Opinion
No. 01 Civ. 5012 (LTS) (GWG), 01 Civ. 10798 (LTS) (GWG)
October 4, 2002
Peter T. Cobrin, David W. Denenberg, and Oren J. Warshavsky, Gibbons, Del Deo, Dolan, Griffinger Vecchione, New York, NY., Attorneys for Plaintiffs.
Roger D. Taylor, R. Bruce Bower, and William B. Dyer, Finnegan, Henderson, Farabow, Garrett Dunner, LLP., Atlanta, GA., Attorneys for Defendants.
OPINION AND ORDER
A number of the defendants in these actions have moved for a protective order to preclude disclosure of information relating to sales of their products. For the reasons stated below, defendants' motion is denied.
All the defendants in these actions have joined in the motion with the exception of defendants Fujitsu America, Inc., Motorola, Inc., Lucent Technologies, Inc., Nikon, Inc., Western Digital Corporation, Evergreen Technologies, Inc., and Quadmotion Incorporated.
I. FACTUAL BACKGROUND
A. The Parties' Contentions
______Dynacore Holdings Corporation and Dynacore Patent Litigation Trust (collectively "Dynacore") have brought these actions claiming patent infringement by the defendants. Dynacore is the owner of U.S. Patent No. 5,077,732 ("the `732 Patent"), which was initially issued on December 31, 1991 and confirmed on April 2, 2001. See Preliminary Pre-Trial Statement ("Pre-Trial Statement"), dated March 14, 2002 (reproduced in Declaration of R. Bruce Bower in Support of Defendants' Motion for a Protective Order ("Bower Decl.") Exhibit G), at 2, 9. The `732 Patent is entitled "LAN With Dynamically Selectable Multiple Operational Capabilities." See id. at 3. The invention described in the `732 Patent essentially purports to facilitate enhanced distribution of information through a Local Area Network. See `732 Patent (reproduced in Bower Decl. Exhibit F), at 2.
Dynacore alleges that the defendants have infringed upon the `732 Patent through the sale of products that comply with an industry standard known as "IEEE 1394," which was established by the Institute of Electrical and Electronics Engineers. The IEEE 1394 standard was developed to facilitate a high speed interface between electronic peripheral devices and computers. See Pre-Trial Statement at 3. The defendants either manufacture, use or sell products that are IEEE 1394-compliant. One of the defendants' potential defenses to the claims in these suits is that the `732 patent is invalid — and therefore no infringement could occur — because the `732 Patent was "obvious" under 35 U.S.C. § 103. See, e.g., Pre-Trial Statement at 8, 13, 15; Memorandum in Support of Defendants' Motion for a Protective Order ("Def. Mem."), filed August 27, 2002, at 10 n. 8.
By Order dated March 22, 2002, District Judge Laura T. Swain issued an order bifurcating discovery in this matter into a liability phase and a damages phase. See Pre-Trial Scheduling Order #1, issued March 22, 2002 (Docket #99). Discovery on damages has not yet begun. The case has been referred to the undersigned for adjudication of discovery disputes.
B. The Instant Motion
On July 3, 2002, Dynacore noticed the depositions of a number of the defendants pursuant to Fed.R.Civ.P. 30(b)(6). Included in the subject matter of the notice were requests for information and/or documents pertaining to the sales of defendants' products utilizing IEEE 1394-compliant devices. See Notice of Deposition ("Dep. Notice"), dated July 3, 2002 (reproduced in Bower Decl. Exhibit B), at 2-3. Dynacore requested that each defendant provide "annual sales on a unit and dollar basis for each [IEEE 1394 compatible] product," and "[a] summary showing annual sales on a unit and dollar basis for each product defendant sells and/or offers for sale that is identified as IEEE 1394 compatible." Dep. Notice at 3. The defendants have moved for a protective order to avoid disclosure of this information.
II. DISCUSSION
The defendants raise a number of grounds in support of their motion. They argue that sales information is not relevant to the liability discovery currently underway in this case; that a prior ruling of the Court bars discovery of this kind; that the sales information is too sensitive to be produced; and that it would be burdensome to produce it. Each argument is discussed below.
A. Relevance
Under the Federal Rules of Civil Procedure, a party may discover any non-privileged information "that is relevant to the claim or defense of any party." Fed.R.Civ.P. 26(b)(1). Dynacore asserts that information on sales is relevant to the defendants' potential defense of "obviousness" under 35 U.S.C. § 103.
Under the doctrine of obviousness, a patent is invalid if the subject matter sought to be patented would have been obvious at the time of the invention. See, e.g., Ryko Mfg. Co. v. Nu-Star, Inc., 950 F.2d 714, 716 (Fed Cir. 1991); see also 35 U.S.C. § 103 (a) ("A patent may not be obtained . . . [if] the subject matter as a whole would have been obvious"). If the defendants successfully challenge the `732 patent on the ground of obviousness, they would not be liable for plaintiffs' claim of infringement. See 35 U.S.C. § 282 (2); see also Ever-Wear, Inc. v. Wieboldt Stores, Inc., 427 F.2d 373, 376 (7th Cir. 1970) ("there can be no infringement of an invalid patent") (citations omitted).
Four elements are used to determine whether a claimed invention was obvious: "(1) the scope and content of the prior art; (2) the level of ordinary skill in the prior art; (3) the differences between the claimed invention and the prior art; and (4) objective evidence of nonobviousness." Brown Williamson Tobacco Corp. v. Philip Morris Inc., 229 F.3d 1120, 1124 (Fed. Cir. 2000) (citations omitted).
With respect to the fourth element — objective evidence of nonobviousness — a court will examine "secondary factors" to determine whether an invention was or was not obvious. One of these factors is the commercial success of the product. See Graham v. John Deere Co., 383 U.S. 1, 17 (1966). The theory is that a commercially successful product is not likely to have been an obvious innovation — otherwise, presumably someone other than the patent holder would have thought to undertake this "obvious" innovation in order to reap the benefit of its commercial success. See Herbert F. Schwartz, Patent Law and Practice § 4.1.D.4 at 80 (3d ed. 2001); accord Symbol Technolgies, Inc. v. Opticon, Inc., 935 F.2d 1569, 1578-79 (Fed. Cir. 1991) ("Nonobviousness is suggested by the failure of others to `find a solution to the problem which the patent[s] in question purport to solve.'") (quoting Note, Subtests of "Nonobviousness": A Nontechnical Approach to Patent Validity, 112 U. Pa. L. Rev. 1169, 1173 (1964)); accord W.L. Gore Assoc., Inc. v. Garlock, Inc., 721 F.2d 1540, 1555 (Fed. Cir. 1983) ("Considering the long felt need for those products and the obvious commercial advantage to be gained by meeting that need, it is reasonable to conclude that the claimed products of the `390 patent would not have been obvious"), cert. denied 469 U.S. 851 (1984); see also Brown Williamson, 229 F.3d at 1130 (the success of an alleged infringing product can demonstrate the commercial success of a patented invention). Thus, the plaintiffs wish to uncover any information showing commercial success in order to counter defendants' potential attack on the patent as obvious.
The defendants' objection to the relevance of their sales information is unclear. See Def. Mem at 9-10. Certainly, they have not offered to obviate the need for the requested discovery by stipulating to the commercial success of the product. Indeed, they have expressly asserted their right to raise obviousness as a defense. Pre-Trial Statement at 8, 13. Case law makes plain that sales information is highly relevant to the issue of commercial success and therefore to obviousness. See, e.g., Kansas Jack, Inc. v. Kuhn, 719 F.2d 1144, 1151 (Fed. Cir. 1983). Commercial success is "usually shown by significant sales in a relevant market." J.T. Eaton Co. Inc. v. Atlantic Paste Glue, Co., 106 F.3d 1563, 1571 (Fed. Cir. 1997); see also Chubb Integrated Sys. Ltd. v. Nat'l Bank of Washington, 103 F.R.D. 52, 57 (D.D.C. 1984) ("Courts have indicated that the following areas of inquiry are probative of commercial success: volume of sales, . . . dollar amounts"). The Federal Circuit has held that "evidence of secondary considerations may often be the most probative and cogent evidence in the record."Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1538 (Fed. Cir. 1983); accord Arkie Lures, Inc. v. Gene Larew Tackle, Inc., 119 F.3d 953, 957 (Fed. Cir. 1997).
The financial information relevant to commercial success may not be of the same level of detail as the information relevant to damages. See, e.g., Lemelson v. Apple Computer, Inc., 28 U.S.P.Q.2d 1412, 1423 (D. Nev. 1993) ("[d]etailed financial information is not necessary to prove commercial success"); Paine, Webber, Jackson Curtis, Inc. v. Merrill Lynch, Pierce, Fenner Smith, Inc., 587 F. Supp. 1112, 1116 (D. Del. 1984) ("commercial success is not ordinarily determined by a detailed analysis of exhaustive and intricate financial data, such as is required for proof of damages"). Here, Dynacore has asked for simple information about the number of defendants' products sold with IEEE 1394 and the price of such products. It does not seek profit margins or other indicia of profitability. Its request is thus narrowly tailored to the issue of commercial success. Indeed, in cases where liability and damages issues have been bifurcated for trial, courts have permitted discovery of sales information during the liability phase. See Intellectual Property Development Corp. v. UA-Columbia Cablevision of Westchester, Inc., 1995 WL 81276, at *2 (S.D.N.Y. Feb. 28, 1995) ("In order to allow plaintiffs to explore the issue of commercial success for the liability [phase], the total sales information . . . will be discoverable."); Russell William, Ltd. v. ABC Display Supply, Inc., 1991 WL 42906, at *1 (E.D.N.Y. Mar. 26, 1991) ("Damages discovery will be stayed except that total sales information . . . information relevant to liability — will be discoverable."). The information sought is thus relevant to this liability phase of discovery.
The court rejects the defendants' suggestion that sales information is irrelevant because the IEEE 1394 element is only one of the available features on the products at issue. Def. Mem. at 9-10. Even if it is but a single feature, the commercial success of this feature must necessarily have some relationship to the sale of the products in which it is contained.
B. Law of the Case
Implicitly invoking the doctrine of "law of the case," defendants also assert that the discoverability of the sales data was previously decided by Judge Swain during a pre-trial conference and should not be revisited. See Def. Mem. at 5-6. Defendants point to Judge Swain's statement that she was ordering bifurcation of liability and damages discovery due to "competitive information concerns," Transcript of March 21, 2002 Conference ("Tr.") (reproduced in Bower Decl. Exhibit H), at 18; that she was concerned about the disclosure of "sales information," Tr. 19; and that both the Court and the parties assumed that information on sales and units produced would be part of damages discovery. Tr. 20, 21.
These statements made during the pretrial conference are no bar to the discovery sought for several reasons. First, as part of the same conference, Judge Swain stated her view that discovery as to "manufacture [and] sale" of the alleged infringing products was not "outside the pale of liability phase." Tr. 21. Second, Judge Swain's concerns regarding disclosure of "competitive information," discussed further in the next section, can be addressed without barring discovery altogether. Third, even if Judge Swain (and the parties) assumed that sales information would be part of discovery in the damages phase, this hardly represented a considered ruling by the Court regarding the discoverability of that information for purposes of liability. No party raised the issue of "obviousness" during the conference and thus did not raise before the Court the relevance that sales information would have to this issue.
Finally, the law of the case doctrine provides ample discretion for a district court to reconsider its own prior rulings. See, e.g., Lewis v. Whelan, 99 F.3d 542, 545 (2d Cir. 1996); United States v. Uccio, 940 F.2d 753, 758 (2d Cir. 1991); Scottish Air Int'l. Inc. v. British Caledonian Group. PLC, 152 F.R.D. 18, 24-25 (S.D.N.Y. 1993); see generally DiLaura v. Power Auth. of State of New York, 982 F.2d 73, 76 (2d Cir. 1992) (law-of-the-case doctrine "does not limit a court's power to reconsider its own decisions prior to final judgment") (internal quotation marks and citations omitted). Here, even if it could be said that there was a prior ruling on the discoverability of the information sought, it was not a ruling that actually considered the legal issues now being raised by the plaintiff and thus should not be deemed as constituting a ruling that forms part of the "law" of this case.
C. Need for Confidentiality
Defendants argue a protective order is necessary to protect confidential information from competitors. See Def. Mem. at 8-10. They cite to a dissenting opinion from the Federal Circuit for the proposition that "the confidentiality of a business's sales statistics is incontrovertible." Reply to Plaintiffs' Opposition to Defendants' Motion for a Protective Order, dated September 12, 2002, at 5 (citing Truswal Sys. Corp. v. Hydro-Air Engineering, Inc., 813 F.2d 1207, 1213 (Fed. Cir. 1987) (Rich, J., dissenting)). However, as the majority in that case explained, "[t]he normal and expected reluctance of business firms to disclose sales information . . . is in itself an insufficient basis on which to deny discovery of that information under appropriate protection from divulgement to competitors." Truswal, 813 F.2d at 1211. There is currently a confidentiality order in effect. See Order, issued July 31, 2002 (Docket #126). The defendants do not explain why this order is insufficient to meet their concerns regarding the disclosure of the information requested. In the event that defendants require further limitations on disclosure with respect to this particular data, they may attempt to reach agreement with counsel on a revised or supplementary protective order. If they are unable to do so, they are free to seek a pre-motion conference to address this issue with the Court. The Court is confident that some protective order can be fashioned that will allow plaintiff's access to the highly relevant information they seek.
D. Burdensomeness
Defendants also argue briefly that production of the requested information would be overly burdensome. See Def. Mem. at 9. To support this contention, defendants have submitted a declaration from the representative of one of the defendants joining in this motion: a financial manager of defendant Compaq Computer Corporation who asserts that he "believes" it would take "the efforts of several people over the course of several weeks" to compile the requested information because Compaq does not maintain data responsive to Dynacore's request in its current form. See Declaration of William A. Bowden in Support of Defendants' Motion for a Protective Order, dated August 21, 2002, at ¶¶ 4, 6. No explanation is given for why it would take several weeks to compile the information; what specific efforts would be involved; whether he means that "several weeks" of frill time work would be involved; or what the cost to Compaq would be. Further, there is no reason to believe that the burden on Compaq would be the same as for other defendants. Indeed, it may be that the other defendants can easily access the information sought.
In the absence of specific facts showing burdensomeness, the defendants have not demonstrated that "the burden or expense of the proposed discovery outweighs its likely benefit." Fed.R.Civ.P. 26(b)(2)(iii). Nor have they shown that the burden is "undue" under Fed.R.Civ.P. 26(c). Indeed, it may well be that the parties could agree on an adjustment in the terms of the plaintiffs' request that would allow the plaintiff's to obtain the information they need without any significant burden on the defendants.
Tellingly, defendants have implied that, should they later choose to move for summary judgment on the ground of "obviousness," they would no longer have the same objections to the requested discovery. See Def. Mem. at 10 n. 8. The defendants' desire to delay the release of the requested information until the middle of briefing on dispositive motions cannot override the Court's interest in allowing all liability discovery to occur in a single phase. If the defendants wish to elect now to forgo their arguments on obviousness, they certainly may do so and thereby avoid the need for the disclosure during the current phase of discovery. In the absence of such an election, the requested discovery may proceed.
III. CONCLUSION
For the foregoing reasons, defendants' motion for a protective order is denied.
SO ORDERED.