TOMAHAWK MANUFACTURING INC v. SPHERICAL INDUSTRIES INC (2023)

Order

[Docket No. 90]

Pending before the Court is Plaintiffs’ motion for a blanket protective order concerning the restriction on access to sensitive materials for experts and consultants affiliated with competitors. Docket No. 90; see also Docket No. 93 (errata).¹ The motion was filed on an emergency basis and the Court shortened briefing deadlines. See Docket No. 89. Defendants filed a response in partial opposition. Docket No. 91. Plaintiffs filed a reply. Docket No. 96. The Court held a hearing on September 19, 2023. Docket No. 102.² For the reasons discussed below, Plaintiffs’ motion for a blanket protective order is GRANTED.

I. BACKGROUND

This is a trade secret misappropriation case in which Plaintiffs allege that their former employees (James Wolff and Samuel Gannon) unlawfully funneled trade secret information to Defendants, who then allegedly sought to capitalize on the purloined information. See, e.g., Docket No. 1 at ¶¶ 86-128.³ On July 6, 2023, the Court granted Plaintiffs’ motion for a temporary restraining order, concluding that Plaintiffs are likely to prevail on their claims and ordering that Defendants must, inter alia, refrain from using, disclosing, disseminating, publicizing, or transferring Plaintiffs’ trade secrets. Docket No. 40. The Court converted and modified the temporary restraining order into a preliminary injunction. Docket No. 52.

The Court set an evidentiary hearing regarding the preliminary injunction to begin on November 8, 2023, Docket No. 79, and the parties agreed to engage in expedited discovery in advance of that evidentiary hearing, Docket No. 76. The parties have been unable to agree to the terms of a blanket protective order regarding the designation and handling of confidential discovery material, which is the matter currently before the Court.

II. STANDARDS

The fruits of pretrial discovery are presumptively public. San Jose Mercury News, Inc. v. U.S. Dist. Court—N. Dist. (San Jose), 187 F.3d 1096, 1103 (9th Cir. 1999). Upon a showing of good cause, however, parties may obtain a protective order to override that presumption with respect to trade secrets or other sensitive information. See Fed. R. Civ. P. 26(c)(1)(G) (providing for issuance of a protective order “requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way”). Courts possess broad discretion in determining what constitutes good cause to issue a protective order and in fashioning the terms of such protective order. Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). The party seeking entry of a protective order bears the burden of establishing good cause. Phillips v. Gen. Motors Corp., 307 F.3d 1206, 1210-11 (9th Cir. 2002).

Courts routinely recognize the danger inherent in sharing discovery containing trade secret information with persons affiliated with a litigation opponent or other competitor. Biovail Labs., Inc. v. Anchen Pharms., Inc., 463 F. Supp. 2d 1073, 1083 (C.D. Cal. 2006) (collecting cases); see also American Standard Inc. v. Pfizer Inc., 828 F.2d 734, 741 (Fed. Cir. 1987) (“Courts have presumed that disclosure to a competitor is more harmful than disclosure to a noncompetitor” (collecting cases)). While blanket protective orders often include carveouts to enable experts or consultants to access sensitive information upon agreeing to be bound by the terms of that blanket protective order, special concerns arise when prospective experts or consultants may themselves be competitive with the disclosing party's business.⁴ Such a scenario threatens to upend the very purpose of the confidentiality designation ⁵ by enabling a competitor to peak behind the protective order curtain vis-à-vis a strategic retention of experts or consultants. See TD Pro. Servs. v. Truyo Inc., No. CV-22-00018-PHX-MTL, 2022 WL 3098985, at *7 (D. Ariz. Aug. 4, 2022) (collecting cases). Even when the parties, experts, and consultants are well-intentioned, significant risk remains that the information learned could subconsciously influence competitive business decisions. In re Deutsche Bank Trust Co. Americas, 605 F.3d 1373, 1378 (Fed. Cir. 2010) (“[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”) (quoting F.T.C. v. Exxon Corp., 636 F.2d 1336, 1350 (D.C. Cir. 1980)). As explained by the Ninth Circuit:

It is commonplace for experts and consultants on both sides of any ordinary civil action to be vetted so that trade secrets and other sensitive information will not fall into the hands of someone with an adverse position to the owner of the sensitive information ․ The risk is simply too great that someone in such an adverse position will be tempted to misuse sensitive information for a purpose other than the litigation. For example, a trade secret might be misappropriated by a consultant or expert and written into a pending patent application.

Ibrahim v. Dep't of Homeland Sec., 669 F.3d 983, 999 (9th Cir. 2012) (quoting district court decision). Courts may mitigate this risk by crafting blanket protective orders that limit who qualifies as an “expert” or “consultant” with access to confidential information. See, e.g., TD Professional Services, 2022 WL 3098985, at *7 (collecting cases).

Merely expressing a concern that an expert or consultant may have some affiliation with a competitor is not sufficient to limit access to confidential information for that person. When these concerns are raised, courts must “balance the risk of disclosure to competitors against the risk that a protective order will impair prosecution or defense of the claims.” Nutratech, Inc. v. Syntech (SSPF) Int'l, Inc., 242 F.R.D. 552, 554 (C.D. Cal. 2007) (citing Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992)).⁶ As to the former, courts will consider the proposed expert's or consultant's particular circumstances in affiliating with a competitor, including whether they are involved in decision-making that might be impacted by the sensitive discovery material. See Brown Bag Software, 960 F.2d at 1471; see also ViaSat, Inc. v. Acacia Commc'ns, Inc., No. 16-cv-463 BEN (JMA), 2017 WL 840876, at *2 (S.D. Cal. Mar. 2, 2017) (noting that the proposed recipients were “the very in-house engineers charged with developing [ ] competing products”).⁷ “Generally, an ongoing consulting relationship with a competitor presents a high risk of [ ] disclosure, while a past or attenuated relationship does not.” University of Va. Patent Found. v. Gen. Elec. Co., No. 3:14-cv-51, 2015 WL 7431412, at *4 (W.D. Va. Nov. 20, 2015) (collecting cases from within the Ninth Circuit). Courts may also consider the past conduct of the particular person at issue with respect to handling sensitive information. See Santella v. Grizzly Indus., Inc., No. 3:12-mc-00131-SI, 2012 WL 5399970, at *5 (D. Or. Nov. 5, 2012). The party seeking to preclude access to confidential information to such persons must make a particularized showing of the risk of competitive harm from such disclosure. See GPNE Corp. v. Apple Inc., No. 5:12-cv-2885-LHK (PSG), 2014 WL 1027948, at *2 (N.D. Cal. Mar. 13, 2014).

The risk of competitive harm arising from disclosure will be weighed against the showing made as to the need for the particular expert or consultant to access the confidential information. Parties are ordinarily owed some degree of deference in deciding which experts or consultants to hire. Advanced Micro Devices, Inc. v. LG Elecs., Inc., No. 14-cv-01012-SI, 2017 WL 3021018, at *2 (N.D. Cal. July 17, 2017). Limitations on who may act as an expert or consultant privy to confidential discovery material may unreasonably disadvantage the opposing party. See Ho v. Marathon Patent Grp., Inc., No. 5:21-cv-339-PSG (SPx), 2021 WL 10862800, at *4 (C.D. Cal. June 23, 2021). Litigation disadvantage may be particularly acute with respect to an expert who is uniquely qualified. See Symantec Corp. v. Acronis Corp., No. 11-5310 EMC (JSC), 2012 WL 3582974, at *3 (N.D. Cal. Aug. 20, 2012) (discussing Advanced Semiconductor Materials Am. Inc. v. Applied Materials Inc., No. 95-20169 RMW (EAI), 1996 WL 908654, at *2, 3 (N.D. Cal. Oct. 28, 1996)). In some industries, restrictions on competitors acting as experts or consultants with access to confidential information might effectively preclude the ability to retain anyone at all. See Isis Pharms., Inc. v. Santaris Pharma A/S Corp., No. 11-cv-2214-GPC (KSC), 2013 WL 3367575, at *7 (S.D. Cal. July 5, 2013); see also Rheumatology Diagnostics Lab., Inc. v. Aetna, Inc., No. 12-cv-05847-WHO, 2015 WL 1744330, at *11 (N.D. Cal. Apr. 15, 2015) (warning against reading protective order as creating a “Catch-22 wherein anyone qualified to offer an expert opinion would be disqualified from reviewing the confidential information necessary to form that opinion” (cleaned up)). At the same time, speculative and unsubstantiated contentions of litigation disadvantage are insufficient to overcome the need to protect against competitive harm through confidentiality. See Brown Bag Software, 960 F.2d at 1472; see also Biovail Laboratories, 463 F. Supp. 2d at 1084. The party seeking to provide access to its experts or consultants must set forth in detail the reasons why such disclosure is reasonably necessary, generally through a declaration or other evidentiary showing. See ViaSat, 2017 WL 840876, at *2. Litigants face an uphill battle in arguing that access to confidential information is essential for a consultant, as opposed to a testifying expert, since consultants are generally less critical to the prosecution of a claim or preparation of a defense. See Symantec, 2012 WL 3582974, at *3.

At bottom, courts must assess the circumstances presented in endeavoring to “strike[ ] a reasonable balance” between the interest of protecting confidential information and the need to ensure effective litigation advocacy. See Brown Bag Software, 960 F. 2d at 1471.⁸

III. ANALYSIS

As the discussions regarding a blanket protective order evolved through the meet-and-confer process, the parties have agreed that information designated as confidential may be shared with an expert or consultant only if that person is not a past or current employee of a party or of a party's competitor, and, at the time of retention, is not anticipated to become an employee of a party or party's competitor. See, e.g., Docket No. 91-2 at 5 (Defendants’ proposed protective order). The lingering disputes at issue in the motion practice are more narrow: (1) whether the subject limitations should also apply to consultants of a party or competitor; and (2) whether the protective order should prohibit by name James Wolff and Samuel Gannon (or any company with whom they are affiliated as an employee or consultant) from receiving confidential information.

A. Language Regarding Consultants

The Court will first address the parties’ dispute as to whether current or former “consultants” of a party or competitor should be precluded from obtaining confidential materials as an “Expert” or “Consultant” in this litigation. See Docket No. 91 at 8. Defendants contend that the language is nonsensical and would prohibit the hiring of any consultant because any such person would be excluded given their position as a consultant. See id. at 6, 8. Plaintiffs respond that the intent is to prohibit business consultants from acting as litigation consultants. See Hearing Rec. (9/19/2023) at 10:21 – 10:22 a.m.

The terms of a blanket protective order are enforced according to the ordinary meaning of the language used and must be given a reasonable, common-sense interpretation in light of the blanket protective order's purpose. See Great-West Life & Annuity Ins. Co. v. Am. Econ. Ins. Co., No. 2:11-cv-02082-APG-CWH, 2013 WL 5332410, at *5 (D. Nev. Sept. 23, 2013) (citing Koninklijke Philips Elecs. N.V. v. KXD Tech., Inc., No. 2:05-cv-1532-RLH-GWF, 2007 WL 2407038, at *2 (D. Nev. Aug. 16, 2007)); see also in re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993); On Command Video Corp. v. LodgeNet Ent. Corp., 976 F. Supp. 917, 933 n.12 (N.D. Cal. 1997). A common sense reading of Plaintiffs’ proposed language is that it differentiates between litigation consultants (i.e., persons hired for the purposes of consulting a party for litigation purposes) and business consultants (i.e., non-employee persons, like independent contractors, paid to consult a company for business purposes). As such, the Court is not persuaded by Defendants’ objection to Plaintiffs’ proposed language of a “consultant of a Party or of a Party's competitor” being excluded as a “Consultant” with access to confidential information.

Having resolved the semantics issue, the Court turns to whether there is sufficient justification to issue a protective order prohibiting the flow of confidential information to not just “employees,” but also to business consultants of a party or competitor. In appropriate circumstances where the potential for competitive danger exists, courts have withheld access to confidential information from those acting as a business consultant within the given field. See, e.g., Intel Corp. v. Tela Innovations, Inc., No. 3:18-cv-02848-WHO, 2019 WL 2476620, at *13-14 (N.D. Cal. June 13, 2019); GPNE, 2014 WL 1027948, at *2; Symantec, 2012 WL 3582974, at *2-3. The record in this case demonstrates that business consultants may pose dissemination risks similar to those of employees and, indeed, some of the alleged malfeasants in this case act as business consultants within the industry. See, e.g., Hearing Rec. (9/19/2023) at 10:40 a.m.; id. at 10:45 a.m. (“Gannon ․ was also working on [the technology] as a consultant, developing the testing and things like that”). Given the potential danger that a business consultant might facilitate a competitor's improper use of another's trade secret information gained by viewing confidential discovery material, the protective order in this case should limit access to confidential information with respect to not just formal “employees” of a party or competitor, but also to business “consultants” of a party or a competitor.

B. Proscription of Sharing Confidential Information with Wolff and Gannon

The Court turns next to the dispute as to whether John Wolff and Samuel Gannon should be precluded by name from accessing confidential information. In the circumstances of this case, the Court finds that they should be.

There is no question that Plaintiffs have established a strong need for protective order restrictions in their trade secret and other confidential information. The record already establishes that highly sensitive information is at play in this case. See, e.g., Docket No. 78. This Court has also already found that Plaintiffs are likely to succeed on the merits of their trade secret misappropriation action, which is premised in significant part on allegations of Wolff and Gannon accessing, distributing, and misusing Plaintiffs’ secret information. See Docket Nos. 40, 52; see also Docket Nos. 12-1, 12-2 (arbitration award). Moreover, Wolff and Gannon were hired by Defendants to act as business consultants with respect to the product they were intending to bring to market, Hearing Rec. (9/19/2023) at 10:40 a.m., and Wolff has been active in assisting Defendants with litigating this case, see Docket No. 59 (declaration signed by Wolff). Plaintiffs also explain that separate litigation is ongoing against Wolff and Gannon subject to protective orders providing for Attorneys’ Eyes Only designations for particularly sensitive information. See Docket No. 93 at 12; see also Hearing Rec. (9/19/2023) at 10:28 – 10:29 a.m. Allowing Wolff and Gannon access to sensitive information as “experts” or “consultants” in this case may circumvent the protective orders in the other cases that prevent party access to sensitive information designated as Attorneys’ Eyes Only. Quite plainly, the game is not worth the candle if a plaintiff aggrieved of trade secret misappropriation must, as part of seeking recourse through litigation, provide the same alleged bad actors with its trade secret information to its further competitive detriment. In short, there is palpable risk of competitive harm to Plaintiffs if confidential information is shared with Wolff, Gannon, and those affiliated with them.

The Court balances the risk of competitive harm identified above with the risk the protective order may impair the ability to defend the case. Defendants stumble on that showing, falling back on conclusory assertions of litigation disadvantage. See, e.g., Docket No. 91 at 2 (asserting that Plaintiffs’ proposed protective order “would prejudice Defendants’ ability to defend [themselves] at the hearing on the preliminary injunction”). These conclusory assertions and speculation of litigation disadvantage are not sufficient to outweigh Plaintiffs’ showing of the risk of competitive harm. The record also does not support a finding of significant litigation disadvantage arising from prohibiting disclosure of confidential information to Wolff and Gannon. It appears that other experts and consultants may be available to provide Defendants with adequate assistance to defend this case. See, e.g., Hearing Rec. (9/19/2023) at 10:45 a.m. (defense counsel explaining that the potential consultants identified by Plaintiffs as alternatives to Wolff and Gannon “may very well be the best people in the nation for this case”).⁹ Moreover, Defendants represent that they have no intention of naming Wolff or Gannon as “experts.” Docket No. 91-1 at ¶ 8. The prospect that Wolff or Gannon might be tapped as litigation consultants, but will likely not serve as testifying experts, further undercuts an assertion that their access to confidential information is essential to presenting a defense. Symantec, 2012 WL 3582974, at *3.¹⁰

In short, Plaintiffs have made a strong showing as to the need to shield their confidential materials from the eyes of Wolff and Gannon, while Defendants have not made a meaningful showing of litigation disadvantage in adopting this provision into the blanket protective order.

IV. AWARD OF EXPENSES

Both sides seek an award of expenses with respect to this motion practice. Docket No. 91 at 10; Docket No. 93 at 13. There is a presumption that the loser of a motion for protective order must pay the reasonable expenses, including attorneys’ fees, incurred by the victor. See Fed. R. Civ. P. 26(c)(3) (incorporating expense provisions in Rule 37(a)(5)); see also Big City Dynasty v. FP Holdings, L.P., 336 F.R.D. 507, 513 (D. Nev. 2020). Defendants’ request for expenses is denied since they lost the instant motion. Plaintiffs’ request for expenses is denied on the basis of substantial justification for Defendants’ positions that hew closely to model protective orders adopted elsewhere. See Fed. R. Civ. P. 37(a)(5)(A)(ii).

V. CONCLUSION

For the reasons discussed above, Plaintiffs’ motion for a blanket protective order is GRANTED. The Court will issue the blanket protective order concurrently herewith.

IT IS SO ORDERED.

FOOTNOTES

1.   The Court cites herein to the CMECF pagination, not the pagination native to the papers.

2.   A transcript has not yet been prepared, so the Court cites herein to the audio recording.

3.   The Court has elsewhere determined that aspects of the case warrant secrecy from the public. See Docket No. 78; see also Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006) (sealing judicial records is warranted to prevent the release of trade secrets). The Court need not address specifics of the trade secrets at issue in resolving the matter at hand and will provide a limited factual background herein.

4.   Plaintiffs seek a protective order enabling the parties to designate discovery materials as confidential without obtaining specific judicial approval as to any particular document. Such an order is often referred to as a “stipulated protective order” because it is a routine matter that almost never requires motion practice. See Hologram USA, Inc. v. Pulse Evolution Corp., No. 2:14-cv-00772-GMN-NJK, 2014 U.S. Dist. Lexis 206171, at *6 n.1 (D. Nev. Oct. 24, 2014). In this case, counsel were unable to agree on terms, so the Court refers to the pending request as seeking entry of a “blanket protective order.” See Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1133 (9th Cir. 2003).

5.   Different levels of protection may be afforded various discovery materials depending on the sensitivity of the information. When information is so sensitive that a litigation opponent itself should not access it, for example, a designation may be permitted that the information is viewable only to attorneys. See Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1202-03 (10th Cir. 2014) (quoting in re City of New York, 607 F.3d 923, 935 (2d Cir. 2010)). In this case, the dispute regarding access by experts and consultants is presented as being uniform across the different levels of protection, so the Court refers to “confidential” information without further specificity.

6.   Some of the case law cited herein addresses a slightly different context, such as deciding whether to provide an opponent's in-house counsel with access to sensitive discovery materials. See, e.g., Brown Bag Software, 960 F.2d at 1470-72. Nonetheless, such case law also informs decisions as to whether experts and consultants should have such access.

7.   Prior to entering blanket protective orders, courts need not make a finding that particular information meets the definition of being a “trade secret.” Nutratech, 242 F.R.D. at 555 n.4 (“The Court finds that such a showing is unnecessary, as it is sufficient for Defendant to show that the information is confidential and that harm may result from the disclosure”); Fed. R. Civ. P. 26(c)(1)(G) (providing for issuance of a protective order “requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way” (emphasis added)). If a dispute arises as to whether particular information is properly designated as confidential, blanket protective orders typically provide a mechanism to challenge designations that are made.

8.   The papers do not provide a robust discussion of the governing standards and legal landscape. But see Docket No. 89. Nonetheless, the Court has its own duty in resolving motion practice to correctly identify and apply the law. Bateman v. U.S. Postal Serv., 231 F.3d 1220, 1224 (9th Cir. 2000).

9.   Rather than meaningfully attempt to justify sharing confidential information with Wolff and Gannon, Defendants ask the Court to punt on the issue subject to later objections, conferral efforts, and emergency motion practice. See Docket No. 91 at 8; see also Hearing Rec. (9/19/2023) at 10:40 – 10:41 a.m. The parties are currently engaging in expedited discovery in advance of a preliminary injunction hearing, the parties were provided an opportunity to make their respective showings, and there does not appear to be a reasonable dispute based on the current record as to whether Wolff and Gannon should be permitted access to confidential information. Given these circumstances, the Court will not delay resolving this dispute.The Court anticipates its blanket protective order is appropriate for general purposes and the order issued will remain in effect after the preliminary injunction issues are resolved. Nonetheless, the Court is mindful that it is making this determination based on expedited motion practice during the preliminary stages of the case. Cf. Center for Biological Diversity v. Salazar, 706 F.3d 1085, 1090 (9th Cir. 2013) (recognizing oft-repeated assertion that “a preliminary injunction decision is just that: preliminary”). The protective order provides for potential modification if the need arises. See Docket No. 93 at 37; see also Empire Blue Cross & Blue Shield v. Janet Greeson's A Place for Us, Inc., 62 F.3d 1217, 1219 (9th Cir. 1995) (making plain that district courts possess discretion to modify protective orders). If the circumstances so warrant, a motion may be filed to modify the protective order after exhausting a rule-compliant conferral process. Unless and until such request is granted, the parties are strictly prohibited from providing confidential information to Wolff, Gannon, and any other excluded person.

10.   Defendants lean heavily on the language in model protective orders. E.g., Docket No. 91 at 2. Model protective orders can be helpful in many cases. Model protective orders are not, however, the be-all and end-all in determining the proper scope of protection in any particular case. Courts “may be as inventive as the necessities of a particular case require” in crafting a protective order. Phillips, 307 F.3d at 1212 (quoting 8 Wright, Miller, & Marcus, Federal Practice and Procedure, § 2036, at 489 (2d ed. 1994)).

Nancy J. Koppe, United States Magistrate Judge