AEO Designations: A Balance Between Protecting Trade Secrets And Allowing Defendants To Defend Themselves

Whenever a trade secret owner asserts its rights in court against a party alleged to have misappropriated the trade secret, there is always a risk that the trade secret will be publicly disclosed during discovery or during trial, thereby resulting in a further uncontrollable dissemination of the trade secret.  The owner also faces a risk that information not included in the originally misappropriated information, will be disclosed during discovery, thereby possibly giving the adversary a free peak at new information.  One way to guard against the risk of such disclosure is the use of “AEO” or Attorneys’ Eyes Only designations in litigation protective orders for highly confidential materials, which limits the parties who can review such highly confidential information to attorneys only.  But as a recent case reminded us, the right to designate documents as AEO is not automatic; this protection of the plaintiff’s trade secrets and other highly confidential materials must also be balanced against the right of defendants to assist in their own defense.

In Core Lab. LP v. Amspec, Core accused Amspec of orchestrating a simultaneous, mass resignation by key employees working in Core’s Mobile, AL laboratories.  Core claimed that the disloyal employees spent several months plotting the move and downloaded confidential files and trade secrets relating to customers, pricing, business strategy and laboratory testing in anticipation of the move to Amspec. The expert reports were designated as AEO as well as the documents reviewed by the expert in preparing the report.  Amspec moved to compel Core to remove the AEO designations.  The Magistrate Judge and the District Court ultimately agreed that Core’s mass designations of AEO must be removed.  In particular, the Magistrate found that Core’s blanket AEO designations prejudiced Amspec’s counsel’s ability to adequately consult with Amspec, especially because the expert report had been designated AEO in its entirety.  Among other reasons, the Magistrate held that “[t]he [p]laintiffs are the parties who … put trade secrets and … sensitive financial information at issue … in their complaint (Doc. 1). Having done so, they may not then prejudice the [d]efendants’ ability to defend against those claims by insisting that the [d]efendants not be able to examine and consult with their counsel about such key evidence that is being presented against them”.

While AEO designations are generally upheld by courts for truly sensitive information, the decision in Core underscores the risk faced by owners of trade secrets when they attempt to enforce their rights in litigation.  Trade secret holders need to be prepared to defend their AEO designations, and understand that in making their designations, courts will not allow the AEO designation to be used to hamper a defendant’s ability to prepare its defense.