When the client expresses concerns that discovery in litigation of highly confidential corporate strategies will cause competitive harm to the company, the business strategy immunity may afford protection. This doctrine is an application in specific factual circumstances of the balancing test for the terms of a protective order under Federal Rule of Civil Procedure 26(c) or under the comparable state rule. The business strategy immunity originally arose in the context of hostile takeovers in the 1980s and was then known as the “white knight” privilege. The courts limited hostile offerors from taking discovery of the target company’s strategies in defending and considering alternatives to the hostile offer. Over the years, the business strategy immunity has been applied more broadly to any circumstance where the premature discovery of a confidential corporate strategy may cause severe harm. It has been applied to limit and postpone discovery in a wide variety of types of litigation: shareholder derivative lawsuits, proxy contests, trust administrations, competitive bidding contests, labor union actions, patent infringement litigation, and bankruptcy or insolvency proceedings.
An early application of business strategy immunity was BNS, Inc. v. Koppers Co., Inc. In that case, the board of directors of the target company had rejected two hostile offers of $45 and $56 per share and was actively considering the adequacy of a $60 offer. The offeror sought discovery of board information and defensive measures actively being considering. The court weighed the harm to the target from producing the information against the offeror’s need for the information and found that balance in favor of the target. The bidder had no need for the information until the board took a position with respect to the $60 offer and the target’s “ability to act in the best interests of shareholders” would be severely impaired by premature disclosure of the board’s view of the pending offer and the defensive measures it was actively considering in response.