AFL Telecommunications LLC v. Incorporated et al

Filing 132

ORDER granting 130 Motion to Compel. Signed by Judge David G Campbell on 7/5/2012.(NVO)

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    1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 AFL Telecommunications LLC, Plaintiff, 10 11 ORDER v. 12 No. CV11-1086 PHX DGC Incorporated, Tech Sales LLCV, Daniel Parsons, 13 Defendants. 14 15 This case concerns claims by Plaintiff AFL Telecommunications, LLC (“AFL”) 16 against Defendants for copyright infringement, false advertising, and unfair competition 17 arising out of Defendants’ sale of fusion splicers (devices used to splice fiber optic cable) 18 made by AFL’s Japanese parent corporation, Fujikura Ltd. At the Court’s direction, the 19 parties filed memoranda concerning a discovery dispute. Docs. 130, 131. Defendants 20 seek production of five categories of documents from AFL. For reasons set forth below, 21 the Court will require AFL to produce the requested documents. The Court will also 22 enter an order limiting Defendants’ review of the documents to “Attorneys Eyes Only.” 23 “Parties may obtain discovery regarding any nonprivileged matter that is relevant 24 to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1). Defendants have shown the 25 relevancy of the five categories of documents at issue. 26 The source codes for the fusion splicers are relevant because AFL asserts a 27 copyright infringement claim against Defendants based on the source codes. To establish 28 copyright infringement, AFL must prove ownership of a valid copyright and copying of     1 constituent elements of the work that are original. Funky Films, Inc. v. Time Warner 2 Entm’t Co., 462 F.3d 1072, 1076 (9th Cir. 2006). Discovery of the source codes is 3 relevant to defense of the infringement claim. Defendants may seek to show that a valid 4 copyright does not exist because the source codes are not original works of authorship or 5 are largely copied from works not subject to copyright protection. 6 The other categories of documents sought by Defendants are also relevant within 7 the meaning of Rule 26(b)(1). AFL contends that Defendants are guilty of unfair 8 competition because they have sold versions of fusion splicers produced by Fujikura that 9 have been modified and made substantially inferior to the original product. Discovery of 10 technical specifications and schematics, documents showing performance testing and 11 tolerances, repair and warranty logs, and repair manuals will enable Defendants to 12 challenge AFL’s allegation that products sold by AFL perform in a substantially inferior 13 way or require more frequent repairs. 14 AFL contends that the burden of producing the documents will substantially 15 outweigh their benefit to Defendants. AFL seeks an order precluding discovery of the 16 documents under Rule 26(b)(2)(C)(iii), a provision that authorizes the Court to enter a 17 protective order when the burden or expense of discovery outweighs its likely benefit. 18 The sole burden identified by AFL in making this argument is the risk that 19 Defendants may misuse the documents to expand the sale of Fujikura fusion splicers on 20 the gray market. AFL quotes statements by employees of Defendants suggesting that 21 Defendants have sought to obtain this very information through other means in order to 22 increase their ability to sell Fujikura fusion splicers on the gray market. The Court 23 recognizes this risk, but concludes that it can be addressed satisfactorily by limiting 24 access to the produced documents to Defendants’ attorneys. Defendants do not argue that 25 examination of the documents by their clients is essential to the defense of this case. The 26 Court will also permit defense counsel to share copies of these documents with expert 27 witnesses who agree to be bound by the terms of the protective order entered in this case 28 and by the terms of this order. Such sharing should enable the defense to utilize the ‐ 2 ‐      1 documents in responding to the claims brought by AFL without the risk that the 2 documents may be used to AFL’s competitive disadvantage. 3 Finally, AFL contends that the source codes are not in its possession or control, 4 but rather are held exclusively by Fujikura. In support of this argument, AFL cites In Re 5 Citric Acid Litigation, 191 F.3d 1090 (9th Cir. 1999). AFL argues that the Ninth Circuit 6 in this and prior decisions adopted a “legal control” test, holding that documents are 7 within the “control” of a corporate entity within the meaning of Rules 34(a) and 45(a) 8 only if the corporation has the legal right to acquire and produce the documents. AFL 9 argues that it does not have such a legal right – that Fujikura is the only entity that has the 10 right to control and produce the source codes. 11 Although it is true that Citric Acid adopted the legal control test, it specifically 12 stated that its decision was consistent with decisions in other circuits, including Gerling 13 International Insurance Co. v. Commissioner, 839 F.2d 131, 140-41 (3rd Cir. 1988). See 14 191 F.3d at 1108. Gerling adopted the legal control test, but provided a more expansive 15 definition than AFL suggests. Specifically, Gerling extended the test to a situation 16 “where the subsidiary was an agent of the parent in the transaction giving rise to the suit 17 and in litigating the suit on the parent’s behalf.” 839 F.2d at 140. Gerling cited as an 18 example a case where “the subsidiary was the exclusive seller of its parent’s products in 19 the United States.” Id. Gerling further explained that “[w]here the relationship is thus 20 such that the agent-subsidiary can secure documents of the principal-agent to meet its 21 own business needs and documents helpful for use in the litigation, the courts will not 22 permit the agent-subsidiary to deny control for purposes of discovery by an opposing 23 party.” Id. 24 Because the Ninth Circuit cited Gerling favorably in its adoption of the legal 25 control test, the Court concludes that the rationale of Gerling should apply in this case. 1 26 27 28 1 AFL also cites United States v. International Union of Petroleum & Industrial Workers, AFL-CIO, 870 F.2d 1450 (9th Cir. 1989), in support of the legal control test, but that case concerned a local and an international union that were legally distinct ‐ 3 ‐      1 Defendants cite evidence, without contradiction from AFL, that AFL is a wholly-owned 2 subsidiary of Fujikura, the exclusive authorized distributor of Fujikura fusion splicers in 3 the United States, and the exclusive licensee of Fujikura’s intellectual property rights 4 related to fusion splicers. Doc. 130 at 8. Defendants further cite evidence, again without 5 contradiction from AFL, that the licensee relationship between AFL and Fujikura was 6 created specifically so that AFL could bring this lawsuit, that AFL houses two Fujikura 7 technicians in its office in South Carolina to perform repairs on fusion splicers, and that 8 AFL and Fujikura have maintained a close relationship throughout this lawsuit, with 9 Fujikura personnel providing expertise and declarations when needed by AFL. Id. at 9. 10 The Court concludes that the legal control test set forth in Gerling, and cited 11 favorably in Citric Acid, applies to these facts. The Court accordingly concludes that 12 AFL is obligated to produce the source codes sought in Defendants’ discovery requests.2 13 IT IS ORDERED: 14 1. Defendants’ motion to compel (Doc. 130) is granted. Plaintiff AFL shall 15 produce the five categories of documents at issue in this dispute and sought in 16 Defendants’ First Set of Requests for Production Nos. 5-10, by July 20, 2012. 17 2. Documents produced pursuant to this order shall be seen and reviewed only 18 by Defendants’ counsel and support staff in counsel’s law offices. They shall not be 19 shared in any way with any employee or officer of Defendants. The documents may be 20 shared with outside expert witnesses who agree in writing to be bound by the protective 21 22 23 24 25 26 27 28 entities. The Ninth Circuit found that the constitution governing the two unions did not give the international union authority to obtain or produce documents from the local union. Id. at 1453. The case is inapposite to the present dispute. The Ninth Circuit’s later decision in Citric Acid, with its approving citation to Gerling, is more relevant. 2 AFL also cites Ehrlich v. BMW of North America, LLC, 2011 WL 3489105 (C.D. Cal. 2011), in support of its argument that Defendants have failed to satisfy the Ninth Circuit’s legal control test. But the party opposing discovery in Ehrlich did what AFL has not done here – it produced evidence refuting the factual assertions that would have brought the case within the holding of Gerling. Id. at *2. AFL also cites BeilsteinInstitut Zur Forderung Der Chemischen Wissenschaften v. MDL Information Systems, Inc., 2006 WL 3742244 (N.D. Cal. 2006), but that case also involved the submission of evidence showing that the corporations in question were not in a parent-subsidiary or principal-agent relationship like AFL and Fujikura. Id. at *3. ‐ 4 ‐      1 2 order in this case and by this order. 3. The deadline for fact discovery has expired. See Doc. 95. The only 3 exception is for the depositions to be conducted in Japan pursuant to the Court’s previous 4 order. Doc. 124. Thus, although Defendants are obtaining these documents after the 5 close of fact discovery, they will not be permitted to conduct additional fact discovery 6 related to the documents other than the depositions in Japan. Defendants’ document 7 production requests were served on November 10, 2011, with responses produced by 8 AFL on December 13, 2011. Doc. 130 at 2-3. Defendants had ample time to bring this 9 issue to the Court’s attention. Having waited six months until the close of discovery to 10 do so, Defendants will not be permitted additional time to conduct fact discovery related 11 to information contained in the documents. 12 underway, the documents may be used in Defendants’ expert disclosures, consistent with 13 the protective order entered above. 14 Dated this 5th day of July, 2012. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ‐ 5 ‐  Because expert disclosures are still

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