to this comment]

  3. This seems like an odd decision from the court – particularly the part of the decision about trade secrets having a limited constitutional basis. While I understand that the courtroom is a public forum and public access should not be denied unless there is an obvious need, it seems to me that there should be a difference in the standards in a criminal case versus a civil case.

    [Reply to this comment]

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