External eyes only confidentiality clubs - TQ Delta LLC v Zyxel Communications

Confidentiality clubs are a regular feature of patent and trade secrets litigation in the UK, but they remain a fertile source for disputed interim hearings: who should be allowed in the club? What practical restrictions should apply? What legal mechanisms should be used to police them? What documents should be designated highly confidential?  Last week, Tom Hadden of Pinsent Masons brought the IPKat's attention to a recent decision of Carr J. in TQ Delta LLC v Zyxel Communications UK Limited & Anr [2018] EWHC 1515 (Ch) (Pinsent Masons represent the Defendant).  The decision provides guidance as to whether and when an external eyes only confidentiality club might be appropriate - the headline takeaway being that they are very much the exception rather than the rule. 

Background

The proceedings involve two TQ Delta patents said to be essential to the ITU recommendations for DSL technologies which are commonly used to provide fixed line broadband internet to residential and commercial premises.  The matters in issue include validity and infringement, and RAND licence terms.

Good luck keeping the IPKat's eyes away ...

TQ Delta proposed a confidentiality club with an external eyes only tier: where a document was designated by the disclosing party as "highly confidential", its access would be restricted to external solicitors, counsel and independent experts.  Zyxel objected on the basis that it was necessary for two named individuals from the Zyxel group to have access to licences granted by TQ Delta to third parties, to take informed decisions and instruct their legal representatives. 

TQ Delta suggested that external eyes only clubs were regularly used in FRAND arbitrations, and noted that a similar attorney's eyes only club existed in parallel litigation between the parties in the US.  The judge rejected the relevance of arbitration practice, given that arbitrations are often heard in private, and so principles of open justice do not apply in the same way as proceedings in the High Court.  No evidence was submitted as to the reasons for the restrictions in the US.

Guidance from case law

The judge reviewed the IPCom v HTC Europe [2013] EWHC 52 (Pat) and Unwired Planet [2017] EWHC 3083 (Pat) decisions.  He noted that in IPCom, the judge had considered that the documents in question (licence agreements between Nokia and HTC) were of limited if any relevance, and the judge had accepted that an external eyes only restriction was acceptable at the interim stage.  In Unwired Planet, the parties had agreed a confidentiality regime with an external eyes only tier and so that was not an issue before the Court. 

The Court drew out the the following principles from the case law:

i) parties may choose to agree an external eyes only tier (as in Unwired Planet);
ii) confidentiality club agreements are often essential in intellectual property cases, which require disclosure of confidential information. In such cases, a regime for disclosure which limits access to sensitive documents to specific individuals within one of the parties, in order to protect confidentiality, is now commonplace;
iii) redactions to documents can be made to exclude material which is confidential and irrelevant to the dispute;
iv) external eyes only access to individual documents of peripheral relevance, whose disclosure would be damaging, may be justified in specific cases (as in IPCom);
v) in certain exceptional cases, external eyes only access to specific documents of greater relevance might be justified, at least at an interim stage;
vi) in the absence of exceptional circumstances, each party must be able to see and discuss with its lawyers the relevant parts of the key documents in the case.

It is worth noting these franks words from the Court before making an application for an external eyes only confidentiality club:

"An external eyes only tier enables a blanket exclusion of access by one of the parties to the relevant parts of key documents. This is incompatible with the right to a fair hearing under Article 6 of European Convention on Human Rights, and with the principles of natural justice. It is incompatible with the obligations of lawyers to their clients. The principles on which solicitors are obliged to act on behalf of clients instructing them require the sharing of all relevant information of which they are aware."

Conclusion

On the facts, the judge ordered disclosure of the licence agreements between TQ Delta and several third parties to named Zyxel representatives, but stayed the Order by 14 days to enable the third parties to apply to set aside or vary the Order.

So, you might have a shot at an external eyes confidentiality club at an interim stage, particularly where the documents are not central to the issues in dispute, but it is going to be exceptionally difficult for a party to successfully argue that material documents should not be disclosed to at least one individual from the opposing party at trial.  External eyes only clubs by consent may remain a feature of FRAND litigation where there is a mutual interest in holding back the disclosure of licensing terms.