Opinion
36721-21
07-27-2023
MICROSEMI CORPORATION & SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER REGARDING PROTECTED INFORMATION
EMIN TORO JUDGE
On May 30, 2023, petitioner filed with this Court an unopposed Motion for Entry of Discovery Protective Order (Doc. 61). Attached to the Motion was a proposed Discovery Protective Order. On June 12, 2023, the Court held a conference call with the parties to discuss, among other things, petitioner's unopposed Motion. In an Order served on June 14, 2023, the Court directed petitioner to file a supplement to its Motion.
On July 11, 2023, petitioner filed a Supplement to its Motion (Doc. 74). On July 26, 2023, respondent filed a Response to Petitioner's Supplement to its Motion. The Court has decided to adopt petitioner's proposed order, as supplemented, with modifications as reflected below.
This Order (Discovery Protective Order) limits how information produced in discovery can be disclosed to persons not a party to this case. This Discovery Protective Order does not entitle the parties to file information subject to this Discovery Protective Order (Protected Information) under seal, other than as set forth under the procedures detailed in paragraph 13. Nothing in this Discovery Protective Order limits respondent's rights to object to any attempt to seal judicial records or proceedings if petitioner makes a motion to seal under the provisions of paragraph 13.
Preliminary Matters
I.R.C. § 6103(a) provides that returns and return information "shall be confidential, and except as authorized by [the Code], no officer or employee of the United States, . . . shall disclose any return or return information." The phrase "officer or employee of the United States" encompasses officers and employees of the Office of Chief Counsel for the Internal Revenue Service ("IRS") and the Department of Justice. Respondent is prohibited by I.R.C. § 6103(a) from disclosing returns and return information subject to certain exceptions. Pursuant to I.R.C. § 6103(a)(3), this prohibition on disclosure of returns and return information also applies to expert witnesses and other persons under contract to respondent pursuant to I.R.C. § 6103(n).
Violations of I.R.C. § 6103 give rise to civil and criminal penalties. Pursuant to I.R.C. § 7431, a taxpayer whose return or return information has been disclosed in a manner not authorized may bring a civil suit for damages. In the event of an alleged unauthorized disclosure by an officer or employee of the United States, such civil suit may be brought against the United States. In the event of an alleged unauthorized disclosure by a person other than a United States officer or employee, such civil suit may be brought against that person. Pursuant to I.R.C. § 7213(a), felony criminal charges may be brought against any United States officer or employee, or any person under contract to the IRS pursuant to I.R.C. § 6103(n), who willfully discloses any return or return information in a manner not authorized. Punishment upon conviction is a fine of up to $5,000, imprisonment for up to 5 years, or both, plus the costs of prosecution. Additionally, a United States officer or employee "shall be dismissed from office or discharged from employment upon conviction."
In contrast with I.R.C. § 6103(n), persons to whom return information is disclosed pursuant to I.R.C. § 6103(h)(4) are under no obligation to keep the information confidential. Pursuant to I.R.C. § 6103(h)(4)(A), returns and return information may be disclosed in a judicial proceeding pertaining to tax administration if the taxpayer is a party to the proceeding. Thus, pursuant to this provision, returns and return information of petitioner may be disclosed in the instant Tax Court proceeding, including in depositions and interviews. No provision of the Code prohibits a person to whom return information is disclosed pursuant to I.R.C. § 6103 (h)(4) from redisclosing that information, nor does any provision provide for penalties for such redisclosure. Notwithstanding I.R.C. § 6103(h)(4), expert witnesses and other persons under contract pursuant to I.R.C. § 6103(n) are still subject to the disclosure prohibitions of I.R.C. § 6103(a)(3).
Nothing in this Discovery Protective Order precludes petitioner from using, disclosing, or disseminating its own Protected Information subject to this Discovery Protective Order. However, if petitioner discloses or disseminates such information into the public domain, such information loses its status as Protected Information under this Discovery Protective Order.
Petitioner is concerned that I.R.C. § 6103 does not provide adequate protection especially concerning the redisclosure of such information by persons to whom respondent makes a legal disclosure under I.R.C. § 6103. Given this concern, this Discovery Protective Order will include additional and overlapping protection to information subject to this Discovery Protective Order.
In view of the foregoing, it is hereby
ORDERED that petitioner's Motion for Entry of Discovery Protective Order (Doc. 61) filed May 30, 2023, as supplemented on July 11, 2023, is granted in that the order proposed by petitioner is adopted as modified below:
Scope
1. The following terms and conditions shall govern the treatment of information provided by petitioner to respondent during discovery.
2. This Discovery Protective Order shall apply to responses to requests for information during the pre-trial phase of this case including subpoenas, answers to interrogatories, responses to requests for admission, correspondence between counsel, depositions, documents, things produced in response to requests for production of documents, and other discovery taken pursuant to the Tax Court Rules of Practice and Procedure. This Discovery Protective Order shall also apply to all summaries, notes, abstracts, or other materials that comprise, embody, summarize, discuss, or quote from any Protected Information, including memoranda or work product prepared by counsel, their staff, and authorized third parties. If, however, such Protected Information is, or is contained in, a document filed with the Court, then the provisions of paragraph 13 apply.
3. This Discovery Protective Order shall apply to the parties (including the parties' representatives) and any non-party from whom discovery may be sought and who seeks protection under this Discovery Protective Order. As used in this Discovery Protective Order, "trial counsel" means: (a) attorneys, legal assistants, paralegals, information technology staff, and administrative staff of respondent's counsel, the IRS, or the Department of Justice, including IRS field agents, other IRS employees, vendors, or contractors working under the direction of the Office of Chief Counsel in connection with this case and (b) attorneys, legal assistants, paralegals, information technology staff, administrative staff, tax practitioners, and vendors for petitioner's counsel in this case.
4. All information, documents, or portions thereof produced in conjunction with responses to informal or formal discovery requests, stipulations, subpoenas, or pretrial exchange of materials hereafter produced, whether by a party or third party (the "Disclosing Party"), that is designated as "Protected Information" by the Disclosing Party shall be treated as Protected Information and shall be governed by the terms of this Discovery Protective Order. Protected Information does not include information lawfully in the public domain or that is made publicly available by (or with the consent of) the party designating it as such. For purposes of this Discovery Protective Order, Protected Information includes:
(a) All information required to be kept confidential by any law or regulation of any government outside of the Internal Revenue Code, or any previous court order (the party designating the information as Protected Information has the burden of citing and explaining the application of any such law, regulation, or court order) in effect at the time the information is designated as Protected Information. Notwithstanding anything contained in this paragraph, returns, and return information protected under I.R.C. § 6103 can also be designated as Protected Information;
(b) Confidential research and development information;
(c) Strategic, commercial, and business development information and/or plans dated September 30, 2006, or later, including short-term and long-range planning, periodic business reviews, brand plans, product strategy, analyses and modeling for business development transactions, or similar information;
(d) Board minutes, board materials, and other communications made to or by the board of directors and the committees of the board of directors, unless such information has been made available to shareholders without any confidentiality or disclosure restrictions;
(e) Financial information, including: non-publicly reported financial results segmented by entity and/or individual product, number of products sold, total dollar value of products sold, profit margins (both forecasted and actual) on a product-by-product basis, operating costs, calculations of product liability estimates, internal budgets, revenue estimates and forecasts, amounts invested in research and development, calculations related to the division of profits between related parties, or other similar information;
(f) Marketing information dated September 30, 2006, or later, including internal industry surveys and analyses, marketing plans and projections, marketing research and business strategy, internal research regarding Microsemi, its subsidiaries and affiliates ("Microsemi") competitors, or other similar information;
(g) The names of, or other information tending to reveal the identities of, Microsemi's former, current, or prospective suppliers, customers, or distributors to the extent covered by written confidentiality provisions in effect at the time the information is designated as Protected Information (unless such information is publicly available);
(h) Personal information of a party's employees, including, but not limited to, contact information and compensation;
(i) Agreements (including the terms of and parties to such agreements) between a party and any third party that are covered by written confidentiality provisions in effect at the time the information is designated as Protected Information, unless all required consents permitting disclosure have been obtained or disclosure is otherwise required by law;
(j) Documents related to the negotiation, consummation, execution, implementation, or management of agreements identified in 4.i., to the extent covered by written confidentiality provisions in effect at the time the information is designated as Protected Information;
(k) Information relating to existing patents and pending patent applications;
(1) Information constituting product specifications, formulations, and/or information regarding the manufacture of Microsemi's or Microchip Technology Incorporated's current, proposed, or potential products still in active use for business purposes;
(m) Technical notebooks and technical reports, including product and manufacturing specifications, schematic diagrams, technical reference manuals, operations manuals, process development manuals or guidelines, quality assurance manuals or guidelines, or other similar information still in active use for business purposes;
(n) Information Microsemi believes, in good faith, is a proprietary trade secret, including manufacturing, screening, testing, and process "know-how;"
(o) Confidential and non-public information pertaining to Defense Logistics Agency ("DLA") audits, investigations, or similar inquiries of Microsemi; and
(p) Confidential and non-public information pertaining to any legal disputes, including private arbitrations, to which Microsemi or Microchip Technology Incorporated is or was a party.
Designation
5. A Disclosing Party shall designate information that it provides as Protected Information in the following manner:
(a) In the case of documents, interrogatory answers, responses to requests for admission, and the information contained therein, designation shall be made by placing the following legend on every page of any such document before production: "PROTECTED INFORMATION Subject to Protective Order" ("PROTECTED INFORMATION" or "Protected Information Designation"). However, inadvertent production of any information without the Protected Information Designation shall not itself be deemed a waiver of the Disclosing Party's claim that this Discovery Protective Order protects such information, and the Disclosing Party may thereafter designate such information as "PROTECTED INFORMATION."
(b) In the case of depositions, designation of the portion of the transcript (including exhibits) that contains Protected Information shall be made by a statement to such effect on the record in the course of the deposition or, upon review of such transcript, by counsel for the party to whose Protected Information the deponent has had access, said counsel shall designate within sixty (60) days after counsel's receipt of the final transcript. Counsel shall list on a separate piece of paper the numbers of the pages of the transcript containing Protected Information, inserting the list at the end of the transcript, and providing copies of the list to opposing counsel so that it may be affixed to the face of the transcript and each copy thereof. Pending such designation by counsel, the entire deposition transcript, including exhibits, shall be deemed Protected Information.
(c) If a deposition transcript that contains Protected Information is filed with the Court, the transcript shall bear the appropriate legend on the caption page and shall be filed under seal in accordance with the provisions of paragraph 13.
(d) Any Protected Information produced in a non-paper or nonelectronic medium (e.g., videotape, audio tape, complete computer disk, hard disk drive, etc.) may be designated as such by labeling the outside of such non-paper medium as "PROTECTED INFORMATION." If a party generates any hard copy, transcription, or printout from any such designated non-paper or non-electronic medium, such party must stamp each page "PROTECTED INFORMATION," and the hard copy, transcription, or printout shall be treated as it is designated.
(e) A Disclosing Party shall designate information as Protected Information only if the Disclosing Party believes in good faith that such information is not generally known and would not normally be revealed to third parties in the absence of an undertaking by the third parties to
maintain such information in confidence. At any time during pendency of this case, a party may move to challenge whether a document or information qualifies as Protected Information under this Order. Unless the Court orders otherwise, the party designating the Protected Information bears the burden to establish that good cause exists to protect such information. Before seeking the Court's assistance, the parties will try to informally resolve any disputes.
6. The designation of any material as Protected Information shall be deemed effective unless and until the Court orders otherwise or the Disclosing Party withdraws the designation.
7. Each party or third party that designates information or items for protection under this Discovery Protective Order must take care to limit any such designation to specific material that qualifies under the appropriate standards. To the extent it is practical to do so, the Disclosing Party must designate for protection only those parts of material, documents, items, or oral or written communications that qualify, so that other portions of the material, documents, items, or communications for which protection is not warranted are not swept unjustifiably within this Order. If it comes to a Disclosing Party's attention that information or items that it designated for protection do not qualify for protection, that Disclosing Party must promptly notify all other parties that it is withdrawing the mistaken designation.
Use
8. Respondent's trial counsel may disclose Protected Information to employees of the IRS and to Department of Justice employees in accordance with respondent's procedures for disclosing such information. Nothing in this Discovery Protective Order prohibits or restricts respondent from disclosing return information as authorized by I.R.C. §§ 6103 and 6105 (except that this Discovery Protective Order modifies the application of I.R.C. § 6103(h)(4)(A) as applied to the instant Tax Court proceeding) nor does this Discovery Protective Order require respondent to secure written permission or notify the Court or petitioner's trial counsel when making such disclosures.
Disclosure
9. In the absence of written permission from the Disclosing Party or an order of the Court, the party that received the Protected Information may only disclose it to the following individuals:
(a) Each party's trial counsel. In addition, respondent may disclose Protected Information to employees of the IRS and the Department of Justice in accordance with respondent's procedures for disclosing such information. Nothing in this Order prohibits or restricts respondent
from disclosing return information as authorized by I.R.C. §§ 6103 and 6105 (except that this Order modifies the application of I.R.C. § 6103(h)(4)(A) as applied to the instant Tax Court proceeding), nor does this Order require respondent to secure written permission, notify the Court, or trial counsel when making such disclosures;
(b) Expert witnesses, consultants, deponents, interviewees, and other witnesses and individuals as necessary to assist in this proceeding shall have access to Protected Information only in accordance with, and subject to, the limitations set forth in Paragraphs 10 through 12;
(c) The Court and Court personnel, including stenographic reporters, who shall not be subject to the limitations set forth in paragraphs 10 through 12.
10. Third parties may not receive Protected Information unless and until they have been made aware of the provisions of this Discovery Protective Order and have manifested their assent to be bound thereby by executing an Acknowledgement and Agreement to be Bound substantially in the form set forth in Exhibit A ("Acknowledgement"). If such persons have previously been given access to Protected Information, counsel will cause such persons to execute the Acknowledgement within fourteen (14) business days after entry of this Discovery Protective Order. Counsel shall retain all original signed copies of the Acknowledgement in their files. Petitioner has the burden to obtain an Acknowledgement from deponents who are represented by petitioner's trial counsel. If the parties are unable to obtain an Acknowledgement, the parties may try to resolve the matter informally, but may also seek the Court's ruling by motion.
11. Persons receiving Protected Information are prohibited from disclosing it to any other person, except in conformance with this Discovery Protective Order and I.R.C. § 6103. Each party's counsel shall ensure that each individual to whom they disclose any Protected Information understands that they can be held in contempt by this Court for violation of this Discovery Protective Order and that they may also be subject to civil and criminal penalties for violating I.R.C. § 6103.
12. The recipient of any Protected Information shall maintain such information in a secure and safe area and shall exercise the same standard of due and proper care with respect to the storage, custody, use, and/or dissemination of such information as would be exercised by a reasonably prudent recipient. Protected Information shall not be copied, reproduced, summarized, or abstracted, except to the extent that such copying, reproduction, summary, or abstraction is reasonably necessary for the conduct of this litigation. All such copies, reproductions, summaries, and abstractions shall be subject to the terms of this Discovery Protective Order.
13. Pre-trial Filings. Protected Information may be included in (or attached to) pre-trial filings with the Court, but only in accordance with this Discovery Protective Order. The party wishing to file a document containing (or potentially containing) Protected Information must either:
(a) At least four hours before such filing, notify and confer with the other party and reach an agreement on appropriate redactions before simultaneously filing under seal an unredacted version of the document and filing under normal procedures a redacted version of the document; or
(b) File under seal an unredacted version of the document and thereafter seek to reach agreement with the other party on unsealing the document or appropriate redactions. If the parties cannot reach agreement on whether all or parts of the document should be sealed, then the party asserting that the information should be protected must move the Court to determine whether all or parts of the document should be sealed within 60 days of filing. After the parties reach agreement, or the Court rules, the filing party shall file an unsealed or redacted version of the document.
(c) Nothing in paragraph 13 will restrict a party from moving the Court at any time to make a determination of whether good cause exists to seal any previously agreed redactions to the pre-trial filings.
14. All Protected Information shall be protected from disclosure by this Discovery Protective Order until the Court affirmatively rules that such information is not Protected Information, or a party fails to object to the public filing of the information as provided in paragraph 13. Alternatively, if petitioner agrees in writing to modify or rescind such designation, such information will no longer be considered Protected Information.
Inadvertent Production/Designation
15. The inadvertent failure by a party to designate material as Protected Information shall not be a waiver of such designation provided that the party who fails to make such designation informs the opposing party that such material is Protected Information within seven (7) business days from when the inadvertent failure to designate first became known to the designating party. For good cause shown, failure to act within the seven (7) business day period shall not preclude the designating party from later initiating procedures with the Court to impose such a designation.
16. A party receiving material that the opposing party inadvertently failed to designate as Protected Information shall not be in breach of this Discovery Protective Order for any use or disclosure of such material prior to being informed of the inadvertent failure to designate. Once the party has been informed of the inadvertent failure to designate, the party shall take reasonable steps to either ensure that all copies of any such material are returned promptly or ensure that all copies of any such material are marked as Protected Information and distributed only as permitted under this Discovery Protective Order.
Unauthorized Disclosure
17. Except for the circumstances described in paragraph 16, in the event of disclosure of Protected Information by the receiving party to any unauthorized person, whether the result of inadvertent disclosure or other causes, the receiving party shall immediately inform the other party of all known relevant information concerning the nature and circumstances of the disclosure. The receiving party shall also promptly take all reasonable measures to retrieve the Protected Information and to ensure that no further or greater unauthorized disclosure and/or use thereof is made.
Return/Destruction of Materials
18. In accordance with their regular business practice, trial counsel for each party is entitled to retain all: pleadings, motion papers, legal memoranda, correspondence, work product (including hard and electronic copies), deposition, hearing, and trial transcripts, and copies of documents and things produced by parties or non-parties. Further, for respondent, regular business practices mandate that he follow all applicable statutes, regulations, and rules regarding maintaining and destroying federal records. Within ninety (90) calendar days after the final termination of this action in accordance with I.R.C. § 7481, however, all other Protected Information, including extracts or summaries thereof, and all reproductions thereof, shall be either destroyed or returned to the disclosing party, with the following exception: copies of papers submitted to the Court (including exhibits). If the materials are destroyed, trial counsel shall, within one-hundred twenty (120) calendar days after final termination of this action in accordance with I.R.C. § 7481, certify to opposing trial counsel that destruction has taken place.
Miscellaneous Provisions
19. This Discovery Protective Order is without prejudice to the right of any party to seek further or additional protection of information for which the protection of this Discovery Protective Order is not deemed adequate. Nothing in this Discovery Protective Order shall be deemed to bar or preclude any party from seeking such additional protection.
20. Nothing herein shall prevent disclosure beyond the terms of this Discovery Protective Order if the party explicitly consents to such disclosure in writing or on a transcribed record; or if the Court, after notice to all affected parties, orders or permits such disclosure.
21. Neither this Discovery Protective Order nor any action taken in compliance with it shall (a) operate as waiver by any party that any particular information is, or is not, confidential; or (b) prejudice the right of any party to seek a determination from the Court whether particular information may be disclosed, or, if disclosed, should remain subject to the terms of this Discovery Protective Order.
22. Nothing in this Discovery Protective Order shall operate as an admission by any party that any documents, communications, or any portion thereof, are privileged or otherwise non-discoverable, or are not admissible in evidence in this proceeding or any other proceeding.
23. If at any time any recipient of Protected Information receives a subpoena, other process, or order to produce Protected Information from any court, arbitral, administrative, or legislative body, such party or person shall immediately give written notice to the Court and trial counsel, except that such person need not notify trial counsel if such notification is prohibited by law or if the production is authorized by I.R.C. §§ 6103 or 6105. Respondent, however, is not obligated to notify the Court or trial counsel of requests for or disclosures of tax returns or tax return information, including Protected Information, made under I.R.C. §§ 6103 or 6105. If the opposing party does not move for a protective order within fourteen (14) calendar days of the date written notice is given, or before the return date of the subpoena if less than fourteen (14) calendar days from the date written notice is given, the party or person to whom the referenced subpoena is directed may produce the Protected Information on or after the date set for production in the subpoena.
24. All notices required by this Discovery Protective Order are to be made by email to counsel representing the noticed party. For a notice received pursuant to the requirements of this Order, the date by which the party receiving such notice shall respond or otherwise take action shall be computed from the date of receipt of the notice, and any notice required under the provisions of this Order and sent after 6:00 p.m. Pacific time shall be considered as received no earlier than 9:00 a.m. Pacific time the next business day. Any of the notice requirements herein may be waived in whole or in part, but only in a writing signed by an attorney for the party granting the waiver.
25. This Discovery Protective Order shall survive the termination of this proceeding and shall remain in full force and effect unless modified by an order of this Court or by the written stipulation of the parties filed with the Court and so ordered by the Court.
26. Petitioner will provide respondent with proposed redactions to its expert reports within 60 days of lodging them with the Court.
Exhibit A
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
Microsemi Corporation & Subsidiaries
Docket No. 36721-21
I, ___ [print or type full name], of....................................................................................[print or type full address], declare under penalty of perjury that I have read in its entirety and understand the Order Regarding Protected Information ("Order") that was issued by the Tax Court on[date] in the case of MICROSEMI CORPORATION & SUBSIDIARIES v. COMMISSIONER OF INTERNAL REVENUE. I agree to comply with and to be bound by all the terms of the Order, and I understand and · acknowledge that failure to so comply could expose me to sanctions and punishment in the nature of contempt and to civil or criminal proceedings.
I further agree to submit to the jurisdiction of the United States Tax Court for the purpose of enforcing the terms of the Order.