Chancery Applies Business Strategy Privilege and Common Interest Doctrine

In Glassman v. Crossfit, Inc., C.A. No. 7717-VCG (Del. Ch. Oct. 12, 2012), the Delaware Court of Chancery addressed the “business strategy privilege” and the “common interest doctrine” in the context of a motion to compel, and rejected both of them as a defense to producing the requested discovery.

The Common Interest Doctrine

The Court explained the foundations of the doctrine as rooted in the attorney-client privilege, which does not necessarily protect a communication in a meeting simply because a lawyer is present. See footnote 10 and accompanying text. Rule 502 of the Delaware Rules of Evidence codified the common interest doctrine as one that “allows separately represented clients sharing a common legal interest to communicate directly with one another regarding that shared interest.” The interests of the two parties must be “sufficiently legal, rather than commercial.” The doctrine does not protect a primarily commercial objective. See footnotes 13 to 15.

The Business Strategy Immunity

Unlike the common interest doctrine which derives from a party’s entitlement to confidential communication, the business strategy immunity is not a privilege in the traditional sense. Rather, its basis is Rule 26(c) of the Rules of Civil Procedure and the court’s inherent power to enter protective orders to shield the parties from prejudice. See footnotes 31 to 34. This immunity often protects a target from disclosing sensitive information in the takeover context, but it may also apply if a court fears that “information disclosed may not be used for proper legal purposes, but rather for practical business advantages.”