No. 5:03–CV–4947 JF (RS)
United States District Court, N.D. California
June 14, 2004
Joshua C. Krumholz, Holland & Knight LLP, Boston, MA, Wendy M. Lazerson, Mark L. Venardi, Esq., Lawrence James Conlan, Holland & Knight LLP, San Francisco, CA, for Plaintiff.
Gabrielle Elizabeth Higgins, Fish & Neave, Palo Alto, CA, John D. Van Loben Sels, Kevin P.B. Johnson, Quinn Emanuel Urquhart Oliver & Hedges LLP, Redwood Shores, CA, for Defendants.
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO COMPEL AND DENYING MOTION FOR ENTRY OF PROTECTIVE ORDER
*1 Plaintiff Excelligence Learning Corporation (“Excelligence”) filed a motion to compel discovery responses from defendants Oriental Trading Company, Inc. (“OTC”) and Teresa Martini (“Martini”) (collectively, “defendants”) who, in turn, filed a motion to compel further responses from Excelligence, as well as a motion for entry of a protective order. Pursuant to stipulation, and with the consent of the Court, the motions were briefed and heard on shortened time on June 9, 2004. Based on all papers filed to date, as well as on the oral argument of counsel, the Court grants in part and denies in part the motions to compel, and denies the request for entry of a protective order, for the reasons set forth below.
Excelligence is a corporation doing business in Monterey, California as a developer, manufacturer and retailer of educational products which are sold to child care programs, preschools, elementary schools and consumers. Excelligence sells its school products primarily through mail-order catalogs of its Discount School Supply Division. The majority of its sales in this division are derived from the sale of Excelligence's line of arts and crafts products. From August 15, 1996, through November 5, 2001, defendant Martini worked for Excelligence, first as a Purchasing Manager and then as the Vice President of Merchandising. In her position as Vice President, Martini was responsible for supervising merchandising and product development by offering for sale products in Excelligence's Discount School Supply catalog and through Excelligence's websites. Martini's responsibilities also included initial selection of products and initial negotiations with vendors. As a consequence of her position, Martini was provided, as alleged by Excelligence, direct access to its confidential and trade secret information, including its product, marketing, financial and vendor information.
More specifically, while employed at Excelligence, a software program was created which enabled Martini to create a label for each and every product sold by the company. The label contained data taken directly from the company's financial database, including information regarding the gross sales, product costs, and the sales ranking of each product. These labels were collected by Martini in “modified catalogs.” However, the catalog most recently modified prior to Martini's departure is allegedly missing and Excelligence contends that Martini took such catalog with her when it terminated her employment.
OTC is a corporation doing business in Omaha, Nebraska as a direct marketer of party supplies, noveltyitems, gift items and similar products. OTC sells its products exclusively through its mail-order catalogs and websites. Excelligence alleges that, until recently, OTC did not sell an arts and crafts product line similar to that of Excelligence, nor did OTC market to primarily educational institutions. However, in September of 2002, Excelligence contends that OTC hired Martini for the purpose of creating an arts and crafts product line to compete with Excelligence and to sell to educational institutions. Within ten months of hiring Martini, Excelligence alleges that OTC published its first “arts and crafts” catalog, as a “Hands On Fun” insert to an already existing OTC catalog. Excelligence argues that OTC could not have launched such a catalog, with the assortment of products contained therein, without the use of confidential and trade secret information obtained by Martini during her employment with Excelligence. In fact, Excelligence alleges that Martini took its modified catalog with her to OTC and used it to create a catalog that contained a substantial number of Excelligence's best-selling products.
Without this alleged trade secret information, Excelligence posits that OTC would have had to purchase and sell products on a “trial-and-error” basis in order to ascertain, over a period of years, which products were the best-selling and most profitable.
*2 Based on those contentions, on November 12, 2003, Excelligence filed a First Amended Complaint against the defendants, alleging five claims for relief: (1) misappropriation of trade secrets; (2) unfair competition; (3) trademark infringement; (4) claims for violations of California Business and Professions Code, §§ 17200, 17500; and, (5) copyright infringement. On March 22, 2004, the presiding judge granted Excelligence's motion to expedite discovery and trial in this case. Accordingly, discovery is presently scheduled to close on July 15, 2004 and trial is set to begin on September 27, 2004.
Both parties now request that the Court compel further responses to discovery requests which have been propounded and, allegedly, only partially answered. In addition, defendants request that the Court enter a protective order relieving OTC or any third parties from responding to discovery propounded by Excelligence unless and until Excelligence provides an adequate identification of its allegedly misappropriated trade secrets.
III. LEGAL STANDARDS
A. Motion to Compel
Under the Federal Rules of Civil Procedure, Rule 26(b)(1),
[p]arties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party ... Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.
Evidence is relevant if it has “any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Federal Rules of Evidence, Rule 401. Discovery may be limited by the court for good cause shown “to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c).
Motions to compel are authorized by Rule 37 of the Federal Rules of Civil Procedure:
[If] a party fails to answer an interrogatory submitted under Rule 33, or if a party, in response to a request for inspection submitted under Rule 34, fails to respond that inspection will be permitted as requested or fails to permit inspection as requested, the discovering party may move for an order compelling an answer, or a designation, or an order compelling inspection in accordance with the request. The motion must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make the discovery in an effort to secure the information or material without court action.
B. Motion for Entry of Protective Order
Entry of a protective order is warranted where the moving party establishes “good cause” for an order and justice so requires to protect a party or person from annoyance, embarrassment, oppression or undue burden or expense. Fed.R.Civ.Pro. 26(c). “For good cause to exist, the party seeking protection bears the burden of showing specific prejudice or harm will result if no protective order is granted.” Phillips v. General Motors Corp., 307 F.3d 1206, 1210–11 (9th Cir.2002). “Broad allegations of harm, unsubstantiated by specific examples or articulated reasoning, do not satisfy the Rule 26(c) test.” Beckman Industries, Inc. v. Int'l Ins. Co., 966 F.2d 470, 476 (9th Cir.1992).
A. Motion for Entry of Protective Order
*3 OTC requests that the Court enter a protective order regarding Excelligence's motion to compel further responses to Interrogatory Nos. 3, 4, and 7, as well as Document Request Nos. 6, 11, 22, and 31–36, on the basis that it should not have to provide any additional discovery until and unless Excelligence identifies its trade secrets with the particularity required by Cal.Code of Civ. Pro.2019(d). OTC also argues that, until Excelligence provides this information, the deposition notices served on OTC to produce a Fed. R. Civ. Pro. 30(b)(6) witness, as well as the deposition notices served on six key witnesses, should be stayed. See e.g.,
Computer Economics, Inc. v. Gartner Group Inc., 50 F.Supp.2d 980 (S.D.Cal.1999).
Section 2019(d) provides that Excelligence must identify its allegedly misappropriated trade secrets “with reasonable particularity” before the commencement of discovery relating to such trade secrets. Cal. Civ. Proc. § 2019(d).
OTC argues that Excelligence has failed to comply with this requirement because the information disclosed to date reveals nothing more than publicly available information, such as the types and prices of products sold by Excelligence, its vendors and its customer lists. In sum, OTC notes that Excelligence has failed to identify any “confidential” information which is protected under the California Civil Code. See e.g.,
Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443, 1452, 125 Cal.Rptr.2d 277 (2002) (information not deemed trade secret because no differentiation between truly secret information (such as formulas and product design) and publicly disclosed information).
Excelligence responds that it has adequately complied with the state's disclosure requirement and has properly disclosed sufficient details regarding its claimed trade secrets. Specifically, Excelligence refers to 24–42 of the First Amended Complaint, which identifies its trade secret information related to vendors ( 24–30); finances ( 31–34); and, copyright and trademark claims ( 35–42). Moreover, Excelligence notes that it has provided additional information concerning its trade secret and confidential information in supplemental answers to interrogatories. See
Exh. B to Joshua Krumholz Declaration.
A review of these responses reveals that, while some
of the information disclosed by Excelligence may constitute proprietary knowledge, the vast majority of materials reveal data that is either publicly available, such as catalog layouts and mailing lists, or is known to those in the trade, such as vendors and products. Although Excelligence has disclosed a limited amount of data which is not necessarily made available to the public and which may qualify for protection as trade secrets, such as Excelligence's best-selling products lists, its most effective use of catalog layouts and photographs, and the utilization of various sales methods such as highlighted text and lettering, this information is largely subsumed within a significant amount of data and documents which do not appear to qualify for trade secret protection.
*4 Nonetheless, the disclosures provided by Excelligence are sufficient to fulfill the minimum threshold requirements of the California trade secrets discovery statute and, therefore, do not warrant a stay of discovery, nor provide justification for OTC to refuse to provide further discovery to Excelligence. See
Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443, 125 Cal.Rptr.2d 277 (2002). Moreover, OTC's argument that such information is not protected because it is either publicly available or known to those in the trade addresses the merits of Excelligence's trade secrets claim rather than its responsibilities under the applicable discovery rules. This conclusion is not undermined by the cases cited by OTC which address this issue in the context of motions for summary judgment rather than in the discovery phase. See e.g.,
MAI Systems Corp. v. Peak Computer Inc., 991 F.2d 511, 522 (9th Cir.1993) (affirming summary judgment where plaintiff established database constituted trade secret); Imax Corp. v. Cinema Technologies, 152 F.3d 1161, 1164–65 (9th Cir.1998) (affirming summary judgment against plaintiff who failed to identify with particularity its trade secrets); Universal Analytics, Inc. v. MacNeal–Schwendler Corp., 707 F.Supp. 1170, 1177 (C.D.Cal.1989) (granting summary judgment in trade secrets case where defendant established that plaintiff had failed to allege precisely which trade secrets were misappropriated).
Moreover, the one case relied upon by OTC in which a stay of discovery was granted, Computer Economics, Inc. v. Gartner Group Inc., 50 F.Supp.2d at 987, involved a situation in which no
disclosures had been made by plaintiff. Based on Excelligence's pleadings, discovery responses and supplemental disclosures, it has adequately disclosed its trade secrets with sufficient specificity to fulfill the threshold requirements of Section 2019(d) for the purposes of commencing discovery. Therefore, OTC's motion for entry of a protective order is denied.
B. Motions to Compel
1. Defendants' Motion to Compel Further Discovery Responses
a. Interrogatory Nos. 1 and 2
OTC's first and second interrogatories request that Excelligence identify in detail all trade secrets and confidential information which is alleged to have been misappropriated, as well as provide all evidence of any economic value derived from such alleged trade secrets. Although Excelligence provided responses to these questions, OTC contends that the information provided is insufficient to fulfill the requirements of Cal.Code of Civ. Pro. § 2019(d). Specifically, OTC complains that Excelligence has not defined any proprietary information which is a protectable trade secret. Instead, OTC maintains that Excelligence has simply disclosed matters that are either publicly available or known to the general industry. See
Am. Paper & Packaging Prods., Inc. v. Afton Kirgan, 183 Cal.App.3d 1318, 1326, 228 Cal.Rptr. 713 (information generally known in the trade is not protectable trade secret).
*5 As noted above, Excelligence has described some information which may be proprietary, such as its lists and materials which identify which products are best-sellers, which catalog lay-outs are most appealing to the public, and which items yield the highest profit margin. However, Excelligence has also identified information that does not appear to constitute protectable trade secrets, such as the identity of vendors, the pricing of its products, and its general catalog layout. As acknowledged by Excelligence, information which has either been publicly disclosed or is generally known in the trade is not protectable as trade secret information. Id.
Moreover, if Excelligence contends that information which is ordinarily publicly available or known in the industry, such as the identity of particular vendors, is somehow confidential in this instance as a result of steps or measures taken by Excelligence to preserve such confidence, then it must disclose such contentions and provide all documents which support its contentions.
For these reasons, OTC's motion to compel further responses to Interrogatory Nos. 1 and 2 is granted.
b. Interrogatory No. 3
OTC contends that, although Excelligence has answered most of this interrogatory relating to the “look and feel” of the similarities between the parties' catalogs, Excelligence did not answer the portion of the interrogatory which asks for “the identity of the relevant customers for a likelihood of confusion analysis.” Excelligence responds that it “has not yet performed an analysis to determine the extent of confusion in the marketplace” but that it is aware “that customers and prospective customers have confused the source of origin between the catalogs of the two companies.” This answer is non-responsive and, accordingly, the motion to compel a further response from Excelligence to identify the relevant customers who have been confused is granted.
c. Interrogatory No. 4 and Document Request Nos. 43–52 and 71–72
These discovery requests all relate to Excelligence's trademark infringement claim. Initially, in response to OTC's requests, Excelligence stated that it had “not yet determined whether it planned to proceed with such claim.” Subsequently, after the motion to compel was filed, Excelligence provided some supplemental responses to the requested discovery. However, if Excelligence contends that it has any further responsive information or materials, it shall provide such data to OTC in response to these discovery requests. Accordingly, OTC's motion to compel further responses to Interrogatory No. 4 and Document Request Nos. 43–52 and 71–72 is granted.
d. Document Request Nos. 7 and 9
OTC seeks the production of all declarations and deposition testimony given by Ron Elliot, the Chief Officer and President of Excelligence, with respect to all prior litigation involving trade secret, copyright, and trademark infringement claims. It also requests production of all board minutes covering several topics, including how OTC and other competitors are impacting Excelligence's business. Excelligence responds that it has provided all responsive documents in its possession and that it has searched for additional testimony and board minutes, but has not located any additional documents which have not already been produced. Accordingly, the motion to compel further responses to Document Request Nos. 7 and 9 is granted to the extent that any other responsive documents are located.
e. Document Request No. 32
*6 This request asks Excelligence to produce copies of its catalogs which were distributed prior to the employment of Martini. Excelligence initially objected to this request as overbroad. However, during the meet and confer process, OTC agreed to limit its request to the three years prior to Martini's employment and, based on that agreement, Excelligence states that it has now produced the requested catalogs. However, OTC contends that the “historical school supply catalogs” have not been produced. Accordingly, if such catalogs have not already been produced, the motion to compel further responses to Document Request No. 32 is granted to the extent that Excelligence must produce copies of its historical school supply catalogs for the three years prior to Martini's employment.
f. Document Request Nos. 34–35
OTC seeks information accumulated by Excelligence regarding its competitors in the school supply business, such as competitive market analyses performed by Excelligence. OTC contends that such information is relevant to prove or disprove Excelligence's claim that it is losing profits in this area as a result of OTC's actions rather than other market factors, such as general budget cuts at schools. Excelligence responds that it has provided its competitors' catalogs and that it does not have any competitive market analyses. It also notes that, although it initially intended to provide copies of all emails which reference OTC and/or other competitors, it has discovered that such production would involve the review of thousands of emails. Therefore, if OTC's request encompasses emails, Excelligence objects on the basis that it would be unduly burdensome to require it to produce all emails which reference its competitors.
At the hearing, OTC noted that it agreed that it did not require the production of all
emails. Rather its request was limited to the emails of Ron Elliott and other personnel in the marketing department. As so limited, Excelligence agreed to search for and produce copies of all responsive emails. Therefore, the motion to compel further responses to Document Request Nos. 34–35 is granted.
g. Document Request Nos. 61 and 75
OTC requests that Excelligence produce copies of documents concerning vendor information, such as how each vendor was located and identified, the negotiation process between Excelligence and the vendors, and artwork and samples provided by such vendors. Although Excelligence initially agreed only to identify the location and names for the vendors, it now states that it has located five cabinets full of vendor information and has offered to make such cabinets available to OTC. Therefore, OTC's motion to compel further responses to Document Request Nos. 61 and 75 is granted.
2. Excelligence's Motion to Compel Further Discovery Responses
Excelligence moves to compel further responses from OTC in response to Interrogatories 3, 4 and 7, as well as to Requests for Production Nos. 6, 11, 25, and 31–36, on the basis that OTC has improperly refused to answer fully these discovery requests.
OTC responds that the requests are overly broad and burdensome and that Excelligence is first required to identify its alleged “trade secrets” with reasonable particularity, in compliance with Cal.Code Civ. Pro. § 2019(d).
a. Interrogatory No. 3(a) and Document Request No. 6
*7 In these requests, OTC is asked to provide “the identity and location of all recipients of the Arts and Crafts Catalogs” and the documentation in support thereof. OTC objects to this discovery on the bases that it is unduly burdensome since over 1.5 million people receive OTC's catalogs and that Excelligence has failed to identify properly its trade secrets prior to the commencement of discovery, in violation of Cal.Code Civ. Proc. § 2019(d). OTC additionally states that Excelligence has refused to state that it will not contact OTC's recipients once their identities have been revealed.
Since, as noted above, Excelligence has adequately described its trade secrets, OTC must provide the requested discovery, unless it establishes that such requests are unduly burdensome. Other than noting that over 1.5 million people receive its catalogs, OTC has failed to articulate why the production of this information would be burdensome. Presumably, the requested information is available on a database and may be quickly accessed, copied and provided to Excelligence. Accordingly, because Excelligence's discovery requests seek relevant and appropriate information and there has been no showing that they are unduly burdensome, the motion to compel further responses to Interrogatory No. 3(a) and Document Request No. 6 is granted.
b. Interrogatory Number 4 and Document Request No. 11
These discovery requests seek information regarding OTC's vendors for its Arts and Crafts Products. Through the meet and confer process, Excelligence has agreed that the only vendor information that need be produced at this time is the identity, location and salient business terms for each vendor with respect to the 278 products identified by Excelligence. Excelligence notes that this same information was provided by it to OTC in response to OTC's discovery requests. However, OTC argues that even this limitation is burdensome, since it requires the disclosures of vendors for 278 products, despite the fact that, in its opinion, Excelligence has failed to establish that all 278 products were improperly copied by OTC. Moreover, OTC continues to argue that it is not obligated to respond to discovery unless and until Excelligence properly defines its alleged trade secrets.
As discussed above, Excelligence has disclosed sufficient information regarding its trade secrets to justify the commencement of discovery. Therefore, OTC may not withhold otherwise relevant discovery responses on this basis. In addition, OTC again fails to establish that Excelligence's requests are unduly burdensome. The fact that there are 278 products involved does not, alone, mean that the requests are burdensome. OTC has failed to state why or how a response to this discovery would be burdensome. For example, it does not state that the retrieval of responsive information is difficult, costly or unduly time-consuming.
Since the requests seek relevant and discoverable information related to Excelligence's claims, its motion to compel further discovery responses to Interrogatory Number 4 and Document Request No. 11, limited to the identity, location and salient business terms for each vendor, is granted.
c. Interrogatory Number 7 and Document Request Nos. 31–36
*8 Excelligence seeks financial information related to OTC's sales volume, gross revenues, and net sales for the 278 products it has previously identified on the basis that it is entitled to the recovery of OTC's profits on the disputed products. OTC argues that, because Excelligence has not identified its theory of damages regarding these 278 products, it cannot know which documents in its possession relate to damages. OTC also contends that the fact that it has provided reciprocal discovery does not relieve Excelligence from its burden of establishing the relevance and necessity of its discovery requests, especially in light of the fact that Excelligence bears the burden of proof on damages.
Based on the pleadings filed, it appears that Excelligence has articulated its damages theory—that defendants misappropriated its trade secret product information in order to launch their own competitive catalog. As a result of the use of Excelligence's confidential information, it alleges that OTC knew precisely which products to offer for sale, and at what prices, in order to maximize its profits. Excelligence now claims that it is entitled to such profits since they were allegedly earned as a result of OTC's wrongful usurpation of Excelligence's confidential information. Accordingly, the discovery requests appear appropriately tailored to request information related to OTC's profits on the products identified by Excelligence as “remarkably similar” to its own products. Therefore, the motion to compel further responses to Interrogatory Number 7 and Document Request Nos. 31–36 is granted.
d. Document Request No. 25
The only remaining dispute between the parties concerning this discovery request is the production of the photographs used by OTC in its Arts and Crafts Catalogs. OTC argues that this request is unduly burdensome because it requires the production of literally thousands of pictures related to hundreds of products. It complains that, since it does not maintain copies of the photographs “in the manner Excelligence apparently does,” it is difficult to locate and produce such responsive documents. Again, however, the fact that a particular search may be “difficult” does not excuse a party from complying with valid discovery requests. Excelligence contends that OTC copied its catalogs, including its photographs. Since OTC does not explain how copies of its photographs are kept, it is not possible to offer a reasonable alternative to production of these photos, such as permitting Excelligence access to OTC's photo archive, as Excelligence has offered to OTC. Accordingly, the motion to compel production of all responsive photographs in response to Document Request No. 25 is granted.
For the reasons stated herein, the Court grants in part and denies in part the motions to compel filed by the parties, as follows:
1. OTC's motion for entry of a protective order is denied.
2. OTC's motion to compel further responses to Interrogatory Nos. 1, 2, 3 and 4, as well as to Document Request Nos. 43–52 and 71–72, is granted. All responsive information and documents shall be provided within twenty (20) days of the date of this order.
*9 3. OTC's motion to compel further responses to Document Request Nos. 7 and 9 is granted to the extent that additional responsive documents not already produced are located.
4. OTC's motion to compel further responses to Document Request No. 32 is granted to the extent that Excelligence must produce copies of its historical school supply catalogs for the three years prior to Martini's employment. All responsive information and documents shall be provided within twenty (20) days of the date of this order.
5. OTC's motion to compel further responses to Document Request Nos. 34–35 is granted, to the extent that Excelligence shall provide the emails of Ron Elliott and other personnel in the marketing department. All responsive information and documents shall be provided within twenty (20) days of the date of this order.
6. OTC's motion to compel further responses to Document Request Nos. 61 and 75 is granted. Excelligence has agreed to permit OTC to inspect and copy the responsive vendor information discovered in five file cabinets. These cabinets shall be made available to OTC within twenty (20) days of the date of this order.
7. Excelligence's motion to compel further responses from OTC to Interrogatories 3, 4, and 7, as well as to Document Request Nos. 6, 11, 25 and 31–36, is granted. All further responses and/or documents shall be provided within twenty (20) days of the date of this order.
8. Excelligence's motion to compel further responses from Martini to Interrogatories 3 and 4, as well as to Martini Document Request Nos. 10 and 23, is granted. All further responses and/or documents shall be provided within twenty (20) days of the date of this order.
Excelligence has identified 278 products to date.
The Court understands that, at defendants' request, the presiding judge recently extended these dates by thirty (30) days.
As the Court noted at oral argument, the state's Code of Civil Procedure is not binding in this case. Nevertheless, since there is no parallel trade secret discovery provision set forth in the Federal Rules of Civil Procedure, the Court utilizes the state's discovery requirements.
Excelligence also states that its propounded discovery is not directed solely towards its trade secrets claim but relates to its additional claims for relief as well.
Such disclosures do, however, warrant additional clarification, as discussed in conjunction with OTC's motion to compel further responses.
For instance, during oral argument counsel for Excelligence stated that the identities of some of its vendors were proprietary because such vendors are not generally known in the trade and would not have been discovered by OTC but for the introduction of such vendors to Martini by Excelligence. However, unless Excelligence took some measures to preserve the confidential nature of its relationships with those vendors, such as entering into confidentiality agreements, their identities are not apparently secret.
Excelligence also moves to compel further responses from corresponding discovery requests propounded to Martini. Specifically, these are Martini Interrogatory Nos. 3 and 4, which correspond to Interrogatories 3 and 4 which were propounded to OTC, and Martini Requests for Production Nos. 10 and 23, which correspond to Document Request Nos. 11 and 25, respectively, propounded to OTC.
During oral argument, counsel for OTC stated that the retrieval of responsive information would be time-consuming because it involves cross-referencing many databases and back-up tapes. Counsel acknowledged, however, that no such information is presented in a declaration to the Court.
End of Document.