Netflix, Inc. v. Blockbuster, Inc.

Filing 154

*** ERRONEOUS ENTRY - SEE DOC. #157 *** MEMORANDUM in Support PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC., filed byNetflix, Inc.. (Paige, Eugene) (Filed on 3/2/2007) Modified on 3/6/2007 (sis, COURT STAFF).

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Netflix, Inc. v. Blockbuster, Inc. Doc. 154 Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 1 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 KEKER & VAN NEST, LLP JEFFREY R. CHANIN - #103649 DARALYN J. DURIE - #169825 ASHOK RAMANI - #200020 710 Sansome Street San Francisco, CA 94111-1704 Telephone: (415) 391-5400 Facsimile: (415) 397-7188 Attorneys for Plaintiff NETFLIX, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA NETFLIX, INC., a Delaware corporation, Plaintiff, v. BLOCKBUSTER, INC., a Delaware corporation, DOES 1-50, Defendant. Case No. C 06 2361 WHA (JCS) PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. Date: April 6, 2007 Time: 9:30 a.m. Judge: Hon. Joseph C. Spero Complaint filed: April 4, 2006 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Dockets.Justia.com Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 2 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION PLEASE TAKE NOTICE that on April 6, 2007, at 9:30 a.m. before the Honorable Joseph C. Spero, in Courtroom A, 15th Floor of the United States Court House located at 450 Golden Gate Avenue, San Francisco, CA 94102, Plaintiff Netflix, Inc. will, and hereby does, move the Court for an order compelling the production of documents responsive to its requests for production of documents from Defendant Blockbuster Inc. pursuant to Federal Rule of Civil Procedure 37. This Motion is based on this Notice of Motion and Motion; the Memorandum of Points and Authorities below; the declaration of Eugene M. Paige in support of this motion; all pleadings and papers filed herein; oral argument of counsel; and any other matter that may be submitted at the hearing. MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION By this motion Netflix, Inc. ("Netflix") seeks, pursuant to Rule 37 of the Federal Rules of Civil Procedure, to compel from Blockbuster Inc. ("Blockbuster") production of documents responsive to Netflix's First Set of Requests for the Production of Documents. Blockbuster has failed to provide emails that it has committed to produce in response to many of Netflix's requests. Blockbuster has also failed to provide information it is expressly required to provide by Judge Alsup's Supplemental Case Management Conference Order, despite repeated requests by Netflix spanning the course of many months. The deficiencies in Blockbuster's production, if left unremedied, will deprive Netflix of relevant and responsive information as described in detail below. As discovery is set to close in this case in late April, Netflix cannot afford to rely only on Blockbuster's assurances that it will provide the documents to which Netflix is entitled. Netflix therefore respectfully requests that this Court order Blockbuster to produce its responsive information and documents immediately. II. FACTUAL BACKGROUND In 1999 Netflix invented a new way to rent DVDs to customers on a subscription basis over the Internet. The novel method and systems invented by Netflix to implement on-line, 1 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 3 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 subscription movie rentals transformed Netflix from a struggling on-line start-up into a popular and commercially successful company. Netflix's new on-line method permitted subscribers to create, prioritize and reprioritize their own personal list of desired DVDs on-line, which Netflix would then use as a dynamic "queue" to deliver a set number (depending on the subscription) of movies to the subscriber, which movies the subscriber could keep and watch at the subscriber's leisure without incurring a late fee, and then return to Netflix in exchange for the next available movie in the queue. The U.S. Patent and Trademark Office awarded Netflix two patents on its method and system, U.S. Patent No. 7,024,381 ("the '381 Patent") and U.S. Patent No. 6,584,450 ("the '450 Patent"). Years after Netflix pioneered this business method and system, and just after Netflix's '450 patent issued, Blockbuster, the 800-pound gorilla in the movie rental industry, launched a business it called "Blockbuster Online." Blockbuster Online mimicked virtually every aspect of Netflix's patented business method, including the dynamic, prioritized queue and the use of subscription plans with no late fees. In so doing, Blockbuster infringed the '381 Patent and the '450 Patent. Netflix sued Blockbuster for patent infringement on April 4, 2006. Blockbuster counter attacked by filing antitrust counterclaims against Netflix based upon Netflix's filing of this infringement suit, claiming that Netflix was attempting to monopolize what Blockbuster has characterized as the market for online DVD rentals through sham litigation and the assertion of fraudulently procured patents. Netflix served its First Set of Requests for the Production of Documents on Blockbuster on August 31, 2006. Declaration of Eugene M. Paige in Support of Netflix's Motion to Compel the Production of Documents from Blockbuster, Inc. ("Paige Decl."), Ex. A. In this first set of Requests, Netflix sought to gain information about the development, promotion and operating characteristics of Blockbuster Online, the business that infringes Netflix's patents. Thus, Netflix sought to discover, among other things, documents that would show whether Blockbuster or its consultants studied or reverse engineered Netflix's website in attempt to copy Netflix, or whether 2 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 4 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 they developed specifications for Blockbuster Online that duplicated all, or critical aspects of, Netflix's systems. Understanding the genesis of Blockbuster Online is critical to Netflix's case, as it will demonstrate how and why Blockbuster came to implement a business method and system that so closely resembles (indeed, appears to duplicate) Netflix's patented business method and system. And having access to documents such as emails that may candidly address the origins of Blockbuster Online from the high-level executives who remain Blockbuster employees is especially important here, as many of the lower-level personnel who were involved with Blockbuster Online's launch are apparently no longer with the company. Netflix must have these documents promptly in order properly to examine Blockbuster's remaining high-level executives in deposition. Documents addressing matters regarding the origin of Blockbuster Online and why it was designed the way it was relate directly to the issues of infringement, both actual and deliberate (as alleged), as well as non-obviousness. The copying that these documents may confirm and reflect is a secondary consideration that is taken into account in determining whether a patent is non-obvious. Copying is also an important factor in deciding whether infringement has been willful. Blockbuster served its objections and responses to Netflix's requests for production on October 2, 2006. Paige Decl. Ex. B. After engaging in a meet-and-confer process, the parties filed cross-motions to compel, and the points at issue in those cross-motions were resolved by way of joint stipulations filed in December of 2006 and January of 2007. Following resolution of those issues, Netflix turned to an examination of Blockbuster's document production. At the time it began to review those documents, Netflix requested that Blockbuster provide it with a description of the search Blockbuster had performed. Such a description was due at the time that Blockbuster produced its documents under Paragraph 14 of Judge Alsup's Supplemental Case Management Conference Order. Yet it had not been produced when Netflix first demanded that information several weeks later on December 6, 2006. A true and correct copy of the letter memorializing that demand is attached to the Paige Declaration as Exhibit C. 3 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 5 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Because Blockbuster did not provide Netflix with the required information regarding its search in response to that letter, Netflix reiterated its request for this information repeatedly, in letters of December 20, 2006; January 2, 2007; January 18, 2007; and February 6, 2007. True and correct copies of each of these letters are attached to the Paige Declaration as Exhibits D - G. Yet as of today's date, Blockbuster has still failed to produce this required and highly probative information. Netflix was therefore forced to review Blockbuster's document production in order to get a sense of what Blockbuster had, and had not, searched for and produced. Netflix's review of Blockbuster's document production revealed many disturbing facts regarding the documents Blockbuster had (and had not) produced: Blockbuster had not produced a single document from the files of its Chairman and CEO, Mr. John Antioco. Blockbuster had produced fewer than 200 documents from the files of the head of its infringing Blockbuster Online business, Mr. Shane Evangelist. Moreover, of those documents, fewer than 100 were emails. This came despite the fact that Mr. Evangelist is shown as copied on copious email correspondence relating to the design of Blockbuster's infringing system. Blockbuster had failed to produce emails among its top management discussing the implementation or operation of its infringing Blockbuster Online service. In the instances in which Blockbuster had produced email, Blockbuster had provided Netflix with numerous emails that reference documents that are attached to the email, but which did not have the attachments produced along with them. Despite the fact that documents it had produced revealed that presentations regarding its infringing Blockbuster Online business were made to its Board of Directors in 2003 and 2004, Blockbuster had not produced a single set of minutes from its Board of Directors meetings. Although it had committed to producing its document retention and destruction policies, Blockbuster had not produced those policies. Blockbuster had not produced its actual financial statements for Blockbuster Online, including the amounts that it expended in order to create its infringing service. Despite expressly committing to produce documents related to each version of its infringing Blockbuster Online service, Blockbuster had failed to produce any documents relating to its most recent version of the infringing service, Blockbuster's so-called "Total Access" program. See Paige Decl. Exs. G - I. In light of these many deficiencies, on February 21, 2007, counsel for Netflix, Daralyn J. Durie and Eugene M. Paige, met and conferred with counsel for Blockbuster, William J. O'Brien, in his Los Angeles offices regarding all of these issues. See 4 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 6 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Paige Decl. 11. Although in the wake of that in-person meeting Blockbuster committed to remedying some of the deficiencies that Netflix has cited above, and it purports to have done so through the production of further documents over the course of the past week, it has not committed to remedying all of the shortcomings in its performance. Indeed, though Netflix has specifically demanded that Blockbuster produce a description of the search it had performed and explain the dearth of emails in its production, Blockbuster has said only that it was "still attempting to confirm that all appropriate media were appropriately searched," Paige Decl. Ex. J at 2, and later that it was "still attempting to confirm the exact situation with respect to emails," Paige Decl. Ex. L at 2. Though Netflix made clear that Blockbuster's cryptic statements about its document production left important questions unanswered, see Paige Decl. Ex. K at 1, Blockbuster has still refused to provide an explanation for why key emails appear to be missing. As required by the Court, the issues that Netflix seeks to present to the Court are outlined in a joint letter signed by both counsel for Netflix and counsel for Blockbuster, a copy of which is attached to the Paige Declaration as Exhibit M. Specifically, Blockbuster continues to refuse to provide either a date certain upon which Netflix will receive a description of the search it performed in response to Netflix's document requests; has not committed to provide information about the nature of its search for emails; and has not provided reason to believe that all relevant email and attachments will in fact be produced. This Motion discusses why Netflix is entitled to the information that Blockbuster has failed to produce. III. ARGUMENT Discovery exists as a mechanism "for making relevant information available to the litigants . . . Thus the spirit of the rules is violated when advocates attempt to use discovery tools as tactical weapons rather than to expose the facts and illuminate the issues." Burlington N. & Santa Fe Ry. Co. v. United States Dist. Court, 408 F.3d 1142, 1148-49 (9th Cir. 2005) (quoting Fed. R. Civ. P. 26(f) advisory committee's notes). Judge Alsup's Supplemental Order to Order Setting Initial Case Management Conference in Civil Cases ("Supplemental Order") further seeks to increase the efficiency of the discovery process by requiring that the parties inform one another of the nature of the search that was undertaken in response to document requests. See 5 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 7 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Supplemental Order 14. Despite repeated requests from Netflix, Blockbuster has not yet complied with its obligations under the Supplemental Order. And it appears that its failure to do that has prejudiced Netflix, in light of the many glaring deficiencies in Blockbuster's document production that might have been addressed earlier had it provided that information. As set forth with greater specificity below, Blockbuster has not complied with the letter or the spirit of these discovery standards in its document production. Blockbuster should accordingly be required to provide all of the requested documents and information immediately. 1. Blockbuster Has Improperly Failed To Provide The Details Of Its Search For Responsive Documents Judge Alsup's Supplemental Order expressly requires that litigants provide certain information regarding the search they have undertaken for documents in response to Rule 34 document requests. Judge Alsup explains that this sort of information, "normally learned by counsel anyway should be made available to the other side at the time of production, as if it were a response to a standing interrogatory." Supplemental Order 14 (emphasis added). Despite making its production in November of 2006, and in spite of multiple requests in writing by Netflix since early December of 2006, Blockbuster still has not supplied the required information to Netflix. Instead, Blockbuster has refused -- even in the very letter setting forth its positions on this motion -- to provide a date certain upon which Netflix will finally receive this required foundational information. Blockbuster's reticence has greatly hindered Netflix's ability to determine whether Blockbuster has adequately complied with its discovery obligations. Indeed, Netflix was required to review all of Blockbuster's document production in order to come to the conclusion that Blockbuster had not in fact performed a reasonable search and produced all responsive documents in its possession, custody, or control. 2. Blockbuster Has Failed To Produce Its Responsive Email, And Has Refused To Provide Any Explanation For That Failure In its review of Blockbuster's document production, Netflix found that the emails Blockbuster had produced seemed exclusively to deal with minutiae relating to the development and design of its infringing Blockbuster Online service. Indeed, the vast bulk of the emails that 6 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 8 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Netflix located were exchanged between lower level employees and contractors, offering comments on how Blockbuster Online should be designed. Conspicuously absent from Blockbuster's production were emails among its top executives regarding whether to launch the infringing Blockbuster Online service; how that service should be designed if so; and discussions of Blockbuster's competition with Netflix. The chart of document custodians that Blockbuster provided with its document production indicated that not a single document was produced from the files of its Chief Executive Officer, John Antioco. And a mere 191 documents were produced from the head of Blockbuster's infringing Blockbuster Online service, Shane Evangelist, 79 of which were emails. Moreover, the emails that were produced from the files of Mr. Evangelist (and other custodians) oftentimes indicated on their face that documents were attached to them -- yet the attached documents were not to be found in Blockbuster's document production. Perhaps in light of these glaring deficiencies, Blockbuster's counsel has not defended Blockbuster's document production. Indeed, counsel for Blockbuster conceded at the parties' meet and confer that he was under the impression that additional email documents may exist that need to be produced. In subsequent correspondence, counsel for Blockbuster stated that Blockbuster was "still attempting to confirm that all appropriate media was appropriately searched." But the serious questions and concerns that Netflix has raised with Blockbuster's production are not the sort of minor quibbles that Blockbuster could reasonably fail to investigate as part of its own search and production and instead wait for Netflix to complain about. They go directly to the heart of what any litigant would want to see -- the emails of executives at the highest levels of the company discussing matters directly relevant to issues in the case. It may well be that there is some good explanation for the absence of these documents from Blockbuster's production. Perhaps they have since been destroyed pursuant to Blockbuster's document retention policy. But Blockbuster has not provided an explanation for the dearth of emails that Netflix has observed, despite Netflix's repeated entreaties for such an explanation. Accordingly, Netflix respectfully requests that the Court order Blockbuster to provide such an 7 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 9 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 explanation, and also to produce all responsive email documents that have not been produced as yet, included any attachments to those emails. 3. Blockbuster Should Be Ordered To Comply With Its Discovery Obligations Immediately To be sure, in the statement of its position on these issues, Blockbuster has said that it intends to continue to work with Netflix to resolve the issues relating to its production. Yet this offer of cooperation comes only after Netflix reviewed Blockbuster's document production and made clear how seriously it took this matter by traveling to Los Angeles in order to participate in an in-person meet and confer with Blockbuster. Prior to that time, Netflix had requested in letter after unanswered letter that Blockbuster produce the basic search information to which it is entitled. Yet Blockbuster still has not produced that information to Netflix, and says in its statement of position no more than that it expects to provide that information in the next few days. Given the fact that less than two months now remain in discovery, Netflix cannot responsibly rely merely on Blockbuster's statements of future intent. The parties are even now negotiating schedules for the depositions of the executives at the highest level of their respective companies, and Netflix is entitled to have the sort of vital information likely to be found in emails prior to taking the depositions of Blockbuster's executives. IV. CONCLUSION For the foregoing reasons, Netflix respectfully requests that this Court compel Blockbuster immediately to produce the information required by Paragraph 14 of Judge Alsup's Supplemental CMC Order, including an explanation of its search for responsive email, as well as to produce any additional responsive emails from its high-level executives, including any attachments to those emails. 8 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 10 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dated: March 2, 2007 KEKER & VAN NEST, LLP By: /s/ Eugene M. Paige________ Eugene M. Paige ATTORNEYS FOR PLAINTIFF NETFLIX, INC. 9 PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS) Case 3:06-cv-02361-WHA Document 154 Filed 03/02/2007 Page 11 of 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. TABLE OF CONTENTS Page(s) NOTICE OF MOTION....................................................................................................................1 I. II. III. INTRODUCTION ...............................................................................................................1 FACTUAL BACKGROUND..............................................................................................1 ARGUMENT.......................................................................................................................5 1. 2. 3. Blockbuster Has Improperly Refused To Provide The Details Of Its Search For Responsive Documents ...................................................6 Blockbuster Has Failed To Produce Its Responsive Email, And Has Refused To Provide Any Explanation For That Failure.......................6 Blockbuster Should Be Ordered To Comply With Its Discovery Obligations Immediately..............................................................................8 CONCLUSION....................................................................................................................8 i PLAINTIFF NETFLIX, INC.'S NOTICE OF MOTION AND MEMO OF P&As I/S/O ITS MOTION TO COMPEL THE PRODUCTION OF DOCUMENTS FROM BLOCKBUSTER, INC. CASE NO. C 06 2361 WHA (JCS)

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