The Top Line
In a patent infringement proceeding, the plaintiff successfully obtained a “Solicitors’ Eyes Only” (SEO) designation for financial and technical documents. The company also persuaded the court to restrict access to technical documents for the director of a competing company by arguing that his inability to “unsee” technical information would inevitably harm their business. This decision will be welcomed by litigants seeking to protect sensitive information from competitors.
In a patent infringement case, Impulse Downhole Solutions Ltd v Challenger Downhole Tools Inc, 2024 FC 1600, Associate Judge Coughlan allowed Impulse’s motion for a Protective Order in part. Three main questions were at issue in the motion:
- Should discovery documents in this action be protected by a SEO designation?
- Should the non-party Genesis / Wenzel be precluded from seeing documents produced by Impulse in this action?
- How many delegates should be able to view confidential technical or financial information of the other party?
The competing parties
Impulse Downhole Solutions Ltd. (the Plaintiff) and Challenger Downhole Tools (the Defendant) are direct competitors in the small and competitive industry of providing downhole tools and services in the oil and gas sector. Mr. Ken Wenzel is an inventor in this space as well as the Director of Genesis – another one of Impulse’s competitors. However, he is not a party to the action.
Court’s determination on the SEO designation
Generally, SEO designations are reserved for “unusual circumstances”. While this is not explicitly defined, the case law explains that its applicability is determined on a case-by-case basis where “disclosure of the confidential information at issue presents a “serious threat” that is “real, substantial, and grounded in the evidence” (Bard Peripheral Vascular Inc. v. W.L. Gore & Associates, Inc., 2017 FC 585 at para 16 [Bard]).
This Court laid out the two-part test, set out in AB Hassle v Canada (Minister of National Health and Welfare), 1998 CanLII 8942 (FC) [AB Hassle] before its analysis. The test consists of two steps:
- Information must have been treated by the parties as confidential at all relevant times; and
- The moving party must establish the need for SEO restriction by demonstrating on a balance of probabilities that their proprietary, commercial, or scientific information could reasonably be harmed.
The court clarified that the party must show that the harm caused by possible disclosure poses “a serious threat to the interest in question” and that “concrete evidence is required (see Bard at para 16, 28). However, “certainty as to the occurrence of apprehended injury” is not required and the evidence only needs to indicate some likelihood that a harmful event may occur (see Depura Partners LLC’s v Desjardins General Insurance Inc, 2020 FC 261 at para 24).
Impulse satisfied this test through an affidavit of their President, Douglas Kinsella (the “Kinsella Affidavit”). They outlined how they carefully protected their technical and financial information to date and particularized the potential harms that could result to their business if requiring to disclose confidential information. They also asserted that technical and financial information would give competitors an inside understanding of how Impulse operates, creating a competitive edge and causing significant harm given Impulse is a small company in a small market.
The Court determined that Impulse had met their burden and that they did not need to wait for actual harm to occur to satisfy the test – this would defeat the purpose. The important takeaway here is that there was particular regard given to the small market of the competition and the nature of the IP dispute. Associate Justice Coughlan also noted that Arkipelago Architecture Inc. v. Enghouse Systems Limited, 2018 FC 37 supported a SEO order in similar circumstances (see para 19).
Wenzel’s permission to view documents
A wrinkle in this case was the involvement of Mr. Wenzel and his company Genesis, who were not parties to the litigation but were implicated in the Protective Order because of allegations that Mr. Wenzel should have been named as an inventor on the patents at issue. It was likely in this case that Mr. Wenzel would be a material witness to the action. Impulse wanted to preclude Mr. Wenzel from viewing documents on the basis that:
- He is not a party.
- He does not require access to technical documents for the purposes of the Counterclaim.
- Allowing him access would cause significant harm, given his role as the director of a competing company.
Challenger argued that Impulse was insinuating that “people who are inventive cannot be trusted” and that it was not clear what technical documents would be confidential given they should be public through the patent process.
The Court determined that Mr. Wenzel should not be permitted to view technical information disclosed in the litigation- disclosure in this context would have negative consequences in such a small, highly competitive market. Additionally, Associate Justice Coughlan found that it was not reasonable to assume that Mr. Wenzel would be able to “unsee” the technical documents when working at his own company as he is a prolific inventor who operates in a small, specialized area. Finally, there was no evidence to show why Wenzel required access to the technical documents.
Number of delegates for viewing confidential documents
Where the moving party fails to lead persuasive evidence to support a limit, there is no basis for the limit to be imposed (see Impulse at para 37). The Court therefore granted Challenger’s request for four delegates per party to review confidential technical information, as Impulse provided no evidence in the Kinsella Affidavit to justify a lower number.
More SEO orders to come?
Over the past several years, the Federal Court practice on Protective Orders, and in particular, SEO designations, has been evolving. Arkipelago and Bard offered some initial direction for the “unusual circumstances” in which these types of orders should be granted. Now, we have a more specific example: a small market of competitors where intellectual property is at the core of the dispute. This decision may give comfort to litigants in the Federal Court in similar industries and in cases with non-party technical witnesses.
This article is intended as a timely legal update and does not constitute legal advice. For more information, contact a member of our IP Litigation team.