Caution: New Rules Regarding Protective Orders

By: Eric G. Soller

Protective orders are not enough to maintain the secrecy of sensitive information during litigation, so says the Third Circuit Court of Appeals.  In complex commercial litigation and intellectual property litigation, protective orders are a common tool to prevent sensitive and competitive information from becoming public.  The parties designate certain trade secrets, non-public commercial information, sensitive R&D, financial, technical, and marketing information, and computer source code as protected information.  Further, this designated information can be assigned various levels of protection based upon its importance, such as “Confidential”, “Confidential Attorneys Eyes Only”, or “Highly Confidential Source Code”.  So prevalent is the use of protective orders that a number of jurisdictions that have adopted local patent rules include a standard protective order in the rules, which is automatically entered when the lawsuit is filed.

Despite the prevalence of protective orders, many courts also have local rules or standing orders that provide that despite any language in a protective order, any party wishing to file something under seal must obtain prior leave of court for each document that is requested to be field under seal.   If the parties could agree that material designated as “Confidential” or “Attorneys Eyes Only” could be filed under seal, the court would most likely grant a motion and permit such a filing.

This practice will most likely become more challenging, laborious, and expensive in light of the recent opinion of the United States Court of Appeals for the Third Circuit in In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., 924 F.3d 662 (3d Cir. 2019) (“Avandia”).  In Avandia, the District Court refused to unseal certain documents while the case was on appeal.  The Court of Appeals vacated the orders maintaining the confidentiality designation and remanded the case back to the District Court to consider the motions for continued confidentiality under the “appropriate standard.”

The Legal Underpinnings of the Avandia Decision

The Avandia Court began it analysis by identifying the three distinct standard it applies when considering various challenges to the confidentiality of documents: (1) The factors articulated in Pansy v. Borough of Stroudsburg, 23 F.3d 772, 783-92 (3d Cir. 1994), when reviewing orders preserving the confidentiality of discovery materials pursuant to Federal Rule of Civil Procedure 26; (2) The more rigorous common law right of access when discovery materials are filed as court documents that begins with a presumption in favor of public access as set forth in Goldstein v. Forbes (In re Cendant Corp.), 260 F.3d 183, 192-93 (3d Cir. 2001); and (3) the First Amendment right of public access that attaches to, among other things, civil trials under  Publicker Indus., Inc. v. Cohen, 733 F.2d 1059, 1061 (3d Cir. 1984).

  1. Protective Orders

Federal Rule of Civil procedure 26(c) permits the District Court to enter a protective order to shield a party from “from annoyance, embarrassment, oppression, or undue burden or expense.”  A protective order is intended to offer litigants a measure of privacy, while balancing against this privacy interest the public’s right to obtain information concerning judicial proceedings.  A protective order may apply to all litigation materials — not just those filed in court — because courts have inherent power to grant orders of confidentiality over materials not in the court file.  The proponent of the protective order shoulders the burden of justifying the confidentiality of each and every document sought to be sealed.  The District Court must balance the requesting party’s need for information against the injury that might result if uncontrolled disclosure is compelled. The party seeking a protective order over discovery material must demonstrate that “good cause” exists for the order.

The Third Circuit has set forth various factors — which are neither mandatory nor exhaustive — that courts consider when determining whether good cause exists, and therefore whether a protective order should issue:

  • Whether disclosure will violate any privacy interests;
  • Whether the information is being sought for a legitimate purpose (or for an improper purpose);
  • Whether disclosure of the information will cause a party embarrassment;
  • Whether confidentiality is being sought over information important to public health and safety;
  • Whether the sharing of information among litigants will promote fairness and efficiency;
  • Whether a party benefitting from the order of confidentiality is a public entity or official; and
  • Whether the case involves issues important to the public.

The Avandia Court acknowledged that the District Court is best situated to determine what factors are relevant to any given dispute and the District Court’s analysis should always reflect a balancing of private versus public interests.

  1. Common Law Right of Access

In both criminal and civil cases, a common law right of access attaches to judicial proceedings and records, and pre-dates the Constitution.  This right of access promotes public confidence in the judicial system by enhancing testimonial trustworthiness and the quality of justice dispensed by the court.  It also diminishes the possibility for injustice, incompetence, perjury, and fraud.  The right of access includes the right to attend court proceedings and to inspect and copy public records and documents, including judicial records and documents.

Whether the common law right of access applies to a particular document or record turns on whether that item is considered to be a “judicial record.”  A “judicial record” is a document that has been filed with the court or otherwise somehow incorporated or integrated into a district court’s adjudicatory proceedings.  Once a document becomes a judicial record, a presumption of access attaches.  To overcome that strong presumption, the District Court must articulate the compelling, countervailing interests to be protected, and make specific findings on the record concerning the effects of disclosure and provide an opportunity for interested third parties to be heard.

  1. First Amendment Right of Public Access

The public and the press have a First Amendment right of access to civil trials is as well established as that of criminal proceedings and records. Publicker Indus., 733 F.2d at 1070.  Although the constitutional right of access is not absolute, as a First Amendment right it is to be accorded the due process protection that other fundamental rights enjoy.  In order to determine whether the right of access attaches, the Third Circuit uses a two-prong test: (1) whether the place and process have historically been open to the press; and (2) whether public access plays a significant positive role in the functioning of the particular process in question.  If both prongs are satisfied, a qualified First Amendment right of public access attaches.

The First Amendment right of access requires a much higher showing than the common law right of access before a judicial proceeding can be sealed, and therefore there is a presumption that the proceedings will be open to the public.  The party seeking closure may rebut the presumption of openness only if it demonstrates an overriding interest in excluding the public based on findings that closure is essential to preserve higher values and is narrowly tailored to serve that interest.

The Holding In Avandia

The Third Circuit in Avandia found that the District Court neither articulated the applicable legal standard nor sufficiently discussed the specific documents at issue.  In its opinion, the District Court (1) quoted the Pansy factors and explained that Third Circuit has instructed district courts to weigh the factors when determining whether good cause exists to justify a protective order and (2) mentioned the common law right of access.  Further, the District Court reasoned that both the Rule 26 standard and the common law right of access doctrine required identifying the harm to the designating party and balancing the Pansy factors.  Regardless, the Third Circuit found that the District Court was obligated to apply the exacting common law right of access standard, including the strong presumption of access, before granting the motions for continued confidentiality.  Having failed to do so, the District Court erred.  More specially, the Third Circuit opined that by conflating the Pansy factors with the standard governing the common law right of access, the District Court gave no effect to the presumption of public access.

The Third Circuit instructed the District Court on remand to apply the appropriate standard in the first instance.  In a footnote, the third Circuit stated: “To be clear, we do not require a district court to provide lengthy, detailed discussion of each individual document. Yet it must be clear from the record that the district court engaged in a particularized, deliberate assessment of the standard as it applies to each disputed document.”

The Future After Avandia

Avandia may essentially end the practice of seeking blanket orders sealing pleadings, motions, discovery material, and exhibits based solely on the fact that the parties have designated all or portions of those documents as “Confidential”, “Confidential Attorneys Eyes Only”, or otherwise under the applicable protective order.  It also serves as a directive to District Courts to conduct a detailed review document-by-document and determine not only whether it merits continued confidentiality under the common law right of access, but also regarding the First Amendment right of public access.  This directive to the District Court will in turn result in the District Court requiring the parties to provide a detailed explanation as to why each particular document requires filing under seal along with an analysis weighing the competing rights to access under both the common law and the First Amendment.

The implications of additional required pleading and Court review will not only deter the parties from seeking leave to file under seal, but also increase the effort and expense required to accomplish such a filing.  This effort and expense may have to be revisited several times over the life of a case, and in particular may be needed in filing and arguing discovery motions, summary judgment motions, pretrial statements, and again prior to the actual trial.  In short, each time a document designated under a protective order may be used to support an argument or offered as evidence, that document will have to withstand a detailed review with specific findings by the Distinct Court before it will be afforded protection from public disclosure.

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