This piece has been authored by Suhani Chhaperwal (3rd Year Law Student at NLSIU Bangalore)
- Introduction
In a recent Telangana High Court judgment involving medicinal compositions, the court ordered for the formation of Confidentiality Clubs. Pursuant to Order 11, Rule 12 of the Civil Procedure Code, 1908, the parties can exercise the power to compel the other party to produce certain documents related to the fact in issue before the court. Initially, the judiciary adopted a strict approach, denying access to documents containing trade secrets or other confidential information. Over time, courts developed the concept of “Confidential Clubs,” comprising a select group of individuals authorized to view such sensitive materials. Despite this expedience, the “Confidential Clubs” approach ultimately failed to reconcile the competing interests of protecting trade secrets and ensuring fair adjudication.
This paper dives into the intricate balance between protecting trade secrets and ensuring fair trials in IP litigation, focusing on the role of “Confidentiality Clubs” in India. Firstly, this paper examines the challenges of disclosing sensitive information during pretrial discovery in IP litigation, highlighting the evolution of Confidentiality Clubs in India. Secondly, it explores key cases, that shaped judicial attitudes towards structuring confidentiality clubs and balancing trade secret protection and fair trials. Thirdly, the author argues for a consistent legal framework that better reconciles these competing interests while upholding fairness and equity based on the UK model.
Prior to the establishment of confidentiality clubs in India, the case of Mr. M. Sivasamy v. M/S. Vestergaard Frandsen marked a foundational moment in this area. The court denied plaintiff’s request for confidential documents due to the potential for significant prejudice and irreparable harm to the defendants. However, the court’s suggestion of the formation of confidentiality clubs was not fully implemented.
Similarly, in the case of Zee Telefilms Ltd. v. Sundial Communications Pvt. Ltd., the Court supported the objections of plaintiff and held that the plaintiff’s goodwill and business prospects would be seriously injured if such confidential information were allowed to be used against them by the defendants. In Vifor International Ltd v. Manasi Mehta & Others, the court denied the disclosure of confidential information that could harm the defendant’s commercial interest. In Telefonktiebolaget Lm Ericsson Publ v. Lava International Ltd., the court explicitly emphasized the necessity for judicial satisfaction that the privilege conferred under Order 11, Rules 12 and 14 of the Code of Civil Procedure is not being exploited for roving or fishing enquiry. The same was held in the case of Hind v. Shree where the court clarified that trade-sensitive information cannot be parted by the plaintiff.
The author argues that a consistent pattern emerges from these initial cases, wherein courts have resolutely denied access to confidential information based on a restricted set of criteria. The denial of discovery, however, inevitably results in denying a party access to a potentially abundant source of information that might be relevant, or even crucial, to one’s case. It may also have the effect of weakening one’s claim, as essential facts needed to bolster a party’s cause cannot be alleged with certainty due to a lack of sufficient knowledge or information about the same. Neither can one assert with certainty that the other party has done them a wrong in the absence of concrete proof to that effect. The court must attempt to reconcile the competing interests of the parties discerning whether the requested information is sought legitimately or for an ulterior purpose keeping in mind the fairness and efficiency of the proceedings. These considerations underpin the development of confidentiality clubs.
A confidentiality club is a procedural tool in commercial disputes that limits access to sensitive information to specific individuals, balancing judicial transparency with the protection of each party’s confidential business interests.
To date, the Delhi High Court stands as the sole Indian jurisdiction with an explicit provision for confidentiality clubs, enshrined in Rule 19 of Delhi High Court Intellectual Property Rights Division Rules, 2021 based on the previously provided provision under Delhi High Court (Original Side) Rules, 2018. Notably, these rules offer no formal definition of such clubs.
The pioneering Indian case that established the confidentiality club was MVF 3 APS and Ors v M. Sivasamy wherein the dispute revolved around the protection of trade secrets. The judge allowed external legal advisors as members of the confidentiality club based on the reasoning that they lack the ability to compare complex technical documents.
Next, in the case of, Roche Products (India) Pvt Ltd & Others Versus Drugs Controller General of India and Others, the court denied the discovery of documents to the plaintiff but agreed on the terms to form a confidentiality club which would comprise of two lawyers from each defendant’s and plaintiff’s side and all the members will be bound by confidentiality which denies to make any further publication of the said information.
Next, in the case of Telefonaktiebolaget LM v. Xiaomi Technology, the defendant argued that they should be allowed to have access to confidential documents produced by the plaintiff. However, the court rejected the contention of the defendants and reasoned that only the said lawyers and independent witnesses should be allowed in the confidentiality club.
In the patent infringement case of Telefonktiebolaget LM Ericsson (publ) v. Lava International Ltd., the court authorized the formation of a confidentiality club to facilitate the examination of confidential patent license agreements. The club comprised of three external lawyers and two independent expert witnesses. Subsequently, in Pfizer Inc. v. Unimark Remedies Limited, the Bombay High Court endorsed the confidentiality club concept, expanding its composition to include lawyers, external experts, and certain party representatives but not the parties themselves.
- Deviations in Confidentiality Club Frameworks
Things took a different turn and meddled with the settled position in the case of Transformative Learning Solutions Pvt. Ltd. & Ors. v. Pawajot Kaur Baweja & Ors. This case requires a deeper analysis as here the defendants contended that they should be included as a part of the confidentiality club. They further contended that from the case of Telefonaktiebolaget LM Ericsson (PUBL), it can be inferred that Annexure-F is only illustrative and does not act as an absolute bar to a party being a member of the confidentiality club. This is also clear from the literal reading of Rule 17 of Chapter VII. The court determined that restricting access to the information to counsel alone was insufficient, as effective representation necessitates client involvement and instruction. Therefore, the defendants were allowed to be members of confidentiality clubs.
Subsequently, exercising its discretion, the court in the case of Genentech Inc. and Ors. v. Drugs Controller General of India and Ors, allowed internal experts of one of the parties to inspect the documents placed on record, along with other advocates and external experts. The reason given by the court was that even the external expert appointed had to divulge the information to enable the plaintiff to carry out the required amendments.
Subsequently, the other path-breaking judgment that deviated from the jurisprudence of the confidentiality club was Interdigital Corporation v Xiaomi Technology Corporation. The plaintiff proposed a two-tier structure for the confidentiality club. The first tier, called the “Legal Eyes Only” tier, would limit access strictly to advocates (excluding in-house counsel) and independent experts chosen by both sides. The second tier, or outer tier, would allow broader access, including advocates, external experts, the parties themselves, and their personnel. This layered approach aimed to balance strict confidentiality with the practical need for parties and their teams to engage with certain documents.The information available to the members of the inner tier would be confined to that tier itself. The court upheld the validity of a single-tier confidentiality club inclusive of all parties or their personnel and reasoned its decision with the support of principles of natural justice, fair play, and client–lawyer relationship.
The jurisprudence of confidentiality clubs has not been stern on the position of the members of the club. The Delhi High Court’s decisions in Telefonaktiebolaget LM Ericsson and Transformative Learning exemplify divergent approaches to the constitution of confidentiality clubs and the reconciliation of competing interests in confidentiality and fair trial. Notably, these approaches diverge significantly in terms of party access to confidential information. While one case permitted direct party access to a competitor’s confidential data, the other restricted membership to legal counsel and independent experts, excluding the parties altogether. Additionally, the case of Interdigital Corporation also leaned in favour of Transformative Learning.
As such, the two-tier structure suggested in Interdigital is not inherently incompatible with the court’s criticism of confidentiality clubs as established in the Telefonaktiebolaget LM Ericsson case. A workable solution to reconcile the conflicting demands of a fair trial and confidentiality protection is provided by the latter strategy, which limits access to private material to experts and legal counsel alone.
The structure of the confidentiality club is at a very nascent stage in India. The courts have failed to exercise the balance between the interests of both parties. Before confidentiality clubs, courts firmly restricted access to confidential documents to prevent prejudice to the relying party. After the development of confidentiality club, the court in an attempt to balance the interests of parties, in certain cases allowed the parties to be a part of the confidentiality club while sometimes, excluded them. The earlier approach risked irreparable harm to parties protecting confidential information, while the latter prejudiced excluded parties, undermining fair play and natural justice. Rather than analyzing which party should be given access to a particular question, the courts should delve into the deeper questions as to the extent to which a party should be granted access to sensitive information and the methodology for determining the confidential nature of such information. The Court, in its supposed “balancing act” ultimately ends up favouring one party over the other.
The case of TQ Delta LLC v. Zyxel Communications UK Ltd dealt with the dispute of clauses in the confidentiality club agreement. Here a two-tier confidentiality club system differentiating between “Confidential Information” and “Highly Confidential Information.” The latter category, designated “Legal Eyes Only” (LEO), would be accessible solely to legal counsel and external experts. Conversely, “Confidential Information” would be shared with appointed officers and representatives of the parties. Although, the court denied this arrangement in this case, it laid down certain guidelines on when “Legal Eyes Only” setup can be allowed. This approach contrasts strikingly with the Delhi High Court’s decision in the Interdigital case. There, the court adopted a categorical rejection of confidentiality clubs that excluded party representatives, without considering potential scenarios where such exclusions might be justified to protect highly sensitive information.
The other judgment which structured the confidentiality clubs further was the case of OnePlus Technology v Mitsubishi Electric where the question arose regarding the infringement of patents. The court here established a three-tier confidentiality club comprising of –
- Legal Eyes Only (LEO): Information accessible exclusively to legal counsel and independent experts, with parties explicitly prohibited from viewing or providing instructions related to these documents.
- Highly Confidential Material (HCM): Information accessible to members of the LEO group, as well as two mutually agreed-upon representatives of the appellants.
- (Ordinary Disclosure Materials: Information shared freely under standard disclosure protocols.
These broad principles can be adopted by the Indian Courts to actually balance the interest of both parties with adequate consideration given to the principles of natural justice, fair play, and equity.
The Indian judiciary has endeavoured to maintain a balance between safeguarding confidential economic information and upholding the rights of fair trials, as evidenced by the developing jurisprudence regarding confidentiality clubs. Even though confidentiality clubs have been introduced by Indian courts, the methodology is still uneven and frequently produces unexpected results. Indian courts should more effectively balance the need for confidentiality with the demands of justice by implementing a tiered system that divides access based on the sensitivity of the information, guaranteeing that the interests of both parties are fairly reflected.