Protecting the Trade Secrets of Non-parties in Litigation
 
August 7, 2003
 

In Crane Helicopter Servs. Inc. v. United States, Fed. Cl. No. 93-332C, 4/28/03, the U.S. Court of Federal Claims rewarded a non-party’s efforts to maintain the secrecy of its confidential business information by ordering certain testimony and exhibits related to the design of two helicopters manufactured by that non-party (Bell Helicopter Textron, Inc. (Bell), to remain under seal.  The case involved a breach of a forest fire suppression contract against the United States (the government) by Crane Helicopter Servs. (Crane).  The government filed a counterclaim alleging that Crane had committed fraud by falsely representing its military helicopter (a Bell UH-1 helicopter) as a civilian helicopter (a Bell 240B helicopter) in order to obtain the contract.  The difference between helicopter models is significant because the Federal Aviation Administration (FAA) has only approved and certified the Bell 240B helicopter for commercial use. 

The court scheduled a trial on the government’s counterclaim.  Prior to the trial, Crane and the government sought proprietary information from Bell regarding the differences between the military Bell UH-1 helicopter and the commercial Bell 240B helicopter.  Bell provided the information, in the form of documentary and testimonial evidence, only after entering into a protective agreement with the parties.  At the beginning of the trial, the court entered a protective order to seal certain documents and testimony which, allegedly, constituted trade secrets.  A portion of the testimony and exhibits offered at trial addressed the differences between the Bell helicopter models.  Following the trial, the court rejected the government’s counterclaim and dismissed Crane’s complaint pursuant to a settlement agreement reached by the parties.  The court also revisited its protective order and which documents and testimonial evidence should remain sealed. 

The government and Bell sought to maintain protection for the following information: an exhibit containing 25 separate design drawings of the Bell 240B helicopter, minutes from three Type Certificate Board Meetings between the FAA and Bell (the interim meeting, the preflight certification meeting, and the final meeting), and about 20 pages of trial transcript in which the government’s expert discussed the differences in the helicopter models.  Conversely, Crane contended that the court should unseal the entire record, relying on the unsupported assertion that Bell’s alleged trade secrets had recently been disclosed in open court in another case in the U.S. District Court for the Eastern District of California. 

The Court of Federal Claims ruled that all of the information Bell sought to protect constituted trade secrets except the minutes of the interim meeting, which also were included in a separate trial exhibit that Bell did not seek to seal.   In making its ruling, the court noted that the right to public access is not absolute but rather that the court may exercise its discretion and protect materials that constitute trade secrets, i.e., information that derives economic value for the owner and for which the owner exerts reasonable efforts to maintain its secrecy.  The court found that Bell derived economic value from the design information because the undisputed evidence showed that Bell developed the information at considerable expense, and that others could use the information to manufacture and/or sell aircraft parts, thereby damaging Bell’s competitive standing.  The court rejected Crane’s contention that the differences in the models of the helicopters were readily ascertainable and therefore not trade secrets merely because the products were offered for sale.  The court found that a person could not discern the differences or the non-obvious similarities in the helicopters simply by placing them side by side.  Rather, a person would have to take apart and inspect each part of the helicopters. 

The court also remarked upon the efforts Bell undertakes to maintain the secrecy of the information, emphasizing that Bell, among other things, does not sell any of its helicopter technology or know-how, uses license agreements to protect the secrecy of the technology, requires its employees to sign confidentiality and nondisclosure agreements, and includes confidentiality and nondisclosure provisions in agreements with agents, vendors, and suppliers.  The court also emphasized Bell’s active presence in the action before it, noting that Bell was well represented by counsel, required all parties to the litigation to enter into protective agreements before releasing any Bell information to them in discovery, acted to ensure the court entered a protective order prior to receiving any Bell information into evidence, and was present during arguments regarding protection of the Bell information and during the testimony of Bell employees.

After determining certain information constituted Bell’s trade secrets and recognizing that compelling reasons must exist to rebut the strong presumption of the public’s right to access court records, the court balanced the public’s right to access against the risk of harm to Bell from disclosure and ruled that the risk of a person using the information to significantly damage Bell’s competitive advantage or to subvert FAA certification regulations tipped the scales in favor of non-disclosure. 

The court’s decision provides many lessons for non-party companies and individuals asked by litigants to produce documents or provide testimony, including, but not limited to:

• seek the advice and assistance of counsel when producing documentary and testimonial evidence that contains or constitutes sensitive-business information
   
• monitor another’s litigation when you disclose sensitive-business information during discovery, and
   
• track and document the efforts taken to maintain the confidentiality of your sensitive-business information   

Indeed, had Bell not been vigilant both prior to, during, and following the Crane litigation, the court could have unsealed all the evidence and testimony and Bell would have lost the means to protect the designs of its helicopters. 

For more information, e-mail Edward Naughton at edward.naughton@hklaw.com or call toll free 1-888-688-8500.