Understanding Confidentiality Clubs



Open dispensation of justice is a guiding principle of all legal systems in common law countries. A major element of this principle requires parties in dispute to share evidence and documents pertaining to the issue, in order to build their case. An exception to this principle, however, which is commonly seen in IPR litigation and trade secret issues, is the idea of limiting scope of shared information, by doing so within sealed documents, for perusal of courts only. This became a prominent feature of such cases but faced hindrances due to lack of regulatory framework therein. In furtherance thereof, the concept of ‘Confidentiality Clubs’ was evolved by Indian Courts.

Confidentiality Clubs stand for an arrangement, validated by the Court, wherein the parties can exchange commercially sensitive and confidential information with certain limited members of either side. The formation of said clubs is effectuated by way of a contract, within which both parties decide the terms and extent of disclosure of confidential information, necessary to be considered for proper adjudication, or by way of a court order. In essence, this concept necessitates protecting commercial secrecy of an organization, from the gleaning eyes of the opposing party and the general public. However, it also poses multiple questions as to the veracity of the concept, in technicality.

Legal Basis
According to principles of natural justice system, “audi alteram partem” mandates a right to be heard. Application in case of confidentiality clubs, therefore, requires that both parties should be given the opportunity and fair chance to present their side and by extension, to hear the submissions of opposing parties. But the operation of confidentiality clubs is an exception to this principle of natural justice.

In a confidentiality club, eligibility of members is restricted to the lawyers of parties and certain external expert witnesses. The prohibition on parties themselves forms the concept of ‘external eyes only’, as evolved in England. This forms for a dilemma which fails to balance between the need to protect confidential information on one end, and the effective way of obtaining legal recourse by only involving the legal representatives and restricting exposure of the client.

In India, one of the first confidentiality clubs was recognized in the case of Mr. M. Sivasamy v. M/s. Vestergaard Frandsen A/S & Ors.2009 (113) DRJ 820 (DB)where the Delhi High Court recognized an impending need to create such a club, in order to protect the confidential information present in the documents necessary to be presented in the court.. Later, with cases such as MVF 3 APS & Ors. v. M. Sivasamy & Ors I.A. No.10268/2009 in CS (OS) No.599/2007and in Telefonaktiebolaget L.M Ericsson v. Lava International Limited 226 (2016) DLT 342, a procedure was developed by the court which required that the documents be filed in a sealed cover with irrelevant information redacted, limited membership including few legal representatives of either party along with an expert, and an affidavit confirming the abidance of all said members by the solemn oath of confidentiality.

Post the abovementioned development of soft law concerning confidentiality clubs, the Delhi High Court (Original Side) Rules, 2018 were brought into force, which provide for confidentiality clubs under Chapter VII, Rule 17. Further, a detailed protocol for compliance under the Confidentiality Club is given under Annexure F of the abovementioned rules. The basic requirements include keeping documents containing confidential information in a sealed cover in custody of the Registrar General, prohibition on anyone else apart from members of the Club to peruse the documents, restriction on making copies of the documents in question/making copies by permission of the Court after redacting confidential information therefrom, perusal of the documents in camera or otherwise, among others. These compliances draw a parallel with the 6 points of guidance given by Justice Carr in TQ Delta LLC v. Zyxel Communications UK Ltd. [2018] EWHC 1515(Ch).

However, this compliance resurfaced the initial dilemma between the essence of confidentiality and the need for proper adjudication of an issue. The issue was regarding the legal dilemma faced by parties holding confidential information as against adjudication of justice by sharing all information.

This was temporarily answered in the case of Transformative Learning Solutions Pvt Ltd. v. Pawajot Kaur Baweja2019 SCC OnLine Del 9229 wherein it was held that the parties and the legal representatives need to necessarily have access to confidential/sensitive information, considering as a lack thereof would seriously incapacitate the Court in resolving matters of essence. However, this understanding of the Court poses serious hindrances to the viability of idea of trade secrets and commercial secrecy.

Recent Development
In the recent case of InterDigital Technology Corporation. v. Xiaomi Corporation, CS(COMM) 295/2020, wherein the constitution of a confidentiality club was proposed and dealt with, by the Court. InterDigital alleged that Xiaomi was using the technology contained under their Standard Essential Patents (SEP), of a number of patents, without obtaining requisite license from Interdigital. In that sense, Interdigital requested the Court for setting up two-tier Confidentiality Club, where the outer tier would have access to the documents denoted as “Confidential Information” and the inner tier would have access to documents denoted as “Legal Eye Only Confidential Information”. Parties, officials and employees were proposed to have no access to inner tier, keeping in mind confidentiality limitations, as existing between InterDigital and other third parties, being Xiaomi’s competitors. It was proposed that only the external advocates (not even in-house legal representatives) be given access to the information contained in documents, and also to restrict the said members from disclosing information to their clients. The Court rejected this proposition on the grounds that InterDigital could not restrict access of Xiaomi over documents that it relied on for the purpose of instituting the said case. While denying the idea in entirety, the Court concluded that however paramount the business interests of InterDigital remain to be, they could not prevail over grant of fair opportunity to Xiaomi. Additionally, the court rejected the idea of two- tier confidentiality club proposed by stating that it could not decide in favour of Xiaomi in the present situation and also opined that if Xiaomi was willing to concede with the proposition, the order would not apply. Alternatively, the court reiterated the guidelines of the formation of Single-tier Confidentiality club, in order to better resolve the issue.

The inclusion of Confidentiality Clubs in the Indian Legal Jurisprudence is one of the most remarkable steps in commercial litigation. The prevalence of this concept will be more in coming times, with the increasing inclination of corporates towards resolution of such issues through litigation.

However, as seen above, there still exist sizeable gaps in interpretation and application of this concept in practical situations. There is very less clarity about inclusion of members and the extent of disclosure of information being fair. Additionally, the provisions for compliance with respect to Confidentiality Clubs remain restricted to Delhi High Court’s jurisdiction and are yet to gain recognition from the Apex Court.

The most recent precedent of InterDigital v. Xiaomi lacked reasoning on the basic ideals of maintaining commercial secrecy of organizations and counts as an adverse decision in favor of inclusion of parties in administration of justice. In a general sense, both sides hold the same position currently. Development of understanding in this field shall find basis on evenly balancing the interests of both parties, by ensuring proper compliances and deterrence for both to maintain sanctity of information and roles, and a uniform regulation therefor, overall.


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