Negotiating Confidentiality Agreements with the Government

The Confidentiality Agreement

To lessen the risk that documents produced to the government may become public, a corporation should consider entering into a confidentiality agreement with the government when it responds to a subpoena. A confidentiality agreement will place limitations on the government's ability to disclose the documents to third parties or the public and allow the corporation, if necessary, to move in court to prevent disclosures. Given the significant disparities between producing documents in response to a government subpoena and the standards of civil discovery, it is worth noting what to expect in negotiating such an agreement.

The government is not required to enter into a confidentiality agreement. It does so as a matter of discretion. Thus, it is important to raise this issue as part of the initial document production and to do so in a non-contentious setting. One argument is that an agreement might avoid a motion to quash or limit the subpoena. You might also appeal to the government's conscience: does the prosecutor want to injure the company gratuitously? Further, the government will want to avoid being enmeshed in discovery disputes with entities unrelated to the investigation. A confidentiality agreement may limit the government's exposure, by placing the burden to challenge such requests on the corporation.

What Will It Protect?

If the government agrees to a confidentiality agreement, there must be careful consideration of what it will protect. The company should offer the government a draft agreement that carefully defines trade secrets and confidential business information. The company should claim a document is 'Confidential' only when it can provide a particularized reason for doing so that is supported by the Agreement. Indiscriminate, wholesale assertions will frustrate the government and potentially undermine the entire agreement. Moreover, if a corporation needs to seek court protection, careless designations will make the judge skeptical. As a result, the company should ensure that the agreement carefully covers the wide range of materials that could be confidential. It may, for instance, refer to the case law interpreting trade secrets or confidential business information under Rule 26, Fed. R. Civ. P. Although some information is protected by law'for example, personal health information sought by a HIPAA subpoena (see 18 U.S.C. '3486(e)) ' we have found that these protections are usually inadequate. There may be no federal regulation limiting disclosure of customer lists, descriptions of proprietary business methods, or pricing or profitability data. Nevertheless, this is confidential business information that merits protection and is routinely protected by courts.

Be Realistic

It is critical when negotiating a confidentiality agreement with the government to be realistic about what can be achieved. The agreement should provide for some of the same devices found in civil confidentiality agreements, such as requiring the corporation to stamp each document as confidential, and requiring that the government use confidential documents only for purposes related to the investigation and require any person who accesses the material to read and obey the agreement. But the government will not want to spend time arguing over whether certain documents are confidential under the agreement. This is another reason why clearly defining the meaning of confidential is important.

Counsel drafting the agreement should also recognize that the government will want to avoid being involved with any third-party disputes. If the government has
an interest that is threatened by a non-party's request for disclosure, the government will act to protect its interests. FOIA, for instance, provides the government with certain exemptions to producing documents based upon law enforcement privileges and other grounds. But the government may choose not to exercise its rights. Moreover, prosecutors will not want to spend resources asserting the corporation's right to confidentiality. So the government is more likely to enter into a confidentiality agreement that requires it merely to provide notice to the corporation when it receives a request for the documents and allows the corporation to initiate litigation to protect its confidentiality. An agreement should have very specific provisions describing under what situations the government will give notice and how long the company has to seek court protection. It should specify that the government will not produce documents until the court has issued a final ruling.

The Government's Needs and Obligations

The draft confidentiality agreement proposed by the company should recognize and respect the government's needs and obligations. For instance, the DOJ may claim that it will have to honor requests from other federal entities that are seeking copies of the documents. The corporation likely has an interest in having some control over disclosure to other federal agencies. This is particularly the case if the company is in litigation with another agency. Thus, the company should seek an agreement that gives it a reasonable time to object to such sharing and allows the company to move for a protective order. But prosecutors may reject any limits on sharing of documents with other federal agencies. If the company is involved in another investigation with a federal agency, however, the government should be reminded that any covert sharing could undermine its criminal investigation. Courts have recently dismissed criminal charges for a failure to provide due process where the DOJ did not disclose that it worked with the SEC to gather evidence to help its criminal case. See United States v. Stringer, 408 F.Supp.2d 1083 (D. Or. 2006); United States v. Scrushy, 366 F.Supp. 2d 1134, 1136 and 1139 (N.D.Ga. 2005). In the absence of parallel litigation, the government can avoid an adversarial posture with other agencies while still giving the company the protection it seeks through a confidentiality agreement that places on the company the burden of seeking protection within a prescribed time.

Finally, the agreement should anticipate what may happen after the investigation ends. Corporations want to minimize the number of documents outside of their custody, particularly once an investigation is concluded. One tactic is to explore whether the government will agree to return the documents ' at least the confidential ones ' once the investigation ends. Alternatively, the government may agree to destroy the documents. Negotiating these protections before production provides the company comfort that it will not lose control of its confidential information forever.

Conclusion

With the increasing need for confidentiality protections when responding to government subpoenas, it is critical to address the issue at the outset, in a manner that will accommodate the government and protect the company. A draft confidentiality agreement that understands and satisfies the government's concerns is a key step in counsel's efforts to protect the company's sensitive business information.

Michael Kendall ([email protected]), a member of this newsletter's Board of Editors, and Daniel Curto are partners at McDermott Will & Emery LLP's Boston office. Their practices include both white-collar criminal defense and complex civil litigation.

In years past, a corporation could assume that, when it produced documents in response to a Department of Justice (DOJ) subpoena, there were limited risks that such documents would be disclosed to an entity outside of the investigation unless the government used them as exhibits in court proceedings. Rule 6(e) Fed. R. Cr. P., which imposes confidentiality on matters occurring before the grand jury, typically impeded access to subpoenaed documents held by prosecutors or the court. Two factors in recent years have changed that set of expectations and significantly raised the likelihood that documents produced to the government could end up in the hands of plaintiffs' lawyers, competitors, the news media, and others.

First, administrative agencies routinely use investigative subpoenas to gather documents. We have seen, for instance, a significant increase in the use of health care or HIPAA administrative subpoenas, authorized in 2000 by 18 U.S.C. ' 3486. Unlike grand jury subpoenas, these other subpoenas do not impose confidentiality on documents produced under them. As a result, these materials may be more easily obtainable by a request under the Freedom of Information Act (FOIA), see 5 U.S.C. 552, or even voluntary disclosure by the government.

The other significant factor is the rise of private litigation that is a followup on, or sometimes parallel to, the government investigation. Ostensible representatives of classes of consumers or shareholders, customers or payors claiming in 'victim' lawsuits that they were affected by the alleged wrongdoing, and competitors are all looking to secure copies of documents produced to the government. These plaintiffs frequently assume the government knows more than they do are about the allegations of their complaint and knows where to find probative evidence, so they look to capitalize on the government's work product.

The Confidentiality Agreement

To lessen the risk that documents produced to the government may become public, a corporation should consider entering into a confidentiality agreement with the government when it responds to a subpoena. A confidentiality agreement will place limitations on the government's ability to disclose the documents to third parties or the public and allow the corporation, if necessary, to move in court to prevent disclosures. Given the significant disparities between producing documents in response to a government subpoena and the standards of civil discovery, it is worth noting what to expect in negotiating such an agreement.

The government is not required to enter into a confidentiality agreement. It does so as a matter of discretion. Thus, it is important to raise this issue as part of the initial document production and to do so in a non-contentious setting. One argument is that an agreement might avoid a motion to quash or limit the subpoena. You might also appeal to the government's conscience: does the prosecutor want to injure the company gratuitously? Further, the government will want to avoid being enmeshed in discovery disputes with entities unrelated to the investigation. A confidentiality agreement may limit the government's exposure, by placing the burden to challenge such requests on the corporation.

What Will It Protect?

If the government agrees to a confidentiality agreement, there must be careful consideration of what it will protect. The company should offer the government a draft agreement that carefully defines trade secrets and confidential business information. The company should claim a document is 'Confidential' only when it can provide a particularized reason for doing so that is supported by the Agreement. Indiscriminate, wholesale assertions will frustrate the government and potentially undermine the entire agreement. Moreover, if a corporation needs to seek court protection, careless designations will make the judge skeptical. As a result, the company should ensure that the agreement carefully covers the wide range of materials that could be confidential. It may, for instance, refer to the case law interpreting trade secrets or confidential business information under Rule 26, Fed. R. Civ. P. Although some information is protected by law'for example, personal health information sought by a HIPAA subpoena (see 18 U.S.C. '3486(e)) ' we have found that these protections are usually inadequate. There may be no federal regulation limiting disclosure of customer lists, descriptions of proprietary business methods, or pricing or profitability data. Nevertheless, this is confidential business information that merits protection and is routinely protected by courts.

Be Realistic

It is critical when negotiating a confidentiality agreement with the government to be realistic about what can be achieved. The agreement should provide for some of the same devices found in civil confidentiality agreements, such as requiring the corporation to stamp each document as confidential, and requiring that the government use confidential documents only for purposes related to the investigation and require any person who accesses the material to read and obey the agreement. But the government will not want to spend time arguing over whether certain documents are confidential under the agreement. This is another reason why clearly defining the meaning of confidential is important.

Counsel drafting the agreement should also recognize that the government will want to avoid being involved with any third-party disputes. If the government has
an interest that is threatened by a non-party's request for disclosure, the government will act to protect its interests. FOIA, for instance, provides the government with certain exemptions to producing documents based upon law enforcement privileges and other grounds. But the government may choose not to exercise its rights. Moreover, prosecutors will not want to spend resources asserting the corporation's right to confidentiality. So the government is more likely to enter into a confidentiality agreement that requires it merely to provide notice to the corporation when it receives a request for the documents and allows the corporation to initiate litigation to protect its confidentiality. An agreement should have very specific provisions describing under what situations the government will give notice and how long the company has to seek court protection. It should specify that the government will not produce documents until the court has issued a final ruling.

The Government's Needs and Obligations

The draft confidentiality agreement proposed by the company should recognize and respect the government's needs and obligations. For instance, the DOJ may claim that it will have to honor requests from other federal entities that are seeking copies of the documents. The corporation likely has an interest in having some control over disclosure to other federal agencies. This is particularly the case if the company is in litigation with another agency. Thus, the company should seek an agreement that gives it a reasonable time to object to such sharing and allows the company to move for a protective order. But prosecutors may reject any limits on sharing of documents with other federal agencies. If the company is involved in another investigation with a federal agency, however, the government should be reminded that any covert sharing could undermine its criminal investigation. Courts have recently dismissed criminal charges for a failure to provide due process where the DOJ did not disclose that it worked with the SEC to gather evidence to help its criminal case. See United States v. Stringer , 408 F.Supp.2d 1083 (D. Or. 2006); United States v. Scrushy , 366 F.Supp. 2d 1134, 1136 and 1139 (N.D.Ga. 2005). In the absence of parallel litigation, the government can avoid an adversarial posture with other agencies while still giving the company the protection it seeks through a confidentiality agreement that places on the company the burden of seeking protection within a prescribed time.

Finally, the agreement should anticipate what may happen after the investigation ends. Corporations want to minimize the number of documents outside of their custody, particularly once an investigation is concluded. One tactic is to explore whether the government will agree to return the documents ' at least the confidential ones ' once the investigation ends. Alternatively, the government may agree to destroy the documents. Negotiating these protections before production provides the company comfort that it will not lose control of its confidential information forever.

Conclusion

With the increasing need for confidentiality protections when responding to government subpoenas, it is critical to address the issue at the outset, in a manner that will accommodate the government and protect the company. A draft confidentiality agreement that understands and satisfies the government's concerns is a key step in counsel's efforts to protect the company's sensitive business information.

Michael Kendall ([email protected]), a member of this newsletter's Board of Editors, and Daniel Curto are partners at McDermott Will & Emery LLP's Boston office. Their practices include both white-collar criminal defense and complex civil litigation.