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From Products Liability Law Daily, April 25, 2018

South Carolina recognizes qualified evidentiary privilege for trade secrets

By David Yucht, J.D.

South Carolina recognizes a qualified evidentiary privilege for trade secrets under the state’s Trade Secrets Act (TSA), the South Carolina Supreme Court held in answer to questions certified from the U.S. Court of Appeals for the Fourth Circuit in the context of litigation arising out of an allegedly defective automobile tire. A dissenting opinion distinguished the pertinent TSA provision as a discovery rule and not a privilege, (Hartsock v. Goodyear Dunlop Tires North America Ltd., April 25, 2018, Kittredge, J.).

A fatal head-on automobile collision allegedly resulted from the blow-out of a defective Goodyear tire. During pretrial discovery, a dispute arose over certain Goodyear material relating to the chemical composition of the allegedly defective tire. The tire manufacturer objected to producing this material, asserting that it constituted trade secrets. A federal district court in South Carolina agreed that the material constituted trade secrets, but ordered Goodyear to produce the material subject to a confidentiality order. In doing so, the trial court applied federal discovery standards, rejecting Goodyear's contention that South Carolina trade secret law applied.

Goodyear thereafter moved for reconsideration. The trial court denied the motion, but certified its order for interlocutory review and stayed the proceedings pending the tire maker’s anticipated appeal. The Fourth Circuit then certified the question of whether or not South Carolina recognized a trade secret privilege to the South Carolina Supreme Court [see Products Liability Law Daily’s November 30, 2016 analysis]. The supreme court answered that South Carolina recognizes a qualified evidentiary privilege for trade secrets.

Trade secrets. The supreme court noted that unlike those of most jurisdictions, South Carolina’s evidentiary privileges are not codified in the state’s rules of evidence. Rather, they are found in the South Carolina or United States Constitution, the common law, and statutory provisions. The TSA is designed to protect trade secrets before, during, and after litigation, the court said, instructing that under the statute, "substantial need" must be shown before disclosure should be compelled. According to the court, although the statute does not include the word "privilege," the protections afforded demonstrate a legislative intent to protect trade secrets from disclosure unless there is a substantial need. Substantial need is shown if the allegations in the initial pleadings have been pleaded with particularity; the information sought is directly relevant to the pleaded allegations; the proponent of the discovery will be substantially prejudiced if not permitted access to the information; and there is a good faith basis that evidence deriving from the trade secret information will be admissible at trial.

Protective order. The court further stated that if a substantial need is shown and a three-part balancing test set forth in the South Carolina Rules of Civil Procedure weighs in favor of disclosure, the qualified privilege is overcome. Disclosure will then be compelled, but the holder will be afforded protection under "an appropriate written protective order."

Dissenting opinion. A dissenting justice concluded that the TSA provision under discussion is a discovery provision and not a privilege. According to the dissenting opinion, no matter what label is applied to these provisions of the TSA, they are discovery provisions, and federal courts apply their own discovery rules. Accordingly, the dissenting justice opined that state law should not govern this federal court discovery dispute.

The case is No. 2016-002398.

Attorneys: Mark C. Tanenbaum (Mark C. Tanenbaum, P.A.) for Theodore G. Hartsock, Jr.; Wallace K. Lightsey (Wyche, P.A.) for Goodyear Dunlop Tires North America Ltd. and Goodyear Tire & Rubber Co.

Companies: Goodyear Dunlop Tires North America Ltd.; Goodyear Tire & Rubber Co.

MainStory: TopStory EvidentiaryNews MotorEquipmentNews SouthCarolinaNews

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