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Telecom firm faces cyber Catch-22 (80405)

How can you enforce an agreement when you can’t disclose its terms≠

That’s the problem facing Gaithersburg-based Innovative Communications Technologies Inc., which claims a British licensee has breached its indemnity agreement.

The problem: Innovative can’t sue to enforce the agreement without disclosing its terms, but such disclosures arguably are prohibited by a separate confidentiality clause in one of the licenses.

The company’s solution was to file its lawsuit under seal, which would strictly limit nonparties’ access to the court documents. However, a federal judge in Baltimore blocked that option last week.

“This is plainly insufficient justification to keep this case out of the public record,” U.S. District Judge Frederic N. Smalkin scrawled across the bottom of Innovative’s motion to file under seal.

“This is plainly insufficient justification to keep this case out of the public record.” – Judge Frederic N. Smalkin

The suit is based on a broad, stand-alone indemnity agreement that Innovative claims is incorporated as a condition of two licensing agreements it has with British Telecommunications plc (BT).

Innovative, a Delaware corporation with its headquarters in Gaithersburg, designs and implements multimedia satellite networks for commercial, government and military clients. BT sought to license two of those products to improve its satellite transmissions from multiple remote locations.

For various reasons, Innovative worried that its deals with BT would draw it deeper into an ongoing patent dispute between a competitor, Comsat Corp., and the U.S. government. Therefore, the company claims, it insisted that BT indemnify it against claims and disputes arising out of the Comsat litigation.

But then Innovative was hit with a subpoena in the Comsat litigation, and BT refused to reimburse the company for the costs incurred in fighting the subpoena.

According to the complaint, BT first said the Comsat action was “not the subject of” the indemnity agreement; then, nearly two months later, BT asserted that its duty to indemnify Innovative for legal fees does not arise until Comsat files suit against Innovative.

Innovative disputes this.

“By its plain terms, the Indemnification Agreement applies to ‘claims’ and ‘disputes’ which have been threatened but not actually filed against [Innovative],” the complaint says, as well as to “[a]ll proceedings arising out of or relating to the COMSAT Action” directed against Innovative.

The company backs its claim up with a copy of the indemnification agreement, even though it acknowledges that such disclosure could be harmful to its own interests as well as BT’s.

“If their competitors knew which claims, contracts and lawsuits are covered or excluded from the terms of the Indemnification Agreement, the value of the Agreement to [Innovative] is impaired, and the potential exposure of BT, as the indemnifying party, is potentially increased,” Innovative’s lawyers at Hunton & Williams in Washington, D.C. wrote in the motion to file the complaint under seal. “The risk of litigation against which [Innovative] sought to protect itself might actually be increased if the terms of the Indemnification Agreement … became public.”