April 2011

Federal Circuit Imposes Sanction for Improperly Marking as Confidential Legal Arguments That Do Not Disclose Facts or Figures of Genuine Competitive or Commercial Significance
Mary R. Henninger

In In re Violation of Rule 28(d), No. 11-M976 (Fed. Cir. Mar. 29, 2011), the Federal Circuit imposed monetary sanctions on counsel for Sun Pharmaceutical Industries, Ltd. and Caraco Pharmaceutical Laboratories, Ltd. (collectively “Sun”) for violating Federal Circuit Rule 28(d) by improperly designating material as confidential that fell outside the scope of the protective order.

Sanofi-Aventis U.S. LLC (“Sanofi”) sued Sun and other generic drug manufacturers, alleging the infringement of Sanofi’s patent directed to the colorectal cancer drug oxaliplatin.  Sanofi and Sun reached a settlement and entered into a license agreement that permitted Sun to market its generic version of oxaliplatin upon the occurrence of certain triggering events.  Shortly thereafter, the district court denied SJ of invalidity and granted SJ of noninfringement.  Sanofi then refused to deliver a fully executed version of the settlement documents to Sun and, as a result, the related consent judgment was never entered by the district court.  Following a series of other events, the district court, upon Sanofi’s request, entered a revised version of the consent judgment and enjoined Sun from manufacturing, using, offering to sell, selling, or importing its generic oxaliplatin.

Sun appealed to the Federal Circuit, arguing that the district court erred in entering the revised consent judgment and injunction because the revised consent judgment was inconsistent with the license agreement.  Specifically, Sun challenged the district court’s interpretation of the terms of the license agreement pertaining to the triggering events.  After oral argument, the Federal Circuit issued a nonprecedential opinion, concluding that the contested triggering provision was ambiguous and vacated the revised consent judgment and injunction, and remanded to the district court to resolve the ambiguity.

In the briefing on the merits of the appeal, both parties marked as confidential discussion of aspects of the license and settlement agreements.  Following the Court’s questioning regarding the appropriateness of these markings in light of Fed. Cir. R. 28(d) and Fed. R. Civ. P. 26, Sun submitted a motion to modify the protective order to remove the confidentiality designations.  The Federal Circuit subsequently granted Sun’s motion.

At oral argument, the Federal Circuit did not suggest that marking the license and settlement agreements confidential was itself sanctionable; rather, the Court questioned whether counsel for Sun had violated the Court’s rules by marking confidential those parts of its briefs that set forth Sun’s legal argument.  Following oral argument, the Federal Circuit issued a show-cause order to Sun to explain why the Court should not impose sanctions for violating Fed. Cir. R. 28(d).  In response to the Federal Circuit’s show-cause order, Sun did not admit error and instead argued that, without the confidentiality designation, the attorney discussion would have divulged the confidential terms of the license agreement.

The Federal Circuit explained that Fed. Cir. R. 28(d) permits parties to mark information in briefs as confidential only if the material is subject to confidentiality under a statute or protective order.  Implicit in its rule is a requirement that the district court’s protective order comply with Fed. R. Civ. P. 26.  In this case, the Sanofi-Sun protective order permitted the parties to designate as confidential any form of trade secret or other confidential research, development, or commercial information within the meaning of Rule 26(c)(1)(G) and it properly required the parties to establish good cause and the district court to rule on any motions to seal.

For the purpose of considering sanctions, the Federal Circuit determined that it need not decide whether the district court’s protective order properly granted confidentiality to the items in question, and instead assumed that the license and settlement agreements were properly designated as confidential.  Despite that assumption, the Federal Circuit found Sun’s confidential designation of case citations, direct quotations from published opinions, and legal argument improper.  In particular, the Court reasoned that since the existence and nature of the triggering event was publicly disclosed in the consent judgment, legal argument pertaining to the triggering event was not, and could not, be properly marked as confidential.

Further, “[t]he marking of legal argument as confidential under Rule 26(c)(1)(G) cannot be justified unless the argument discloses facts or figures of genuine competitive or commercial significance.”  Slip op. at 14.  Since that was not the case here, and Sun made no argument to the contrary, the Federal Circuit concluded that Sun’s confidential markings were not justified under Rule 26(c)(1)(G).  Additionally, the Federal Circuit explained that much of the material marked as confidential by Sun did not even disclose the nature of the triggering event.  The result of the extensive and improper markings was that the nonconfidential version of the brief was virtually incomprehensible.

In conclusion, the Court found that “[n]o good faith reading of our rule could support Sun’s marking of its legal arguments as confidential.  The action of Sun’s counsel bespeaks an improper causal approach to confidentiality markings that ignores the requirements of public access, deprives the public of necessary information, and hampers this court’s consideration and opinion writing.”  Id. at 15.

Accordingly, the Federal Circuit held that, pursuant to Fed. R. App. P. 46(c), Sun’s extensive use of improper confidentiality markings in its briefs severely violated Fed. Cir. R. 28(d) and justified the imposition of $1,000 in monetary sanctions on Sun’s counsel.