A recent ruling by a federal appeals court appears to have weakened the traditional power of corporations to maintain the secrecy of sensitive internal papers, particularly records on hazardous products in product-liability lawsuits.

The ruling arose from the long-running class action involving Agent Orange, the controversial defoliant used in Vietnam.

Plaintiffs' lawyers routinely sought documents from seven chemical manufacturers in pretrial proceedings, and defense attorneys obtained protective orders barring public disclosure of the papers. Judges commonly issue such orders to expedite discovery of evidence.

In theory, the documents would be made public at an open trial. In practice, in many cases, the public never sees such papers because of settlements that require their return to the defense.

But on June 10, a unanimous three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York upheld the lifting of protective orders.

Cornish F. Hitchcock, a Washington lawyer who argued for the Vietnam Veterans of America (VVA), said the decision "indicates that the public's interest in disclosure must be considered before a trial court approves a settlement which keeps important information from the public."

Hitchcock, who is on the staff of Public Citizen Litigation Group, a nonprofit organization founded by Ralph Nader, said the ruling may serve as leverage in lawyers' efforts to make public confidential documents not only in numerous pending cases, but also in cases settled years ago.

Leonard L. Rivkin of Uniondale, N.Y., the lead defense lawyer in the appellate court, did not respond to requests for comment.

The seven chemical companies -- Dow, Diamond Shamrock, Hercules, Monsanto, T H Agriculture & Nutrition, Thompson and Uniroyal -- obtained the protective orders in 1981 and 1982.

Several hours before the scheduled start of the trial on May 7, 1984, a settlement was reached; as customary, it called for return of the discovery documents. Some of the papers were locked up in the courthouse in Brooklyn, while others were in attorneys' offices.

At subsequent fairness hearings, which were held around the country as required for class-action suits, VVA and some individual veterans expressed concern about the possibility of a "cover-up" to Chief U.S. District Judge Jack B. Weinstein.

At one of the hearings, a request to unseal all of the documents was made by the VVA, later joined by the Agent Orange Plaintiffs' Management Committee and Victor Yannacone Jr., counsel for certain plaintiffs.

Magistrate Shira A. Scheindlin ordered the unsealing of the documents, saying that the VVA had a right to them under law. At the same time, she set up a procedure for the companies to seek continued confidentiality for trade secrets and similarly sensitive papers. Weinstein adopted her order, which has been stayed while the case remains in the courts.