163 F.R.D. 329 | N.D. Cal. | 1995
I. Introduction and Background
This is a miscellaneous discovery proceeding. In the underlying action venued in the United States District Court for the District of Delaware, No. 95-222, plaintiff Compaq Computer Corp. (“Compaq”) alleges that defendant Packard Bell Electronics, Inc. (“Packard Bell”) has engaged in false advertising in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), unfair and deceptive trade practices in violation of the Delaware Uniform Deceptive Trade Practices' Act, 6 Del.Code § 2531 et seq., and unfair competition under Delaware common law.
On or about May 12, 1995, Packard Bell served a pair of subpoenas on non-party Acer America Corporation (“Acer”), a San Jose-based corporation which is a much smaller direct competitor of both Packard Bell and Compaq.
Acer asserts that the subpoenas seek its trade secrets and other confidential and proprietary information, including identification of its customers and cost structures. Acer notes that it undertakes extensive efforts to maintain the secrecy of the sorts of information sought by Packard Bell.
Packard Bell responds that its subpoenas are integral to its efforts to obtain discovery establishing that its practices are in line with industry standards:
“All manufacturers of computers ... receive a significant number of returns, the great majority of which are for customer convenience (i.e., result from buyers’ remorse and contain no defects). No manufacturer throws these computers into a landfill. All computers or their components are recycled.”9
Packard Bell has offered to limit the scope of its subpoenas, although it has not proposed specific limits. Further, Packard Bell is willing to limit the subject matter of its subpoenas to “the procedures and policies of Acer with respect to returned computers and computer components, along with information related to the percentage of personal computers returned”.
“To the extent that the subpoenas request additional information, Packard Bell agrees not to seek that information. Moreover, to the extent that complying with this limited request would prove onerous, Packard Bell is willing to work with Acer to limit the requested information even further.”12
Finally, Packard Bell is willing to stipulate to a protective order that the information obtained through its subpoenas be used only for defense of the underlying action and is also willing to stipulate that Acer’s disclosures would be subject to the protective order already in place in the underlying action. Pertinently, the existing protective order restricts employees and agents of the litigants—i.e., Compaq and Packard Bell—and their in-house counsel from having access to documents marked “special confidential”.
Compaq has not taken a position on Acer’s motion and did not appear at the hearing thereon.
Substantially-identieal subpoenas have been served by Packard Bell on ten other personal computer manufacturers, including Tandy Corporation; Texas Instruments, Inc.; International Business Machines, Inc.; Zeos International, Ltd.; AST Research, Inc.;
II. Discussion
“On timely motion, the court by which a subpoena was issued shall quash or modify the subpoena if it ... requires disclosure of privileged or other protected matter and no exception or waiver applies, or subjects a person to undue burden.” Fed.R.Civ.P. 45(c)(3)(A)(iii) and (iv). Additionally, “[u]pon motion by a party or by the person from whom discovery is sought ... and for good cause shown, the court in which the action is pending or alternatively, on matters relating to a deposition, the court in the district where the deposition is to be taken may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including ... that the disclosure or discovery not be had ... [and/or] that a trade secret or other confidential research, development, or commercial information not be revealed or revealed only in a designated way.” Fed.R.Civ.P. 26(c)(1) and (7).
A. Relevance of Discovery Sought
“A district court whose only connection with a case is supervision of discovery ancillary to an action in another district should be ‘especially hesitant to pass judgment on what constitutes relevant evidence thereunder’. Where relevance is in doubt ... the court should be permissive.” Truswal Systems Corp. v. Hydro-Air Engineering, Inc., 813 F.2d 1207, 1211-12 (Fed.Cir. 1987) (citation omitted).
Packard Bell contends that the information sought through its pair of subpoenas served upon Acer is relevant to define the term “new” and to define the term “materiality”.
1. Acer’s standing to assert irrelevance
Packard Bell also argues (in a footnote) that Acer, as a non-party, lacks standing to assert non-relevance in seeking to quash a subpoena.
“It is clear that ... relevance of the subpoenaed information has an important bearing upon the determination of claim that a subpoena duces tecum is unreasonable or oppressive, as well as to a claim of confidentiality for the material sought to be produced, and that a sufficient showing of need for the information will suffice to overcome such objections—albeit compliance with the subpoena may be subjected to protective orders or conditioned upon payment of expenses by the party seeking disclosure.”
New York State Energy Research v. Nuclear Fuel Service, 97 F.R.D. 709, 712 (W.D.N.Y. 1983) (Elfvin, J.); see also, Shields Enterprises, Inc. v. First Chicago Corp., 1988 WL 142200 (N.D.Ill., December 28, 1988); Fein v. Numex Corp., 92 F.R.D. 94, 96 (S.D.N.Y. 1981) (“it is difficult to imagine a considered evaluation of burdensomeness in the abstract, without balancing the degree of burdensomeness against the extent to which the discovery sought is relevant to the issue in the litigation”). This Court finds Judge Elfvin’s reasoning more persuasive than that of the authorities cited by Packard Bell. Obviously, if the sought-after documents are not relevant nor calculated to lead to the discovery of admissible evidence, then any burden whatsoever imposed upon Acer would be by
2. definition of ‘new’
To prevail on a claim of false advertising under the Lanham Act, a plaintiff must demonstrate that the defendant’s advertisements are either literally false or are misleading to the consuming public. Sandoz Pharmaceuticals v. Richardson-Vicks, Inc., 902 F.2d 222, 228-29 (3rd Cir.1990).
Acer argues that where the defendant is not alleged to have made an affirmative misrepresentation, but merely an omission of material information, the issue of truth or falsity is dispensed with and the only question is whether the fact of the omission misleads the public. This argument is misguided. First, Compaq alleges in its complaint an affirmative misrepresentation on Packard Bell’s part: “Packard Bell, misrepresents its computers as new ...”
3.- definition of ‘materiality’
“[Wjhere advertisements are not literally false, [the] plaintiff bears the burden of proving actual deception by a preponderance of the evidence. Hence, [the plaintiff] cannot obtain relief by arguing how consumers could react; it must show how consumers actually do react.” Sandoz Pharmaceuticals, supra, 902 F.2d at 228-29 (emphasis in original; citations omitted). This Third Circuit language in effect establishes a materiality requirement, i.e., merely misleading advertising is-not actionable under the Lanham Act unless it actually affects consumer activity.
Packard Bell argues that the issue whether other personal computer manufacturers sell products containing recycled parts is relevant to the question whether consumers would be disinclined to purchase PC’s which they know are made from recycled parts. Indeed, Packard Bell seemingly would be a strong position if it could show both that recycling is standard in the industry and that there is no meaningful performance differential between recycled and non-recycled products. Consumers possessed of such knowledge doubtless would not consider significant to their purchase decisions whether a given brand of personal computer uses recycled parts. Packard Bell’s subpoenas are therefore at least calculated to lead to the discovery of relevant information concerning whether the use of recycled parts is,
4. relevance of individual requests
i. document requests
Document Request No. 1 seeks documents concerning Acer’s gross number of personal computer returns. The Court finds that the subject matter is relevant but that a summary or compilation document will adequately satisfy Packard Bell’s interests without subjecting Acer to the burden of producing voluminous documents. See Fed.R.Evid. 1006.
Request No. 2 seeks documents concerning Acer’s level of product returns and allowances as a percentage of gross sales. The Court finds that this request does not seek relevant information nor information likely to lead to the discovery of relevant information. Acer’s objections thereto are sustained.
Requests Nos. 3 through 7 seek documents concerning Acer’s “practices, policies and procedures” regarding returned products and their subsequent re-use. The Court finds that these documents are all. relevant.
Request No. 8 seeks documents concerning the subsequent sale of products with recycled parts “and any disclosures regarding the use of returned parts in such products”. The Court finds that only documents which refer, relate to or evidence “disclosures” regarding the use of returned parts are relevant.
Requests Nos. 9 and 12 seek documents concerning discount levels and customer incentives. The Court finds that such documents are not relevant nor calculated to lead to the discovery of relevant evidence. The Court sustains Acer’s objections to these requests.
Requests Nos. 10 and 11 seek documents concerning product disassembly and the re-use of disassembled parts. The Court finds that such documents are relevant.
Request No. 13 seeks documents concerning industry standards regarding the re-use of personal computer component parts. The Court determines that such documents are relevant.
Finally, Requests Nos. 14 and 15 seek documents in Acer’s possession containing information about practices of Compaq and Packard Bell, respectively, regarding the re-use of component parts from disassembled products. The Court determines that such documents are relevant.
ii. deposition subjects
The Court finds that all of the deposition topics are relevant to the underlying litigation.
B. Acer’s confidentiality interest
1. privilege claims
“When information subject to a subpoena is withheld on a claim that it is privileged or
Acer’s formal objections to the subpoenas contain general objections “to the extent they [the subpoenas] seek ... documents protected by the attorney-client privilege, work product doctrine, or other applicable privilege against disclosure”.
2. commercially-sensitive information
Acer argues that whether or not the subpoenas seek relevant information they should be quashed because they seek Acer’s trade secrets and other confidential commercial information. The Court is persuaded that Acer’s procedures for recycling computer parts do constitute important proprietary information. Further, Acer has made a strong showing that it has historically sought to maintain the confidentiality of this information. Therefore, the Court presumes that all information sought pursuant to Packard Bell’s subpoenas consists of trade secrets and/or other eommercially-sensitive information.
3. ‘substantial need’/protective order
“If a subpoena requires disclosure of trade secrets or other confidential research, development or commercial information ... or, if the party in whose behalf the subpoena is issued shows a substantial need for the testimony or material that cannot be otherwise met without undue hardship and assures the person to whom the subpoena is addressed will be reasonably compensated, the court may order appearance or production only upon specified conditions.” Fed.R.Civ.P. 45(c)(3)(B)(i). “A survey of the relevant case law reveals that discovery is virtually always ordered once the movant has established that the secret information is [both] relevant and necessary.” Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288, 293 (D.Del.1985) (citing cases).
Acer argues that Packard Bell does not have a “substantial need” for its confidential documents because Packard Bell can establish industry practice through retaining an industry expert. This argument is flawed, however, because although Packard Bell will no doubt introduce expert testimony at trial as to the industry standard regarding sale of personal computers using recycled parts, such testimony must be based on something more than mere surmise. The expert will need to take a survey of competitor practices and, because the sort of information needed is maintained confidentially by Acer—and presumably the other subpoenaed manufacturers—the survey cannot be conducted informally but only through the formal subpoena power of the federal courts.
Packard Bell has offered to stipulate to an appropriate protective order which would protect Acer’s confidential information from being used by its competitors. The Court determines that production of Acer’s commercially-sensitive responsive documents would be appropriate if these documents are classified “special confidential” under the existing protective order in the underlying litigation. Packard Bell’s and Compaq’s employees and agents, including in-house counsel, would thus be prohibited from accessing these documents. Additionally, the Court concludes that attendance at the deposition(s) of Acer’s corporate deponent(s) shall be restricted to outside counsel for the interested parties, and that the transcript(s) of such deposition(s) shall be sealed and classified “special confidential” within the meaning of the existing protective order in the underlying litigation.
Acer argues, however, that the existing protective order is inadequate because “[t]he penchant of Compaq to sue a competitor to gain an advantage in the marketplace ... shows that a protective order in this ease would protect little indeed”.
C. Burden of Production
As noted, a court must quash or modify a subpoena which “subjects a person to undue burden”. Fed.R.Civ.P. 45(e)(3)(A)(iv). Acer has established that the requests would involve substantial person-hours which might otherwise be devoted to profitable use.
“Although party witnesses must generally bear the burden of discovery costs, the rationale for the general rule is inapplicable where the discovery demands are made on non-parties. Nonparty witnesses are powerless to control the scope of litigation and discovery, and should not be forced to subsidize an unreasonable share of the costs of a litigation to which they are not a party.”
United States v. Columbia Broadcasting System, Inc., 666 F.2d 364, 371 (9th Cir.), cert. denied, 457 U.S. 1118, 102 S.Ct. 2929, 73 L.Ed.2d 1329 (1982).
III. Order
Accordingly, IT IS HEREBY ORDERED that
(1) Acer’s motion to quash the pair of subpoenas served upon it by Packard Bell or, alternatively, for a protective order is GRANTED IN PART AND DENIED IN PART; (2) Acer’s objections to Document Requests Nos. 2, 9 and 12 are SUSTAINED; (3) Acer’s objections to Document Requests Nos. 1 and 8 are SUSTAINED IN PART
SO ORDERED.
The instant motion has been automatically referred to a magistrate judge pursuant to the United States District Court for the Northern District of California Consolidated Standing Order re Assignment of Matters to United States Magistrate Judges in San Jose, filed August 3, 1994, which pertinently provides: "discovery disputes arising under ... Rule 45 of the Federal Rules of Civil Procedure shall be heard and determined by the assigned Magistrate Judge in accordance with Rule 72(a) of the Federal Rules of Civil Procedure and 28 U.S.C., section 636(b)(1)(A)”.
. A copy of the complaint in the underlying action is attached as Exhibit D to the Declaration of Acer’s counsel, Carl Chamberlin (“Chamberlin Decl.”).
. See Declaration of Packard Bell's attorney, Timothy Thornton ("Thornton Deck”), ¶ 2 and Exhibit A (copy of Wall Street Journal article, dated May 1, 1995 at p. B6, listing the top five vendors). According to the Wall Street Journal, Packard Bell controls 12.7 percent of the market, while Compaq controls 11.4 percent.
. Acer competes directly with both Packard Bell and Compaq in the retail sale of personal computers. Declaration of Acer’s director of business development, Todd Kleppe ("Kleppe Deck"), ¶ 4. Acer's market share is uncertain but it is not among the top five vendors, which also include Apple Computers, IBM and Gateway 2000. See Thornton Deck, ¶ 2 and Exhibit A (copy of Wall Street Journal article). Gateway 2000, the fifth leading manufacturer, controls only 5.4 percent of the market. Acer’s share is thus smaller still.
. Copies of the respective subpoenas are attached as Exhibits A and B to the Chamberlin Deck
. A copy of the objections is attached as Exhibit C to the Chamberlin Deck
. Chamberlin Decl. re Ex Parte Application for Hearing on Shortened Time, ¶ 3. Counsel for Acer and Packard Bell met and conferred regarding the subpoenas pursuant to Local Rule 230-4, but were unable to resolve the matter. See Chamberlin Decl., ¶ 7; Declaration of Packard Bell's attorney, Timothy Thornton ("Thornton Decl.”), ¶ 6 and Exhibit E (copy of meet-and-confer letter from Thornton to Chamberlin, dated June 7, 1995); Suppl. Chamberlin Decl., ¶ 7 and Exhibit D (copy of meet-and-confer letter from Chamberlin to Thornton, dated June 13, 1995).
. See Kleppe Deck, ¶ 9 (listing steps taken by Acer to limit access to the documents).
. Declaration of Robert Marks (“Marks Decl.”), ¶ 4.
. Packard Bell's Brief, at p. 1.
. Id.., at p. 5.
. Id.
. Id. (emphasis added).
. A copy of the existing protective order in the underlying action is attached as Exhibit F to the Thornton Decl.
. Packard Bell's attorney represented at the hearing that he had been authorized to inform the Court of Compaq’s neutrality.
. See Suppl. Chamberlin Decl., ¶ 5 ("I believe, based on ... conversations with counsel for other computer manufacturers, that Acer's motion will be the first one to be decided.").
. Packard Bell’s Brief, at p. 6 n. 1, citing Ghandi v. Police Dept. of City of Detroit, 74 F.R.D. 115 (E.D.Mich.1977) (expressing “serious reservations about the propriety of a non-party deponent moving to quash a subpoena duces tecum on the ground that the information sought is not relevant to the pending action ... [because the deponent] has no interest in the outcome"), and, Cooney v. Sun Shipbuilding and Drydock Co., 288 F.Supp. 708 (E.D.Pa.1968) ("having no interest in the outcome of the case, arguments as to 'relevancy' and 'materiality' are not appropriate concerns of [non-party] witnesses").
. Third Circuit law is controlling in the underlying action, which is venued in a district court within that circuit. Thus, Third Circuit authorities are most pointed as to what is relevant on Compaq's federal Lanham Act claim.
. Chamberlin Decl., Exhibit D (complaint, at ¶1).
. Id. (complaint, at p. 6). The complaint is sloppy with its use of conjunctions. Count I of the complaint for violation of the Lanham Act is labelled "False and Misleading Advertising", but paragraph 20 thereof alleges "false or misleading representations”. (Emphasis added). The disparity is not material. Literal falsity is obviously an issue in the lawsuit.
. Packard Bell also contends that the issue whether several of its competitors are using recycled parts is relevant to the appropriate remedy because the imposition of damages or injunctive relief would supposedly put Packard Bell at a competitive disadvantage vis-a-vis competitors doing the same thing. This argument, to the effect that "everybody's doing it, so it’s unfair to punish me”, has no resonance. As Packard Bell admits, the final decision in Compaq's suit against it "will define, or at least, greatly influence industry practice in this area". Packard Bell’s Brief, at p. 8.
Presumably, then, a finding of liability against Packard Bell should dissuade other miscreants from continuing to sell PCs using recycled parts as "new”. Packard Bell would therefore not be at any competitive disadvantage.
. Acer admits that "the extent to which other computer manufacturers disclosed their practices to the public would conceivably be relevant to the consumer's knowledge and the materiality of Packard Bell’s nondisclosure”. Acer's Reply Brief, at p. 9 (emphasis in original). Acer is, of course, one of these other computer manufacturers, and information about its disclosures is therefore, by Acer's own admission, relevant.
. Acer objects that the broad definition of the phrase "all documents concerning” within the subpoena duces tecum renders this an umbrella request which subsumes all the others. Acer’s concerns are adequately addressed, though, if this request is given a plain meaning and is construed to encompass documents about the practices, not of Acer, but of Acer's competitors and of the industry generally.
. Chamberlin Decl., Exhibit C (copy of objections, at pp. 1-2 and passim [reiterating same objections in response to individual document requests]).
. Acer argues that an industry standard "must by definition already be known " in the industry. Acer’s Reply Brief, at p. 8 (emphasis in original). This proposition is dubious. An industry standard may merely amount to a prevalent practice, with a variety of vendors independently, and secretively, adopting the practice because of its evident economic advantages. Obversely, although an industry practice may be known generally within the industry, its specific application by individual practitioners may be shrouded in mystery. In short, an industry standard need not necessarily be widely known in the industry, merely widely practiced.
. Acer notes that, because it controls only a very small (but unspecified) share of the PC market, its information provides only one small piece of the puzzle. Acer therefore poses a paradox: if Packard Bell is unable to obtain additional information from several larger competitors, Acer's data alone will be insufficient to establish industry practice; on the other hand, if Packard Bell does obtain the additional information, Acer’s data is surplusage. This apparent conundrum is a red herring. Acer's information will be illustrative, albeit not dispositive, of industry practice regardless whether Packard Bell is able to obtain information from its other competitors. The whole picture may be greater than the sum of its parts, but there can be no picture at all unless the parts are collected one-by-one.
. Acer’s Reply Brief, at p. 14.
. See Marks Deck, ¶ 4 (quoted hereinabove).
. Compaq's failure to appear at the hearing on this motion, or to take a position thereon, does not relieve it from the obligation of complying with the Court's protective order. The Court is informed by counsel for Packard Bell, Mr. Thornton, that Compaq had notice of the motion and hearing date and that he had been authorized to indicate that Compaq was taking no position on the motion. Therefore, Compaq cannot reasonably complain that it should not be bound by applicable provisions of this Order.