Confidentiality Clubs: and the decision of Justice Floyd in Ipcom v Nokia and HTC Corporation
[2013] EWHC 52 (Pat)
Confidentiality Clubs
This first instance decision of Mr Justice Floyd (as he then was), which has emerged from very
convoluted litigation between the parties, with a considerable number of interlocutory skirmishes
before the above decision, serves to illustrate an important device employed by the Courts for
ensuring protection of confidential information and trade secrets – ‘the Confidentiality Club’. I had
not heard of such Clubs in IP cases, until this case. But the concept is well known. The issue of
confidentiality in legal proceedings, and confidentiality clubs has recently tested the Courts all the
way to the highest level. Without wishing to trivialise the importance of the recent appeal to the
Supreme Court in Bank Mellat v HM Treasury [2011] EWCA Civ 1, the Supreme Court had to go into
secret session (as I understand it for the first time in English legal history) and exclude the main party
appealing in the litigation (Bank Mellat) – in the form of a statutorily created ‘confidentiality club’
with a Special Advocate representing the interests of excluded parties – in order to peruse and
consider the closed material relied upon by Mitting J at first instance. The parameters of the
confidentiality club in that constitutionally important case, and the confidentiality club in this
telecommunications patent case, was measured employing exactly the same yardstick and guiding
authority in the form of Lord Dyson JSC in Al Rawi v Security Service [2011] UKSC 34. Lord Dyson also
sat in the recent Bank Mellat appeal, so the ‘intellectual property exception’ might be even further
developed.
However, this Note will stick to the reasons why a ‘confidentiality club’ might be required in patent
and intellectual property transaction. The Bank Mellat appeal and decision will hopefully settle the
higher level principles.
The IPCom Patent – and the FRAND licence and Royalty
IPCom was proprietor of a standard patent (related to mobile telecommunications) and were
seeking to bind Nokia and HTC to a licence on the FRAND basis; i.e. a licence on ‘Fair, Reasonable
And Non-Discriminatory’ terms, including Royalty terms. This was also the basis upon which Nokia
eventually sought terms in the proceedings. It was beyond dispute that one of the Defendants had
infringed IPCom’s patent, and most of the issues in the litigation are not of direct relevance to the
Higher Education sector. However the following issues are of noteworthy:
1. The main point in the application before the Court concerned whether particular individuals
for IPCom should be permitted to inspect licensing documents disclosed by Nokia and HTC
when so ordered to disclose those documents – i.e. who should be a member of the
‘Confidentiality Club’;
2. To agree the terms of the FRAND licence and Royalty Rate (and this was a test case for the
telecommunications standard), the parties had to submit comparable licences relating to
(third party) commercial customers and collaborators, extracted from a sensitive licensing
portfolio. Such licenses would include highly sensitive commercial information including
licensing rates, which could grant IPCom a disproportionate competitive advantage. Justice
Floyd did not appear convinced that the disclosure of the comparable licences would
ultimately be of much assistance in the litigation in any event, including the triable issue of
setting the royalty rate, but wearily acceded to IPCom’s disclosure request.
3. The confidential information comprised of licenses with third parties that Nokia entered into
that IPCom considered relevant to the FRAND licence and the Royalty rate under it, and in
the form of licences made by HTC that the Court ordered to be disclosed. All the licenses
contained the commercial terms upon which Nokia and HTC licensed their Technology,
which would place IPCom at an unfair competitive and other advantage in knowing those
terms. Nokia and HTC argued that If the two persons who were the controlling minds of
IPCom learnt the information, it would be impossible for them to ‘unlearn’ it and very
difficult to bind them to personal undertakings not to use it. As a result the parties fixed
upon the solution of having a third individual to join the ‘Confidentiality Club’ on IPCom’s
behalf. This individual, who was external to IPCom, and a lawyer bound by a professional
Code of Conduct including the preservation of confidences to all parties affected.
4. By way of solution in the present case, a ‘Confidentiality Club’ could be set up (usually
composed of an independent external legal advisor, and a hand-picked expert, all of whom
could sign up to strict confidentiality obligations).
5. Inevitably, third parties, commercial entities or otherwise who consider themselves seriously
affected by such disclosure, would wish to make representations and limit disclosure of
confidential information and documents that affects them, as happened in this litigation.
6. IPCom was (perhaps unusually for a patent case) a very small company, with only two
persons constituting its controlling mind and administration. Nokia and HTC were very
concerned that if there was disclosure to the two controlling persons, they would be
seriously commercially and confidentially compromised. A separate independent person (at
arm’s length from IPCom), would suit them much better.
The principles involved in setting up a ‘Confidentiality Club’
Justice Floyd, cited the classic formulation of Lord Dyson in Al Rawi v Security Service, (as above)
which was cited in the Bank Mellat case referred to earlier – after all, the same principle of natural
justice is at stake, and ‘the other side may not advance contentions or adduce evidence of which he
is kept in ignorance’. So, in the intellectual property case, a Confidentiality Club was called for.
Lord Dyson’s exception in Al Rawi – protection of commercial interests in intellectual property
proceedings
Lord Dyson recognised that it was commonplace to deal with the issue of disclosure (in intellectual
property cases) by establishing ‘confidentiality rings’ (cf. An important part of what Arnold J
referred to as a ‘Confidentiality Regime’, or ‘Confidentiality Clubs’) but this was an exceptional
solution and would not extend to the trial itself. Sometimes the party to the proceedings would be
excluded, but an expert would not be, given the highly technical and esoteric nature of the
information – but such exclusion would be justifiable at the early stages of the litigation, in this
exceptional field of IP. However, there is a balancing exercise, in ensuring adequate protection of a
trade secret, and ensuring a fair trial, and the party knowing and preparing for, the case that they
have to meet.
Striking the balance – as Floyd J called it – between ‘open justice’ and preventing unauthorised
and commercially damaging breach of confidence?
Justice Floyd upheld his decision regarding the ordering of disclosure of licences, but at the present
stage of the proceedings, after numerous interlocutory skirmishes, the licenses seemed to be the
best evidence for comparative purposes in setting up a FRAND licence and royalty, and was
unconvinced that issues of competitive disadvantage to Nokia and HTC outweighed the need for a
fair trial and IPCom seeing the comparative licences (subject to safeguards). So a ‘Confidentiality
Club’ would be the way forward.
Factors to consider when setting up a ‘Confidentiality Club’ – whether a Court regulated Club or
one set up by the parties
Justice Floyd listed out the following issues of importance (admittedly in relation to the particular
Confidentiality Club in his Court), and from which we can derive guidance of any such Clubs that a
Higher Education institution would need to consider when setting one up:
1.
In litigation, or prior to any final hearing, inspection of commercially sensitive information
should only take place by building in procedures that minimise commercial harm. The
Courts have formal Undertakings in their armoury, but private parties use virtually the same
devices.
2. The fact that the setting up of a Confidentiality Club could affect (innocent) third parties was
‘of importance’. It is noteworthy that when handing over a document ‘for comparative
purposes’, that there is often another party that could be seriously harmed by unauthorised
disclosure. The Courts allow third parties to intervene, and this case benefit from
undertakings, private parties could do the same, as well as seeking indemnities for third
parties’ losses when handing over licences etc. for inspection.
3. There is an inherent difficulty (perhaps with the smaller commercial entity) for the
controlling or administrative mind to ‘unlearn’ any information that they see. There is a risk
that as in this case valuable licensing information would be learnt and inevitably used later.
This should be kept under review, but it only arose in the case because of the unique facts, it
would not be a reason to be suspicious of small commercial entities, and impose onerous
safeguards on small economic entities – this was a unique information sharing problem in
the IPCom case, not a universal difficulty when dealing with ‘small’ commercial entities.
Undertakings imposed on parties and individuals by the Court
4. As a measure close to final resort, the use of the external lawyer, ideally independent of the
party, bound by their own Code of Conduct, could be a solution to the ‘learning of valuable
information’ problem. The lawyer should give an express confidentiality undertaking as
added security for the disclosers, and for the benefit of the interests of third parties, who
strictly speaking were not parties to the litigation, nor a formal party to the undertakings
imposed by the Court. The external lawyer in this case would inevitably be close to the
negotiations including commercial issues. Justice Floyd, considered:
‘To the extent that (s)he is involved in future negotiations (s)he will have to shut from her
mind anything learned from the confidential documents’.
Perhaps easier said than done, but that is the solution Floyd J has hit upon.
5. Floyd J felt that this was an ‘unusual’ case in patent litigation, because it was a very small
company in terms of personnel. As he pointed out:
‘In a larger corporation than IPCom there would be individuals who could be given the
confidential information at the interim stage on the basis that they did not play any part in
commercial negotiations. That does not mean that IPCom should be treated differently in
the end. But it does mean that the balance has to be struck in a different way at this stage.’
Conclusion
‘Confidentiality Clubs’ seem to be seriously testing the Courts in present times, the core problem in
litigation is the commitment to open justice, and both parties being privy to as much information
relevant to the cases presented by both parties, and the duty to hear the other side. Unfortunately,
in relation to intellectual property, unique because of the peculiar sensitivity of the underlying
property, or in the national security cases, because of the fallout in terms of breach of security,
‘Confidentiality Clubs’ appear to have become indispensable. We will know whether this vehicle will
be further defined if the IPCom v Nokia litigation proceeds further than the innumerable skirmishes,
to final trial, and when the Bank Mellat appeal is decided.
The decision of Justice Floyd (as he then was) in Ipcom v Nokia can be found at:
http://www.bailii.org/cgibin/markup.cgi?doc=/ew/cases/EWHC/Patents/2013/52.html&query=ipcom+and+v+and+nokia&me
thod=boolean
The decision of Al Rawi and the judgment of Lord Dyson JSC (notably paragraphs 12 and 64) can be
found at:
http://www.bailii.org/uk/cases/UKSC/2011/34.html