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Svea Court of Appeal orders party to produce source code files in arbitration proceedings
Practical Law Legal Update 6-501-8742 (Approx. 3 pages)
Svea Court of Appeal orders party to produce source code files in arbitration proceedings
| Published on 30 Mar 2010 • International, Sweden |
Sverker Bonde (Advokat and Senior Associate) and Julia Hedbäck (Intern), Delphi
On 23 March 2010, the Svea Court of Appeal in Stockholm ordered a company to produce source code files in arbitration proceeding even though they related to trade secrets. The Court of Appeal considered that there were strong reasons in favour of disclosing the files since the defendant based its claim on the files.
An dispute between rt-labs AB (rt-labs) and Movimento Group AB (Movimento) regarding a co-operation agreement was referred to arbitration in Stockholm. The dispute concerned whether software that rt-labs had delivered to Movimento was faulty and deficient. During the arbitration proceedings rt-labs requested that the arbitrator order Movimento to produce the relevant source code files and, if he was prepared to grant the order, grant rt-labs permission to apply to the District Court for an enforceable order to produce the source code files.
The arbitrator considered that the source code files could be relevant in this case and therefore granted rt-labs' request.
On appeal, the Svea Court of Appeal concluded that the fact that the parties had agreed to arbitration proceedings did not prevent a party from seeking a court order to produce written evidence. However, the court was not entitled to revise the arbitrator's assessment of the importance of the source code files.
The Svea Court of Appeal also held that the concept of "trade secrets", within the meaning of the Act on The Protection of Trade Secrets, essentially conforms with the concept "professional secrets" referred to in the 36th chapter 6 § in the Code of Judicial Procedure. Professional secrets are normally exempt from disclosure unless there are strong reasons to the contrary. The court found that the source code files were trade secrets and were thus professional secrets.
When determining whether there were strong reasons for disclosure, the court had to balance the parties' interests. In doing so, the court assessed the likelihood that disclosing them would cause great harm to Movimento since the files consisted of competitively sensitive information and the two companies were active in the same market. The court also took into account the following circumstances:
- That Movimento's case rested on the allegation that the source code was faulty and deficient, meaning that the files were of great importance to rt-labs' ability to produce evidence.
- That Movimento referred to a report from an expert who had reviewed the files, and rt-labs must be granted the opportunity to do the same.
- That the relevant source code had been partly developed by rt-labs, so rt-labs already held some knowledge about the content of the source code.
- The special procedure agreed upon when handling the files in case an order was obtained. The source code files were to be delivered directly to the arbitrator and forwarded to an expert appointed by rt-labs with the intention that the files would not be disclosed to rt-labs.
After balancing the parties' interests the court held that rt-labs' interest in having access to the source code files was greater than Movimento's interest in not disclosing the files. Therefore the court ordered Movimento to produce the source code files.
The case is interesting since the Court of Appeal, in its assessment, took into consideration the special procedure agreed upon for the production of documents, a procedure that would most likely not be possible if the case was tried in court and not through arbitration. Thus, the flexibility offered by arbitration proceedings made an impact on the court's decision which in this case worked in favour of the requesting party.