Opinion
CIVIL NO. WDQ-12-499
01-22-2015
PAICE, LLC, et al., Plaintiffs v. HYUNDAI MOTOR COMPANY, et al., Defendants.
MEMORANDUM OPINION
Presently pending is Plaintiffs' Motion for Sanctions against Defendants Hyundai Motor Company, Hyundai Motor America, Kia Motors Corporation, and Kia Motors America, Inc. (collectively "Defendants"). [ECF No. 459]. This Court has also reviewed Defendants' Opposition, Plaintiffs' Reply, Defendants' Surreply, and both parties' December 24, 2014 letters. [ECF Nos. 467, 477, 481, 492, 494]. Both parties have requested a hearing. However, because the record is sufficiently complete, and because further statements on the record run the risk of added confusion, no hearing is deemed necessary. See Local Rule 105.6 (D. Md. 2014). For the reasons set forth herein, Plaintiffs' Motion for Sanctions is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
A. Judge Gauvey's Rulings and the Telephone Conference
Plaintiffs' instant motion for sanctions stems primarily from Judge Gauvey's two June 27, 2014 memorandum opinions, which decided Plaintiffs' first motion for sanctions and Defendants' motion for protective order, and a subsequent telephone conference on July 11, 2014. [ECF Nos. 341, 345, 371]. A summary of each opinion and the conference call is therefore necessary.
1. Judge Gauvey's Ruling on Plaintiffs' First Motion for Sanctions
Plaintiffs' first motion for sanctions involved, among other things, a dispute over the appropriate scope of discovery into Defendants' future hybrid vehicles. [ECF No. 181]. In her memorandum opinion, Judge Gauvey found that Plaintiffs were entitled to discovery of certain technical documents relating to Defendants' LF HEV and LF PHEV models. [ECF No. 341, p. 28]. Judge Gauvey reasoned that, although the LF HEV and LF PHEV models were not specifically named in Plaintiffs' infringement contentions, they operate in a manner reasonably similar to the theory of infringement alleged in those contentions, and thus Defendants were on notice of infringement with regards to these two models. Id. at 22-23. Furthermore, Judge Gauvey reasoned that the U.S. road testing of the LF HEV and LF PHEV prototypes, which occurred in 2013 and 2014, constituted "use" within the meaning of 35 U.S.C. § 271(a). Id. at 28. Accordingly, Judge Gauvey ordered Defendants to produce, by July 2, 2014, the outstanding requested technical documents "to the extent that those requests seek discovery relating to prototypes and/or iterations of LF HEVs and LF PHEVs actually 'used' in the United States, so that Plaintiffs may evaluate those prototypes for alleged infringement." Id.
Judge Gauvey also held that Plaintiffs were not entitled to Defendants' "forward-looking" financial and planning documents for speculative, un-accused products. Id. at 31. Judge Gauvey reasoned that Defendants' "current business discussions relating to speculative, un-accused products (or, even more broadly, 'brand image, profitability and government compliance' of those vehicles) do not correlate, in any respect, to the use made of the patents-in-suit." Id. Acknowledging Plaintiffs' argument that this information is relevant to a damages calculation, Judge Gauvey explained that, "Upon a showing of infringement, Plaintiffs' reasonable royalty damages should correlate to the extent that the accused products have made use of the patents-in-suit, not establish a reasonable royalty for yet un-accused products which have not (and admittedly may never) ripened into an infringement claim." Id. Accordingly, Judge Gauvey found that the financial/planning documents requested by Plaintiffs (including for models JF HEV, JF PHEV, AE HEV, DE HEV, TL HEV, and QL HEV) exceeded the scope of the hypothetical negotiation framework, and were not therefore reasonably calculated to lead to admissible evidence. Id. Plaintiffs were entitled, however, to financial/planning documents of Defendants' LF HEV and LF PHEV prototypes actually "used" in the United States because such discovery "appears reasonably calculated to lead to admissible evidence 'probative of the value of that use.'" Id. at 32 (quoting Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970)). Judge Gauvey therefore ordered Defendants to produce, by July 2, 2014, the requested financial/planning documents "relating to the U.S. tested LF HEV and LF PHEV prototypes, as those vehicles may become part of Plaintiffs' infringement case." Id.
Under 35 U.S.C. § 284, a patent holder, upon a finding of infringement, is entitled to "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." A reasonable royalty calculation "derives from a hypothetical negotiation between the patentee and the infringer when the infringement began," ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 868 (Fed. Cir. 2010), and is guided by the Georgia-Pacific factors, which include, among other things, consideration of "[t]he extent to which the infringer has made use of the invention; and any evidence probative of the value of that use." Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). Such consideration "informs the court and jury about how the parties would have valued the patented feature during the hypothetical negotiation." Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333 (Fed. Cir. 2009).
2. Judge Gauvey's Ruling on Defendants' Motion for Protective Order
Defendants' motion for protective order sought to preclude the deposition of Defendants' Vice Chairman, Eui-Sun Chung, regarding the Eco-Vehicle Committee and the substance of various meetings held by that Committee. [ECF No. 254]. Judge Gauvey acknowledged that many of the topics discussed in the Eco-Vehicle Committee meetings fell outside the scope of discovery, as explained in her sanctions ruling issued that same day. [ECF No. 345, pp. 9-10]. However, Judge Gauvey explained, her sanctions ruling "responded to Plaintiffs' requests for financial/planning discovery related to specific unaccused technologies and/or vehicles (including: JF HEV, JF PHEV, AE HEV, DE HEV, TL HEV, QL HEV). In contrast, general background discussions concerning Defendants' current stance on hybrid vehicles, which are likely informed by the value and/or success of the currently accused vehicles, may enlighten the hypothetical negotiation framework, and thus, Plaintiffs' damages case." Id. at 11. Accordingly, Judge Gauvey denied Defendants' motion for protective order, but required that Vice Chairman Chung's deposition be taken in Korea, and that it last no more than six hours if translation was required. Id. at 14.
3. Judge Gauvey's Telephone Conference
On July 9, 2014, Plaintiffs wrote Judge Gauvey seeking clarification on her sanctions ruling, because the parties had "very different views about what the Court intended" with respect to the financial/planning document discovery. [ECF No. 361]. Plaintiffs believed that the Court intended for Defendants to produce all financial/planning documents for the LF HEV and LF PHEV vehicle line that existed at the time of testing, since the U.S. tested LF HEV and LF PHEV prototypes were a subset of those vehicles. Id. Defendants believed that the Court intended for them to produce financial/planning documents relating only to the actual LF HEV and LF PHEV prototype vehicles tested in the U.S., and, because those prototypes were never intended to be sold or marketed, there was very little, if any, responsive documentation. Id.
On July 11, 2014, Judge Gauvey held a telephone conference with the parties to address this issue. Judge Gauvey clarified that Defendants were to produce "long-range product plans" on the LF HEV and LF PHEV product lines as they existed at the time of the prototype testing in the U.S., not just documents about the actual U.S. tested LF HEV and LF PHEV prototype vehicles. Defs. Surreply, Exh. 1, p. 16 (July 11, 2014 Telephone Conference Transcript) ("[A]nd by product plan we are then talking not about the specific prototype itself but the model that it is a part of, that it is an iteration of, getting to the final one."). Judge Gauvey explained that Defendants should "take a snapshot of what the planning information is" as of the date of the LF HEV and LF PHEV prototype testing. Id. at 17-18 ("And so I am looking to see where things stood at the time of this infringement by testing, where things stood in terms of your planning, et cetera.").
B. Plaintiffs' Instant Motion for Sanctions
In their Motion for Sanctions, Plaintiffs argue that, pursuant to Federal Rule of Civil Procedure 37(b)(2)(A), sanctions against Defendants are warranted for: (1) Defendants' counsel's misconduct at Vice Chairman Chung's August, 2014 deposition in Korea; (2) Defendants' failure to disclose August, 2014 hybrid vehicle testing plans in the United States; and (3) Defendants' failure to preserve certain testing documents. Specifically, Plaintiffs request that the Court order Defendants to: (1) produce a declaration stating what hybrid vehicles have been, or will be, tested in the United States and when the tests will occur, as well as provide details about the August, 2014 U.S. testing; (2) produce a corporate witness to testify about Defendants' hybrid vehicle prototype testing and testing plans in the U.S. for dedicated hybrid models; (3) produce Vice Chairman Chung for another deposition, to take place in the United States and in the presence of a magistrate judge; and (4) pay all fees and costs associated with Vice Chairman Chung's August, 2014 deposition, and this Motion.
In their Opposition, Defendants argue that sanctions should be imposed on Plaintiffs for their own counsel's conduct at Vice Chairman Chung's deposition, and for filing the instant Motion.
II. LEGAL STANDARD
Under Federal Rule of Civil Procedure 37(b)(2)(A), courts have broad discretion when imposing sanctions on a party for not obeying a discovery order. Courts in this Circuit consider four factors when determining what sanctions, if any, to impose: (1) whether the non-complying party acted in bad faith; (2) the amount of prejudice that non-compliance caused the adversary; (3) the need for deterrence of the particular sort of non-compliance; and (4) whether less drastic sanctions would have been effective. Southern States Rack and Fixture, Inc. v. Sherwin-Williams, Co., 318 F.3d 592, 597 (4th Cir. 2003). The presence or absence of any one of these factors is generally not decisive. See Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 533 (D. Md. 2010).
III. ANALYSIS
A. Interpretation of Judge Gauvey's Rulings and the Telephone Conference
The June 27, 2014 rulings and the subsequent telephone conference on July 11, 2014 are, in ways, difficult to reconcile, especially when fragments are excerpted. It is clear from the record that both parties had, and continue to have, very different understandings of Judge Gauvey's conclusions. After a thorough reading of the opinions and the conference transcript, this Court finds that Defendants correctly believed that Plaintiffs were not entitled to discovery into specific future hybrid vehicles beyond the LF HEV and LF PHEV.
Plaintiffs argue that Judge Gauvey's "rulings" in the telephone conference "explicitly found that Plaintiffs are entitled to planning information concerning Hyundai's future vehicles beyond the LF HEV and LF PHEV." Pl. Reply 6. However, a full reading of the transcript shows that this telephone conference focused only on the LF HEV and LF PHEV vehicles, and that Judge Gauvey clarified only that Defendants were to produce all financial/planning documents relating to the LF HEV and LF PHEV vehicle lines that existed at the time the prototypes were tested, rather than just the financial/planning documents on the actual U.S. tested LF HEV and LF PHEV prototype vehicles. Plaintiffs' construction of what Judge Gauvey said in the telephone conference essentially contradicts her previous sanctions ruling, which unequivocally denies discovery into future vehicles beyond the LF HEV and LF PHEV. Plaintiffs' argument therefore fails.
Plaintiffs also stress a portion of Judge Gauvey's discussion with counsel during the telephone conference, where she stated: "But I thought that Plaintiffs were seeking this information [the financial/planning discovery for the LF HEV and LF PHEV prototypes] for two reasons. One, because of a damage determination, how much damage could they get for that testing violation, if one is shown; and second, really to go to the issue of the role that hybrid technology plays in a general way, which is what we are going to allow Vice Chairman Chung to be questioned about, in Hyundai's and Kia's future." Def. Surreply, Exh. 1, p. 13. Plaintiffs' construction of Judge Gauvey's statement seemingly conflicts with her written ruling specifically disallowing "forward-looking/long-range" financial/planning discovery, but allowing "general background discussions concerning Defendants' current stance on hybrid vehicles." Thus, Judge Gauvey's statement in passing regarding Mr. Chung's deposition did not expand the scope of discovery to the extent Plaintiffs claim it did. To the extent there is conflict between Judge Gauvey's written memorandum opinion and her comments during a telephone conference, the reasoning in her memorandum opinion should control.
In sum, Judge Gauvey ruled that document discovery, including financial/planning documents, should be produced pertaining to the LF HEV and LF PHEV vehicle lines as of the date of the U.S. testing of the LF HEV and LF PHEV prototypes. She further ruled that Vice Chairman Chung's deposition covering the relevant content of the Eco-Vehicle Committee meetings could include general background discussions concerning Defendants' current stance on hybrid vehicles.
B. Vice Chairman Chung's Deposition
Plaintiffs claim that Defendants' counsel engaged in obstructive and evasive conduct during the August 12, 2014 deposition of Vice Chairman Chung in Korea. Pl. Mot. 6. Specifically, Defendants' counsel repeatedly instructed Mr. Chung not to answer questions that Judge Gauvey "expressly said were permissible." Id. at 2. Such conduct, Plaintiffs argue, frustrated and impeded Plaintiffs' examination of Mr. Chung. Id. In addition, Plaintiffs claim that Defendants' counsel questioned Mr. Chung, on cross-examination, on topics to which they had previously objected. Id. at 8. Plaintiffs also claim that Defendants' counsel repeatedly objected in ways that interrupted the flow of the deposition and coached Mr. Chung. Id. at 10. Given the time constraints imposed by the court, Plaintiffs argue that such conduct was especially prejudicial. Id. at 2.
Instructing a witness not to answer a question is a tactic that should be used only infrequently, and likely should have had no place in this deposition. See Boyd v. Univ. of Md. Med. Sys., 173 F.R.D. 143, 147 (D. Md. 1997). Nevertheless, ordering the entire re-deposition of Mr. Chung would be unproductive, because all but one of the questions that Mr. Chung was instructed not to answer were outside the scope of Judge Gauvey's ruling on Defendants' motion for protective order. For example, questions such as, "Are you aware that Hyundai engineers copied documents describing Paice's technology in 2002?" (Chung Dep. Tr. ("Tr.") 55:8-10); "Do your engineers buy cars made by your competitors and reverse-engineer them?" (Tr. 59:18- 19); "Isn't it true that the company was distracted by a criminal investigation in the 2006 and 2008 time period?" (Tr. 127:22-24); and "How much compensation do you earn as salary from HMC and its affiliated companies?" (Tr. 140:20-21) are not relevant to the substance of Eco-Vehicle Committee meetings. Moreover, questions such as, "Do you recall any presentation in which the suggestion was made that the green car line-up should be expanded to eight types of green cars [as of January 2016]?" (Tr. 100:9-12); and "But you're going from two models today in 2014 to eight models that are proposed by 2018, correct?" (Tr. 145:21-23) are not "general background discussions concerning Defendants' current stance on hybrid vehicles."
Mr. Chung was instructed not to answer when Plaintiffs' counsel asked: "If you look at agenda item one, the very last bullet point under presentation states, since Hyundai is expected to not meet the regulation from model year '20 in case the current line-up is maintained, it is necessary to respond by gradually increasing AD EV and LF PHEV volumes. Do you see that?" (Tr. 120:25-121:6). Because this question was asking partially about the AE/DE HEV models, the form in which the question was posed was not within the scope of permitted discovery.
However, the question "I would like to know generally why Hyundai has made the determination to expand its presence in the hybrid market [in the United States] beyond the YF and the TF" (Tr. 90:21-24) should have been permitted, and Plaintiffs are therefore entitled to an answer. Because Mr. Chung was instructed by Defendants' counsel not to answer this question, the Court is left with no choice but to order the re-deposition of Mr. Chung on this one question, with reasonable follow-up questioning. This re-deposition shall take place via videoconference, and at Defendants' counsel's expense. See Fed. R. Civ. P. 37(b)(2)(C). The re-deposition shall be limited to thirty (30) minutes, at most, of questioning by Plaintiffs' counsel, and must be held on or before March 2, 2015. In addition, if, at Plaintiffs' discretion, someone other than Mr. Chung can sufficiently answer this question, Plaintiffs may elect to depose another corporate witness instead of Mr. Chung, with the same limitations.
Although instructing Mr. Chung not to answer was an inappropriate approach, additional sanctions for Defendants' counsel's deposition conduct are not warranted for several reasons. First, bad faith is absent. Both sides had a different understanding of what they believed to be a correct interpretation of Judge Gauvey's discovery rulings. A genuine disagreement over the interpretation of these rulings, which can be supported both ways by excerpts from the record, does not equate to bad faith. Second, the questions that Defendants' counsel posed to Mr. Chung—"[A]re the hybrid vehicles that Hyundai sells in the United States profitable to Hyundai?" (Tr. 130:4-6); "Has Hyundai, in any year, ever made a profit on any of the hybrid vehicles that Hyundai sells in the United States?" (Tr. 130:8-10); "Can you tell us whether or not Hyundai is prepared to sell hybrid vehicles in the United States at a loss for the indefinite future" (Tr. 131:7-10)—fit squarely within the language of Judge Gauvey's ruling. Thus, there is no non-compliance at issue here, or a need for deterrence. Finally, Plaintiffs' selected portions of Mr. Chung's deposition transcript do not demonstrate improper objections or coaching of the witness. Rather, it was reasonable for Defendants' counsel to have clarified ambiguities and to have explained to his client, whose first language is not English, the deposition process. The time it took for Defendants to do so was not prejudicial to Plaintiffs. For these reasons, additional sanctions are not warranted for Defendants' counsel's deposition conduct.
Defendants raise, but do not elaborate on, the claim that sanctions should be imposed on Plaintiffs for their counsel's conduct in Vice Chairman Chung's deposition. Def. Opp. 39. Because, like Defendants, Plaintiffs' counsel's questioning of Mr. Chung stemmed from what they interpreted to be a correct understanding of Judge Gauvey's rulings, Plaintiffs' counsel's deposition conduct does not warrant sanctions.
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C. August, 2014 Hybrid Vehicle U.S. Testing
Plaintiffs claim that Defendants' failure to disclose their August, 2014 U.S. testing plans for a dedicated hybrid vehicle, the AE HEV, also warrants sanctions. Pl. Mot. 14. Plaintiffs base their knowledge of this testing on an automotive industry press article published online on August 19, 2014. Id. at 15. Plaintiffs argue that, given the timing of the AE HEV testing in the U.S., the testimony of Defendants' corporate witnesses was misleading or false. Id. at 16. For example, Mr. Gumjin Park testified in April, 2014 that Defendants had no plans to test any prototypes in the U.S. other than the LF HEV and LF PHEV. Id. at 17. Plaintiffs also claim that another corporate witness, Mr. Ji Hoon Han, testified in March, 2014 that Defendants had dropped their plan to develop a dedicated hybrid vehicle, yet, in subsequent depositions, it was discovered that plans for a dedicated hybrid vehicle were in progress. Id. at 18-20. In addition, Plaintiffs claim that Defendants' failure to disclose their plans for dedicated hybrid vehicle U.S. testing to the court in the June, 2014 and July, 2014 hearings was misleading because there were, in fact, plans to test the AE HEV in August, 2014. Id. at 21. Plaintiffs argue that Defendants were presented with opportunities to disclose the AE HEV testing, but instead kept the focus squarely on the LF HEV and LF PHEV vehicles. Id. at 22. Such non-disclosure of Defendants' "development, testing, and plans for these dedicated hybrids," Plaintiffs contend, prejudiced Plaintiffs "not because these vehicles are a part of the infringement case . . . but because this evidence is a part of the current damages case." Pl. Reply 16-17.
Defendants do not deny that AE HEV testing occurred in August, 2014, but explain that the vehicles tested were "T-cars," which are modified versions of existing vehicles built to test discrete aspects of a future vehicle, as opposed to prototypes, which contain versions of components intended for use in the final product. Def. Opp. 7-8. Defendants stress that this distinction was explained to Plaintiffs during Mr. Gregeois's February, 2014 deposition and Mr. Park's July, 2014 deposition. See id., Exhs. A-B. Thus, Defendants claim, Mr. Park's response to the question of whether there were plans to test any other prototypes besides the LF HEV and LF PHEV in the U.S. was, in fact, accurate. Id. at 12-13. Defendants also contend that Mr. Han's testimony regarding a dedicated hybrid vehicle was taken out of context, because Mr. Han was referring to the abandoned plan to develop a dedicated hybrid vehicle in 2008/2009, not the current plan to develop a dedicated hybrid, which Defendants explain is in the "concept stage." Id. at 11-12.
Ultimately, while Defendants' witnesses may have been less than forthcoming on these issues, Plaintiffs' contentions are without merit because the information about the AE HEV falls outside the scope of Judge Gauvey's discovery orders. Judge Gauvey's memorandum opinion on Plaintiffs' first motion for sanctions made it very clear that Plaintiffs were only entitled to technical and financial/planning documents relating to the LF HEV and LF PHEV prototypes that had already been tested—i.e. "used"—in the United States. Judge Gauvey used the phrase "actually tested" and "actually 'used'" multiple times when clarifying exactly which vehicles were subject to discovery. [ECF No. 341, pp. 27, 28, 32, 67]. Moreover, the reasoning behind Judge Gauvey's finding that discovery of the LF HEV and LF PHEV was permissible centered on a showing that such models operated in a way "reasonably similar" to the theory of infringement in Plaintiffs' preliminary infringement contentions, and so they "may become part of Plaintiffs' infringement case." Id. at 31. There has been no sufficient showing that the AE HEV (and corresponding DE HEV) models operate in a way "reasonably similar" to Plaintiffs' theory of infringement. Moreover, Plaintiffs readily admit that they seek discovery into these models solely to aid their damages theory. Judge Gauvey rejected the notion that "yet un-accused products" are relevant to damages in her previous sanctions ruling. See id. at 31; see also ResQNet.com, Inc. v. Lama, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010) ("At all times, the damages inquiry must concentrate on compensation for the economic harm caused by infringement of the claimed invention."). For these reasons, even if Defendants' failure to "mention the status of the AE/DE HEV vehicle project" or disclose that "U.S. testing was imminent" was deceptive in some way, it did not affect the discovery scope permitted by Judge Gauvey. Though Plaintiffs suggest that the U.S. testing of the AE HEV model can be construed to indicate the general value Defendants place on hybrid technology, the leap of logic required to draw that connection is not supported on the current record. The possible reasons for the U.S. testing of the AE HEV T-car are many, and Judge Gauvey expressly declined to permit discovery into particular models of un-accused products.
C. Outstanding Testing Documents
Plaintiffs contend that Defendants have failed to provide them with any testing documents regarding the August, 2014 U.S. testing of the AE/DE dedicated hybrid vehicles. Pl. Mot. 23. Per the aforementioned discussion, this claim is without merit. Plaintiffs also contend that Defendants continue to fail to preserve underlying testing data to which Plaintiffs claim they are entitled. Id. Because Judge Gauvey already addressed this issue in her June 27, 2014 sanctions ruling, this Court will not re-open the discussion.
IV. CONCLUSION
For the reasons set forth above, Plaintiffs' Motion for Sanctions [ECF No. 459] is GRANTED as to the re-deposition of Vice Chairman Chung, subject to the strict limitations set forth herein. Plaintiffs' Motion is DENIED as to all other sanctions requested. Because, for the reasons described above, any discovery failures were substantially justified, no award of fees or expenses is appropriate. An accompanying Order follows. Dated: January 22, 2015
/s/_________
Stephanie A. Gallagher
United States Magistrate Judge