PDF linearization and processing using a third party utility

We tried the following 4 scenarios:

Scenario 1
1. Stamped an existing optimized PDF with PDFTron and saved with
e_Linerarize option.
2. Served PDF back to user via IIS. Byte serving works.

Scenario 2
1. Stamped an existing optimized PDF with PDFTron and saved with
e_Linerarize option.
2. Tried encryption with FileOpen. Result: Encryption Fails

Scenario 3
1. Stamped an existing optimized PDF with PDFTron and saved with
e_incremental option.
2. Tried encryption with FileOpen. Result: Encryption successful
3. Served PDF back to user via IIS. Byte serving fails. This was
expected.

Scenario 4
1. Stamped an existing optimized PDF with PDFTron and saved with
e_Linerarize option.
2. Reopened this stamped PDF using Adobe and resaved it.
3. Tried encryption with FileOpen. Result: Encryption successful

Scenario 4 tells me that there is something that PDFTron does that
internally alters the structure of the document after linearizing that
renders the PDF unsuitable for encryption.

Scenario 4 tells me that there is something that PDFTron does that
internally alters the structure of the document after linearizing that
renders the PDF unsuitable for encryption.

Yes, linearization process modifies the structure of PDF so that the
output can be byte served.
At the same time the generated output should be 100% compatible with
the PDF specification and should be suitable for further processing and
encryption. Did you try to encrypt PDFNet linearized output using
Acrobat?

My interpretation of your results it that there may be something wrong
with the third-party utility. The fact that the third-party utility can
open a file saved from Acrobat, does not mean that if can open any
valid PDF document (PDF serialization will differ from one PDF producer
to another). It is possible that the third-party utility was tested
only with PDF documents saved from Acrobat, but not with other PDF
producers.

A separate question is why you need to use lineaization in the first
place. Any modification on a linearized PDF document will invalidate
previous linearization. As a result, if you process a linearized file
using a third-party utility, the resulting PDF will not be linearized
(unless the third-party utility also supports linearization).