Intercity Group (NZ) Limited v Nakedbus NZ Limited [2013] NZHC 2261 (2 September 2013)

Last Updated: 6 September 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-007532 [2013] NZHC 2261

BETWEEN	INTERCITY GROUP (NZ) LIMITED Plaintiff
AND	NAKEDBUS NZ LIMITED Defendant

Hearing:	27 August 2013
Counsel:	JD McBride and P Hall for Plaintiff MC Harris for Defendant
Judgment:	2 September 2013

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Monday, 2 September 2013 at 1.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Simpson Western Lawyers, Auckland.

JD McBride, Auckland. Gilbert Walker, Auckland.

INTERCITY GROUP (NZ) LTD v NAKEDBUS NZ LTD [2013] NZHC 2261 [2 September 2013]

Introduction

[1] In this proceeding, InterCity Group (NZ) Ltd (InterCity) claims that Nakedbus NZ Ltd (Nakedbus) has been unlawfully using the words “inter city” in various combinations. The case is set down for a five day trial on 25 November

2013. InterCity, in this application, seeks orders setting aside confidentiality restrictions placed on certain documents by Nakedbus in its affidavit of documents.

[2] The dispute concerns some 14 categories of documents, which are summarised in paragraphs 14(c)–(n) and 15(c) and (d) of an affidavit of Mr Hamish Nuttall dated 16 August 2013. The documents are monthly online marketing reports and other reports containing performance data relating to the commercial use by Nakedbus of Google Inc’s searching facilities. In listing the documents, Nakedbus asserted that inspection should be restricted to the plaintiff’s external solicitors, counsel and independent experts, and that undertakings should be provided in that regard.

[3] InterCity applied to set aside the confidentiality restrictions, on the basis that the documents were of central importance to the proceeding and would require comment from both independent experts and InterCity’s senior management. It did not accept that there was a possibility of commercial or other harm.

[4] Affidavits in support of InterCity’s application were filed by an InterCity employee, Daniel Rode, and a law clerk, Julia Reynolds. In response, Nakedbus filed affidavits from Hamish Nuttall, an employee, and Grant Osborne, an independent digital marketing strategist.

[5] The background facts to the dispute have been set out in earlier judgments.1

InterCity has been operating a national coach network under three brands including InterCity, and controls approximately 60 per cent of the New Zealand market. Nakedbus is a relatively recent competitor, which has quickly developed a market share of approximately 30 per cent. There have been ongoing disputes between the

_{parties and there is no doubt that they compete intensely.}

1 InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 379 at [5]–[9]; and InterCity Group

(NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 1054 at [1]–[5].

The documents for which confidentiality is claimed

[6] As noted above, the documents can be described generally as monthly online marketing reports and other reports containing performance data relating to the use by Nakedbus of the search facilities of Google Inc (Google). The material arises from the detailed electronic communications between Nakedbus as a commercial customer of Google, and Google itself.

[7] Nakedbus purchased from Google what are known as keywords, these being the words or phrases that the advertiser selects to trigger their advertisements. In this case, the words included the phrases “inter city” and “nakedbus” and many others. Nakedbus has discovered on an open basis and without claiming confidentiality documents relating to the keywords that it has bid against, the text of the ads displayed against the keywords, and the aggregate monthly totals of the revenue generated from this advertising.

[8] It claims confidentiality in relation to bid data. The parties agreed in submissions on how bid data can be described. Advertisers can “bid” for or “purchase” keywords by setting a daily maximum budget, and a maximum or target cost-per-click. Cost-per-click is the amount paid for the ad each time a consumer clicks on it. Also relevant is the cost-per-acquisition, which is the amount paid for the ad each time a consumer clicks on the ad and goes on to (in this case) purchase a bus ticket. Where more than one advertiser bids against a keyword, the ranking of the ad is determined by an automatic blind auction and a quality score assigned to the advertiser’s website by Google. The higher the advertiser’s daily budget, the more often its ad will appear; the more it is prepared to pay per click or acquisition, the greater the prominence its ad will achieve in the search results.

[9] Advertisers can obtain extremely detailed performance data from Google to assist them in measuring the effectiveness of their campaigns and to improve their efficiency at generating clicks or sales. The data includes the impressions (number of times an ad is displayed), the number of clicks on the ad, the number of sales generated by clicks, the revenue earned by the advertiser from the sales (here, the ticket price), conversion rates (the ratio of clicks to sales), cost-per-click, cost-per-

conversion, and overall cost. This data can be broken down by individual keyword, individual ad, actual search term used, type of device used to perform the search (desktop or mobile device), ad group, or campaign.

[10] Advertisers can also obtain change history reports. These reports show changes in many aspects of an ad group or campaign each month. They show changes to keywords, budgets, and other items.

[11] Nakedbus claims that the bid data, performance data and change history reports are confidential and commercially sensitive. Mr McBride for InterCity does not accept that the information is confidential or commercially sensitive, and submits that it should not be the subject of restrictions in any event because of its importance, and the difficulties that will arise if confidentiality is maintained.

Approach

[12] Rule 8.15(2)(f) of the High Court Rules permits the discovering party to state in an affidavit of documents any restrictions proposed to protect the claimed confidentiality of any document. Rule 8.28(3) provides that a party may limit inspection of confidential documents to the person specified in the affidavit of documents, subject to the restrictions imposed in the affidavit. If a party challenges a claim to confidentiality made in an affidavit of documents, that party may apply to the Court for an order setting aside or modifying the claim under r 8.25(1). Under r 8.25(3), the Judge has a discretion to set aside or modify the claim for confidentiality, or dismiss the application, or make any other order.

[13] The regime in the High Court Rules therefore gives a party swearing an affidavit of documents the right to assert confidentiality, and limit inspection on that basis, subject to a successful challenge by the other party that must be brought by way of Court application under r 8.25. The rules do not contain any criteria by which such a claim to confidentiality, or a challenge to that claim, may be assessed.

[14] There are criteria for determining confidentiality set out in s 69 of the Evidence Act 2006 (the Act). This section relates to confidential information in proceedings. The section has been applied in considering claims of confidentiality in

civil discovery,2 although the obiter view that s 69 does not directly cover the position at the inspection/discovery stage has also been expressed.3 The authors of McGechan on Civil Procedure4 and Sim’s Court Practice5 assume s 69 applies, and Mahoney and others in The Evidence Act 2006: Act and Analysis, take the view that the definition is wide enough to include the discovery process.6

[15] Section 69 is headed the “Overall discretion as to confidential information”. It is stated to relate to disclosure of information “in a proceeding”.7 Under s 69(2), a Judge may order non-disclosure of confidential information if the public interest in the disclosure “in the proceeding” is outweighed by the public interest in preventing harm to a person or relationship, including preventing harm to a person “about whom confidential information was obtained, recorded or prepared”. The section applies to disclosure in a “proceeding”. A proceeding is defined in the interpretation section as “a proceeding conducted by a Court” and “any interlocutory or other application to a Court connected with that proceeding”.8

[16] There will always be a civil proceeding when discovery issues arise, unless the discovery is before a proceeding under r 8.20. Discovery does not involve disclosing documents to the Court. The public will not see the documents, which can only be used for the purposes of the proceeding (and therefore by the parties only), unless they are read in open Court.9 However, no documents can be produced in evidence at a civil hearing without consent or leave unless they have been discovered.10 Therefore, while the discoverability of documents does not directly relate to the admissibility of evidence, it does do so indirectly by requiring discovery before there can be admission. The disclosure, while not to the public, is to another

_{person who would not otherwise see the material, namely the other party.}

2 Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd HC Auckland CIV-2011-404-1664,

_{1 December 2011 at [31].}

3. R v S HC Christchurch CRI-2006-009-1151, 17 December 2007, overturned on appeal in part but not on this point in R v S (CA514/07) [2007] NZCA 497.

4 _{McGechan on Procedure (online looseleaf ed, Brookers) at [HCR8.25.17(2)].}

5 _{Sim’s Court Practice (online looseleaf ed, LexisNexis) at [HCR8.25.1].}

6 R Mahoney and others The Evidence Act 2006: Act and Analysis, (2nd ed, Brookers, Wellington,

_{2010) at 25.}

7 _{Evidence Act 2006, s 69(1).}

8 _{Section 4.}

9 Rule 8.30(4).

[17] While confidentiality in discovery does not directly concern the admissibility of evidence under the Evidence Act, it is a purpose of the Evidence Act to help secure the just determination of proceedings by providing for facts to be established by the application of logical rules. The process of discovery and inspection assists in ensuring that facts are established by the application of logical rules.

[18] Taking these factors into account I treat s 69 as having application to the discovery process. It must be recognised, however, that the section is not entirely apposite to the considerations that arise on discovery in civil proceedings. Given the weighing process directed by s 69(2), it is difficult to see how there is a “public interest” in inter-parties disclosure of documents in a civil proceeding. The interest is rather that of the inspecting party to see the other side’s relevant documents,11 and against this must be balanced the relevant confidentiality considerations.

[19] Section 69(3) sets out the considerations that a Judge must have regard to in considering a confidentiality direction, some of which are relevant to civil discovery and some of which will not arise:

69 Overriding discretion as to confidential information

...

(3) When considering whether to give a direction under this section, the

Judge must have regard to—

(a) the likely extent of harm that may result from the disclosure of the communication or information; and

(b) the nature of the communication or information and its likely importance in the proceeding; and

(c) the nature of the proceeding; and

(d) the availability or possible availability of other means of obtaining evidence of the communication or information; and

(e) the availability of means of preventing or restricting public disclosure of the evidence if the evidence is given; and

(f) the sensitivity of the evidence, having regard to—

(i) the time that has elapsed since the communication was made or the information was compiled or prepared; and

(ii) the extent to which the information has already been disclosed to other persons; and

(g) society’s interest in protecting the privacy of victims of offences and, in particular, victims of sexual offences.

[20] Although s 69 applies, the common law approach to issues of confidentiality arising in discovery is not inconsistent with any of the considerations set out in s 69. Under s 10(1)(c), the Act may be interpreted having regard to the common law to the extent that the common law is consistent with its provisions. I consider it appropriate to apply the recent common law authorities to the s 69 regime, as was

done by Allan J in Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd.12

[21] The leading authority on issues of confidentiality arising in the process of discovery and inspection is Port Nelson Ltd v Commerce Commission.13 It was stated:

Relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential, and would not be made available were it not for the requirements of the litigation, is immaterial. An order for non-disclosure can only be made when the Court is satisfied in terms of rule 312 that such an order is “necessary”. It must be either apparent from the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.

[22] In my view the balancing process indicated in Port Nelson is not inconsistent with that required by s 69, but offers a particular insight in the civil discovery context.

[23] The Court of Appeal in Port Nelson noted that it can be “difficult if not impossible” for a trade competitor to protect from dissemination throughout its organisation, information received through discovery. It was also stated that

_{restrictions may be justified where disclosure of the relevant confidential}

12 _{Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd, above n 2.}

13 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 347–348.

information would enable a party to structure its own business to better competitive effect.14

[24] Wide ranging confidentiality orders have been made in recent High Court decisions.15 In Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd, Allan J declined to remove confidentiality restrictions in discovery between trade rivals noting the clear risk of commercial harm if there was open disclosure, weighed against the general contention that discovery was necessary to enable adequate trial preparation.16

Are the documents confidential?

[25] Mr McBride submitted that the documents were not confidential. If that were correct, the restrictions would have to be removed. There would be no need to weigh the competing considerations. However, in my view that submission cannot be sustained.

[26] Google requires a keyword to access the information that is the subject of the application. This indicates Google’s perception that the detailed bid and performance data is indeed confidential and needs protection. It can be assumed that this perception is shared by its customers, who accept these restrictions on access.

[27] Any documents that show what a competitor is spending on advertising, and the sales it gets as a consequence of that expenditure, are in my view confidential. That material could help a competitor, because the competitor could adjust its own advertising practices on the basis on what it has learned from its competitor’s results, and thus achieve better sales for itself at the competitor’s expense. I consider this

_{further in my weighing of the competing interests.}

14 _{At 349.}

15 Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington CIV-2006-485-1600, 12 August

_{2009, and Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd, above n 2.}

16 Pernod Ricard NZ Ltd v Lion-Beer Spirits & Wine (NZ) Ltd, above n 2, at [34].

Assessment of whether the restrictions should be lifted

[28] It is necessary now to weigh the various relevant factors and determine whether the confidentiality claims should be set aside. I have already determined that the material is confidential. I now need to make a more detailed assessment of its commercial sensitivity.

[29] It is difficult to be precise in this area after an interlocutory hearing where there has not been any detailed analysis of the evidence, and the issue is whether there could be damage in a hypothetical future scenario. There can be no certainty as to what damage, if any, can arise from disclosure. The best the Judge can do is assess risk.

[30] While this documentary material is not in the very confidential category of say a vital chemical formula, it is in my assessment sufficiently confidential for any competent commercial operator to take vigorous steps to prevent disclosure.

[31] There is no doubt that the competition between the parties is intense. Nakedbus is the new operator and it would appear that the battle for custom is fought primarily on the basis of price. Any material that shows in detail how a party attracts custom, and the exact promotional costs of doing so, would be most helpful.

[32] In this regard I am assisted in my consideration of the evidence on the commercial implications of disclosure by the affidavit of the only independent expert who has deposed on this topic of confidentiality, Mr Osborne. His view is that monthly totals of revenue generated from an advertisement campaign and bid data, and material showing the conduct of internet users and keywords used in relation to a product, is information which is regarded in the market as confidential and commercially sensitive. He observed that clients engaging online advertising consultants routinely require strict procedures to be implemented to ensure that the campaigns of competing businesses remain confidential to each other.

[33] Mr Osborne deposed that lists of keywords are creative and commercially sensitive because they are central to the advertiser’s online marketing strategy. They can also provide insights into other aspects of the advertiser’s marketing and

business strategy more generally. Access to this sort of material will provide a superior pool of data from which to target a competitor and undertake other strategic initiatives. Having access to performance and bid data allows a competitor to work out exactly how much an opponent is spending on AdWords, and how effective that spending is at generating clicks and sales. This very precise information, which is provided by Google, is of real benefit.

[34] Mr McBride responded that Mr Osborne’s observations were general and did not conclusively demonstrate that there would be damage. That is so, but it is very difficult in a confidentiality argument relating to the disclosure of details of this type to state with certainty how they will play out. I note Mr Osborne’s undoubted qualifications as an expert and his independence. I note that his expertise was not challenged and there was no affidavit in reply. I place weight on his assessment.

[35] I weigh against the sensitivity of the documents the importance of the information in helping InterCity prepare its claim, and the disadvantage suffered by InterCity when its executives do not have this information.

[36] However, in terms of InterCity deciding strategy, I have difficulty in seeing confidentiality restrictions as an insuperable problem. On my assessment, the confidential material although important is not a case breaker. The detail is unlikely to be relevant to broad strategic decisions where the party itself, as distinct from counsel and experts, needs to know all about it. Moreover, if this assessment is shown to be wrong when the case unfolds, the ruling can be reviewed by the trial Judge and, if necessary, reversed in whole or in part.

[37] As to the practical disadvantage of running a trial with information that has a confidential status and cannot be disclosed to one party, it must be accepted that this can cause inconvenience to the party that does not have full access to the material. However, it is not uncommon for these sorts of confidentiality restrictions to be in place in commercial proceedings. By and large cases can be run in a manner which accommodates such restrictions. A set of confidential briefs, or portions of briefs, can be prepared on different coloured paper, and a specific confidential bundle can be provided. If necessary, the Court can be cleared when confidential material is

traversed. The judgment can be written to avoid disclosure of the sensitive material. Arrangements of this type are often seen. Should there be any severe practical problems that arise, the Court has the ability to revisit orders that have been made.

[38] In terms of s 69(2) and (3), the public interest (and legitimate interest of InterCity) in disclosure is outweighed by the harm that may be suffered by Nakedbus if there are no restrictions. There is in my view a significant risk that if there was inspection without restrictions. InterCity would obtain valuable commercial information about Nakedbus’ commercial relationship with Google that is not otherwise available, and which it could use to increase its sales at the expense of Nakedbus. The downside to InterCity is less severe.

[39] I do not overlook Mr McBride’s careful submissions explaining how Nakedbus, when it uses the words “inter city”, is effectively bidding on InterCity’s trademark because of Google’s broad match functionality, and how Nakedbus’ actions have forced InterCity into placing advertisements whereas previously it could be reached organically through the usual Google search algorithm. He questions how in that context the information from Google as to Nakedbus’ bidding could be so sensitive.

[40] This submission, which involves an assessment of the merits, is difficult to evaluate in the context of an interlocutory application, and as a general proposition the merits are not relevant in the weighing process. In terms of s 69 of the Evidence Act, I consider that there will be harm to Nakedbus if there is disclosure of the documents for which confidentiality is claimed, that harm being the disclosure of material helpful to a competitor to which I have referred. InterCity’s right to discovery and inspection, and the fact that this information will be of importance and relevant in the trial, do not outweigh that significant harm.

[41] It is my conclusion that for the reasons given, the balancing of Nakedbus’ legitimate wish to keep the documents confidential against InterCity’s legitimate wish to see them, results in a conclusion in favour of Nakedbus and its claim to confidentiality.

Result

[42] The application to set aside the confidentiality claims is dismissed.

[43] Costs should follow the outcome. The defendant is entitled to costs from the plaintiff on a 2B basis with reasonable disbursements.

...................................

Asher J