Netflix, Inc. v. Blockbuster, Inc.

Filing 51

STIPULATION Joint Stipulation re Protective Order by Blockbuster, Inc.(a Delaware corporation), Blockbuster, Inc.. (Attachments: # 1 Signature Page (Declarations/Stipulations) # 2 Exhibit A# 3 Exhibit B)(O'Brien, William) (Filed on 10/3/2006)

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Netflix, Inc. v. Blockbuster, Inc. Doc. 51 Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 1 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP KEKER & VAN NEST, LLP Jeffrey R. Chanin (No. 103649) Daralyn J. Durie (No. 169825) Ashok Ramani (No. 200020) Eugene M. Paige (No. 202849) Email: jrc@kvn.com ddurie@kvn.com axr@kvn.com emp@kvn.com Attorneys for Plaintiff and Counterdefendant, Netflix, Inc. ALSCHULER GROSSMAN STEIN & KAHAN LLP Marshall B. Grossman (No. 35958) William J. O'Brien (No. 99526) Tony D. Chen (No. 176635) Dominique N. Thomas (No. 231464) The Water Garden 1620 26th Street Fourth Floor, North Tower Santa Monica, CA 90404-4060 Telephone: 310-907-1000 Facsimile: 310-907-2000 Email: mgrossman@agsk.com wobrien@agsk.com tchen@agsk.com dthomas@agsk.com Attorneys for Defendant and Counterclaimant, Blockbuster Inc. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA NETFLIX, INC., a Delaware corporation, Plaintiff, vs. BLOCKBUSTER INC., a Delaware corporation, DOES 1-50, Defendants. AND RELATED COUNTER ACTION. The parties, Plaintiff and Counterdefendant Netflix, Inc., and Defendant and Counterclaimant, Blockbuster Inc., stipulate as follows: JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Dockets.Justia.com CASE NO. C 06 2361 WHA Magistrate Judge Joseph C. Spero JOINT STIPULATION RE PROTECTIVE ORDER Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 2 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP I STIPULATION FOR EXPEDITED ENTRY OF PROTECTIVE ORDER 1. The parties agree that a protective order is needed in this case. Pending and future disclosures in this case under Rule 26 of the Federal Rules of Civil Procedure and this Court's Patent Local Rules, as well as responses to pending and anticipated discovery requests directed to parties and to third-parties, will require disclosure of trade secrets and confidential and proprietary information. 2. Counsel for the respective parties have conferred on numerous occasions in an attempt to reach agreement on the provisions of an appropriate protective order for this case. They have succeeded in reaching agreement on all except three issues with respect to the provisions of the protective order. Having been unable to reach agreement on three remaining issues, the parties have agreed to submit these disputed issues for decision by this Court. By submitting this Stipulation, the parties hope to obtain an expedited decision from the Court on the three remaining disputed issues while avoiding the delay, expense, and inconvenience of pursuing competing protective-order motions. 3. The three remaining disputed issues with regard to the protective a. Whether to permit one in-house attorney for each side to order for this case are: have access to information that receives the highest designation of confidentiality ("Attorneys Eyes Only")(a provision proposed by Blockbuster, with which Netflix disagrees); b. Whether to impose restrictions on computer source code produced in this case beyond the restrictions applicable to other "Attorneys Eyes Only" information (a provision proposed by Netflix, with which Blockbuster disagrees); /// 2 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 3 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP c. Whether to include in the protective order a representation by the parties' respective law firms of record that they are not engaged, and will not engage, in "patent prosecution work" on behalf of their respective clients (a provision proposed by Netflix, with which Blockbuster disagrees). II ALTERNATIVE PROTECTIVE ORDERS 4. With this Joint Stipulation, the parties provide alternative protective orders, attached as Exhibits A and B. Blockbuster's proposed protective order is Exhibit A, while Netflix's proposed order is Exhibit B. The only substantive differences between the alternative proposed orders are with respect to the two disputed points listed above. 1 5. Sub-Paragraph 7a on Page 4 of Blockbuster's proposed protective order (Exhibit A) includes, in the list of persons allowed to receive "Attorneys Eyes Only" information: One in-house counsel employed by each of the parties, such counsel to be Bryan P. Stevenson in the case of Blockbuster Inc. and an in-house attorney to be promptly designated in writing by Netflix, Inc., but only after each such in-house counsel, paralegal, or secretary executes an Undertaking in the form of Attachment "A," a copy of which shall be provided forthwith to counsel for each party. Netflix's proposed protective order (Exhibit B) contains no such provision. 6. Paragraph 8 on Pages 5 and 6 of Netflix's proposed protective order provides the following additional restrictions on source code: All material produced by any party pursuant to pretrial discovery in this action which is designated by the 1 The protective orders also differ in form with respect to the identification of the parties and counsel submitting them. 3 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 4 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP Designating Party as containing or comprising source code shall be subject to the restrictions contained in Paragraph 7, above, for AEO Material. In addition, the following restrictions shall apply, absent contrary agreement among the parties, to ensure secure access to source code: a. A single electronic copy of source code or executable code shall be made available for inspection on a stand-alone computer. b. c. d. The stand-alone computer shall be password The stand-alone computer shall be located at the Access to the stand-alone computer shall be protected and supplied by the Designating Party. office of outside counsel for the requesting party. permitted, after notice to the Designating Party and an opportunity to object, to two (2) outside counsel representing the requesting party and two (2) experts retained by the requesting party, who shall have complied with the provisions of Paragraph 7 above. e. Source code may not be printed or copied without the agreement of the Designating Party or further order of the Court. Blockbuster's proposed protective order contains no such provision. 7. Sub-Paragraph 7a on Page 4 of Netflix's proposed protective order, immediately after listing Alschuler Grossman Stein & Kahan, LLP and Keker & Van Nest, LLP (Blockbuster and Netflix's respective counsel in this case) as being entitled to receive "Attorneys Eyes Only" information, adds a parenthetical recitation: "(each of which represent that they are not engaged, and will not 4 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 5 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP engage, in patent prosecution work on behalf of their respective clients)." Blockbuster's proposed protective order contains no such statement. III FURTHER PROCEEDINGS 8. For the sake of expedition and efficiency and the convenience of the Court, the parties have set forth their positions and arguments in this Stipulation rather than undergoing a full motion procedure. The parties stipulate and request that the Court rule on this matter and enter an appropriate protective order without any further documentary submissions.2 Because inter-party discovery, third-party discovery, and completion of initial disclosures are being delayed by the absence of a protective order, the parties respectfully request entry of a protective order as soon as possible. 9. The parties disagree on one aspect of the procedure related to this Stipulation. Netflix believes that the Magistrate Judge should hear oral argument on the disputed issues with respect to the protective order. Blockbuster, however, believes that oral argument on the issues presented is unnecessary and would delay entry of the badly-needed protective order, thereby also delaying pending discovery of information designated as confidential. The parties stipulate that the decision whether to hold oral argument should be decided by the Magistrate Judge in his sole discretion. The parties respectfully request that, if oral argument is to be conducted, it be scheduled as soon as possible. 10. Accordingly, for each of the two disputed issues as to the protective order, each party sets forth its position below, followed by a response by each party to the other party's statement of position. IV STATEMENTS REGARDING IN-HOUSE COUNSEL'S ACCESS TO "ATTORNEYS EYES ONLY" INFORMATION A. 2 Blockbuster's Statement 11. Blockbuster has a vital need to afford access to information JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA The parties reserve all rights under Fed. R. Civ. Proc. 72(a). 5 Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 6 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP designated "Attorneys Eyes Only" ("AEO") to at least one of its in-house counsel. As an accommodation to concerns expressed by Netflix, Blockbuster has placed special safeguards in Sub-Paragraph 7a on Page 4 of Blockbuster's proposed protective order (Exhibit A). Blockbuster's proposed order limits access to "AEO" information in this case to only one Blockbuster in-house attorney, Blockbuster's senior litigation counsel, Bryan P. Stevenson. Blockbuster's proposed order also requires Mr. Stevenson to sign a detailed written undertaking to protect all "AEO" and other confidential information. 12. Bryan Stevenson is an experienced litigator who supervises ­ and, in some cases, personally conducts ­ litigation on behalf of Blockbuster. As a major corporation with thousands of retail outlets around the country, Blockbuster is involved in a vast array of cases, ranging from complex business disputes to landlord-tenant litigation, employment disputes, and premises liability claims. Mr. Stevenson is fully engaged with this busy caseload. Other Blockbuster in-house counsel handle corporate and transactional matters and patent prosecution. 13. Blockbuster's in-house litigation counsel are accustomed and expected to be closely involved in litigation affecting the company. They have been permitted access to "Attorneys Eyes Only" information on multiple previous occasions without problems. They have a duty to their client and its shareholders to exercise direction and control over this important and costly litigation and to provide knowledgeable legal advice about the case. 14. Mr. Stevenson will be legally and ethically bound to observe all restrictions imposed by the protective order. He is a court officer subject to the same ethical and professional strictures as outside counsel. As litigation counsel responsible for retaining and supervising outside counsel, Mr. Stevenson is not a "competitive decisionmaker" who should be excluded from access to "AEO" information. See Volvo Penta of the Americas, Inc. v. Brunswick Corp., 187 6 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 7 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP F.R.D. 240, 241-45 (E.D. Va. 1999) (permitting in-house litigation counsel the same access to trade secrets and confidential information as outside counsel); Fluke Corp. v. Fine Instruments Corp., No. C94-573C, 1994 WL 739705 at *4-*5 (W.D. Wash. Oct. 6, 1994) (same); Amgen, Inc. v. Elanex Pharm., Inc., 160 F.R.D. 134, 139 (W.D. Wash. 1994). 15. This is an important and complex case, in which Netflix is essentially attempting to shut down the entire online business unit of Blockbuster. Under the circumstances of this case, lack of access to "Attorneys Eyes Only" information for Mr. Stevenson would make it impossible for Blockbuster to fully participate in important decisions. In the absence of such information, Mr. Stevenson would be in the position of reviewing and editing court filings that are interrupted by redacted "black holes," the contents of which could not be explained to him. He would be excluded from any deposition proceedings designated as "AEO," and he could not even be told the full reasons for discovery requests, responses, and legal contentions resulting from "AEO" information. The result would be to create a major disconnect between the head of Blockbuster's litigation team and the rest of the attorneys on that team, as well as to disrupt Blockbuster's ability to direct, control, and assist in this litigation. B. Netflix's Statement 16. This case involves patent infringement claims and antitrust counterclaims made between two direct competitors. Discovery will therefore entail the production of not only highly confidential documents relating to patents that the parties have obtained or applied for, but also competitively sensitive information regarding both parties' current and future business plans, including how the parties intend to compete with one another in the marketplace. Competitively sensitive, confidential business information such as this qualifies for trade secret protection. See, e.g., SI Handling Sys., Inc. v. Heisley, 753 F.2d 1244, 1260 (3d Cir. 1985) (affirming district court's holding that "information 7 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 8 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP contained in [patent] applications, which are treated as confidential by the patent office . . . is [a] trade secret"). Ordinarily, competitively sensitive trade secret information would not be discoverable in the absence of a list that complies with California Code of Civil Procedure § 2019.210, to protect against a fishing expedition. See, e.g., Pixion, Inc. v. Placeware Inc., 421 F. Supp. 2d 1233, 1242 (N.D. Cal. 2005) (explaining that one of the objectives of § 2019 is to "prevent[] plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets"). However, as there are no trade secret misappropriation claims alleged in this case, Blockbuster is not constrained by the § 2019 rule, and it has already commenced fishing with a vengeance in hopes of finding something to support its antitrust counterclaims. 17. Blockbuster, for example, has demanded that Netflix produce documents relating to its patent applications, see Falla Decl. ¶ 2, including patent applications that are still pending before the U.S. Patent and Trademark Office; such applications contain and reflect Netflix's future confidential business plans and intellectual property. Blockbuster has also served subpoenas upon no fewer than ten companies with which Netflix has a business relationship, seeking materials that include "financial statements, revenue statements, or financial or business projections" received from Netflix; Netflix's "online business plans, business models, business proposals, strategies or projections"; and Netflix's "competitive or marketing analyses." See id. ¶ 3. Blockbuster has likewise subpoenaed the law firms that Netflix has consulted and retained to provide patent prosecution assistance and consultation. See id. ¶ 4. Some of the materials that Blockbuster has requested are so sensitive that some personnel within Netflix itself are not given access to them. See id. ¶¶ 5-7. 18. Yet, under Blockbuster's proposed protective order, all the materials it has subpoenaed or demanded in discovery could be freely accessed by Blockbuster employee Bryan P. Stevenson, an in-house attorney. In resolving this 8 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 9 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP protective order dispute, this Court should balance the "risk of inadvertent disclosure of trade secrets to competitors" against "the risk . . . [of impairing] prosecution of [the discovering parties'] claims." Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992). The damage that could result from disclosure to Blockbuster's in-house counsel, which creates the possibility of further inadvertent disclosure, is severe, given the parties' direct competition. On the other hand, any risk of impairing Blockbuster's ability effectively to conduct this litigation is minimal because the outside counsel it has hired are well-qualified to handle this case. Netflix's version of the proposed Protective Order is therefore appropriate. 19. Courts have recognized that there is an inherent risk that inhouse counsel may disclose confidential information inadvertently because of the nature of their job. Brown Bag, 960 F.2d at 1471; see also U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984). This concern is only heightened by the fact that Blockbuster apparently intends to allow Mr. Stevenson to have access to Netflix's competitively sensitive information at his Dallas office, Blockbuster's corporate headquarters: its proposed protective order allows those documents to be seen not only by Mr. Stevenson, but also in-house "paralegals" and "secretaries." Blockbuster's Proposed Order ¶ 7.b. It is difficult to say who might access or copy Netflix's most sensitive documents when they sit on the desks, copy machines, or computers used by Mr. Stevenson and Blockbuster's unidentified paralegals and secretaries. But it is easy to understand that allowing Mr. Stevenson and Blockbuster's support personnel access to those documents creates a risk of inadvertent disclosure that otherwise would not exist, and would never be discovered by Netflix were it to occur.3 /// 3 This is undoubtedly one reason that the litigants in Brown Bag kept their sensitive documents "in a locked file cabinet." Brown Bag, 960 F.2d at 1470. 9 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 10 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP 20. In order to determine whether in-house access to highly sensitive documents is appropriate, courts generally consider whether the person concerned is involved in "competitive decision making." "The term `competitive decision making' is `shorthand for a counsel's activities, association and relationship with a client that are such as to involve counsel's advice and participation in any or all of the client's decisions (pricing, product design, etc.) made in light of similar or corresponding information about a competitor.'" Intel Corp. v. Via Technologies, Inc., 198 F.R.D. 525, 529 (N.D. Cal. 2000) (citing U.S. Steel); Brown Bag, 960 F.2d at 1470. Blockbuster has represented to Netflix's counsel that Mr. Stevenson is a senior litigation counsel for Blockbuster, responsible for supervising and conducting litigation on behalf of Blockbuster. Blockbuster has made no representation that Mr. Stevenson and his support personnel do nothing more than supervise litigation, or that they are not involved with persons who do. Blockbuster has not informed Netflix of the person(s) to whom Mr. Stevenson and his support personnel report, whether he reports to the Board of Directors, or whether any mechanisms exist to create a "Chinese wall" between Blockbuster's decisionmakers on the one hand, and Mr. Stevenson and his support personnel who will have access to Netflix's most sensitive competitive information on the other. 21. On these facts, Intel provides a road map for the proper decision. There, plaintiff sought to allow the disclosure of confidential information to a senior attorney in its litigation group, Ms. Fu. As with Mr. Stevenson, her responsibilities included managing "intellectual property litigation as well as other general commercial litigation and legal disputes." Intel, 198 F.R.D. at 529-30. Ms. Fu, however, also was involved in intellectual property licensing, to the "extent that it resolves litigation or a legal dispute." Ms. Fu also was "actively involved in negotiating the terms of licensing agreements as part of settling lawsuits." The Intel court noted that Via's licensing agreements, technical 10 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 11 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP information, and marketing materials would be produced in discovery, that Ms. Fu's access to and knowledge of this information "would be directly relevant to her evaluation of licensing agreements of related products of Intel," and that "[c]onfidential information in this case may provide Intel a competitive advantage in negotiating relating licenses in the future." 198 F.R.D. at 529-30. Moreover, Ms. Fu interfaced with internal business personnel in the course of evaluating and negotiating license agreements. Thus, to the extent that a license agreement involved any information covered by the protective order, her knowledge of the confidential information would necessarily influence the negotiations, as well as any advice that she rendered about the license. Id. The court concluded, therefore, that even though Ms. Fu's job scope was only to manage general commercial and intellectual property litigation, that necessarily involved her in competitive decision-making and presented a unacceptable risk of inadvertent disclosure. Id. at 530. 22. Blockbuster has provided few specifics regarding Mr. Stevenson's job responsibilities, let alone where they end. It has provided no information regarding the responsibilities of the support personnel at Blockbuster to whom it proposes to provide access to Netflix's sensitive information. But, even assuming all that Mr. Stevenson does and will do is manage litigation, like Ms. Fu he presumably negotiates settlement agreements on behalf of Blockbuster. In that role, like Ms. Fu, he will likely interface with internal business personnel in the course of evaluating and negotiating license agreements, and his knowledge of Netflix's confidential information would necessarily influence the negotiations, as well as any advice that he rendered about any license. Mr. Stevenson may also be called upon to take on other legal tasks for Blockbuster relating to patent evaluation or other competitive aspects of Blockbuster's business, the performance of which would be influenced by his knowledge of Netflix's confidential information -- information that he cannot simply "lock-up . . . in his 11 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 12 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP mind." Brown Bag, 960 F.2d at 1471. And there is no guarantee that Mr. Stevenson will remain in his current position as in-house counsel to Blockbuster indefinitely. If his responsibilities are changed to encompass more business duties, he will not be able simply to forget what he has learned about Netflix's competitively sensitive information. These concerns apply with as much or more force to the unidentified support personnel whom Blockbuster insists should have access to Netflix's confidential and trade secret information. 23. The direct competition between Blockbuster and Netflix makes the consequences of potential inadvertent disclosure significant. "Even a seemingly insignificant risk of disclosure cannot be ignored due to the threat of significant potential injury." Intel, 198 F.R.D. at 531. In Intel, this Court considered Intel's request to allow Intel's in-house counsel to view Via's confidential and highly confidential "Attorney's Eyes Only" documents. Id. at 527. It explained the potential injury that would result from disclosure: Intel and Via are direct competitors, and confidential information about products that compete against each other in the market will be involved in this litigation . . . Disclosure of trade secrets to Intel of Via's competing products and Via's marketing information, strategies, and customer related data could have dire consequences for Via. Id. at 531. So too here. 24. There exists little or no prejudice to Blockbuster that might outweigh the serious risk to Netflix from disclosure or misuse of its most sensitive, confidential business information. Blockbuster is represented in this litigation by Alschuler Grossman Stein & Kahan LLP ("Alschuler") of Santa Monica, California. Alschuler markets itself as having particular expertise with patent litigation. The firm's website states: 12 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 13 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP Alschuler Grossman Stein & Kahan LLP understands that a business's most prized assets frequently are its inventions, good name, the manner in which its products and services are identified in the marketplace, customer and other confidential information that give it an edge over its competitors, and related intangibles. We know how to protect these intangible assets, from the U.S. Patent and Trademark Office to the manufacturing plant and to the courtroom, and from the United States to Canada, Mexico, and around the world.4 25. Blockbuster's lead counsel, Marshall Grossman, presents himself as having experience in high-profile patent litigation. His biography on Alschuler's website states that he "represented Apple Computer, Inc. and Packard Bell NEC, Inc. in defense of patent infringement and Lanham Act litigation, including the highly publicized battle between Compaq and Packard Bell."5 And Bill O'Brien, who also appears on the pleadings on behalf of Blockbuster, has significant experience litigating patent disputes.6 Plainly, Blockbuster's outside counsel are competent, to say the least, with respect to intellectual property litigation. Alschuler attorneys will have unrestricted access to all confidential information produced by Netflix and can advise Blockbuster regarding the steps it should take in this litigation without the need to reveal the substance of Netflix's "Attorneys' Eyes Only" information. Nor will Alschuler need specialized 4 5 6 See http://www.agsk.com/showarea.aspx?Show=69. See http://www.agsk.com/showbio.aspx?Show=63. The firm's website states: "Bill O'Brien is a partner in Alschuler Grossman Stein & Kahan LLP's Intellectual Property and Patent Litigation Groups. He has extensive experience in complex litigation involving patents, trademarks, trade dress, trade secrets, copyrights, and other intellectual property. . . . [Bill acted] as trial counsel in one of the largest patent infringement proceedings ever conducted by the U.S. International Trade Commission . . . ." See http://www.agsk.com/showbio.aspx?Show=150. 13 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 14 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP technical information from in-house counsel as might occur in some cases, as the patents here involve business methods and systems for implementing them. 26. Accordingly, as in Intel and other similar cases, Blockbuster's in-house counsel should be denied access to Netflix's "Attorney's Eyes Only" documents. See Brown Bag, 960 F.2d at 1471 (holding that the district court did not abuse its discretion in refusing in-house counsel access where in-house counsel was a competitive decision maker); United States v. Dentsply Int'l, Inc., 187 F.R.D. 152, 162 (D. Del. 1999) (denying in-house counsel access to confidential documents); Sullivan Mktg., Inc. v. Valassis Comms., Inc., No. 93 Civ. 6350, 1994 U.S. Dist. LEXIS 824 at *9 (S.D.N.Y. May 5, 1994) (refusing to permit in-house counsel to view confidential information when prejudice to litigant from that decision was small).7 Instead, Netflix's proposed protective order for attorneys' eyes only information should be entered. Under Netflix's proposed order, those at Blockbuster who need to know may have access both to non-confidential and confidential Netflix information, but only outside counsel may access attorneys' eyes only information. Further, the order provides for modification by the parties if need be. See Netflix's Proposed Order ¶ 7.e. 7 Blockbuster may seek to reassure the Court that, despite the possibility of disclosure created by Mr. Stevenson's access to this information, he is of the highest professional integrity and would strive to maintain the confidentiality of information. Courts confronting this issue head-on have held that this is not a solution: [Such] good intentions are insufficient to prevent inadvertent disclosure of confidential information because it is not possible for counsel to `lock-up trade secrets in [his/her] mind,' as the court in Brown Bag observed. In that case, counsel's promise to maintain the confidentiality of the information coupled with a promise to keep the information locked up was held to be insufficient to offset the risk of inadvertent disclosure. Intel, 198 F.R.D. at 531 (quoting Brown Bag, 960 F.2d at 1471-77) (emphasis added); see also U.S. Steel, 730 F.2d at 1467 (highly confidential information is "intermixed with nonconfidential information, . . . [and] its nature and volume place it beyond the capacity of anyone to retain [it] in a consciously separate category" such that it is "humanly impossible to control the inadvertent disclosure of some of this information in any prolonged working relationship"). 14 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 15 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP C. Blockbuster's Response to Netflix's Statement 27. Netflix ignores Blockbuster's need ­ and right ­ to control the work of its outside counsel on important, high-profile, and costly litigation. The crucial issue raised by Netflix's attempt to exclude Blockbuster's in-house counsel from any access whatsoever to "Attorneys Eyes Only" information is not the "competen[ce]" of Blockbuster's outside counsel but whether Blockbuster should be denied access to information necessary to participate in such important functions as making strategic and tactical decisions about the litigation, reviewing and editing drafts of court filings, attending depositions, and reviewing and approving fees of outside counsel, consultants, and expert witnesses. Netflix's statement fails to provide any adequate justification for refusing to permit even a single Blockbuster in-house attorney to have access to the information needed for these legitimate and important purposes. 28. Netflix indulges in a wild irrelevancy by invoking California Code of Civil Procedure § 2019.210, which requires trade-secret plaintiffs to identify an allegedly misappropriated trade secret before obtaining discovery on a trade-secret claim. Netflix provides no explanation of how § 2019.210 could possibly apply to this case. (See ¶ 16, supra (admission by Netflix that "there are no trade secret misappropriation claims alleged in this case . . . .") Further, if § 2019.210 somehow did apply, it would limit only discovery by Netflix ­ the intellectual property plaintiff here ­ and not by Blockbuster. 29. Netflix posits another nonexistent issue when it conjures up images of "Netflix's most sensitive documents . . . sit[ting] on . . . desks, copy machines, or computers . . . ." (¶ 19, supra.) To begin with, the sole Blockbuster in-house attorney who would be authorized to receive "Attorneys Eyes Only" information, Bryan P. Stevenson, does not intend to receive or review most "Attorneys Eyes Only" documents, such as routine document productions by Netflix for third-parties. (Stevenson Decl. ¶ 3 (to be filed concurrently with this 15 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 16 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP Joint Stipulation).) Instead, Mr. Stevenson needs personal access to selected, important documents that may contain information designated "Attorneys Eyes Only," such as Blockbuster and Netflix's court filings and important deposition testimony. (Id. ¶ 4.) Any such documents in Mr. Stevenson's possession will be appropriately handled and stored so that they are seen only by him and by paralegals and support staff working under his direction and will not be shared with any other Blockbuster personnel. (Id. ¶ 7.)8 Mr. Stevenson also needs to be able to discuss all aspects of the case with Blockbuster's outside counsel ­ including all significant issues, evidence, and testimony, even if designated "Attorneys Eyes Only." (Id. ¶ 4.) 30. Access to such information is vitally important to permit Mr. Stevenson to fully understand and fully participate in important functions such as strategic and tactical decision-making, preparation of court filings, and the taking of depositions and other discovery. (Id. ¶ 5.) Being unable to review court filings in their entirety, attend important depositions, and read transcripts of important testimony in full would have a highly detrimental impact on Mr. Stevenson's ability to carry out his duty to his client and its shareholders to exercise direction and control over this case. (Id. ¶¶ 3-4.) Without such information, he would also be deprived of information relevant to his review and approval of legal and expert fees. (Id. ¶ 5.) 31. Mr. Stevenson is a litigation attorney with a background in general commercial litigation. He is not a Registered Patent Attorney. (Id. ¶ 2.) He is not responsible for "competitive decision making" functions such as designing products, setting prices, conceiving marketing campaigns, or making hiring decisions outside the legal department. (Id.) Other Blockbuster attorneys 8 Netflix has never proposed any special provisions related to use of filing cabinets, copy machines, or the like by Mr. Stevenson, nor is there any need for such restrictions. 16 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 17 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP are assigned to handle business transactions and intellectual property prosecution for the Company. (Id.) 32. Under these circumstances, allowing Mr. Stevenson access to See Volvo, 187 "AEO" information is not only reasonable and appropriate but consistent with decisions of other courts that have analyzed similar situations. F.R.D. at 241-45 (permitting in-house litigation counsel the same access to trade secrets and confidential information as outside counsel); Fluke, 1994 WL 739705 at *4-*5 (same); Amgen, 160 F.R.D. at 139 (W.D. Wash. 1994) (same). 33. Contrary to Netflix's assertion, no "roadmap" is provided by Intel Corp. v. VIA Technologies, Inc., 198 F.R.D. 525, 529 (N.D. Cal. 2000) (cited in ¶¶ 20, 21, 23, 26, supra). On the contrary, Intel involved a completely different procedural situation than the one here. In Intel, there was already a stipulated protective order governing access to confidential information. The court held that Intel had failed to meet the burden of showing the need for a change in that existing order. See Intel, 198 F.R.D. at 528 ("To modify a protective order a party must establish good cause by demonstrating how the protective order will prejudice the party's case." (citing Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1472 (9th Cir.1992)).) In contrast, the present Joint Stipulation involves establishment of a protective order for the first time, not modification of an existing protective order. Netflix, as the party proposing to impose restrictions on access to information, bears the burden of showing the appropriateness of such restrictions. See Fed.R.Civ.P. 26(c)(protective orders should issue "for good cause shown" and when "justice [so] requires").) Netflix has failed to make any such showing. The Court should adopt Blockbuster's narrowly tailored provision allowing only one Blockbuster in-house litigation attorney access to "AEO" information. /// /// 17 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 18 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP D. Netflix's Response to Blockbuster Statement 34. Netflix's direct competitor -- Blockbuster -- has provided no justification sufficient to warrant an order allowing Mr. Stevenson and Blockbuster's in-house paralegals and secretaries to possess and review Netflix's most competitively sensitive information. As an initial matter, Blockbuster has not provided a sworn statement by Mr. Stevenson (let alone its unidentified support personnel) that he (or they) do not participate in any competitive decisionmaking, or matters relating to intellectual property, such as patent prosecutions. Nor has Blockbuster provided any declaration to support its other claims, such as that its in-house staff has had access to Attorneys Eyes Only information in previous cases "without problems." Instead, Blockbuster provides the Court with only the most general attorney argument. Blockbuster's failure to provide any evidentiary support for an order permitting in-house access to its competitor Netflix's most competitively sensitive information is reason enough to adopt Netflix's proposed Protective Order. 35. Even Blockbuster's conclusory justifications for permitting Netflix's most sensitive information to enter its competitor's house, and Blockbuster's legal staff's memories, are woefully insufficient. To begin, the mere fact that Mr. Stevenson is "a court officer subject to the same ethical and professional strictures as outside counsel"9 was held by this Court in Intel to be insufficient to ensure against inadvertent disclosure or use of its opponent's competitively sensitive information. Once Mr. Stevenson or his staff have been exposed to Netflix's information, the bell cannot be unrung. For example, even should he confine his duties to those performed by an in-house litigation director, such as negotiating licensing agreements or comparable arrangements when settling cases, Mr. Stevenson may, at least subconsciously, take Netflix's 9 Of course, the secretaries and paralegals with whom Blockbuster apparently also wishes to share Netflix's competitively sensitive information are not officers of the court. 18 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 19 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP competitively sensitive information into account when performing such activities. Blockbuster, moreover, has not foreclosed the possibility that Mr. Stevenson and its other in-house personnel may perform other tasks of a corporate or transactional nature in the course of Blockbuster's business and competition with Netflix -- where knowledge of Netflix's most confidential information may be put to use. 36. Blockbuster's counsel also baldly assert that it would be "impossible for Blockbuster to fully participate in important decisions" about this litigation without Mr. Stevenson and its in-house staff having access to Netflix's most sensitive information. Yet Blockbuster has given no reason why this would be impossible, nor why Mr. Stevenson has any "vital need" to possess and review Netflix's competitively sensitive information. Blockbuster's position amounts to an argument that in every litigation, in-house counsel must be provided a copy of its opponent's highly confidential information in order to assist outside counsel. This is simply not true as a matter of law, as held by the courts in the Intel, Brown Bag, Dentsply, and Sullivan Marketing cases cited by Netflix in its opening statement. 10 10 Blockbuster's position that in-house counsel must be given access to attorneys' eyes only documents in every litigation is also disproven by protective orders that have previously been entered by this Court in case after case. See, e.g., Stipulated Protective Order at ¶ 3.2, Matsushita Elec. Indus. Co. v. Siliconix Inc., No. C 0601953 WHA (N.D. Cal. entered July 17, 2006) (Docket Index 36) (Alsup, J.); Stipulation and Protective Order at ¶ 7, Yamashita, et al. v. Wilbur Ellis Co., No. 06-01690 WHA (N.D. Cal. entered June 13, 2006) (Docket Index 84) (Alsup, J.); Stipulated Protective Order at ¶ 3.2, Siliconix Inc. v. Denso Corp., No. 05-01507 WHA (N.D. Cal. entered Feb. 14, 2006) (Docket Index 68) (Alsup, J.); Stipulated Protective Order at ¶ 7.3, Chiron Corp. v. SourceCF, Inc., et al., No. C 05-01938 WHA (N.D. Cal. entered Jan. 17, 2006) (Docket Index 74) (Alsup, J.); Stipulated Protective Order at ¶ 7.3, General Nanotechnology, LLC v. KLA-Tencor Corp., et al., No. C 05-01403 WHA (N.D. Cal. entered Dec. 1, 2005) (Docket Index 65) (Alsup, J.); Stipulated Protective Order at ¶ 4, Taiwan Semiconductor Mfg. Co. v. Semiconductor Mfg. Int'l Corp., et al., No. C-03-5761 MMC (N.D. Cal. entered July 15, 2004) (Docket Index 104) (Spero, J.); Stipulated Protective Order at ¶ 5, FCI USA, Inc., et al. v. Hon Hai Precision Indus. Co., et al., No. C-03-4519 JCS (N.D. Cal. entered Feb. 23, 2004) (Docket Index 44) (Spero, J.); Stipulated Protective Order at ¶ 1, Keytrak v. Key Register, et al., No. C-03-00870 WHA (N.D. Cal. entered 9/17/03) (Docket Index 166) (Alsup, J.); Stipulated Protective Order at ¶ 4(c), Quantum Corp. v. Storage Tech. Corp., No. 03-1588 (WHA) (N.D. 19 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 20 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP 37. Blockbuster's cited cases from other jurisdictions do nothing to help it; the party seeking access by its in-house counsel in each of the cited cases had provided evidence sufficient for the court to conclude that the in-house attorney having access to the documents was not engaged in competitive decisionmaking. See, e.g., Volvo Penta v. Brunswick Corp., 187 F.R.D. 240, 241 (E.D. Va. 1999) (noting that "the Court cannot overlook the unrebutted and sworn assertions that Ms. Behnia has no role whatsoever in Brunswick's competitive decisionmaking"); Amgen, Inc. v. Elanex Pharms., Inc., 160 F.R.D. 134, 139 (W.D. Wash. 1994) (referring to affidavits in support of request to share highly confidential documents with in-house counsel); Fluke Corp. v. Fine Instrum. Corp., No. C94-573C, 1994 U.S. Dist. LEXIS 16286, at *16 (W.D. Wash. Oct. 6, 1994) (finding case similar to Amgen because counsel at issue was "not involved in competitive decision-making"). Here, Blockbuster did not provide any sworn information about Mr. Stevenson's responsibilities with its initial submission. Moreover, each case must further be determined by balancing in-house counsel's asserted need to possess and review the adversary's confidential information against the risk that such information may be disclosed or misused by in-house personnel, or other personnel who might learn of it. 38. To be sure, the stakes are high for Blockbuster in this case, though not so high as to warrant the exaggerated claim that Netflix "is essentially attempting to shut down the entire online business unit of Blockbuster." Rather, Netflix is attempting to enforce its patents, which claim the particular methods of conducting an online rental business that Netflix invented, not all online rental methods. 11 At the same time as Blockbuster has failed to articulate any need for Cal. entered 9/17/03) (Docket Index 35) (Alsup, J.); Stipulation and Protective Order at ¶ 7, Camelbak Prods., Inc. v. Blackhawk Indus., Inc., No. 3:01-cv-01491WHA (N.D. Cal. entered July 10, 2001) (Docket Index 24) (Alsup, J.). 11 Blockbuster blatantly copied Netflix's patented methods when Netflix's online business began making inroads into the brick-and-mortar in-store video rental business that Blockbuster has dominated for years. 20 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 21 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP its in-house counsel to review Netflix's competitively sensitive information, it is hard even to imagine one. Whether Blockbuster infringes Netflix's method patents will be proved, in part, from the face of Blockbuster's website which describes and implements its online rental methods, and from Blockbuster's own documents -- neither of which require Blockbuster's counsel to review Netflix information. If whether Netflix practices its own patented methods of doing business is put in issue, that also can be determined largely from a review of Netflix's public website, where its patented business methods are described and carried out. Blockbuster's in-house legal personnel have no need, let alone a vital need, to review Netflix's source code or other internal business operation information to assist Blockbuster's outside counsel regarding that issue. Even Blockbuster's allegations of inequitable conduct and Walker Process antitrust violations will not turn on highly confidential Netflix materials; these claims are rooted in the contention that Netflix did not disclose certain prior art to the PTO, which by definition involves public material. 39. In short, Blockbuster has articulated no need, and certainly no "vital need," why Mr. Stevenson and its in-house personnel should receive and review Netflix's competitively sensitive information, and Netflix cannot conceive of any such need. Should such a need arise, however, Netflix's proposed order allows in ¶ 7.e for the modification of the Protective Order to permit access by Blockbuster's in-house counsel to the needed information. But such in-house access to all of Netflix's most sensitive information should not be permitted on a wholesale basis from the outset. And contrary to Blockbuster's assertion, there are no "special safeguards" in ¶ 7.a of Blockbuster's proposed Protective Order, or in any other subparagraph, that would ensure against the inadvertent, in-house disclosure or misuse of Netflix's most sensitive information. /// /// 21 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 22 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP V STATEMENTS REGARDING RESTRICTIONS ON SOURCE CODE A. Netflix's Statement 40. The parties have not been able to agree regarding how source code will be handled under the protective order. Source code may or may not become relevant to the issues in this case; the patent claims do not involve source code and there are likely documents other than source code that could prove whether the patented methods and systems at issue in this case are being practiced by each of the parties. But the parties' respective document requests embrace source code, and to the extent it is eventually produced, the ground rules under which it will be kept and accessed should clearly be defined at the outset. Netflix's source code contains details regarding the particular manner in which Netflix's computer programmers have chosen to craft the programs that implement Netflix's business methods; the source code is far more detailed than any claim or claim element described in the patents in suit. Netflix's source code is extremely sensitive, in that it helps create a competitive advantage for Netflix in terms of operating efficiency and user experience; that advantage would be lost if the code were known to a competitor. See Falla Decl. ¶ 8. To the extent that Blockbuster, the alleged infringer in this case, has any need for its expert to inspect Netflix's source code, that need must be balanced against the highly sensitive nature of the source code, which (especially in its native format) can be copied to create the basis for an exact duplicate of what Netflix has spent so much time and effort creating. Netflix's proposed protective order protects both parties' source code that might be produced in the litigation by providing that the native version of the source code shall only be available at a specified location, and that the parties shall not be permitted to print out or otherwise create copies of the source code without permission from the producing party, or by order of the Court. /// 22 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 23 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP 41. Courts routinely enter protective orders containing restrictions above and beyond those accorded to attorneys' eyes only information to prevent disclosure of source code. See, e.g., Collaboration Props. v. Tandberg ASA, No. C 05-01940 MHP, 2006 U.S. Dist. LEXIS 13966, at *1 (N.D. Cal. March 28, 2006); Northrop v. Inventive Comms., L.L.C., 199 F.R.D. 334 (D. Neb. 2000). This Court in Collaboration Properties granted a motion to compel the production of source code, subject to the submission of a suitable protective order. The Court found that the protective order proposed by the plaintiff provided for an "excessive" number (three) of electronic copies of source code to be produced and therefore held that "[a] single electronic copy is sufficient." Id. The Court further held that the copy of that source code should be placed onto the hard drive of a non-networked computer. See also Confidentiality Stipulation and Proposed Order, BTG International Inc. v. Amazon.com, et al., No. 04-1264-SLR, at ¶ 14.a (D. Del. entered 6/28/05) (Docket Index 148) (requiring that source code be accessed only on a stand-alone computer maintained by an independent escrow agent). These restrictions are quite similar to the restrictions that Netflix has proffered in its Proposed Protective Order; namely, that a single electronic copy of any source code that is produced be made available on a stand-alone computer. 42. In Northrup, which also involved a motion to compel production of source code, the court implemented requirements for secure source code production that were arguably more stringent than those involved in Collaboration Properties and the BTG case, or those requested by Netflix. Specifically, the plaintiff was required to sign a restrictive covenant agreeing not to compete with the defendant during the pendency of the lawsuit, all appeals, and for one year thereafter. The Northrup court also required the plaintiff to post a $500,000 bond to be paid out if the plaintiff violated the protective order in the case or the restrictive covenant. Id. at 336. The orders in Collaboration Properties, /// 23 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 24 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP Northrup, and BTG provide strong support for affording stringent additional protections for highly sensitive, competitively valuable source code. 43. Blockbuster has complained, however, that the prohibitions on printing out source code would require its experts to travel to its counsel's offices in order to use the source code and would prevent it from attaching the source code to motions and expert reports. But experts regularly meet with counsel at their offices, and the cost of having an expert travel is a small price to pay compared to the risk of native source code being lost or inadvertently disclosed when multiple copies are permitted to be made. As to the second argument, there is little reason why either party would need to attach source code to pleadings, as the subject matter of the case is infringement of method patents, not the precise structure of either party's source code. Should a need ever arise to attach source code to a pleading, the parties can either stipulate to a modification of the protective order, or seek a modification if they cannot agree. Until such an event ever arises, this Court should adopt Netflix's version of the Protective Order in order to safeguard the parties' respective source code. B. Blockbuster's Statement 44. Netflix proposed to go beyond the ample protections provided by both parties' proposed protective orders for information designated "Attorneys Eyes Only," by imposing additional, extremely onerous restrictions on all computer source code produced in discovery in this case. (See Ex. B, ¶ 8.) These additional restrictions are unnecessary and would make it extremely difficult ­ even impossible ­ for Blockbuster and its expert witnesses to perform the tasks necessary for preparation and presentation of this case. 45. Blockbuster's proposed protective order already gives Netflix the ability to designate source code "Attorneys Eyes Only." Under the provisions of Blockbuster's protective order, access to source code so designated is limited to counsel, to witnesses shown to have authored the code or to have received it in the 24 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 25 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP ordinary course of business, and to experts and consultants whose identities and backgrounds are disclosed in advance. (See Ex. A, ¶ 7.) 46. Before disclosing "AEO" material to an outside expert, each party would be required by Paragraph 7 of Blockbuster's proposed protective order to provide ten working days' written notice to the attorneys for the other side, including "a copy of such persons' curriculum vitae and . . . information sufficient to determine such persons qualifications, current and prior business affiliations, and any current or prior work performed for actual or potential competitors of the Designating Party whose AEO Material is sought to be disclosed . . . ." (See Ex. A, ¶ 7.) If a party objects to disclosure of "AEO" information to an expert, no such disclosure will be permitted without a court order or subsequent agreement. (Id.) If no objection is made, the party wishing to disclose "AEO" material to an expert still must obtain a signed undertaking in the form of Attachment A to the protective order and must provide a copy of the completed and signed undertaking to opposing counsel. (Id.) 47. Netflix has accepted these same provisions as sufficient for the protection of all "Attorneys Eyes Only" information, however sensitive, besides source code. (See Ex. B, ¶ 7.) There is no reason why these agreed provisions are not equally adequate to protect source code under the circumstances of this case. 48. Given the subject matter under dispute and the nature of the businesses conducted by Netflix and Blockbuster, the sensitivity of any source code to be produced is not as high as it might be in other cases. This is not a case involving a claimed breakthrough in software technology that is being protected as a trade secret. Instead, this case involves business method patents used in ecommerce. Netflix's patents do not assert that Netflix has accomplished a breakthrough in the art of programming, but instead that Netflix is entitled to patent protection on business methods that include such features as renting videos on a subscription basis and allowing customers to list in order the videos they 25 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 26 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP would like to receive. These are features that any programmer of ordinary skill could readily implement. Blockbuster has already invested millions of dollars in developing software to perform the numerous functions involved in its online rental business and has no need or incentive to copy code written by Netflix. Further, any such copying would be prevented by the strict protections provided to all "Attorneys Eyes Only" information in Blockbuster's proposed protective order. 49. In addition to being unnecessary, Netflix's proposed restrictions would be extremely burdensome and disruptive. For example, Netflix would impose a total ban on any printing out or copying of source code. (See Ex. B, ¶ 8.) Such a ban would make it virtually impossible for an expert to conduct a proper analysis or to maintain a meaningful record of that analysis. 50. The source code for operating a large scale online rental service is massive and highly complex by virtue of its sheer scale. Features and functions of such programs may be extremely difficult to trace, analyze, and record, as different segments of code interact and as code is revised, added, or deleted from version to version. Document productions in this case are likely to include, for example, every version of Netflix's source code. An expert charged with searching for discrete features in such a mass of interrelated code may have to study it for weeks, or even longer. He or she cannot be expected to keep track of this complex work by memory. As a practical matter, merely keeping track of his or her findings and being able to resume work at the beginning of each day will require printing out and annotating relevant pages of code or cutting and pasting relevant portions of the code into a master document ­ probably both. Netflix's proposed source code provisions, however, would prohibit both of these necessary functions. 51. Additionally, the restrictions imposed by Netflix would make it difficult or even impossible to prepare expert reports, expert declarations, expert testimony, and expert demonstrative exhibits required for this case. In order to 26 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 27 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP establish the facts concerning disputed issues related to source code, an expert will be required to identify relevant portions of the code and to prepare a detailed analysis of that code along with factual support for the analysis. Frequently, this requires quoting from and appending portions of code that demonstrate that one side is right and the other side is wrong about a disputed issue. If, for example, Blockbuster contends that a certain version of Netflix code performed a certain function in a certain way and Netflix contends that the code did not perform that function ­ or performed it in a different way ­ the only way to equip the trier of fact to resolve the issue on its merits will generally be for Blockbuster's expert to quote the portion of the code that performs the disputed function and explain why and how it does so. Netflix's proposed order, by banning printing and copying of code, would prevent Blockbuster from effectively presenting its case. 52. Netflix's proposed source code restrictions would also make it impractical to take depositions about issues involving source code. Netflix's proposed order would permit source code to be maintained only on a single standalone computer located in the offices of counsel. If a witness being deposed at any other location (for example, a Netflix inventor, employee, or former employee, or a Netflix expert witness) testifies about Netflix's software, it would be impossible for Blockbuster's counsel to effectively impeach or otherwise crossexamine the witness using contradictory excerpts of the source code. Being unable to print out or copy any portion of the source code, counsel would be faced with the superhuman task of trying to remember specific code routines and features in order to conduct a cross-examination. 53. The restriction in Netflix's proposed order requiring that source code be kept in a single computer at counsel's offices would also create severe and unjustified logistical burdens. Any time that an expert is required to review source code, he or she would be required to travel to counsel's office, likely from another city or even across the country. This extremely inefficient process would be likely 27 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 28 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP to impose enormous additional expenses, as well as numerous delays. Whenever any of Netflix's inventors, employees, or experts is deposed, or whenever additional documents are received from Netflix, Blockbuster's counsel are likely to have related questions about Netflix's source code. If depositions are scheduled close together ­ as is often the case ­ counsel may need this information quickly. It would be highly unreasonable to require travel by Blockbuster's software experts every time counsel has a question, no matter how small and easily answered, about the source code. C. Netflix's Response to Blockbuster Statement 54. The patent claims alleged to be infringed in this case describe business methods for renting movie DVDs and comparable items, and computer systems for carrying out the claimed methods, not source code. For example, Claim 1 of the '381 Patent describes: a. A computer-implemented method for renting movies to customers, the method comprising: providing electronic digital information that causes one or more attributes of movies to be displayed; establishing, in electronic digital form, from electronic digital information received over the Internet, a movie rental queue associated with a customer comprising an ordered list indicating two or more movies for renting to the customer; causing to be delivered to the customer up to a specified number of movies based upon the order of the list; in response to one or more delivery criteria being satisfied, selecting another movie based upon the order of the list and causing the selected movie to 28 JOINT STIPULATION RE PROTECTIVE ORDER C 06 2361 WHA Case 3:06-cv-02361-WHA Document 51 Filed 10/03/2006 Page 29 of 42 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 ALSCHULER GROSSMAN STEIN & KAHAN LLP be delivered to the customer; and in response to other electronic digital information received from the customer over the Internet, electronically updating the movie rental queue. While Claim 44 describes a computer system for carrying out the steps of the method recited in Claim 1, it does so at a comparably high level, nowhere near describing source code. 55. The parties apparently agree, therefore, as they must, that this case will not turn on either side's in-depth analysis of the other's source code, or, in the case of Claim 44 of the '381 Patent for example, on implementation details more particularized than those claimed.12 Nevertheless, as Netflix noted in its opening statement, both parties' document requests seek production of the other's source code. Indeed, Blockbuster goes so far as to state that it is likely to seek "every version of Netflix's source code." 56. While source code may be probative, it is highly sensitive,13 and its minimal relevance in this business methods case should be balanced against the potential damage caused by the risk that it will be inadvertently revealed or misused if additional safeguards are not provided, as they routinely are in cases in which source code will be discovered. Simply because the patents in this case do not claim breakthroughs in source code, that does not mean that no implementation or source code architecture breakthroughs are contained in Netflix's source code (or Blockbuster's). Mindful of this need for balancing, Netflix has proposed additional, reasonable and reciprocal terms to safeguard each side's source code. /// 12 Blockbuster concedes that this "is not a case involving a claimed breakthrough in software technology." 13 Indeed, Blockbuster claims in its opening statement of position that it has "invested millions of dollars in

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