Protective Order and Executive Access to Confidential Information

Novopharm Limited v. Nycomed Canada Inc. / pantoprazole (NOC) 2011 FC 109 Mandamin J

When I started this blog I told myself that I would not comment on procedure cases, but I couldn’t help but notice that this case goes to the point I made in last week’s post that difficulties in discovery may arise in the context of lost profits damages, as well as in an accounting of profits.

In the action underlying this order, Novopharm is seeking damages against Nycomed under section 8 of the NOC Regulations. Novopharm brought a motion for a protective order restricting access to certain confidential financial material that Novopharm would have to produce in order to establish its damages. In particular, Novopharm was concerned that its financial information would be indirectly disclosed to Ranbaxy, with whom Nycomed had an authorized generic agreement for the drug in question. Novopharm requested that access be restricted to Nycomed’s designee who were not involved in the Ranbaxy agreement. Prothonotary Milczynski’s order granted access to several of Nycomed’s senior executives, including Nycomed’s CEO. Novopharm appealed.

While the decision was understandably brief, the points of principle relied on by Mandamin J suggest a strong presumption against restrictive access excluding the party’s executives, on the basis that it is the corporate executives who must make the key litigation decisions on the company’s behalf, and a client must be fully informed in order to properly instruct counsel: [36]-[37]. However, the more fully reasoned decisions appear to be more nuanced than Mandamin J’s brief discussion suggests. For example, while Warner-Lambert Co. v Glaxo Laboratories Limited, [1975] RPC 354 (CA) does state that “it is the corporate decision-makers who are authorized to make decisions on the company’s behalf,” the decision as a whole reflects a concern for the legitimate interests of both parties. According to Buckley LJ:

“the court is, in my opinion, confronted with a balance or conflict of expedients. . . .How can justice be done and at the same time effect be given to the rights of each party to the greatest possible extent? . . .In such a case a controlled measure of disclosure seems best calculated to serve the interests of justice. . . . His advisers are his agents in the matter, and strong grounds must be required for excluding the principal from knowledge which his agents properly acquire on his behalf.  But this principle must be subject to some modification if trade secrets are to be protected from disclosure to possible competitors.”

In Warner-Lambert the Court of Appeal did grant access to the plaintiff’s CEO, but only after having explicitly considered whether the CEO could be properly advised without access to that information. The Court indicated that in a case, for example, where the evidence was of a technical nature such that the executive would take advice rather than form his own opinion, it would not be necessary to disclose to him the underlying facts. This principle was applied (without citing Warner-Lambert) in Automated Tabulation Inc. v. Canadian Market Images Ltd., 1995 CanLII 7073, 24 OR(3d) 292(ON SC) in which the plaintiff’s principal officers were precluded from access in part because “there were many available experts who were familiar with the relevant computer language who could be retained to assist the plaintiff” [4]. Conversely, where the technical nature of the information means that counsel cannot be properly instructed without input from the client, access is necessary: Murphy Oil Co. Ltd. v Predator Corp. Ltd., 2002 ABQB 992 [16]. Note that in Kimberly-Clark of Canada Ltd. v. Proctor & Gamble Co. et al (1989), 25 C.P.R.(3d) 12 (FCA), the Court of Appeal approved a very restrictive order that granted access to litigation counsel and “one designated representative of the receiving party . . . who is working directly on this litigation and to whom it is necessary that the material be disclosed for purposes of this litigation and who shall not be employed in research, development, or production of diaper products at the time of disclosures and for two (2) years after disclosure of such confidential information.” The Court varied this order by giving access to a patent agent who had been a member of the litigation team from the outset. However, the exclusion of executive officers was not challenged and the facts justifying the order as a whole were not given. A very helpful discussion of a range of authorities is found in the decision of the High Court of Ireland in Koger Inc v James O’Donnell [2009] IEHC 385. Kelly J concluded that a restriction that denying access to persons in the plaintiffs’ organisation “can be ordered but it is unusual. If such a restriction is to apply, there must be exceptional circumstances which would justify it.” On the facts, Kelly J held that “[t]he case is a finely balanced one,” and he consequently ordered limited disclosure of the material in question.

On the whole, it appears that a restrictive order of the type sought by Novopharm is exceptional, but the judicial analysis is not generally as one-sided as Mandamin J's general statements of principle might suggest.

With that said, on the facts Mandamin J’s decision is consistent with a more balanced approach. The factor he cited as most important [40] was that Nycomed is a small company in which all executives were involved with both strategic planning and the Ranbaxy agreement. The financial information on which damages are calculated are analogous to technical information at issue in an infringement action, and this implies that some executive from Nycomed would have to have access to the information if counsel were to be properly instructed. Novopharm acknowledged as much in that its proposed order would only have excluded designees involved in the Ranbaxy agreement. But on the facts, it was essentially impossible for Nycomed to satisfy that requirement while still providing proper instruction. A second significant point relied on by Mandamin J at [33]-[35] was that the documents Novopharm designated for restricted access were defined in very general terms, such as “commercial strategic planning materials for Novopharm’s or Nycomed’s pantoprazole products.” This is both broad and imprecise, and Mandamin J no doubt envisaged an endless series of motions seeking clarification.

Similarly, Murphy Oil Co. Ltd. v Predator Corp. Ltd., 2002 ABQB 992, relied on by Mandamin J, stated at [7] that "[t]he burden of justifying the need for an order precluding inspection of records by the parties themselves lies in the party seeking the order. Such an order is rarely given and the applicant’s burden is heavy." Despite this strong wording, it too is readily justified on a more balanced approach, as the plaintiff did not seek the order protecting its information until it had almost completed discovery of the equivalent information held by the defendant [14], and, as noted above, the information was technical and required input of the client to instruct counsel.