United States: Court Sanctions A Party For Violating The Confidentiality Provision Of A Protective Order By Preventing The Party From Engaging In Licensing Activities For Thirty Months

Abstract

A party to a litigation in Texas violated a protective order by communicating confidential information. In response, the court found that a monetary sanction would be inadequate, as it would set a price for violating a protective order. Instead, the court prevented the party from engaging in licensing activities for thirty months.

Background

TicketNetwork, an online ticket marketplace, and CEATS, a ticketing solution licensing company, entered into a protective order at the agreement of the parties in a Texas litigation that imposed confidentiality obligations on anyone who reviewed confidential documents of the opposing party. Before trial, the court held numerous discovery hearings regarding the production of a particular document with a list of TicketNetwork's website affiliates. Subsequently, the court ordered TicketNetwork to produce a website affiliate list but required that CEATS attorneys who viewed the document and who were identifying and targeting licensing prospects would not engage in any licensing on behalf of CEATS for a year.

After trial, TicketNetwork alleged violations of the protective order and asked the court to sanction CEATS after CEATS' CEO obtained a TicketNetwork affiliate list and sent it to TicketNetwork's CEO as a starting point for settlement discussion. The licensing bar was part of the judge's consequence originally, when granting the production, and then again extended for violation.

The CEATS Decision

Courts may issue sanctions for violating a protective order, particularly when there is bad faith or willful misconduct. Where counsel gains access to the opposing party's closely guarded technical specifications and trade secrets, they are prohibited from using highly confidential materials that may provide an unfair competitive advantage to their client, but may use the materials for permitted litigation purposes.

Here, CEATS's CEO requested a "non-confidential" version of the affiliate list from consulting experts for CEATS. But the consulting experts sent him the highly confidential document without the confidentiality markings on them. He then sent the document to two colleagues and to TicketNetworks' CEO for purposes of settling the existing litigation between the parties. During direct questioning by the court, CEATS's CEO testified that he never opened the document attachment, and his violation was accidental. However, the court's investigator found evidence that the document was opened and saved on CEATS's CEO computer.  

TicketNetwork argued that disclosure of its affiliate list (1) may allow a competitor to use the affiliate list to take away TicketNetwork's business and (2) may allow CEATS to use the list to improperly extract settlement, which CEATS's CEO attempted to do. The court agreed that CEATS attempted to use the protected document to gain an unfair settlement advantage.

However, the court found that a monetary sanction should not be used as that would set a price to violating protective orders. So the court instead prohibited CEATS, its CEO and the consulting experts from conducting any licensing for thirty months from the date of the order and awarded fees and costs TicketNetwork expended in prosecuting the protective order violation.

Strategy and Conclusion

Courts may impose a variety of sanctions when a protective order is violated, including business sanctions. In this case, the court prevented the party who violated a protective order from conducting licensing activities for thirty months.

Further Information

The CEATS decision can be found here.

Originally published by LES Insights (November 22, 2021)

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