Last Week In The Federal Circuit (June 27 – July 1): Protective Order Pandemonium

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Last week’s big news was the anticlimactic end of the American Axle saga.  (See our post on the Supreme Court’s cert denial here.)  But the Federal Circuit was hard at work too:  it issued a dozen decisions on a wide variety of subjects.  Below we provide our usual weekly statistics and a detailed discussion of our case of the week—our highly subjective selection based on whatever case piqued our interest.

Precedential opinions:  4

Non-precedential opinions:  8

Rule 36:  0

Longest pending case from argument:  Prime Time Commerce, LLC v. United States, No. 21-1783 (204 days)

Shortest (non-Rule 36) pending case from argument:  Netflix, Inc. v. DivX, LLC, No. 21-1931 (17 days)

Case of the week:  Static Media LLC v. Leader Accessories LLC, No. 21-2303

Panel:  Judges Dyk, Reyna, and Taranto, with Judge Dyk writing the opinion and Judge Reyna dissenting

You should read this case if:  you have a matter involving a protective order or a joint defense agreement

Parties in patent litigation often enter into court-approved protective orders to safeguard their confidential information.  Our case of the week this week explores what happens when there’s a gray area in a protective order’s terms.

Static Media LLC sued Leader Accessories LLC for design patent infringement in a Wisconsin district court.  The parties entered into a protective order, which provided that information designated as confidential “shall be used solely for the purpose of this action.”  It also prohibited Static and Leader from disclosing confidential information, except to certain third parties who agreed to abide by the protective order.

Static then sued another defendant, OJ Commerce, in a Florida district court, alleging infringement of the same design patent.  Leader and OJ Commerce entered into a joint defense agreement to collaborate on defending against Static’s infringement claims.  OJ Commerce’s counsel signed onto the protective order in the Wisconsin action, and Leader’s counsel sent OJ Commerce several confidential documents from the Wisconsin case, including Static’s royalty agreements and financial information.

Several months later, OJ Commerce improperly used the royalty agreements it obtained from Leader to assess a settlement proposal from Static.  Based on these events, the Wisconsin district court determined that Leader’s counsel violated the protective order by disclosing the confidential documents to OJ Commerce.  The court thus held Leader and its counsel in civil contempt and ordered Leader to pay Static’s attorney’s fees and a $1,000 sanction.

A divided Federal Circuit panel reversed.  Writing for the majority, Judge Dyk explained that “contempt is improper when there is a fair ground of doubt as to whether a party’s actions violate a protective order.”  According to the majority, Leader’s counsel did not clearly violate the protective order, so a contempt finding was unwarranted.

First, the majority declined to hold Leader’s counsel responsible for OJ Commerce’s improper use of the confidential information.  It saw no clear and convincing evidence that Leader’s counsel “knew or should have known [OJ Commerce’s counsel] would use the confidential information in the Florida action.”  To the contrary, Leader’s counsel had OJ Commerce’s counsel sign onto the protective order, and each time Leader’s counsel disclosed confidential information, he reminded OJ Commerce’s counsel of the protective order’s restrictions.

Second, the majority held that Leader’s counsel’s disclosure of the confidential information to develop a joint defense strategy did not itself clearly violate the protective order.  The protective order prohibited all “use[s]” of confidential information other than “solely for the purpose of” the Wisconsin action.  But the majority observed that the protective order’s “stated purpose” was “preventing the public dissemination and disclosure of sensitive information.”  Read in light of that purpose, the majority concluded, “a ‘use’ entirely internal to protective order signatories—developing a joint defense strategy—would not violate its terms, even though the information would be used to develop a strategy beneficial to both the Wisconsin action and the Florida action.”

Judge Reyna dissented.  He emphasized the deferential standard of review for district court decisions related to discovery and sanctions.  And he underscored the protective order’s text rather than its purpose, noting that it required confidential information to be used “solely for the purpose of this action.”  Judge Reyna thus would have concluded that the district court did not abuse its discretion in determining that Leader and its counsel violated the protective order.  In Judge Reyna’s view, it was “unreasonable” for Leader’s counsel to believe that OJ Commerce would not use the confidential information, “or the joint defense strategy formulated based on the disclosed confidential information,” in the Florida litigation.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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