Limits on Federal Subpoenas for Information Protected by Trade Secrets Laws

Limits on Federal Subpoenas for Information Protected by Trade Secrets Laws

When can the federal government issue subpoenas to obtain confidential business information that is protected as a trade secret? This issue comes up frequently in legal disputes and investigations. Companies rely on trade secret laws to protect valuable proprietary information from competitors. But the government often needs access to sensitive data for regulatory enforcement and litigation. There are limits on federal subpoenas for trade secrets, but the rules are complex. This article provides an overview of key laws and cases that address the boundaries of federal subpoena power over trade secrets.

What are Trade Secrets?

First, what counts as a trade secret? The Uniform Trade Secrets Act, which most states have adopted, defines a trade secret as information that:

• Derives economic value from not being publicly known
• Is subject to reasonable efforts to maintain secrecy

Trade secrets can include formulas, methods, techniques, processes, customer lists, pricing data, business plans, and more. They give companies an advantage over competitors who don’t know the information.

Federal Subpoena Power

Federal agencies have broad authority to issue subpoenas for investigations and lawsuits. For example, agencies like the Federal Trade Commission and Securities and Exchange Commission can subpoena information relevant to potential violations of laws they enforce. Federal courts can also subpoena evidence for civil and criminal cases.

Subpoenas are powerful investigative tools. But they must balance agencies’ need for information with protection of confidential business data. When it comes to trade secrets, there are some limits on federal subpoena power.

Rule 45 Protects Trade Secrets

A key protection is in Federal Rule of Civil Procedure 45. This rule governs subpoenas in federal court cases, both civil and criminal. It says courts may quash or modify a subpoena that requires “disclosing a trade secret or other confidential research, development, or commercial information.” [1]

To invoke this protection, the subpoena target must promptly notify the party issuing the subpoena. The parties then try to resolve the issue themselves. If they can’t reach an agreement, the court may limit the subpoena to protect confidentiality.

In practice, Rule 45 gives judges discretion over trade secret subpoenas. Courts don’t always quash requests for secret data. But the rule provides an important safeguard for companies served with subpoenas.

Agency Subpoena Policies

Beyond Rule 45, some federal agencies have adopted policies to protect trade secrets in subpoenas:

• The FTC‘s subpoena rules say the agency won’t require revealing trade secrets unless necessary for law enforcement. The FTC tries to negotiate confidentiality agreements when seeking secrets. [2]
• The FDA‘s regulations state officials should consider alternatives to disclosing trade secrets, like summaries or redacted versions. If necessary, the FDA may disclose secrets under protective orders. [21 CFR 20.61]
• The EPA says it will consider business confidentiality claims over secret data. The EPA may require up to 14 days notice before releasing trade secrets to outside parties. [40 CFR 2.201-2.309]

These policies don’t guarantee trade secrets will stay confidential. But they provide some assurances to companies served with subpoenas.

Protective Orders

Another option is asking the court for a protective order covering subpoenaed trade secrets. Protective orders restrict access to sensitive information. For example, an order may:

• Limit who can view trade secret documents
• Require confidentiality agreements from reviewers
• Allow only attorneys and experts to see secrets
• Require documents be filed under seal
• Mandate destruction of materials after the case

Protective orders balance the needs of litigation with business confidentiality. Companies frequently negotiate protective orders for subpoenaed trade secrets.

The Chevron Case

A leading case on protective orders for federal subpoenas is FTC v. Chevron Corp. [683 F.2d 1296 (9th Cir. 1982)] Here, the FTC subpoenaed confidential bid documents from Chevron to investigate possible antitrust violations. Chevron objected that disclosing the documents would hurt its business.

The Ninth Circuit Court of Appeals held that the FTC could obtain the documents under an attorneys-eyes-only protective order. This limited access to outside counsel and prevented the FTC’s own staff from viewing the secrets. The court said this approach balanced the FTC’s need for evidence with protecting Chevron’s commercial interests.

Chevron established attorneys-eyes-only orders as a compromise for subpoenaed trade secrets. Many courts have followed this model in cases involving confidential business information.

The Proportionality Requirement

Federal Rule of Civil Procedure 26 also protects trade secrets by requiring “proportional” discovery. Under this rule, subpoenas must not impose undue burden or expense compared to the needs of a case. Courts may limit discovery that lacks proportionality.

In practice, companies can argue that disclosing trade secrets is disproportionate to litigation needs. This gives courts another reason to quash or modify subpoenas for protected information.

State Trade Secret Laws

In addition to federal rules, state trade secret laws may limit federal subpoenas. For example, in Centurion Industries, Inc. v. Warren Steurer & Associates, [665 F. Supp. 1293 (M.D. Fla. 1987)] a court quashed an FTC subpoena under Florida’s trade secret law. The court held that the state law created a privilege against disclosing trade secrets.

However, federal courts don’t always defer to state trade secret protections. The issue of whether state or federal law takes priority is unsettled. But state laws remain an argument against disclosing secrets via subpoenas.

The Economic Espionage Act

In criminal cases, prosecutors may subpoena a company’s trade secrets as evidence. Defendants sometimes argue this violates the federal Economic Espionage Act (EEA). The EEA makes it a crime to misappropriate trade secrets to benefit a foreign power.

In U.S. v. Hsu, [155 F.3d 189 (3d Cir. 1998)] the court held that the EEA focuses on “wrongful” disclosure of secrets. It does not block subpoenas for litigation. Other courts have agreed the EEA allows proper subpoenas in criminal cases. So while the EEA protects trade secrets, it likely doesn’t limit federal subpoena power.

Policy Considerations

Crafting rules for federal access to trade secrets requires balancing competing needs:

• Government agencies and courts need evidence to enforce laws, impose penalties, and resolve disputes.
• Businesses rely on trade secrecy to protect investments in proprietary information.
• Excessive secrecy may conceal wrongdoing or prevent justice in legal cases.
• Forcing disclosure of secrets can harm commercial interests and discourage innovation.

There are good-faith arguments on both sides. The current rules try to strike a balance, but the law is still evolving. As technology and business practices change, legal protections for trade secrets will likely continue to develop.

Key Takeaways

In summary, here are some key points on federal subpoena power over trade secrets:

• Rule 45 allows courts to quash or modify subpoenas for confidential business information.
• Agencies like the FTC and FDA have policies to protect trade secrets in subpoenas.
• Courts may issue protective orders to limit disclosure of subpoenaed secrets.
• The “proportionality” requirement also constrains subpoenas for secret evidence.
• State trade secret laws provide some protection, though federal law takes priority.
• The Economic Espionage Act likely doesn’t prohibit litigation subpoenas.

Balancing government power and business confidentiality remains tricky. But current laws provide important safeguards for trade secrets sought via federal subpoenas.