A federal court in California has ordered an expert witness in a patent case to be deposed about a non-party's trade secrets – secrets the expert learned while consulting for the company in an earlier case and agreed not to disclose.
The ruling could allow the company that is the plaintiff in the current case, which is related to the plaintiff in the earlier case, to discover its competitor's critical trade secrets, even though the competitor is not a party.
In addition, the ruling could pave the way for patent plaintiffs in future cases to use pretrial discovery as a tactic for uncovering their competitors' trade secrets, said a lawyer involved in the case.
At a minimum, the case threatens the confidentiality of work performed by non-testifying experts, even when those experts agree in writing not to disclose information they learn about a company in the course of their consultation.
A 'Perfect Storm'
The ruling involved a "Perfect Storm" set of circumstances, as one lawyer described it. But he cautioned that there were circumstances that could easily reoccur in the specialized forum of patent litigation.
In a case brought by Nidec Corporation against Victor Company of Japan, Nidec learned that Victor's expert had consulted as a non-testifying expert for another company in a prior case involving similar technology. The expert indicated that his opinion in the current case was based in part on his work in the earlier case.
In that earlier case, IMS ExpertServices had been involved in locating the expert and arranging for his engagement. IMS and the expert signed a contract requiring him to maintain confidentiality and barring his disclosure of any information provided to him.
The plaintiff in the current case, Nidec, was related to the plaintiff in the earlier case. The defendant in the earlier case is a direct competitor of Nidec. The earlier case was settled without trial.
IMS has no involvement in the current case, but when it learned of Nidec's request to depose the expert, it objected and asked the court to block it. U.S. Magistrate Judge Edward M. Chen in San Francisco allowed IMS to submit a letter brief in support of its request.
On Aug. 28, Magistrate Judge Chen issued an order in which he denied IMS's request to block the deposition and granted Nidec's motion to compel. At the same time, he entered a protective order directing that information disclosed by the expert "shall be subject to the highest-level confidentiality designation (i.e., attorney's eyes only)." Any proprietary information the expert revealed would be safeguarded by this protective order, the judge reasoned.
In issuing his ruling, the judge concluded that any work-product privilege or protection that may have arisen in the prior litigation did not apply to the current case. Further, he found that the confidentiality agreement between IMS and the expert did not trump the court's authority over discovery involving an unrelated party.
In an interview, the attorney for IMS, David N. Schachter of the Denver law firm Sherman & Howard, noted that the case pit two fundamental concepts against each other. On one side was the right of a party to a lawsuit to conduct discovery. On the other was the right of two parties to enter into a contract that they expect a court to uphold.
In federal court, the rules governing discovery are so broad and so fundamental to the process, Schachter said, that the judge would have been hard-pressed to give precedence to an outside confidentiality agreement.
Still, the ruling opens the door for Nidec's lawyers to question the expert about what he learned in the first case. Even with the protective order in place, this raises the possibility that Nidec could obtain its competitor's trade secrets.
"Once the toothpaste is out of the tube, you can't get it back in," Schachter said.
As much as he is concerned about the outcome of the current case, Schachter fears that this ruling could form the basis of a strategy for using litigation to get at a competitor's trade secrets.
"Our concern is that in a subsequent litigation, a party could manipulate a situation that would enable it to get knowledge about a competitor," he explained.
For that to happen, the circumstances would have to align as they did here, with the same expert in both cases. But in the often-esoteric fields involved in patent litigation, that could easily occur, Schachter suggested.
First, advises Schachter, take the preemptive step of thoroughly screening the expert. Question the expert closely about prior cases and work done in those cases.
Second, once you’ve retained an expert, be careful about how you use the expert. If the expert's background presents any danger of a similar situation, then the lawyer should use the expert only as a consultant so that disclosure is not required.
"The legal community needs to be aware of this and add it to the list of things they need to be careful about in, number one, hiring an expert and, number two, using the expert," Schachter cautioned.
The lawyer praised IMS for stepping up to the plate in this case and going to bat for its client, standing up for the law firm that retained the expert in the earlier case.
"IMS could have just said, 'This is not our fight; we have no stake in this,'" he said. "Instead, it took a stand for the principle that agreements entered into with experts should mean something."