Opinion
Civil Action No.: 1:05-cv-05488.
June 8, 2006
AUTOMATIONDIRECT.COM'S BRIEF IN SUPPORT OF PROPOSED PROTECTIVE ORDER
Pursuant to its Order of May 11, 2006, Dkt. 184, this Court has asked the parties to submit proposed orders concerning the handling of confidential customer information produced in discovery in this case. AutomationDirect.com, Inc. ("ADC") submits as Exhibit A annexed hereto its proposed protective order that would allow the parties to exchange customer information on an "outside-counsel eyes only" basis. As explained below, ADC's proposal serves the dual goals of (1) allowing the parties to have reasonable access to the full range of discoverable materials in this case, while (2) providing safeguards to ensure against disclosure of the parties' most sensitive proprietary information.
FACTUAL BACKGROUND
Pertinent Background Concerning the PartiesIt is undisputed that ADC and Defendant Autotech Technologies Limited Partnership ("Autotech") are direct competitors in the sale of operator interface panels. (See, e.g., Autotech's Second Amended Complaint, Dkt. 134 at ¶¶ 24, 28, 30, 62, containing multiple references to parties' competitive posture). The competition between the parties is so fierce, in fact, that Autotech claims that it "risks its destruction" if ADC is allowed to sell its C-MORE product. Dkt. 134 at ¶ 27.
Autotech's CEO is Shalabh Kumar, who plays a role in virtually all aspects of the company's business. By Mr. Kumar's own characterization, his job with Autotech is "to run the business," and his responsibilities include involvement in the design, manufacture and sales activities of Autotech, including advertising and promotional activities. (Kumar Dep. Tr. (Georgia case) at 8:8-17; 12:13-13:6; Ex. B annexed hereto; see also Ex. B at 47:2-14; 68:4-70:14; 70:21-73:1; 73:12-76:20; 77:3-78:15). His role in the company further encompasses such duties as,inter alia: (a) making decisions regarding part sourcing (Raj Tiwari Dep. Tr. at 107:11-108:9 Ex. C annexed hereto); (b) preparing content for Autotech's ezautomation.net website (Ex. C at 87:16-88:4); and, (c) participating in Autotech's product naming activities (Ex. C at 131:3-131:7).
Mr. Kumar also has been involved in the minutiae of this legal proceeding, in a uniquely active way for the CEO of a company. For example, when Autotech deposed three of ADC's value-added resellers during March 2006, Mr. Kumar attended all three depositions along with Autotech's in-house counsel Martin Corn. (Declaration of Alan Lipton ("Lipton Decl.") at ¶¶ 2-4). Throughout the course of each deposition, Mr. Kumar supplied written notes to Mr. Corn and conversed with him during the examination of witnesses, which sometimes led to Mr. Corn's immediately examining the witness in new areas. (Id. at ¶ 4). Similarly, Mr. Kumar regularly communicated with Mr. Corn while Mr. Corn was defending two depositions of Autotech employees; such communications often resulted in Mr. Corn's assertion of an objection. (Id. at ¶ 5). When ADC produced documents for Autotech's inspection in early April 2006 in Atlanta, Mr. Kumar traveled from Illinois to attend the document production with Mr. Corn. Indeed, the timing of Autotech's document review was scheduled so that Mr. Kumar would be able to attend the production prior to his traveling to India.
ADC notes, as a preliminary matter, that the events described within the Lipton Declaration are strictly limited to those taking place after the briefing of ADC's earlier Motion for Protective Order on January 18, 2006.
Since March 2006, Autotech has employed Mr. Corn as one of its two in-house attorneys. Autotech letterhead states his position with the company as "Senior Counsel." (See Lipton Decl., Ex. 1; Letter of 5/2/06). In entering his appearance with this Court, Mr. Corn confirmed that he is not lead counsel, nor will he serve as trial attorney in the event this matter reaches trial. (Dkt. 153).
Pertinent Background Regarding Parties' Disputes Over Customer Discovery
As the Court is aware, Autotech has served a variety of discovery requests in this action seeking details regarding ADC customers. Following an ADC motion to protect against disclosure of this information, the Court ordered production of ADC customer identity information, but in doing so noted that this "discovery must be hedged with appropriate restrictions." (Dkt. 172 at 22). The Court directed the parties to fashion an agreed protective order that would allow for "a sufficient sampling of information that will allow appropriate inquiry into the issue of customer confusion." (Id. at 23).
Autotech first sought this information in the initial stages of the parties' Georgia litigation, but was rebuffed in its efforts. (Dkt. 115A).
The parties subsequently negotiated regarding the terms under which ADC would produce customer information to Autotech. (Lipton Decl. at ¶ 6; Ex. 1 (correspondence regarding protective order)). ADC offered to make the information available to any trademark survey expert selected by Autotech. (Id. at ¶ 7; Ex. 1, Letters of 4/24/06 and 5/3/06). ADC later offered also to produce — on an outside-counsel eyes only basis — unredacted records about warranty repairs, documents that it believes would disclose approximately 2,000 additional customer names to Autotech. (Id. at ¶ 8; Ex. 1, Letter of 5/3/06). Autotech insisted upon a longer list of customer names, including a list of those ADC customers who had purchased more than $2,000 of EZTOUCH or EZTEXT products (in other words, a pre-selected list of ADC's most important customers). (Id. at ¶ 9; Letter of 5/2/06). Autotech also insisted that Mr. Kumar and Autotech's in-house counsel (Martin Corn and David Susler) should be allowed unfettered access to all information produced by ADC. (Id.; Ex. 1, Letters of 5/2/06 and 5/4/06). ADC subsequently offered to produce all of its EZTOUCH and EZTEXT customer names to Autotech on an outside-counsel eyes only basis. When Autotech rejected ADC's offer of complete access to all ADC customer identification information by outside counsel only, and insisted instead that access be given to Autotech's CEO and in-house counsel, the parties reached a stalemate. The Court then asked the parties to submit proposed protective orders, together with briefing in support of their proposed orders. (Id. at ¶ 10).
Autotech has since dropped its insistence that Mr. Susler be provided unrestricted access to discovery materials, asserting that the issue is to be focused on the question of Mr. Kumar's and Mr. Corn's access. (May 11, 2006 Hearing Tr. at 8:18-22; Ex. D annexed hereto).
Autotech's stated need for customer information has been a moving target. At first, Autotech said it needed to examine issues such as customer confusion and "secondary meaning," both of which are pertinent to the trademark issues at issue in ADC's pending motion for preliminary injunction. Autotech's briefing in response to ADC's previous motion for protective order focused principally on this issue. Dkt. 111, 121. In more recent discussions, Autotech has expressed an alleged need to review entire customer files for information relating to all aspects of the litigation.
With respect to the issue of customer confusion, Autotech already has a wealth of touch panel customer information at its disposal. For example, Autotech handled out-of-warranty repair issues for hundreds of EZTOUCH and EZTEXT customers during the course of the parties' relationship. Further, Autotech has testified repeatedly concerning its years of experience in the automation control business. In short, Autotech already has a large cross-section of customers that it could poll regarding the trademark issues in this case.
To the extent Autotech seeks information about its various claims in the case, it should be noted that no general discovery order has been entered in this case. The only discovery order in place is Judge Cooper's January 11, 2006 Order granting the parties 45 days to conduct discovery related to ADC's preliminary injunction motion. (Ga. Dkt. 54).
ARGUMENT
In its April 20, 2006 Order, this Court directed the parties to negotiate an appropriate order to protect ADC's customer information while providing access to such information for use in this litigation on the issue of customer confusion. Dkt. 172 at 23. Accordingly, ADC does not revisit here the preliminary question of whether a protective order is warranted, but focuses instead on what kind of protective order should be fashioned.A court has substantial discretion in making this determination. As the Seventh Circuit explained in Ball Mem'l Hosp., Inc. v. Mut. Hosp. Ins., Inc., 784 F.2d 1325 (7th Cir. 1986), "Confidential information is customarily made available, if at all, under a protective order, and the district court has substantial discretion to decide which information should be protected and to frame the order." Id. at 1346 (citing Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984)); see also United States v. Edwards, 672 F.2d 1289, 1293 (7th Cir. 1982) ("[e]very court has supervisory power over its own records and files, and access has been denied where court files might have become a vehicle for improper purposes. . . . [T]he decision . . . is one best left to the sound discretion of the trial court, a discretion to be exercised in light of the relevant facts and circumstances of the particular case.").
As courts in this Circuit and elsewhere have reasoned, where there is a discovery dispute over confidential commercial information that could be seen by a party's competitors, there is a significant interest in protecting against the potential competitive disadvantage inherent in such disclosure. See, e.g., Star Scientific, Inc. v. Carter, 204 F.R.D. 410, 416 (S.D. Ind. 2001) (denying "discovery of [inter alia] Plaintiffs' customer lists" because of the potential for "great economic harm" if disclosed to competitors; such access "may lead to a competitive disadvantage, and would permit Plaintiffs' competitors to utilize the discovery process for improper purposes"); Everco Indus., Inc. v. O.E.M. Prods. Co., 362 F. Supp. 204, 206 (N.D. Ill. 1973) ("[b]y the very nature of the parties' business relationships, there are certain documents which are confidential and should not be discovered without sufficient cause"); Miles v. Boeing Co., 154 F.R.D. 112, 114 (E.D. Pa. 1994) ("Competitive disadvantage is a type of harm cognizable under Rule 26").
Recognizing the possible risks associated with disclosure of customer lists, this Court has directed the parties to submit "[a] protective order . . . that provides a sufficient sampling of information that will allow appropriate inquiry into the issue of customer confusion." Dkt. 172 at 23. (In so ruling, the Court noted a litany of cases providing for customer list disclosure on an attorneys' eyes only basis. Dkt. 172 at 21.) With this submission, ADC proposes that an order limiting access to customer list information on an outside attorney's eyes only basis is an effective method to balance the interests here: the potential harm to the property and privacy interests of the party seeking the protective order versus the importance of the requested information to the other party. See, e.g., Citizens First Nat'l Bank of Princeton v. Cincinnati Ins. Co., 178 F.3d 943, 945 (7th Cir. 1999) (Posner, J.).
I. NON-LAWYER EMPLOYEES OF AUTOTECH, INCLUDING SHALLI KUMAR, SHOULD NOT BE PERMITTED ACCESS TO THE REQUESTED CONFIDENTIAL COMMERCIAL INFORMATION.
No non-lawyer employee of Autotech, including its Chief Executive Officer, Shalli Kumar, should be allowed access to customer lists or any other highly sensitive material produced by ADC in this case. Autotech and ADC are head-to-head competitors in the operator interface market, and either's production of commercially sensitive information to the other inherently causes harm to the producing party, as noted above. Customer list information is routinely afforded "attorneys' eyes only" protections. See, e.g., Surface Shields, Inc. v. Poly-Tak Prot. Sys., Inc., No. 02-C-7228, 2003 WL 21800424, at *1 (N.D. Ill. July 30, 2003) (ordering production of customer lists, but allowing defendant to designate them as "attorney's eyes only," even in the absence of any showing that the customer lists constituted "trade secrets" as defined under Illinois state law);Blanchard Co., Inc. v. Barrick Gold Corp., No. 02-3721, 2004 WL 737485, at *10-11 (E.D. La. Apr. 5, 2004) (party's interest in confidentiality of "its most highly commercially sensitive" business information, including customer lists, "outweighs any interest competitor plaintiffs have in securing its employees' ability to review this highly sensitive information") (ordering outside attorneys' eyes only designation); Liveware Publ'g, Inc. v. Best Software, Inc., 252 F. Supp. 2d 74, 85 (D. Del. 2003) (ordering customer lists disclosed only to "trial counsel"). See also Star Scientific, 204 F.R.D. at 414-15 (entering protective order limiting use of "information relating to . . . [inter alia] customer lists").
An "attorneys' eyes only" provision was not practical in the Star Scientific case because the party seeking disclosure in that matter was the attorney general of Indiana. However, the case is instructive because the object of the protective order was to prevent the attorney general from possibly making sensitive information (including customer information) available to the disclosing party's competitors.
In view of this authority, it is entirely appropriate to shield ADC customer data from Shalli Kumar. As discussed in the fact section above, Mr. Kumar has extensive knowledge of the industrial automation market. He is engaged in all aspects of Autotech's business and is indisputably the driving force behind the company. He is precisely the type of industry-savvy competitive decision-maker to whom disclosure of ADC's customer lists would be most damaging.
If Mr. Kumar sees the names of ADC customers, he will be unable to compartmentalize and disregard that information for competitive purposes. As described supra, Autotech has repeatedly sought the requested customer information at every opportunity in this case. Because Autotech, as the late comer into the marketplace, has started from the position of the competitor trying to "catch up" to ADC with regard to sales of touch screen panels, the requested customer information is a treasure trove of valuable knowledge for Mr. Kumar and his company. With access to such information, combined with his prior industry knowledge, Mr. Kumar would have a ready-made list of business contacts whom he knows to be purchasers of specific products offered by ADC. The disclosure of such information to Mr. Kumar or to any employee of Autotech creates an unacceptable risk of competitive disadvantage, especially where, as here,outside counsel for Autotech should have ample ability to review and use the disclosed customer information. Therefore, ADC requests that no non-lawyer ADC employee be allowed access to such material. See, e.g., Amsted Indus., Inc. v. Nat'l Castings, Inc., No. 88-C-924, 1988 U.S. Dist. LEXIS 9413, *2 (N.D. Ill. Aug. 19, 1988) ("[i]t often has been recognized, particularly in intellectual property cases, that the need for disclosure of even highly relevant information to a competitor may be outweighed by the irreparable harm that can result to the disclosing party"); Star Scientific, 204 F.R.D. at 416 (stating that "the potential dangers [the disclosing party] face[s] if a competitor gains access to its trade secrets and confidential information outweigh any legitimate interest one may possess in obtaining these documents").
II. GOOD CAUSE EXISTS FOR A LIMITED OUTSIDE COUNSEL EYES ONLY PROVISION FOR THE REQUESTED CUSTOMER LISTS THAT WOULD PRECLUDE THEIR REVIEW BY MR. CORN OR OTHER IN-HOUSE COUNSEL AT AUTOTECH.
As stated above, the court has the "substantial discretion" to decide when a protective order is appropriate and what degree of protection is required. See, e.g., Ball Mem'l Hosp., 784 F.2d at 1346; Seattle Times, 467 U.S. at 36; Fieldturf Int'l, Inc. v. Triexe Mgmt. Corp., No. 03-C-3512, 2004 WL 866494, at *3 (N.D. Ill. Apr. 16, 2004) (allowing disclosure of confidential business information on "outside counsel `attorneys eyes only'" basis). Here, ADC asks that the Court approve a protective order with an Outside Counsel Eyes Only provision to prevent Autotech's in-house counsel, including Marty Corn — whom Autotech expressly has asked be allowed to see the information — from accessing ADC's customer lists and related confidential information produced in this matter.
"In evaluating whether in-house counsel should have access, a court should balance the risk of inadvertent disclosure of trade secrets to competitors against the risk of impairing the process of litigation by denying access." Thomas Betts Corp. v. Panduit Corp., No. 93-C-4017, 1997 WL 603880, * 12 (N.D. Ill. Sept. 23, 1997) (emphasis added). The process involved in weighing this risk was explained well in Brown Bag Software v. Symantec Corp., 960 F.2d 1465 (9th Cir. 1992), which was cited by Judge Moran in Thomas Betts. In Brown Bag, one party had moved to exclude the other side's in-house counsel from accessing certain documents (though the outside counsel could still access the same documents). In affirming, the Ninth Circuit noted that the magistrate judge there
reasonably concluded that Brown Bag's counsel's employment would necessarily entail advising his employer in areas relating to [the other party]'s trade secrets. Knowledge of [the other party]'s trade secrets would place in-house counsel in the `untenable position' of having to refuse his employer on a host of contract, employment and competitive marketing decisions lest he improperly or indirectly reveal [the other party]'s trade secrets. . . . Brown Bag's in-house counsel was thus involved in the kind of `competitive decision-making' that counsels against disclosure under the U.S. Steel analysis.Brown Bag, 960 F.2d at 1471 (relying on U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984)).
In the U.S. Steel case, the Federal Circuit articulated considerations that are often cited in analyzing whether in-house counsel should have access to confidential information of the opposing party provided in discovery. The court in that case ultimately allowed such access in an International Trade Commission case involving technical information where (a) the litigation was "extremely complex and at an advanced stage," meaning that forcing the moving party to retain new counsel would have created an extreme hardship, and (b) the lower court had previously accepted in-house counsel's "divorcement from competitive decision-making." 730 F.2d at 1468-69.
Here, it is somewhat difficult to gauge Mr. Corn as a competitive decision-maker, since he is still a new Autotech employee, hired in March 2006. However, Autotech's legal department is small, consisting of only Mr. Corn and Mr. Susler, and certain facts revealed during Mr. Corn's short tenure establish that there can be no doubt that he is, in effect, Mr. Kumar's in-house legal spokesman. As described in the fact section above, Mr. Kumar — as is his right — has been personally present at nearly every single deposition in the course of this litigation. Since Mr. Corn started work on this matter, Mr. Kumar has "guided" Mr. Corn's behavior: he has been observed communicating with Mr. Corn orally and in writing during Mr. Corn's examination of witnesses; he has passed notes to Mr. Corn during witness examination, which has at times led to Mr. Corn's immediately examining the witness in new areas; he has conferred at length with Mr. Corn during breaks; and, he has routinely spoken to Mr. Corn during depositions, after which Mr. Corn would immediately interpose an objection. Additionally, Mr. Kumar accompanied Mr. Corn to Atlanta solely to attend ADC's document production, and this review was scheduled to accommodate the timing of Mr. Kumar's travels to India. Such behavior is typical of Mr. Kumar's immersion in the details of this suit.
The point of noting the direct relationship between Mr. Corn's role as in-house counsel and Mr. Kumar's role as CEO of Autotech is two-fold: First, as mentioned above, Autotech is a relatively small company without the formal, separate departments of larger companies for such areas as marketing, accounting, RD, and legal. Second, because of its limited size, Mr. Kumar dominates the day-to-day business of Autotech as "boss" of all aspects of Autotech, including (apparently) micro-managing its litigation against ADC. Mr. Corn is, therefore, only one of two in-house attorneys working for a relatively small company dominated by a single figure. This is not a case involving a large company's in-house counsel, who works within a sizable in-house practice group and is largely insulated from the company's management side; to the contrary, Mr. Corn is taking his direct instructions in this case straight from the top of the company.
In this situation, the risk of inadvertent disclosure by Mr. Corn — should he be allowed access to ADC's customer lists — to Mr. Kumar or others is very real. In the real world, business litigation impacts business decisions. This lawsuit resulted from a business relationship gone awry. The claims and counterclaims set forth here are strictly business related, i.e., the trademark, unfair competition, fiduciary duty, and deceptive advertising claims will all resonate in the future product lines and marketing decisions of these companies, including the use of marks, advertising and other written materials, marketing strategy, and branding identity. Thus, in-house litigation counsel necessarily will have direct input into business decisions based upon that counsel's day-to-day evaluation of the course of the litigation. If Mr. Corn does not report his own analysis of the potential impact of developments in the case on the business of Autotech, he will not be doing his job — this litigation is inextricably related to the success of Autotech, according to Autotech itself.
In such situations, and in light of the small size of Autotech, there is simply no way for Mr. Corn successfully to compartmentalize his litigation knowledge completely from the success or direction of the company's business. The situation is thus somewhat analogous to that faced by the court in Sullivan Mktg., Inc. v. Valassis Communications, Inc., No. 93-CIV-6350, 1994 WL 177795, (S.D.N.Y. May 5, 1994), where a relatively small company's in-house counsel submitted a sworn statement that he did not have "input on matters relating to production or sales, except when a legal issue is raised. . . ." Id. at *3. Even so, the court found that the risk of inadvertent disclosure was too great to allow in-house counsel access to the confidential information. The court opined:
It is often difficult to draw the line between legal and business advice. . . . `[I]t is very difficult for the human mind to compartmentalize and selectively suppress information once learned, no matter how well-intentioned the effort may be to do so.' . . . Given the extent of [in-house counsel's] involvement in strategy meetings, such compartmentalization would be nigh impossible.Id. (quoting F.T.C. v. Exxon Corp., 636 F.2d 1336, 1350 (D.C. Cir. 1980)). It would be both difficult and unwise for Mr. Corn to refuse a direct request for such information from his boss or even indirectly to offer his counsel on this or other litigation or business issues involving ADC and Autotech without some consideration of information learned from discovery, even if unconsciously, because Autotech competes head-to-head with ADC. Allowing Mr. Corn access to this information exposes ADC's valuable information to greater risk of inadvertent disclosure, and also places Mr. Corn in the "untenable position" described in the Brown Bag case.
For the reasons set forth above, ADC believes that Mr. Corn qualifies as a "competitive decision maker." Even if the Court found Mr. Corn not to be a "competitive decision maker," it is still appropriate, in ADC's view, for this Court to exercise its "substantial discretion" to shield Mr. Corn from accessing customer information in view of his close contact with Mr. Kumar and the unique degree to which Mr. Kumar is actively involved in this litigation.
The other, equally compelling argument for precluding disclosure of highly confidential information to Mr. Corn is that Autotech will suffer absolutely no prejudice from a decision restricting his access. ADC already has agreed to provide the requested information to Mr. Fleischer, Autotech's outside (and lead trial) counsel, who is fully acquainted with the facts and procedural history of this litigation. Thus, Mr. Fleischer will have personal, unfettered access to the customer information in preparing Autotech's case. In making determinations that limit disclosure of confidential information, courts have often cited the presence of competent outside counsel also representing the party as dispelling any potential prejudice to the party's case.See, e.g., Sullivan Mktg., 1994 WL 177795, at *3 (citing "minimal" prejudice, since "[o]utside counsel has been involved in this litigation from the beginning and is fully familiar with the facts. . . . While it may be more convenient for in-house counsel to review pricing or marketing documents, outside counsel are fully capable of doing so."); accord, Ball Mem'l Hosp., 784 F.2d at 1346.
Here, Autotech's outside counsel — Mr. Fleischer — is lead counsel and has been counsel to Autotech and Mr. Kumar for nearly a quarter of a century; indeed, Mr. Fleischer single-handedly managed the four-day long preliminary injunction hearing in this Court. As stated supra, Mr. Corn has worked for Autotech only since March 2006. In sum, it has been and is clear that, in this litigation, it is Mr. Fleischer who is acting as lead counsel, whereas Mr. Corn's role is more minor. Thus, the outside attorney (and his staff) will have the access Autotech claims is needed. Moreover, it is difficult to believe that Mr. Fleischer would need the assistance of Mr. Corn in accessing or utilizing the sought-after customer lists, which merely contain the names and addresses of ADC's customers, not any specialized or technical information for which special expertise might be required. Given the foregoing, ADC requests that this Court restrict access to the ADC customer lists to outside counsel, Mr. Fleischer.
III. IF THIS COURT ALLOWS BROADER DISCLOSURE OF INFORMATION, ADC REQUESTS THAT IT BE PERMITTED TO PRODUCE A MORE LIMITED UNIVERSE OF INFORMATION.
In the event that this Court should decide to allow greater access to customer information than the Outside Counsel Eyes Only solution that ADC has proposed, ADC requests the Court to exercise its discretion in fashioning an appropriate protective order that would require production of information regarding a more limited range of customers. See Ball Mem'l Hosp., 784 F.2d at 1346 (noting the district court's "substantial discretion to decide which information should be protected and to frame the order"). In offering to make all of its customer names available to outside counsel for Autotech, ADC has gone well beyond the "sufficient sampling" guidelines contained in the Court's April 20, 2006 Order. If there is to be disclosure beyond Mr. Fleischer and his law firm, ADC requests that the disclosure be limited solely to those customers with whom ADC had correspondence regarding warranty issues, which ADC believes to be in excess of 2,000 names. When combined with the hundreds of ADC customer names that Autotech already has in its possession as a result of customers that have communicated with Autotech regarding out-of-warranty products, this would give Autotech access to a sizable number of EZTOUCH and EZTEXT customers. For purposes of conducting the type of trademark-related discovery that Autotech initially argued it should be allowed to perform, this is unquestionably a "sufficient sampling," and it provides Autotech with access to more customers than it could possibly interview or bring to trial to testify as to whether or not they are confused.
IV. CONCLUSION
For the reasons set forth above, ADC respectfully requests entry of the protective order that it has proposed, which serves the dual goals of protecting valuable competitive information while allowing the parties to conduct thorough discovery in this case.
Respectfully submitted,