MSIGNIA, INC. v. INAUTH, INC Case No. 8:17-cv-01289-AG-KESx United States District Court, C.D. California Filed October 18, 2018 Counsel Kenneth G. Parker, Jason T. Lao, Thomas B. King, Haynes and Boone LLP, Costa Mesa, CA, Jason W. Whitney, Pro Hac Vice, Haynes and Boone LLP, San Antonio, TX, Michael D. Karson, Pro Hac Vice, Haynes and Boone LLP, Dallas, TX, Winnie Wong, Haynes and Boone LLP, Palo Alto, CA, for mSIGNIA, Inc. Catherine Lacey, Michelle Ann Clark, Quinn Emanuel Urquhart & Sullivan LLP, San Francisco, CA, Matthew D. Robson, Pro Hac Vice, Miles D. Freeman, Peter J. Armenio, Pro Hac Vice, Seung Woo Hur, Pro Hac Vice, Quinn Emanuel Urquhart and Sullivan LLP, New York, NY, for InAuth, Inc. Scott, Karen E., United States Magistrate Judge Order Denying Plaintiff’s Motion to Compel Production of Emails (Dkt. 61) I. BACKGROUND. A. Underlying Patent Claims. *1 Plaintiff mSIGNIA, Inc. (“Plaintiff”) filed this action against Defendant InAuth, Inc. (“Defendant”) alleging patent infringement. Per the Complaint, both Plaintiff and Defendant sell computer security products. (Dkt. 1 ¶¶ 3-4.) Plaintiff alleges that Defendant’s products based on technology called the “InAuth Security Platform” infringe one or more claims of a patent owned by Plaintiff, the ‘852 patent. (Id. ¶ 4.) On September 26, 2018, Plaintiff sent Defendant an email stating in relevant part, “After due consideration, mSIGNIA has elected to move forward to trial on its infringement claims relative to the [InBrowser] V3 functionality only.” (Dkt. 71-5.) The patent-in-suit was issued on January 31, 2017. (See Dkt. 61-1 at 6.[1]) Per Defendant’s discovery responses, [redacted]. (Dkt. 78 at 3-4; Dkt. 78-1 at 6 [Ex. L, Defendant’s response to interrogatory 3]; Dkt. 78-2 [Ex. M, internal emails produced by Defendant].) B. Discovery Requests at Issue. E-discovery in this case is governed by Judge Guilford’s Standing Patent E-Discovery Order (the “Standing Order”). The Standing Order permits the parties to propound 5 EPRs. (Standing Order ¶¶ 7-8.) EPRs “shall identify the custodian, search terms, and time frame.” (Id. ¶ 8.) EPRs must be limited “to a total of eight search terms per custodian per party.” (Id. ¶ 9.) The Standing Order further instructs, “The search terms shall be narrowly tailored to particular issues.... Use of narrowing search criteria (for example, “and,” “but not,” “w/x”) is encouraged to limit the production ....” (Id.) The Standing Order concludes, “Except as expressly stated, nothing in this order affects the parties’ discovery obligations under Federal or Local Rules.” (Id. ¶ 12.) Per these requirements, the parties exchanged EPRs and responses in June 2018, including Plaintiff’s first set of EPRs which contains disputed EPRs 1-5. (Dkt. 61-1 at 4.) The following month, the parties conferred to refine their respective email production requests. Through that process, they agreed on final search parameters for Plaintiff’s EPRs 1-5. (Id.) In its written response to EPRs 1-5, Defendant objected to all of the EPRs as follows: Exceeds Scope of Discovery. InAuth objects to each Request for Production to the extent that it exceeds the scope of permissible discovery by calling for the production of documents or things that are neither relevant to any claim nor proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. In particular, InAuth objects to each Request to the extent it seeks documents pertaining only to potential future products rather than the Accused Products and will not produce such documents. *2 (Dkt. 61-9 at 6-7 ¶ 4 [the “Future Products Relevancy Objection”].) Plaintiff now moves to compel production of all emails withheld based on this objection. (Dkt. 61.) Defendant ultimately produced “over 30,000 emails and attachments.” (Id.at 23.) Defendant did not, however, produce all the emails that “hit” on the search terms in EPRs 1-5. (Id. at 4.) During the parties’ efforts to meet and confer, Defendant estimated that it had withheld about 30 emails based on the Future Products Relevancy Objection. (Id. at 5.) Defendant explained that it did provide discovery about some future products, “namely future products contemplated by [Defendant] as of the date of any hypothetical negotiation in this case, the issuance date of the sole patent-in-suit (January 31, 2017).” (Id. at 6.) Defendant “offered a compromise of producing documents regarding any future products contemplated not only as of the hypothetical negotiation date but also three months therefrom,” i.e., on or before April 30, 2017. (Id.) Plaintiff rejected that offer and instead proposed that Defendant produce all hits on the search terms but designate them as attorneys’ eyes only (“AEO”). (Id. at 18-19.) Unable to reach an agreement, Plaintiff initiated the joint stipulation process leading to this motion. See generally Local Rule 37-2. If it prevails, Plaintiff seeks to recover its fees and costs associated with bringing this motion, offering to provide a sur-reply with such evidence. (Id. at 25.) Defendant also asks for fees and costs in the event it prevails. (Id. at 26.) On September 28, 2018, the Court posted a tentative ruling on the motion. (Dkt. 67.) Electing not to submit on the tentative ruling, Plaintiff filed a supplemental brief (Dkt. 78 [sealed version] ), as did Defendant (Dkt. 71). On October 16, 2018, the Court held a hearing. For the reasons stated below, the Court DENIES Plaintiff’s motion. II. DISCUSSION. A. Legal Standards. The relevance standard for civil discovery is broad. “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case ....” Fed. R. Civ. Pro. 26(b)(1). If a motion to compel discovery is granted, then after giving an opportunity to be heard, the Court must require the opposing party and/or attorney to pay the movant’s “reasonable expenses incurred in making the motion” unless (1) the movant filed the motion before attempting in good faith to obtain the disclosure or discovery without court action; (2) the opposing party’s nondisclosure, response, or objection was substantially justified; or (3) other circumstances make an award of expenses unjust. Fed. R. Civ. P. 37(a)(5)(A). Similarly, if the motion is denied, then the court must award reasonable expenses to the party opposing the motion unless “the motion was substantially justified or other circumstances make an award of expenses unjust.” Fed. R. Civ. Pro. 37(a)(5)(A). Moving to compel or resisting discovery is “substantially justified” if “reasonable people could differ as to whether the party requested [to respond] must comply.” Reygo Pacific Corp. v. Johnston Pump Co., 680 F.2d 647, 648 (9th Cir. 1982) (citation omitted), overruled on other grounds as stated in Molski v. Evergreen Dynasty Corp., 500 F.3d 1047, 1055 n.2 (9th Cir. 2007). A “good faith dispute concerning a discovery question might, in the proper case, constitute ‘substantial justification.’ ” Liew v. Breen, 640 F.2d 1046, 1050 (9th Cir. 1981). B. The Parties’ Arguments. 1. The Standing Order. *3 Plaintiff argues that the Standing Order requires parties to produce all hits to the agreed-upon search terms comprising EPRs. (Dkt. 61-1 at 17-18.) This Court does not interpret the Standing Order as imposing such a requirement. Some disputes are not amenable to precisely crafted search terms that will reliably identify relevant documents. It is the parties’ prerogative to spend time negotiating over narrower search terms or agree to broader search terms and conduct a subsequent review for relevancy. The Standing Order does not affect the parties’ discovery obligations under the rules except as “expressly stated,” and nothing in the Standing Order expressly requires a party to produce irrelevant documents. 2. Unilateral Filtering. Plaintiff argues that Defendant is not permitted to “unilaterally filter” the emails it produces in response to EPRs. (Id. at 17.) In the Court’s experience, however, counsel routinely raise relevancy objections and decline to produce documents determined to be irrelevant. “An objection must state whether any responsive materials are being withheld on the basis of that objection.” Fed. R. Civ. P. 34(b)(2)(C). Here, the Future Products Relevancy Objection adequately explains which documents are being withheld and why, consistent with the clarification provided through the parties’ “meet and confer” dialog. 3. Waiver of Relevancy Objection. Plaintiff essentially argues that Defendant waived any relevancy objection based on future products by producing some emails that discuss future products. (Dkt. 61-1 at 5.) Producing some irrelevant documents does not waive objections based on relevancy. Defendant’s written responses stated the Future Products Relevancy Objection sufficiently to avoid waiver. Defendant argues that even if “a handful of the 30,000 documents [Defendant] produced in email discovery make high-level or passing references to potential future products,” that is no reason to overrule the Future Products Relevancy Objection because (1) unlike in the context of privilege, there is no tactical advantage to selective waiver of objections based on relevance, (2) it was Defendant’s prerogative to determine what resources to devote to a reasonable relevance review, and (3) “the few emails cited by [Plaintiff] that make high level reference to potential future products were produced simply because they also may arguably relate to the actual accused products.” (Id. at 24.) The Court agrees with these arguments. Plaintiff contends that Defendant “has provided no explanation of why or how it chose to produce some future product emails but not others.” (Id. at 5.) To the contrary, Defendant explained the date cutoff it imposed and why and further explained why some later emails were included (i.e., they arguably relate to the accused products). 4. Relevancy Based on Internal Infringement. Plaintiff argues that there is no “per se” rule that discovery about “future products” (i.e., products in existence but not yet released for sale) is irrelevant, because “even limited internal use without release or commercialization can constitute infringement.” (Id. at 17.) Defendant, however, is not relying on a “per se” rule. Defendant makes a fact-specific argument as to why, in this case, email discussions of future products contemplated by Defendant after the issue date of the patent-in-suit are not relevant to any parties’ claims or defense. Moreover, Defendant provided deposition testimony from its chief technology officer that none of the technology discussed in the approximately 30 withheld emails has been developed even to the point where it could be used in-house. (Id. at 22 [“[Defendant] has not yet even decided whether to move forward with developing the relevant potential future products.”]; Dkt. 65-6 at 19 [Robson Decl. Ex. H, sealed version].) 5. Relevancy Based on Damages. *4 Plaintiff claims that the withheld emails may be relevant to “noninfringing alternatives and other damages-related issues.” (Dkt. 61-1 at 16.) Plaintiff explains that Defendant has represented that it “has wholly abandoned two of the accused functionalities in this case,” citing to Defendant’s responses to interrogatories. (Id.) Plaintiff apparently contends that some of the 30 withheld emails might disprove this representation of abandonment. Defendant counters that it has already disclosed to Plaintiff “the non-infringing alternatives it is relying on ..., none of which are related to the future products currently under research and development.” (Id. at 23.) At the hearing, Defendant further explained that the non-infringing alternative on which it is relying is not a hypothetical future product. Rather, it is Defendant’s V2 product – a product that does not rely on the allegedly infringing functionality and that Defendant continues to sell. In its tentative ruling, the Court noted that even if the 30 withheld emails showed that Defendant’s personnel were contemplating developing new products based on the functionalities Defendant represented that it abandoned, Plaintiff had failed to explain how that fact would have any relevance to Plaintiff’s damages. Contemplated future wrongdoing (i.e., wrongdoing that has not yet happened and may never happen) cannot cause damages. In its supplemental brief, Plaintiff addressed this portion of the tentative ruling, raising for the first time in briefing to the Court the “book of wisdom” doctrine. (Dkt. 78 at 2.) The parties agree that under this doctrine, somepost-infringement (and post-hypothetical negotiation) facts may be relevant and thus discoverable. Plaintiff argues that the doctrine means “subsequent events can be considered to the extent they are probative of the mindset of the negotiators at the table in the ‘hypothetical negotiation’ in the factors relevant to patent damages.” (Dkt. 78 at 2-3.) As explained by the United States Supreme Court case that created the doctrine, attempting to determine what reasonable royalty would have resulted from a hypothetical license negotiation is an “uncertain prophecy.” Sinclair Ref. Co. v. Jenkins Petroleum Co., 289 U.S. 689, 698-99 (1933). Where “years have gone by” between the hypothetical negotiation and the damages analysis presented at trial, however, the factual developments between those two events provide “a book of wisdom” that can be considered. Id. “To correct uncertain prophecies in such circumstances is not to charge the offender with elements of value non-existent at the time of his offense. It is to bring out and expose to light the elements of value that were there from the beginning.” Id. Plaintiff cites cases that invoked the doctrine to permit post-hypothetical negotiation damages evidence such as (1) actual sales of the accused products, (2) projected sales of the accused products, (3) market changes that affected sales of the accused products, (4) expert opinion based on such facts and data, and (5) efforts to design around the accused functionality in order to bring a product to market. (Dkt. 78 at 3-6.) Under the doctrine, courts assume that the hypothetical negotiators would have anticipated these later events and valued the technology accordingly during their negotiations. See Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 772 (Fed. Cir. 2014) (noting that “[e]vidence of the infringer’s actual profits generally is admissible as probative of his anticipated profits” during the hypothetical negotiation). *5 Attempting to apply the book of wisdom doctrine to this case, Plaintiff first argues that the withheld emails may reflect Defendant’s internal discussions about potential use of the accused V3 functionality in future products. Plaintiff supports this supposition by citing (1) the fact that the emails were “hits” to the search terms and (2) emails and deposition testimony from late 2017 and 2018 that reflect Defendant’s desire to improve V2 and the possibility of using “machine learning” to do so. (Dkt. 78 at 5.) Next, Plaintiff argues that if the withheld emails do show that Defendant is presently considering developing new products that will use or design around the accused functionality, then the emails are evidence that the accused functionality still has value to Defendant, informing how much Defendant would have paid for it at the hypothetical negotiating table back in January 2017. Defendant counters that it has no need to design around the accused functionality, because it already has a non-infringing product on the market – V2. Defendant points out that Plaintiff has not cited any cases in which the post-hypothetical negotiation “fact” that was considered relevant to damages was the fact that the defendant had internal discussions about possibly using the accused functionality in a not-yet-existing future product. Defendant argues that the “fact” of later discussions about something that still may or may not occur is irrelevant to calculating a reasonable royalty as of the date of the hypothetical negotiation. Even if the Court assumes that the hypothetical negotiators would have anticipated this “fact” (i.e., they anticipated that in 2018, Defendant’s employees would be exchanging emails discussing whether or how to use machine learning technology in future products), such assumed anticipation of as-yet-unrealized events would not inform their valuation of accused functionality (unlike assumed anticipation of strong sales for an infringing product where strong sales are later, in fact, realized). In support, Defendant cites PersonalWeb Techs., LLC v. Google Inc., No. 13-01317, 2014 WL 4088201 (N.D. Cal. Aug. 19, 2014) and EPOS Techs. v. Pegasus Techs., 842 F. Supp. 2d 31 (D.D.C. 2012). While these are not “book of wisdom” cases explicitly, they do address the relevance of information about not-yet-existing future products. In PersonalWeb, a magistrate judge refused to compel the production of “source code and documents related to the newest version of accused instrumentality Blobstore, which version is not itself an accused instrumentality, is still in development, and has not yet gone live.” PersonalWeb, 2014 WL 4088201, at *4. The court reasoned that “when a product is still in development, discovery into such material would be premature because an incomplete, non-‘live’ product cannot be evaluated for infringement in patent litigation.” Id. In EPOS, Pegasus sought information about two prototype devices “in order to confirm whether they infringe on Pegasus’ patents.” 842 F. Supp. 2d at 34. The court found such information irrelevant, reasoning as follows: Requiring EPOS to produce information about these devices while they are still in development would not advance Pegasus’ pending claims because there is not yet any final product that can be evaluated for infringement; the design is still in flux.... Though it is true that “[t]he scope of discovery in patent cases should be liberally construed under the Federal Rule of Civil Procedure 26(b)(1),” ..., it is not so broad as to require the discovery of products that do not yet exist in a final form. Once a final product is developed, if Pegasus has reason to believe the product infringes its patents, then Pegasus certainly may file suit and appropriately seek discovery regarding that final product. At the present time, however, the Court will not require EPOS to produce discovery about its products in development. *6 Id. (citations omitted). The Court finds the reasoning of these cases persuasive. The emails sought by Plaintiff here would not assist Plaintiff in evaluating any infringement claim, nor are they relevant to a “reasonable royalty” damages model. The “fact” that after abandoning V3, Defendant’s employees continue to discuss ideas for new products they have not yet designed (and perhaps will never design) that may or may not use some form of the accused functionality if they are ever designed, is not probative of the value hypothetical negotiators would have placed on the accused functionality in January 2017. 6. Burden Arguments. Defendant argues that even if the withheld emails had some minimal relevance, they do not have sufficient relevance to overcome the burden of Defendant’s being required to disclose its current, ongoing research and development communications to a competitor. (Dkt. 61-1 at 5.) Defendant argues that to permit such discovery “would chill innovation and exert undue pressure on defendants to seek a resolution that is not merits-based but rather motivated by a desire to ensure competitors are not granted access to their current thoughts on potential future products.” (Id. at 7.) Here, Plaintiff has failed to articulate a plausible, factual reason why the withheld emails are relevant under Rule 26. Even if there were some tenuous, remote possibility of relevance, it would be outweighed by the burden of being required to produce information about new products in development to a competitor, even if such documents could be designated AEO. C. Cost-Shifting. In its tentative ruling, the Court found that given the unique requirements of the Standing Order, including the requirement to negotiate over the search terms in EPRs, Plaintiff’s position that Defendant should produce all “hits” was substantially justified. Thus, the Court tentatively declined to award Defendant its reasonable expenses incurred in bringing the motion. In response, Defendant seeks cost shifting only for the costs it incurred after Plaintiff persisted in its position after the tentative ruling and continued to refuse Defendant’s compromise offer, including fees for drafting Defendant’s supplemental brief (Dkt. 71), drafting the related sealing application and supporting declaration (Dkt. 72, 73), preparing for oral argument (including the PowerPoint deck attached hereto), and traveling to and attending the hearing (which lasted approximately 40 minutes). At the hearing, counsel estimated these expenses as at least $10,000 (which the Court notes would be equivalent to 20 hours billed at $500/hour). This time estimate is not facially unreasonable. Either (1) Plaintiff may stipulate to paying Defendant’s expenses in an agreed-upon amount or if not, then (2) Defendant may submit evidence to the Court of the costs it is seeking and include as recoverable time the hours spent assembling its evidence. III. CONCLUSION. Based on the foregoing, IT IS HEREBY ORDERED that Plaintiff’s motion to compel (Dkt. 61) is DENIED. *7 IT IS FURTHER ORDERED that, on or before November 1, 2018, the parties shall meet-and-confer on the issue of cost-shifting and Defendant shall file either: (1) evidence of its reasonable expenses as discussed above, or (2) a notice indicating that Plaintiff has stipulated to paying Defendant’s expenses. Footnotes [1] All page citations are to the CM/ECF pagination.